<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 7, 2000.
REGISTRATION STATEMENT NO. 333-
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--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM F-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------------
AERCO LIMITED
(Exact name of registrant as specified in its charter)
JERSEY, CHANNEL ISLANDS
(Jurisdiction of organization)
7359
(Primary Standard Industrial Classification Code Number)
N/A
(I.R.S. Employer Identification Number)
AERCO LIMITED
22 GRENVILLE STREET
ST. HELIER
JERSEY, JE4 8PX
CHANNEL ISLANDS
ATTENTION: COMPANY SECRETARY
(011) (44) (1534) 609 000
(Address and telephone number of Registrant's principal executive offices)
------------------------------------
CORPORATION SERVICE COMPANY
375 HUDSON STREET
NEW YORK, NY 10014-3666
(212) 463-2700
(Name, address and telephone number of agent for service)
Copy to:
JULIET A. M. CAIN, ESQ.
DAVIS POLK & WARDWELL
99 GRESHAM STREET
LONDON EC2V 7NG
ENGLAND
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ______________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT MAXIMUM MAXIMUM
OF SECURITIES TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER UNIT (1) OFFERING PRICE (1) REGISTRATION FEE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Notes due July 15, 2025 $960,000,000 100% $960,000,000 $253,440
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933.
------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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--------------------------------------------------------------------------------
<PAGE> 2
PROSPECTUS
$960,000,000
INITIAL PRINCIPAL AMOUNT
OFFER TO EXCHANGE NOTES DUE JULY 15, 2025
FOR ANY AND ALL OUTSTANDING NOTES DUE JULY 15, 2025
OF
AERCO LIMITED
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JANUARY 12,
2001, UNLESS EXTENDED.
------------------------
We are offering to exchange $960,000,000 aggregate initial principal amount of
our new subclass A-3, subclass A-4, subclass B-2 and subclass C-2 notes for our
issued and outstanding notes of the corresponding subclasses that we previously
offered and sold to investors on a basis exempt from registration under the
Securities Act of 1933, as amended, by virtue of Section 4(2), Rule 144A and
Regulation S thereunder. The terms of the new notes are identical to the old
notes except that the new notes will be registered under the Securities Act of
1933, as amended.
------------------------
THE OLD NOTES WERE LISTED ON THE LUXEMBOURG STOCK EXCHANGE ON JULY 17, 2000. THE
NEW NOTES WILL BE LISTED ON THE LUXEMBOURG STOCK EXCHANGE WHEN THEY ARE ISSUED.
------------------------
INVESTING IN THE NEW NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE
20.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
December 7, 2000
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................. 3
Summary Consolidated Financial Data..... 16
Risk Factors............................ 20
The Exchange Offer...................... 32
Use of Proceeds......................... 37
The Parties............................. 38
The Aircraft, Related Leases and
Collateral............................ 45
Recent Developments..................... 65
The Commercial Aircraft Industry........ 66
Management of the AerCo Group........... 70
Selected Consolidated Financial Data.... 80
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 84
Unaudited Pro Forma Combined
Financial Information................. 95
Description of the Notes................ 103
Reports to Noteholders.................. 157
Available Information................... 159
Book-Entry Registration, Global
Clearance and Settlement.............. 161
Tax Considerations...................... 166
ERISA Considerations.................... 172
Plan of Distribution.................... 173
Legal Matters........................... 174
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Enforcement of Civil Liabilities........ 174
Listing and General Information......... 175
Experts................................. 175
Index to Financial Statements........... F-1
Appendix 1. Cash Analysis of Financial
Condition and Results of Operations --
Three Month Period from March 15, 2000
to June 15, 2000...................... A-1-1
Appendix 2. Cash Analysis of Financial
Condition and Results of Operations --
Two Month Period from July 17, 2000 to
September 15, 2000.................... A-2-1
Appendix 3. AerCo Cash Flow Performance
for the Period from July 15, 1998 to
June 15, 2000......................... A-3-1
Appendix 4. Monthly Lease Rentals under
the Base Case......................... A-4-1
Appendix 5. Assumed Portfolio Values.... A-5-1
Appendix 6. Class A Class Percentages... A-6-1
Appendix 7. Class B Class Percentages... A-7-1
Appendix 8. Class C Class Percentages... A-8-1
Appendix 9. Class D Class Percentages... A-9-1
Appendix 10. Base Pool Factors.......... A-10-1
Appendix 11. Base Extended Pool
Factors............................... A-11-1
Appendix 12. Index of Defined Terms..... A-12-1
</TABLE>
2
<PAGE> 4
SUMMARY
In this prospectus, "we", "us", "our", "AerCo" and the "AerCo Group" refer
to AerCo Limited and its subsidiaries, except where it is clear that such terms
mean only AerCo Limited, "AerFi" refers to AerFi Group plc and the "AerFi Group"
refers to AerFi and its subsidiaries.
You should read the following summary together with the more detailed
information regarding AerCo and the notes and our financial statements
(including the related notes) appearing elsewhere in this prospectus, including
Appendices 1, 2 and 3. You should refer to Appendix 12 to this prospectus for an
index of terms defined in this prospectus.
THE EXCHANGE OFFER
On July 17, 2000, we issued $960 million in aggregate principal amount of
"old notes" in four subclasses: subclass A-3, subclass A-4, subclass B-2 and
subclass C-2. Because we originally issued the old notes under an exemption from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), the old notes contain transfer restrictions. We are now offering to
exchange "new notes" of corresponding subclasses for the old notes. The new
notes will not contain these transfer restrictions and may be transferred as we
describe under "-- Consequences of Exchanging Old Notes in the Exchange Offer".
Otherwise, the terms of the new notes and old notes are identical, except for
registration rights and special interest provisions relating to the old notes.
The exchange offer of the new notes for the old notes will expire at 5:00
p.m., New York City time, on January 12, 2001, unless we extend it. At any time
before the expiration date, you may withdraw any old notes that you have
tendered to us in the exchange offer. If we or the exchange agent do not accept
any old notes that you have tendered, we or the exchange agent will return the
old notes to you without charge as soon as is practicable after the exchange
offer has expired or has been terminated.
Neither you nor we will recognize any income, gain or loss for U.S. federal
income tax purposes because you exchange your old notes.
You should refer to "The Exchange Offer" below for more details about the
procedures for tendering the old notes and the other terms of the exchange
offer.
CONSEQUENCES OF EXCHANGING OLD NOTES IN THE EXCHANGE OFFER
Based upon interpretations contained in letters issued to third parties by
the staff of the Securities and Exchange Commission (the "Commission"), we
believe that any holder of old notes, other than a broker-dealer or any holder
who is an affiliate of AerCo within the meaning of Rule 405 under the Securities
Act, who exchanges its old notes for new notes in the exchange offer may offer
such new notes for resale, resell such new notes or transfer such new notes
without compliance with the registration and prospectus delivery provisions of
the Securities Act if:
- the holder acquires the new notes in the ordinary course of the holder's
business; and
- the holder has no arrangement or understanding with any person to
participate in the distribution of the new notes.
If you wish to accept the exchange offer, you must represent to us in the
letter of transmittal that the two conditions described above have been met.
If you wish to accept the exchange offer, you must also make the following
representations to us:
- If you are not a broker-dealer, you must represent that you are not
participating in the distribution of the new notes and that you do not
intend to participate in such a distribution.
- If you are a broker-dealer who will not receive new notes for your own
account, you must represent that neither you nor any person for whom you
receive the new notes is participating in
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<PAGE> 5
the distribution of the new notes and that neither you nor any such
person intends to participate in such a distribution.
- If you are a broker-dealer who will receive new notes for your own
account, you must represent that you acquired the old notes tendered by
you in your market-making or other trading activities. You must also
acknowledge that you will deliver a prospectus if you resell the new
notes. By making this acknowledgement and delivering a prospectus, you
will not be deemed to admit that you are an underwriter within the
meaning of the Securities Act.
To comply with the securities laws of certain states or other
jurisdictions, it may be necessary to qualify for sale or register the new notes
prior to offering or selling such new notes. We have agreed to register or
qualify the new notes held by broker-dealers for offer or sale under the
securities or blue sky laws of such jurisdictions as any holder of the old notes
reasonably requests in writing. Unless a holder requests registration or
qualification, we do not intend to take any action to register or qualify the
new notes for resale in any such jurisdictions.
If you do not exchange your old notes for new notes in this exchange offer,
your old notes will continue to be subject to the restrictions on transfer
contained in the legend on the old notes. Please refer to "The Exchange Offer --
Consequences of Failure to Exchange" for a description of these restrictions.
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<PAGE> 6
SUMMARY DESCRIPTION OF THE NOTES
The following table summarizes certain of the principal terms of the notes
that we are offering to exchange in this exchange offer. In addition to these
notes, we also have four other subclasses of notes outstanding. See " --
Overview of the AerCo Group -- Outstanding Debt" and "Management Discussion and
Analysis of Financial Condition and Results of Operations -- Financial Resources
and Liquidity -- Indebtedness" for more details on our outstanding debt.
Information in the following table is based on what we refer to as our
"Base Case", which is the scenario in which our current assumptions regarding
AerCo's performance, as discussed under "Description of Notes -- AerCo's
Performance Assumptions", prove to be correct. You should refer to Appendix 1,
Appendix 2 and Appendix 3 to this prospectus for more detailed information
regarding our historical cash flow performance. You should note that appraised
values of our aircraft will fluctuate and that our actual revenues may be
significantly lower than assumed revenues, with corresponding effects on the
information set forth below. See "Description of Notes -- AerCo's Performance
Assumptions" for a more detailed discussion on this. For purposes of calculating
ratios in this table, we have used amounts assumed under the Base Case for the
12 months ending July 16, 2001.
<TABLE>
<CAPTION>
SUBCLASS A-3 SUBCLASS A-4 SUBCLASS B-2 SUBCLASS C-2
NOTES NOTES NOTES NOTES
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Aggregate Principal Amount.................................. $565,000,000 $235,000,000 $80,000,000 $80,000,000
Ratings
Fitch...................................................... AA AA A BBB
Moody's.................................................... Aa2 Aa2 A2 Baa2
Standard & Poor's.......................................... AA AA A BBB
Interest Rate............................................... LIBOR + 0.46% LIBOR + 0.52% LIBOR + 1.05% LIBOR + 2.05%
Initial Loan to Value(1).................................... 62.1% 62.1% 71.7% 81.9%
Initial Loan to Assumed First Year's Net Revenue(1)(2)...... 5.51x 5.51x 6.37x 7.28x
Assumed Interest Coverage Ratio(2)(3)....................... 2.66x 2.66x 2.05x 1.72x
Assumed Debt Service Coverage Ratio(2)(4)................... 1.60x 1.60x 1.52x 1.50x
Expected Average Life (Years)............................... 1.9 4.8 6.8 6.8
August 15, October 15, August 15,
Expected Principal Amortization Period(5)................... June 15, 2002 2000 2000 2000
June 15, 2002 May 15, 2011 June 15, 2008 June 15, 2008
Final Maturity Date......................................... July 15, 2025 July 15, 2025 July 15, 2025 July 15, 2025
</TABLE>
---------------
(1) "Initial Loan to Value" represents (i) the initial aggregate principal
amount of each subclass of notes plus the initial aggregate principal amount
of any other subclass of notes that ranks equally or senior in priority of
payment ("Initial Loan") divided by (ii) the aggregate appraised value of
the aircraft at April 30, 2000 plus $65.0 million, the expected amount of
the liquidity reserve amount (the "Liquidity Reserve Amount") on July 17,
2000 excluding the total amount of security deposits reimbursable to lessees
($22.4 million).
(2) "Assumed First Year's Net Revenue" means our gross revenue less our leasing
costs, servicer fees, administrative agent fees, cash manager fees, and
other general and administrative costs.
(3) "Assumed Interest Coverage Ratio" means Assumed First Year's Net Revenue
divided by Assumed First Year's Interest. "Assumed First Year's Interest"
means (i) the interest payable on each subclass of notes and each subclass
of notes that ranks equally with such subclass plus (ii) the interest and
minimum principal payments assumed to be payable on each subclass of notes
that ranks senior in priority of payment to the relevant subclass of notes.
(4) "Assumed Debt Service Coverage Ratio" means Assumed First Year's Net Revenue
divided by Assumed First Year's Interest and Minimum and Scheduled
Principal. "Assumed First Year's Interest and Minimum and Scheduled
Principal" means (i) the interest and minimum and scheduled principal
payments on each subclass of notes plus (ii) the interest and minimum and
scheduled principal payments assumed to be payable on each subclass of notes
that ranks equally or senior in priority of payment with or to the relevant
subclass of notes.
(5) "Expected Principal Amortization Period" means the period from the date on
which we expect principal amortization to begin to the expected final
payment date for each subclass of notes.
Ratings of the Notes. The ratings of the notes only address the likelihood
of the timely payment of interest and the ultimate payment of principal and
premium, if any, on the notes. The rating agencies have not rated AerCo's
ability to pay the principal in full on any subclass of the notes on the
expected final payment date, or on any other date prior to the final maturity
date, or the ability to pay step-up interest. In addition, the ratings assigned
to the notes do not address the effect of any imposition of any withholding
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<PAGE> 7
tax on any payments under the leases, the notes or otherwise. See "Risk Factors
-- Certain Income Tax Risks" and "Tax Considerations" for a discussion of
withholding taxes that may be applicable.
A rating is not a recommendation to buy, sell or hold our notes because
ratings do not comment as to market price or suitability for a particular
investor and may be subject to revision, suspension or withdrawal at any time by
the assigning rating agency. If a rating agency lowers, suspends or withdraws
its rating of any subclass of the notes, no person or entity has any obligation
to support AerCo's obligations under the notes in any way.
The notes we are issuing in this exchange offer will rank equally in right
of payment and interest with the corresponding subclasses of our outstanding
notes. For more information regarding our total outstanding indebtedness, see
"-- Overview of the AerCo Group -- Outstanding Debt" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Financial Resources and Liquidity -- Indebtedness".
We have summarized the terms of the notes below:
Payment Dates.............. We must pay interest monthly in arrears on the
fifteenth day of each month. If the fifteenth day
of a month is not a business day, the relevant
payment date will be the next day which is a
business day. By business day, we mean a day on
which a bank may deal in U.S. dollar deposits on
the London inter-bank market and commercial banks
and foreign exchange markets are open in New York
and London.
Record Date................ The record date will be the close of business on
the day that is 15 calendar days prior to a payment
date.
Calculation of Interest.... For the purpose of calculating the interest rate
payable on the notes, Bankers Trust Company, as
reference agent, will determine LIBOR for the
relevant interest accrual period two business days
before the payment date on which the interest
accrual period begins.
AerFi Cash Manager II Limited, as cash manager,
will calculate accrued interest on outstanding
principal balances and other amounts on which we
must pay interest as of the fourth business day
before the interest accrual period begins.
Accrued and Unpaid
Interest................... Any accrued interest that, as a result of the
allocation of our available cash collections, we do
not pay on any payment date will bear interest at
the then current interest rate for the applicable
subclass of notes.
Sources of Note Payments... Our sources of payment for the notes and our other
obligations (including under our outstanding notes)
will be:
- the payments made by the lessees under the
leases;
- payments made by AerFi under the purchase
agreement;
- amounts held in the aircraft purchase account
allocable to undelivered aircraft;
- proceeds from any sales of our assets;
- net payments to us under our swap agreements and
other hedging instruments;
- interest earned on investments of our cash
balances; and
- net cash proceeds received from the sale of
refinancing notes.
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<PAGE> 8
We will make payments on the notes only to the
extent that we have cash on each payment date
remaining after paying expenses and satisfying
other requirements which are described under
"Description of the Notes -- Payment of Principal
and Interest -- Priority of Payments".
Security for Our
Obligations................ Neither the trustee, Bankers Trust Company, nor the
holders have any security interest, mortgage,
charge or other similar interest in any of the
aircraft.
As security for our obligations under the notes, we
have granted to the security trustee, for the
benefit of the noteholders, a security interest in:
- the capital stock of our subsidiaries;
- the interest of all AerCo Group members in the
leases;
- our intercompany loans to our subsidiaries;
- our cash balances; and
- investments made with our cash balances.
In addition, the accounts have been established
under the indenture in the name of the security
trustee, Bankers Trust Company, except for the tax
defeasance account and, in the case of the other
accounts, where local legal or regulatory reasons
do not permit.
Refinancing of the Notes... We may refinance any subclass of the notes by
issuing refinancing notes. The refinancing notes
will rank equally, including in terms of priority
of payment and security, with the applicable
subclasses of notes that are being refinanced.
Principal Payments......... We have determined the expected principal payments
on the notes based on, among other things,
assumptions regarding:
- the timing and amount of payments under our
current leases and leases we may enter into in
the future;
- the terms of future leases;
- the amount of operating costs incurred in the
ordinary course of our operating lease business;
and
- our ability to timely refinance the subclass
A-3, subclass B-2 and subclass C-2 notes.
It is unlikely that actual experience in the future
will correspond to these assumptions; therefore,
the timing and amount of our principal payments on
each subclass of notes will likely vary from the
expected principal payments.
Step-Up Interest........... If we do not repay the subclass A-3, subclass B-2
and subclass C-2 notes on or before their expected
final payment date, we will pay additional interest
of 0.50%, 1.50% and 2.50% per annum, respectively,
until such notes are repaid in full. We may also
issue certain subclasses of additional notes in
connection with the acquisition of additional
aircraft and may issue refinancing notes that by
their terms provide they will accrue step-up
interest after their expected final payment date.
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<PAGE> 9
Payments of step-up interest:
- will be subordinated to certain of our other
obligations, including payment of scheduled
principal payment amounts with respect to the
notes; and
- will not be rated by the rating agencies.
Redemption of the Notes.... We may redeem any subclass of notes, in whole or in
part, on any payment date at the applicable
redemption price. If we redeem any subclass of
notes in part, we will apply the redemption price
proportionally to the notes of each holder of that
subclass.
The redemption price of the subclass A-3, subclass
A-4, subclass B-2 and subclass C-2 notes redeemed
(a) with the application of funds, other than from
available collections, including proceeds from
refinancing notes and proceeds from third parties,
will equal the product of the applicable redemption
premium set out below for such subclass and the
outstanding principal balance of such subclass
being redeemed and (b) with the application of
available collections, will equal the outstanding
principal balance of the amount of such subclass of
notes being redeemed, without premium.
<TABLE>
<CAPTION>
REDEMPTION PREMIUM
---------------------------------------------
SUBCLASS SUBCLASS SUBCLASS SUBCLASS
REDEMPTION DATE A-3 NOTES A-4 NOTES B-2 NOTES C-2 NOTES
--------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
After July 17, 2000........................ 101.00 % 101.50 % 101.75 % 103.50 %
On or after June 15, 2001.................. 100.50 % 101.00 % 101.50 % 103.00 %
On or after June 15, 2002.................. 100.00 % 100.75 % 101.25 % 102.50 %
On or after June 15, 2003.................. 100.50 % 101.00 % 102.00 %
On or after June 15, 2004.................. 100.25 % 100.75 % 101.50 %
On or after June 15, 2005.................. 100.00 % 100.50 % 101.00 %
On or after June 15, 2006.................. 100.25 % 100.50 %
On or after June 15, 2007.................. 100.25 % 100.25 %
On or after June 15, 2008.................. 100.00 % 100.00 %
</TABLE>
The formula for determining the redemption price of
the subclass D-2 notes, which are held by AerFi, is
set forth under "Description of the Notes --
Payment of Principal and Interest -- Redemption".
We may also redeem each subclass of notes on any
payment date, in whole, if any of the adverse tax
events described in "Description of the
Notes -- Payment of Interest and
Principal -- Redemption for Taxation Purposes"
occur. In the case of a redemption for tax reasons,
the redemption price will equal the outstanding
principal balance of the subclass being redeemed,
plus accrued and unpaid interest.
Service Providers.......... For a full description of the services provided by
members of the AerFi Group as servicer, cash
manager and administrative agent, see "Management
of the AerCo Group -- The Servicer". For a full
description of conflicts of interest that may
arise, see "Risk Factors -- Risks Relating to AerCo
and Certain Third Parties".
Sale of Aircraft........... Subject to the conditions described in "Description
of the Notes -- Payment of Principal and Interest
-- Indenture Covenants -- Limitation on Aircraft
Sales", we may make dispositions of aircraft,
including certain aspects of aircraft ownership,
including the
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<PAGE> 10
depreciation and other tax benefits that may be
associated with aircraft ownership.
The purchase price for, or other proceeds from, the
sale of any aircraft or incidents of aircraft
ownership in these transactions will be deposited
in an account and the portion of such purchase
price or other proceeds that must be repaid to an
investor pending a transfer of title will not be
available to pay interest or principal on the
notes. The remaining portion of such purchase price
or other proceeds will be transferred to the
collection account in the relevant month and will
form part of available collections for such month.
See "Risk Factors -- Additional Aircraft Risks" and
"Description of the Notes -- Payment of Principal
and Interest -- Indenture Covenants -- Limitation
on Aircraft Sales" for a further discussion of
aircraft sales and the associated risks.
Operating Covenants........ We may not enter into any future lease unless it is
in compliance with defined criteria, such as
geographic and other concentration limits. These
restrictions do not apply to renewals, extensions
or restructurings of existing leases. We may vary
from these criteria with the approval of the rating
agencies. For a summary of these restrictions, see
"Description of the Notes -- Operating Covenants --
Concentration Limits".
Withholding Tax............ We have no obligation to make any additional
payments on the notes for any withholding or
deduction from payments on the notes that must be
made under applicable law. If we are required to
make any withholding or deduction on the notes and
we do not redeem the notes, we will reduce the net
amount of interest paid on the notes by the amount
of such withholding or deduction. Also, none of our
subsidiaries has any obligation under any
intercompany loans to make any additional payments
for any withholding or deduction that they must
make under applicable law from payments on the
intercompany loans.
ERISA Considerations....... The notes are expected to be eligible for purchase
under certain circumstances by an employee benefit
plan or other plan subject to Title I of the
Employee Retirement Income Security Act of 1974, as
amended, and/or Section 4975 of the United States
Internal Revenue Code of 1986, as amended. For a
full description of these circumstances, see "ERISA
Considerations".
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<PAGE> 11
OVERVIEW OF PRIORITY OF PAYMENTS
The following chart summarizes the order of priority of payments on the
subclasses of our outstanding notes and our other obligations. We describe the
order of priority in more detail in "Description of the Notes -- Payment of
Principal and Interest -- Priority of Payments".
[Chart -- Overview of Priority of Payments]
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<PAGE> 12
OVERVIEW OF THE AERCO GROUP
AerCo is a special purpose limited liability company formed on June 4, 1998
under the laws of Jersey to purchase and own a portfolio of aircraft.
On July 15, 1998, we made an offering of subclass A-1, subclass A-2,
subclass B-1 and subclass C-1 notes in the aggregate principal amount of $800
million. We used these proceeds, together with the proceeds of an offering of
subclass D-1 and subclass E-1 notes to AerFi, to purchase an aircraft portfolio
of 25 aircraft through the acquisition of all the outstanding capital stock of
ALPS 94-1, a special purpose vehicle, and ten aircraft through the acquisition
of all the outstanding capital stock of certain aircraft owning subsidiaries of
AerFi.
On July 17, 2000, we made an additional offering of subclass A-3, subclass
A-4, subclass B-2 and subclass C-2 notes in the aggregate principal amount of
$960 million. We used these proceeds, together with the proceeds of an offering
of subclass D-2 and subclass E-2 notes to AerFi, to finance our acquisition of
30 additional aircraft (the "additional aircraft") through the acquisition of
all the outstanding capital stock of certain aircraft owning subsidiaries of
AerFi and to refinance our then existing subclass A-1 and subclass D-1 notes.
The 30 additional aircraft had an appraised value of $724.1 million at April 30,
2000 and were on lease to 20 lessees in 13 countries as of October 31, 2000. Six
of the additional aircraft were purchased by AerCo on July 17, 2000 and a
further 18 of the additional aircraft had been purchased by AerCo as of November
2, 2000. See "The Parties" and "Management of the AerCo Group" for a more
detailed description of AerCo, the initial acquisition, the refinancing and
additional aircraft acquisition, AerFi and our servicing arrangements.
The Portfolio. Assuming that we take delivery of all of the additional
aircraft, our total portfolio will comprise 63 aircraft, on lease to 37 lessees
in 20 countries as of November 2, 2000. Except where we indicate otherwise, the
information about our portfolio in this prospectus assumes that we have acquired
all 30 additional aircraft.
As of April 30, 2000, the total appraised value of our 33 existing aircraft
and the 30 additional aircraft (including one aircraft that is valued at scrap
value) was $1,541.9 million. As of October 31, 2000, the weighted average
remaining contracted lease term of the portfolio (by appraised values as of
April 30, 2000 and without giving effect to purchase options or extension
options) was 43 months and the longest lease was scheduled to expire in May
2017. Therefore, we will be required to re-lease each of the aircraft one or
more times prior to the final maturity date for the notes. See "Risk
Factors -- Lease Risks" for a discussion of this re-leasing risk and see "The
Aircraft, Related Leases and Collateral" for a more detailed description of our
portfolio.
Some of our lessees are in a weak financial condition and face or have
recently faced serious financial difficulties. As of October 31, 2000, amounts
outstanding for more than 30 days for rental payments, maintenance reserves and
other amounts due under the leases equalled $5.1 million for four lessees who
had a total of five aircraft on lease. The outstanding amounts are net of agreed
deferrals or other restructurings, default interest and cash in transit. See
"The Aircraft, Related Leases and Collateral -- The Lessees -- Payment History"
for more detailed information on lessees that are in weak financial condition.
11
<PAGE> 13
Outstanding Debt. At November 15, 2000, the most recent payment date, the
outstanding principal amount of our issued and outstanding notes was as follows:
<TABLE>
<CAPTION>
OUTSTANDING ANNUAL
PRINCIPAL AMOUNT INTEREST RATE EXPECTED FINAL FINAL MATURITY
SUBCLASS OF NOTES AT NOVEMBER 15, 2000 (PAYABLE MONTHLY) PAYMENT DATE DATE
----------------- -------------------- ----------------- ------------------ --------------
($MM)
<S> <C> <C> <C> <C>
Subclass A-2.............. 190.4 LIBOR + 0.32% December 15, 2005 July 15, 2023
Subclass A-3.............. 565.0 LIBOR + 0.46% June 15, 2002 July 15, 2025
Subclass A-4.............. 217.6 LIBOR + 0.52% May 15, 2011 July 15, 2025
Subclass B-1.............. 74.2 LIBOR + 0.60% July 15, 2013 July 15, 2023
Subclass B-2.............. 79.3 LIBOR + 1.05% June 15, 2008 July 15, 2025
Subclass C-1.............. 83.9 LIBOR + 1.35% July 15, 2013 July 15, 2023
Subclass C-2.............. 80.0 LIBOR + 2.05% June 15, 2008 July 15, 2025
Subclass D-2(1)........... 95.7 8.50% March 15, 2014 July 15, 2025
Subclass E-1.............. 111.9 20.00% July 15, 2023 July 15, 2023
Subclass E-2(1)........... 93.5 20.00% July 15, 2025 July 15, 2025
</TABLE>
---------------
(1) Upon the delivery of all 30 additional aircraft, the outstanding principal
amount of subclass D-2 and subclass E-2 notes would be $100 million and
approximately $109.1 million, respectively. See "The Parties -- The
Refinancing and Additional Aircraft Acquisition".
Summary Performance to Date. The following table illustrates AerCo's
historical performance to November 15, 2000, the most recent payment date, by
comparing the outstanding amount of each subclass of outstanding notes,
expressed as a percentage of the original principal amount issued, with its
corresponding "pool factor" at that date. Pool factors, which were fixed at the
time the notes were issued, are a measure of how much principal we expected at
that time to have outstanding as of each payment date and are used to allocate
payments of principal among subclasses of a class of notes. See "Description of
the Notes -- Payment of Principal and Interest -- Allocation of Principal Among
Subclasses of Notes".
<TABLE>
<CAPTION>
POOL FACTOR AT
NOTES OUTSTANDING AT NOVEMBER 15,
SUBCLASS OF NOTES NOVEMBER 15, 2000 2000 EXCESS AMORTIZATION
----------------- -------------------- ----------------- -------------------
<S> <C> <C> <C>
Subclass A-2............................ 65.9% 70.1% 4.2%
Subclass A-3............................ 100.0% 100.0% --
Subclass A-4............................ 93.0% 93.9% 0.9%
Subclass B-1............................ 87.5% 89.1% 1.3%
Subclass B-2............................ 99.7% 99.9% 0.2%
Subclass C-1............................ 98.6% 98.6% --
Subclass C-2............................ 99.9% 99.9% --
Subclass D-2............................ 100.0% 100.0% --
Subclass E-1............................ 100.0% 100.0% --
Subclass E-2............................ 100.0% 100.0% --
</TABLE>
You should note that the excess amortization shown in this table relates in
large part to the sale of two of our aircraft which resulted in accelerated
principal payments on the subclass A-2 and B-1 notes in accordance with our
priority of payments. See Appendix 3 for further details.
12
<PAGE> 14
THE AIRCRAFT AND LESSEES
The following charts summarize certain features of our portfolio as of
November 2, 2000 assuming we acquire all 30 additional aircraft and related
leases from the AerFi Group. All percentages have been calculated by reference
to the appraised value of the aircraft at April 30, 2000.
Type of Aircraft
[Type of Aircraft Pie Chart]
Pie chart showing types of aircraft in portfolio by manufacturer and model
Aircraft Size (by number of seats)
[Aircraft Size by number of seats Pie Chart]
Pie chart showing types of aircraft in portfolio by number of seats and body
type
Year of Manufacture or Conversion to Freighter
[Year of Manufacture Bar Graph]
Bar chart showing year of manufacture or conversion to freight of aircraft in
portfolio (1981 - 2000) and weighted average age of fleet (8.3 years)
13
<PAGE> 15
Lessee Region
[Lessee Region Pie Chart]
Pie chart showing regions where aircraft in portfolio leased
Individual Lessees
[Individual Lessees Pie Chart]
Pie chart showing individual lessees to which aircraft in portfolio leased
Region and Country
[Region and Country Pie Chart]
Pie chart showing individual countries where aircraft in portfolio leased
14
<PAGE> 16
AERCO STRUCTURE AND PAYMENT FLOWS
[CHART]
FLOW CHART SHOWING AERCO STRUCTURE AND PAYMENT FLOWS
---------------
- AerCo and its aircraft owning subsidiaries are owners of the aircraft that
form the portfolio.
- AerCo owns 100% of the equity in each of its aircraft owning subsidiaries.
- The security trustee, Bankers Trust Company, has a security interest in the
leases, including all rental payments.
- The indenture contains a negative pledge covenant that prohibits AerCo and
its aircraft owning subsidiaries from granting a security interest in the
aircraft, the leases or the equity in the aircraft owning subsidiaries to
any third party.
- AerCo is owned 95% by AerCo Holding Trust, a Jersey charitable trust, and 5%
by AerFi. AerFi also holds 100% of the subclass D-2, subclass E-1 and subclass
E-2 notes.
15
<PAGE> 17
SUMMARY CONSOLIDATED FINANCIAL DATA
AerCo was formed on June 4, 1998 and did not conduct any business
operations until July 15, 1998 when it acquired an aircraft portfolio of 25
aircraft through the acquisition of all the outstanding capital stock of ALPS
94-1 and ten aircraft through the acquisition of all the outstanding capital
stock of certain aircraft owning subsidiaries of AerFi. We have included the
following audited historical financial statements elsewhere in this prospectus:
- Consolidated financial statements of AerCo for the year ended March 31,
2000 and for the period from July 15, 1998 to March 31, 1999.
- Consolidated financial statements of ALPS 94-1 for the year ended June
30, 1998 and for the period from July 1, 1998 to July 14, 1998.
- Financial statements for the ten aircraft transferred by the AerFi Group
to AerCo on July 15, 1998 for the year ended June 30, 1998 and for the
period from July 1, 1998 to July 14, 1998.
In addition, we have also included elsewhere in this prospectus the
following historical financial statements for the 30 additional aircraft that we
agreed to acquire through the acquisition of all the outstanding capital stock
of certain aircraft owning subsidiaries of AerFi on July 17, 2000:
- Financial statements for the new AerFi transferring aircraft for the
three years ended March 31, 1998, 1999 and 2000.
- Financial statements for the Indigo transferring aircraft for the year
ended December 31, 1998 and for the period from January 1, 1999 to
December 15, 1999.
Details of the contents of each of the above sets of financial statements
are given on pages F-2 and F-3.
The summary consolidated financial data set forth below have been extracted
from the audited historical financial statements of AerCo and ALPS 94-1
described above and from the audited consolidated financial statements of ALPS
94-1 for each of the fiscal years ended June 30, 1996 and 1997. KPMG,
independent chartered accountants, audited the consolidated financial statements
of (i) ALPS 94-1 for the year ended June 30, 1998 and for the period from July
1, 1998 to July 14, 1998 and (ii) AerCo for the period from July 15, 1998 to
March 31, 1999 and for the year ended March 31, 2000.
The summary financial data of ALPS 94-1 include the results of operations
and financial condition of the 27 aircraft originally acquired by ALPS 94-1 from
AerFi in August 1994, including:
- the Boeing 767-300ER aircraft that was purchased by the AerFi Group from
ALPS 94-1 prior to the closing of the initial offering of notes by AerCo
on July 15, 1998; and
- the A300-B4-200 aircraft up to April 28, 1998 when the AerFi Group
acquired this aircraft from ALPS 94-1. The AerFi Group subsequently sold
this aircraft to AerCo.
Comparative financial information for ALPS 94-1 is presented because ALPS
94-1 is considered to be the predecessor business of AerCo. We believe that the
ALPS 94-1 summary financial data set forth below is an appropriate presentation
because:
- AerCo was formed mainly for the purpose of refinancing the aircraft
portfolio of ALPS 94-1;
- our initial portfolio of 35 aircraft included 26 of the 27 aircraft that
ALPS 94-1 originally acquired from AerFi;
- the original ALPS 94-1 aircraft represented 79% of our initial portfolio
by appraised value as at March 1, 1998; and
- our ongoing aircraft leasing activities are largely the same as those
conducted by ALPS 94-1.
Such data, however, is not indicative of the financial results of the AerCo
Group for the period from July 15, 1998 to March 31, 1999 and for the year ended
March 31, 2000.
16
<PAGE> 18
The historical financial statements of the AerCo Group (including ALPS 94-1
and the aircraft transferred by the AerFi Group to AerCo in 1998) and the new
AerFi transferring aircraft have been prepared in accordance with U.K. GAAP,
which differ in certain significant respects from U.S. GAAP. For a discussion of
the principal differences and a reconciliation from U.K. GAAP to U.S. GAAP of
shareholders' deficit and net income or loss for the year, see the notes to the
relevant financial statements included elsewhere in this prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- The Period from July 15, 1998 to March
31, 1999 Compared with the Nine Month Period Ended March 31, 1998 -- Differences
between U.K. GAAP and U.S. GAAP". The historical financial statements for the
Indigo transferring aircraft have been prepared under U.S. GAAP.
We have also included in this prospectus unaudited pro forma combined
financial information for the AerCo Group for the year ended March 31, 2000.
Such pro forma combined financial information gives effect to, among other
things, the issuance by AerCo of the old notes, the refinancing of our subclass
A-1 and subclass D-1 notes, the acquisition of the new AerFi transferring
aircraft and the acquisition by AerFi of one A321-200 in April 2000 and other
transactions described in "Unaudited Pro Forma Combined Financial Information".
17
<PAGE> 19
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
<TABLE>
<CAPTION>
ALPS 94-1 AERCO
--------------------------------------------------- -------------------------
PERIOD FROM PERIOD FROM
FISCAL FISCAL FISCAL JULY 1, JULY 15, FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED 1998 TO 1998 TO YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JULY 14, MARCH 31, MARCH 31,
1996 1997 1998 1998 1999 2000
----------- ---------- ---------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.K. GAAP
Revenues
Aircraft leasing.................... $ 102,460 $ 101,434 $ 100,682 $ 3,635 $ 82,826 $ 109,146
Expenses
Depreciation........................ (17,978) (38,062) (37,826) (1,519) (33,821) (46,998)
Exceptional item --
Additional depreciation........... -- (34,385) -- -- -- --
Provision for impairment in aircraft
value............................. (12,000) -- (8,720) -- -- (13,079)
Amortization of goodwill............ -- -- -- -- (1,669) (2,356)
Net interest expense................ (73,576) (71,037) (69,785) (2,757) (54,108) (78,818)
Other expenses...................... (5,581) (5,053) (6,599) (646) (8,311) (15,742)
Exceptional item --
Termination fee................... -- -- (12,700) -- -- --
----------- --------- --------- --------- ----------- -----------
Loss from operations.................. (6,675) (47,103) (34,948) (1,287) (15,083) (47,847)
Profit/(loss) on sale of aircraft..... -- -- 2,426 10 10 (941)
Reduction in indebtedness............. -- 5,258 -- -- -- --
----------- --------- --------- --------- ----------- -----------
Loss before provision for taxes....... (6,675) (41,845) (32,522) (1,277) (15,073) (48,788)
Taxes................................. (200) 143 (33) -- (35) (51)
Dividends............................. -- -- -- -- -- --
----------- --------- --------- --------- ----------- -----------
Net loss.............................. $ (6,875) $ (41,702) $ (32,555) $ (1,277) $ (15,108) $ (48,839)
=========== ========= ========= ========= =========== ===========
U.S. GAAP EXTRACT
Depreciation.......................... $ (32,338) $ (32,339) $ (32,053) $ (1,276) $ (28,062) $ (38,354)
Provision for impairment in aircraft
value............................... $ (12,000) $ -- $ (520) $ -- $ -- $ (6,100)
Reduction in indebtedness............. $ -- $ 5,258 $ -- $ -- $ -- $ --
Net income/(loss)..................... $ (21,590) $ (1,594) $ (20,808) $ 5,973 $ 19,760 $ (31,235)
</TABLE>
CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
ALPS 94-1 AERCO
--------------------------------------------------- -------------------------
AS OF AS OF AS OF AS OF AS OF AS OF
JUNE 30, JUNE 30, JUNE 30, JULY 14, MARCH 31, MARCH 31,
1996 1997 1998 1998 1999 2000
----------- ---------- ---------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.K. GAAP EXTRACT
Aircraft, net of accumulated
depreciation and provision for
impairment in aircraft value........ $ 927,043 $ 854,596 $ 800,090 $ 732,905 $ 904,253 $ 829,194
Total assets.......................... $ 1,021,356 $ 950,031 $ 890,873 $ 881,804 $1,019,328 $ 943,457
Indebtedness........................ (953,376) (919,157) (877,128) (875,015) (949,217) (901,198)
Provision for maintenance........... (37,571) (44,274) (42,336) (41,274) (39,697) (32,216)
Total liabilities..................... $(1,024,345) $(994,722) $(968,119) $(960,327) $(1,034,436) $(1,007,404)
Shareholders' deficit................. $ (2,989) $ (44,691) $ (77,246) $ (78,523) $ (15,108) $ (63,947)
U.S. GAAP EXTRACT
Aircraft, net of accumulated
depreciation and provision for
impairment in aircraft value........ $ 766,811 $ 734,472 $ 691,713 $ 631,778 $ 767,820 $ 708,009
Indebtedness.......................... $ (953,376) $(919,157) $(877,128) $(875,015) $ (953,908) $ (904,991)
Shareholders' deficit................. $ (182,781) $(184,375) $(203,210) $(197,237) $ (169,238) $ (200,473)
</TABLE>
18
<PAGE> 20
CONSOLIDATED STATEMENTS OF CASH FLOWS AND OTHER DATA
<TABLE>
<CAPTION>
ALPS 94-1 AERCO
-------------------------------------------------- ------------------------
PERIOD FROM PERIOD FROM
FISCAL FISCAL FISCAL JULY 1, JULY 15, FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED 1998 TO 1998 TO YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JULY 14, MARCH 31, MARCH 31,
1996 1997 1998 1998 1999 2000
---------- ---------- ---------- ----------- ----------- ----------
(IN THOUSANDS, EXCEPT RATIO DATA)
<S> <C> <C> <C> <C> <C> <C>
U.K. GAAP EXTRACT
Cash paid in respect of interest...... $ (64,002) $(59,872) $(54,815) $ (3,872) $ (39,013) $ (56,150)
Net cash provided/(utilized) by
operating activities (after payment
of interest)........................ $ 45,532 $ 45,119 $ 45,721 $ (4,077) $ 27,961 $ 35,672
Net cash provided by investing
activities.......................... $ -- $ -- $ 10,386 $ 65,677 $ 14,500 $ 14,041
Net cash provided by/(used in)
financing activities................ $ (36,025) $(43,494) $(59,108) $ (3,719) $ 948,544 $ (48,917)
Net movements in cash................. $ (25,803) $ (2,886) $ 134 $ 94,567 $ 25,618 $ 795
U.K. GAAP(1)(2)
Ratio of Earnings to Fixed Charges.... 0.909 0.411 0.534 0.537 0.721 0.381
U.S. GAAP(1)(2)
Ratio of Earnings to Fixed Charges.... 0.709 0.976 0.702 3.166 1.366 0.604
</TABLE>
In relation to "Ratio of Earnings to Fixed Charges" under both U.K. GAAP
and U.S. GAAP, you should note the following:
(1) Earnings include pretax income from continuing operations plus fixed
charges. Fixed charges are the total of (i) interest, whether expensed
or capitalized, (ii) amortization of debt expense and discount or
premium relating to any indebtedness, whether expensed or capitalized
and (iii) such portion of rental expense as can be demonstrated to be
representative of the interest factor in the particular case.
(2) A ratio of less than one indicates that earnings are inadequate to
cover fixed charges. The amount by which fixed charges exceeded
earnings for ALPS 94-1 (i) for the years ended June 30, 1996, 1997 and
1998 and for the period July 1, 1998 to July 14, 1998 under U.K. GAAP
was $6.7 million, $41.9 million, $32.5 million and $1.3 million,
respectively, and (ii) for the years ended June 30, 1996, 1997, and
1998 under U.S. GAAP was $21.4 million, $1.7 million and $20.8
million, respectively. The amount by which fixed charges exceeded
earnings for AerCo for the period from July 15, 1998 to March 31, 1999
and for the year ended March 31, 2000 under U.K. GAAP was $15.1
million and $48.8 million and for the year ended March 31, 2000 under
U.S. GAAP was $31.2 million.
For a discussion of the differences between AerCo's and ALPS 94-1's results
of operations and financial position under U.S. GAAP compared with U.K. GAAP,
see notes 25, 26, 27 and 28 to the AerCo audited consolidated financial
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations -- The Period from July 15, 1998
to March 31, 1999 Compared with the Nine Month Period Ended March 31, 1998 --
Differences between U.K. GAAP and U.S. GAAP".
19
<PAGE> 21
RISK FACTORS
You should carefully consider the risks and uncertainties described below
before accepting the exchange offer. The risks and uncertainties described below
are not the only ones facing AerCo. Additional risks and liabilities that we are
not aware of at present, or that we believe today are immaterial, may also
impair our business operations.
Our business, financial condition and results of operations could be
materially adversely affected by any of these risks. If any of the following
risks actually occur, we may not be able to make the required payments on the
notes, and you may lose all or part of your investment.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. In most cases, you can identify forward-looking statements by
terminology such as "may", "should", "expects", "plans", "anticipates",
"believes", "estimates", "predicts", "potential" or "continue" or the negative
of such terms or similar terminology. Our actual results could differ materially
from those anticipated in these forward-looking statements. In evaluating these
statements, you should specifically consider various factors, including the
risks outlined in this prospectus.
RISKS RELATING TO AERCO AND CERTAIN THIRD PARTIES
THERE IS NO SECURITY INTEREST IN THE AIRCRAFT. YOU CANNOT SELL THE AIRCRAFT
TO REPAY THE NOTES IF WE DO NOT MEET OUR OBLIGATIONS UNDER THE NOTES.
Neither the trustee, the security trustee, Bankers Trust Company, nor any
noteholder has any security interest, mortgage, charge or other similar interest
in any aircraft. If there is an event of default, they will not be able to sell
the aircraft to repay the notes or exercise similar remedies which they would
have if they had a security interest in the aircraft. The AerCo Group has,
however, pledged to the security trustee, Bankers Trust Company, as security for
AerCo's various obligations (including under the notes), 100% of AerCo's equity
in its subsidiaries, the interests of all AerCo Group members in the leases, any
intercompany loans from AerCo to its subsidiaries, any cash contained in the
accounts and investments made with the cash balances.
WE MAY NOT ACQUIRE ALL OF THE ADDITIONAL AIRCRAFT -- IN THAT CASE, AMOUNTS
IN THE AIRCRAFT PURCHASE ACCOUNT WILL BE USED TO REPAY THE SUBCLASS A-3,
SUBCLASS A-4, SUBCLASS B-2 AND SUBCLASS C-2 NOTES. ALSO, OUR PORTFOLIO MAY
BE LESS DIVERSE WHICH MAY HARM OUR ABILITY TO MAKE PAYMENTS ON THE NOTES.
On July 17, 2000, we issued the old notes and the subclass D-2 and subclass
E-2 notes to finance the purchase of 30 additional aircraft from the AerFi Group
and to refinance our then existing subclass A-1 and subclass D-1 notes. As of
November 2, 2000, we had taken delivery of 24 of the 30 additional aircraft. The
pro rata portion of the proceeds of the offering of the old notes, allocable to
the six remaining additional aircraft that we had not yet purchased as of
November 2, 2000, was on deposit in the aircraft purchase account. As of
November 2, 2000, this amount was $156.8 million.
If any of the six remaining additional aircraft cannot be delivered under
the purchase agreement, then the AerFi Group may propose a substitute aircraft
to replace such aircraft. A substitute aircraft may be any aircraft that (a) is
no more than seven years old as of July 17, 2000, (b) is subject to an operating
lease contract, or letter of intent for an operating lease contract, that is to
become effective within 90 days after the date of delivery to the AerCo Group,
(c) is of the same type as the undelivered aircraft, (d) does not give rise to a
concentration default and (e) is approved by the rating agencies. If AerFi
determines that it is unable to deliver an aircraft or a substitute aircraft,
then funds held in the aircraft purchase account allocable to that aircraft will
be distributed by AerCo according to the priority specified in "Description of
the Notes -- Payment of Principal and Interest -- Priority of Payments". All
remaining amounts in the aircraft purchase account on July 10, 2001 will be
distributed by AerCo on the next succeeding payment date in accordance with the
order of priorities referenced above.
Accordingly, investors should note that the ultimate portfolio of aircraft
to be owned and operated by us may be smaller than or different from the
portfolio of aircraft described in this prospectus. This could
20
<PAGE> 22
result in our portfolio of aircraft having less diversity in terms of aircraft
type, lessee credit and geographic distribution than initially anticipated. This
could in turn adversely impact the level of rental payments received by our
company and, correspondingly, our ability to make payments on the notes.
OUR SUBSIDIARIES MAY HAVE CONTINGENT LIABILITIES THAT ARE UNKNOWN TO US. IF
WE HAVE TO PAY LIABILITIES OF THIS KIND, WE MAY BE UNABLE TO MAKE PAYMENTS
ON THE NOTES.
There is a risk that our subsidiaries could have material contingent
liabilities that are unknown to us. For example, our subsidiaries could have
incurred liabilities to third parties from operating and leasing the aircraft
before we acquired them. AerFi has agreed to indemnify us for breaches of its
representations and warranties relating to the aircraft owning companies and
aircraft which it sold to us in 1998. These representations and warranties will
survive until July 15, 2001. Our potential recovery under those representations
and warranties is limited to approximately $185.0 million. In addition, the
AerFi Group have agreed to indemnify us for breaches of their representations
and warranties relating to the aircraft owning companies and aircraft which have
been, and those aircraft owning companies and aircraft that remain to be, sold
to us in connection with the offering of the old notes on July 17, 2000. These
representations and warranties will survive for three years from the date of
transfer to AerCo of the relevant company. Our potential recovery under these
representations and warranties is limited to approximately $175.0 million. If
any contingent liability becomes known and we are called on to pay it, we may be
unable to recover the amount of the liability from the AerFi Group or any other
person. If we have to pay any such liability, we may be unable to make the
required payments on the notes.
WE RELY ON SWAP COUNTERPARTIES TO MANAGE INTEREST RATE RISK. IF WE ARE
UNABLE TO ENTER INTO APPROPRIATE SWAP ARRANGEMENTS WITH ELIGIBLE
COUNTERPARTIES OR IF SUCH COUNTERPARTIES DEFAULT ON THEIR OBLIGATIONS, WE
MAY BE UNABLE TO MAKE PAYMENTS ON THE NOTES.
AerCo will manage any interest rate risk arising from any mismatch in fixed
and floating rate lease rental payments and fixed and floating rate interest
obligations through swaps and other derivative instruments. This strategy relies
upon our ability to enter into interest rate swaps with eligible counterparties
and each swap counterparty fulfilling its obligations under the related interest
rate swap. If a counterparty were to default in its obligations, or we are
unable to enter into interest rate swaps with eligible counterparties, then a
mismatch in the fixed and floating rate interest obligations and fixed and
floating rate lease payments may arise, which could harm our ability to make
payments on the notes.
WE RELY ON THIRD PARTIES TO MANAGE OUR BUSINESS. OUR OPERATIONS MAY SUFFER
AND WE MAY BE UNABLE TO MAKE PAYMENTS ON THE NOTES IF OUR SERVICE PROVIDERS
DO NOT PERFORM THEIR OBLIGATIONS TO US OR IF WE HAVE TO REPLACE THEM.
We have no executive management resources of our own. We therefore rely on
several service providers for the leasing, re-leasing and sale of the aircraft
and all other executive and administrative responsibilities. If these service
providers do not perform their contractual obligations to us, our operations may
suffer and we may not be able to repay the notes. We can give no assurance that
we will continue our arrangements with these service providers or that the
service providers will continue their relationship with us until the notes are
paid in full. If a service provider resigns or we terminate its appointment, we
may be unable to find suitable replacement service providers that we can engage
on suitable terms. Additionally, our appointment of replacement service
providers may cause a lowering or withdrawal of the ratings on the notes. You
should refer to "Management of the AerCo Group -- The Servicer" and "Management
of the AerCo Group -- Corporate Management" for detailed information on the
responsibilities delegated to service providers.
21
<PAGE> 23
THE AERFI GROUP, AS SERVICER, ADMINISTRATIVE AGENT AND CASH MANAGER, AND
THE DEBIS GROUP AS STANDBY SERVICER, STANDBY ADMINISTRATIVE AGENT AND
STANDBY CASH MANAGER, MAY HAVE CONFLICTS OF INTEREST FROM THEIR OTHER
AIRCRAFT MANAGEMENT ACTIVITIES. WE MAY BE UNABLE TO RE-LEASE OR SELL
AIRCRAFT IF THEY CANNOT RESOLVE THESE CONFLICTS.
The AerFi Group owns other aircraft and may face conflicts of interest in
managing and marketing our aircraft for re-lease or sale. At present, AerFi does
not manage aircraft for any other party but it may do so in the future. In
addition, the AerFi Group provides administrative agency and cash management
services to others, including other aircraft securitization vehicles.
debis Aircraft Leasing Ltd, a subsidiary of debis AirFinance B.V. ("debis"
and, together with its subsidiaries, the "debis group"), acts as standby
servicer, standby administrative agent and standby cash manager and may face
similar conflicts of interest. In addition, debis may manage aircraft for other
parties. On September 21, 2000, AerFi entered into an agreement with amongst
others, debis, under which debis agreed on certain terms and conditions to make
a cash offer to acquire all of the ordinary share capital of AerFi. This
transaction was completed on November 16, 2000. As of the date of this
prospectus, debis owned 98.2% of the outstanding ordinary share capital of AerFi
and will acquire the remaining 1.8% through a compulsory squeeze out. Both the
AerFi Group and the debis group may face conflicts of interest in providing
aircraft management and related services to us.
If the AerFi Group or the debis group, as the case may be, cannot resolve a
conflict of interest, the conflict could have an adverse effect on our ability
to manage, re-lease or sell the aircraft. In that case, we may be unable to make
the required payments on the notes.
OUR DIRECTORS MAY HAVE CONFLICTS OF INTEREST.
From time to time the directors of AerCo may have conflicts of interest
that arise as a result of their other relationships in the aviation industry.
See "Management of the AerCo Group -- Directors" for a discussion of the
directors of AerCo and their other relationships.
AERCO AND THE AERFI GROUP HAVE THE SAME LEGAL ADVISORS. IF NECESSARY, AERCO
MAY NEED TO RETAIN SEPARATE COUNSEL.
AerCo and the AerFi Group are represented by the same Jersey, Irish and
United States legal counsel, and it is anticipated that such multiple
representation will continue in the future. Because AerCo and the AerFi Group do
not have independent legal representation, the terms of the agreements and other
arrangements negotiated between AerCo and the AerFi Group could
disproportionately benefit one party over the other. Should a significant
dispute arise in the future between AerCo and the AerFi Group or any of their
respective affiliates, AerCo anticipates that it will retain separate counsel to
represent it in such matter.
AIRCRAFT RISKS
THE COMMERCIAL AIRCRAFT MARKET IS CYCLICAL. DECREASED DEMAND OR EXCESS
SUPPLY OF AIRCRAFT MAY DECREASE OUR CASH FLOWS.
The market for commercial jet aircraft is very cyclical and can produce
sharp increases and decreases in aircraft values and lease rates. The aircraft
leasing market is currently experiencing a reduction in demand, particularly for
older widebody aircraft. Decreases in aircraft values or lease rates may cause a
decrease in our cash flows. Depending on market conditions, we may be unable to
sell or re-lease aircraft on terms that allow us to make payments on the notes.
Aircraft values and lease rates depend on various factors that are outside
our control, including:
- general economic conditions affecting lessee operations;
- used aircraft supply;
- interest rates and credit availability;
- fuel and other operating costs;
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- manufacturer production levels and prices for new aircraft;
- passenger demand;
- retirement and obsolescence of aircraft models;
- manufacturers merging or leaving the aircraft industry;
- re-introduction into service of aircraft previously in storage;
- governmental regulations; and
- lack of capacity in the air traffic control system.
In addition to values for aircraft generally, the value of specific
aircraft may increase or decrease sharply depending on factors that are not
within our control, including:
- maintenance and operating history of the aircraft;
- number of operators using a type of aircraft;
- legal or regulatory requirements that prevent us from re-leasing or
selling an aircraft in the condition that it is in; and
- the discovery of manufacturing defects in an aircraft model. See "The
Aircraft, Related Leases and Collateral -- Compliance with Governmental
and Technical Regulation".
Current competition between The Boeing Company and Airbus Industrie G.I.E.
is also a threat to aircraft values. Boeing and Airbus have increased production
to an amount substantially above the long-term requirement implied by industry
forecasts. If production is maintained at this level the increased supply of new
aircraft may depress used aircraft values and lease rates. This development
could cause a decrease in our cash flow and adversely affect our ability to make
payments on the notes.
THE APPRAISED VALUE OF THE AIRCRAFT MAY BE SIGNIFICANTLY HIGHER THAN THE
ACTUAL VALUE WE WOULD RECEIVE UPON A SALE OF THE AIRCRAFT. IN THAT CASE,
OUR ABILITY TO MAKE SCHEDULED PAYMENTS ON THE NOTES MAY SUFFER.
Aircraft appraised values, also known as base values, do not necessarily
reflect the market value for an aircraft at a specific time. We have determined
the scheduled principal payments on the notes based on assumptions as to the
appraised value of the aircraft. If we sell an aircraft to generate cash to make
payments on the notes, the proceeds of the sale may be significantly less than
its appraised value. We may therefore have insufficient cash to make payments on
the notes. Market lease rates may also depend on current market values for
aircraft. If market values are less than appraised values, we may be unable to
re-lease aircraft at rental rates sufficient to repay the notes.
Appraised values are based on the assumption that there is an "open,
unrestricted and stable market environment with a reasonable balance of supply
and demand". However, the aircraft market is not always stable and there may be
supply and demand imbalances at any given time, especially for specific aircraft
types. At the high point in the aircraft market cycle, the current market value
of some aircraft may be close to their appraised value while the current market
value of others, particularly older or widebody aircraft, may be significantly
less than their appraised values. At the low point in the aircraft market cycle,
the current market value of most aircraft types is likely to be less than
appraised values. As a result you should not rely on aircraft appraised values
as an indication of the market value for the aircraft.
IF THE APPRAISED VALUES OF OUR AIRCRAFT DECLINE AT A FASTER RATE THAN WE
HAVE ASSUMED, WE MAY BE REQUIRED TO SUSPEND PAYMENTS ON CLASS B AND CLASS C
NOTES.
Due to various market factors, aircraft appraisers have recently reduced
appraised values for aircraft, especially older widebody aircraft. Under the
indenture, we must accelerate the scheduled principal payments on the class A
notes if the aircraft appraised values decline at a greater rate than we
assumed.
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In that case, payments on the class B and class C notes may be suspended because
of the increased principal amount that we must pay on the class A notes.
NEW, MORE TECHNOLOGICALLY ADVANCED AIRCRAFT MAY IMPAIR OUR ABILITY TO
RE-LEASE OR SELL OUR AIRCRAFT. IF WE ARE UNABLE TO RE-LEASE OR SELL OUR
AIRCRAFT ON FAVORABLE TERMS, WE MAY BE UNABLE TO MAKE PAYMENTS ON THE
NOTES.
The availability of newer, more technologically advanced aircraft or the
introduction of increasingly stringent noise or emissions regulations may make
it more difficult for us to re-lease or sell aircraft. This risk is particularly
significant for us given our need to repay principal and interest on the notes
over a relatively long period. This will require us to lease or sell many of the
aircraft close to the end of their useful economic life. We expect that our
ability to manage these technological risks through modifications to aircraft
and sale of aircraft will be limited.
ADDITIONAL AIRCRAFT RISKS
IF WE ACQUIRE ADDITIONAL AIRCRAFT IN THE FUTURE THIS MAY INCREASE THE RISKS
WE ALREADY FACE OR EXPOSE US TO NEW RISKS.
We expect to acquire additional aircraft and related additional leases in
the future. The cash flows derived from additional aircraft are expected to be,
together with the cash flows derived from the existing aircraft and existing
leases as well as any future leases, the principal source of payment of
interest, principal, and premium, if any, on the notes and related additional
notes. Depending on the extent to which we are able to acquire additional
aircraft, the cash flows derived from additional aircraft may become a more
important source of payment than the cash flows derived from the existing
aircraft. Because only 24 of the 30 additional aircraft set forth in "The
Aircraft, Related Leases and Collateral -- Combined AerCo Portfolio Analysis"
had been delivered as of November 2, 2000, the statements contained under "--
Aircraft Risks", "-- Lease Risks" and "-- Risk of Lessee Default" are
necessarily based primarily on risks associated with our existing aircraft and
the 24 additional aircraft and the related leases and the lessees described in
this prospectus.
It is expected, however, that most, if not all, of the risks described
above will be relevant, and may be relevant to a significantly greater extent,
to any additional aircraft we may acquire in the future. Under the indenture,
the issuance of additional notes to finance the acquisition of other additional
aircraft is subject to conditions that are designed to protect our ability to
meet our obligations under the notes. Despite these protections, there can be no
assurance that the acquisition in the future of additional aircraft and
additional leases will not intensify some or all of the risks identified herein
or expose the AerCo Group to other risks not so identified and that such
intensified or additional risks will not adversely affect our ability to make
payments on the notes.
IF WE SELL AIRCRAFT-RELATED TAX BENEFITS, WE MAY BE UNABLE TO RECOVER LEGAL
OWNERSHIP OF THE AIRCRAFT. IN THAT CASE, WE MAY BE UNABLE TO RE-LEASE OR
SELL THE AIRCRAFT.
In addition to selling aircraft outright, we may make more limited
transfers of aircraft ownership to investors who wish to acquire depreciation or
other tax benefits available to aircraft owners. If we enter into tax-related
dispositions, we will be exposed to the credit risk of the investor. This
includes the risk that we will not be able to recover legal title to the
aircraft or other aspects of ownership transferred to the investor if the
investor becomes insolvent. This would harm our ability to re-lease or sell the
aircraft. Because the terms of tax-related dispositions are not standardized, we
cannot identify with certainty the nature and the level of the risks we would
face if we entered into these transactions.
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RESTRICTIONS IN THE INDENTURE AND OUR GOVERNING CORPORATE DOCUMENTS MAY
IMPAIR OUR ABILITY TO COMPETE EFFECTIVELY IN THE AIRCRAFT LEASING MARKET.
The indenture and our governing corporate documents impose restrictions on
how we operate our business. These restrictions limit our ability to compete
effectively in the aircraft leasing market. For example, we cannot grant
privileged rental rates to airlines in return for equity investments in such
airlines. There are also restrictions on persons to whom we may lease aircraft
and limits on leasing to lessees in specific geographical regions. Most
competing aircraft lessors do not operate under similar restrictions.
THE PURCHASE OPTION PRICES THAT WE HAVE GRANTED TO OUR LESSEES MAY BE LESS
THAN THE PROPORTION OF THE UNPAID PRINCIPAL OF THE NOTES ALLOCABLE TO THE
RELEVANT AIRCRAFT AND, THEREFORE, WE MAY BE UNABLE TO MAKE REQUIRED
PAYMENTS ON THE NOTES.
As of October 31, 2000, three lessees have options to purchase a total of
four aircraft, representing 7.84% of the portfolio by appraised value as of
April 30, 2000. There is a risk that the purchase prices may be less than the
pro rata portion of the unpaid principal of the notes allocable to the aircraft
being purchased. If those options are exercised, there could be a reduction in
the amount, or a delay in the timing, of required payments on the notes.
IF LESSEES DO NOT DISCHARGE LIENS THAT ATTACH TO THE AIRCRAFT, WE MAY BE
UNABLE TO REPOSSESS, RE-LEASE OR SELL AIRCRAFT.
Liens may attach to the aircraft in the course of their operation. These
liens may impair our ability to repossess, re-lease or sell the aircraft. Liens
which secure the payment of airport taxes, customs duties, air navigation
charges, landing charges, crew wages, repairer's charges or salvage attach to
the aircraft in the normal course of operation. The amounts which the liens
secure may be substantial and may exceed the value of the aircraft against which
the lien is asserted. In some jurisdictions, a holder of aircraft liens may have
the right to detain, sell or cause the forfeiture of the aircraft. The lessees
may fail to comply with their obligations under the leases to discharge liens
arising during the terms of the leases.
LESSEES MAY FAIL TO MAINTAIN VALID REGISTRATION OF THE AIRCRAFT. THE IMPACT
OF THE LOSS OF AIRCRAFT REGISTRATION OR THE INABILITY OF THE AIRCRAFT TO
GENERATE RENTAL INCOME FOR US COULD HARM OUR ABILITY TO MAKE PAYMENTS ON
THE NOTES.
All of the aircraft which are or will be operated must be registered with
an appropriate aviation authority. If an aircraft is operated without a valid
registration, the lessee operator or, in some cases, the owner or lessor, may be
subject to penalties which may result in a lien being placed on the aircraft.
Loss of registration could have other adverse effects, including grounding of
the aircraft and loss of insurance, which may have an adverse effect on our
ability to make payments on the notes.
INCREASED REGULATION OF THE AIRCRAFT INDUSTRY MAY IMPAIR OUR ABILITY TO
RE-LEASE OR SELL AIRCRAFT.
The aircraft industry is heavily regulated and aviation authorities may
adopt additional regulations in jurisdictions where our aircraft are registered
or operated. Any additional regulations especially relating to aircraft noise
and emissions, may cause us to incur significant costs, depress the value of the
aircraft and impair our ability to re-lease or sell aircraft.
LEASE RISKS
WE MAY NOT HAVE ENOUGH CASH FLOW TO MAKE PAYMENTS ON THE NOTES IF WE ARE
UNABLE TO RE-LEASE AIRCRAFT QUICKLY OR ON FAVORABLE TERMS.
We may not be able to re-lease the aircraft upon expiration of the leases
without incurring significant downtime. If we cannot re-lease the aircraft we
may not have enough cash flow to make payments on the notes. Even if we can
re-lease the aircraft we may be unable to receive favorable rental rates,
especially if
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there is reduced demand for aircraft on operating lease. Our ability to re-lease
aircraft and obtain acceptable lease payments and terms may suffer because of:
- economic conditions affecting the airline industry;
- the supply of competing aircraft and demand for particular types;
- lessor competition; and
- restrictions on our re-leasing flexibility under the indenture.
The leases for ten of the aircraft, representing approximately 17.81% of
the portfolio by appraised value at April 30, 2000, are scheduled to expire
before December 31, 2001. The leases for 43 of the aircraft, representing 69.13%
of the portfolio by appraised value at April 30, 2000 are scheduled to expire
before December 31, 2004. Re-leasing may also affect the rental rates we are
able to obtain and may adversely affect our ability to make payments on the
notes, especially when there is less demand for aircraft on operating lease.
WE MAY INCUR SUBSTANTIAL COSTS IF LESSEES DO NOT PERFORM REQUIRED
MAINTENANCE. THIS WOULD REDUCE THE AMOUNTS AVAILABLE TO MAKE PAYMENTS ON
THE NOTES.
The standards of maintenance observed by our lessees and the condition of
the aircraft at the time of sale or lease may offset future values and rental
rates from our aircraft. Under the leases, the lessee has the main
responsibility to maintain the aircraft and to comply with all applicable
governmental requirements. Some lessees may experience periodic difficulties in
meeting their maintenance obligations resulting from adverse environmental
conditions or financial and labor difficulties. If a lessee fails to perform
required or recommended maintenance on an aircraft or comply with any
airworthiness directives during the term of such lease, the aircraft may be
grounded and we may incur substantial costs to restore the aircraft to an
acceptable maintenance condition before sale or re-lease. If our lessees do not
perform their obligation to maintain the aircraft, we may have to fund
maintenance work on the aircraft. Because our maintenance costs are expenses
that rank senior to payments on the notes, we may be unable to make payments on
the notes if our maintenance costs were to become sufficiently large. In some
cases, we may have an obligation to reimburse the lessee or pay some or all of
the cost of aircraft maintenance. Our cash resources may not be sufficient both
to fund maintenance requirements and make payments on the notes, especially as
the aircraft age.
WE MAY BE UNABLE TO MAKE PAYMENTS ON THE NOTES IF AIRCRAFT INSURANCE IS NOT
ADEQUATE TO COVER ANY LOSSES OR LIABILITIES WE INCUR.
Our lessees have an obligation under the leases to maintain property and
liability insurance covering their operation of the aircraft. We can give no
assurance that this insurance will be adequate to cover any losses or
liabilities that we may incur in our business. For example, the loss or
liability from an aviation accident or other catastrophic event may exceed the
coverage limits in the policy. Other losses may not be covered by the insurance.
There is also a risk that our lessees will not perform their insurance
obligations under the lease, which may mean that insurance will not be available
to us. In either case, we may be unable to make payments on the notes if
insurance proceeds do not cover losses or liabilities we may incur.
IF WE CANNOT OBTAIN THE REQUIRED LICENSES, CONSENTS AND APPROVALS TO
RE-LEASE OR SELL AIRCRAFT, WE MAY BE UNABLE TO MAKE PAYMENTS ON THE NOTES.
If we cannot obtain required government licenses, consents and approvals,
we may be unable to re-lease or sell aircraft. Several leases require specific
licenses, consents or approvals. These include licenses, consents or approvals
from governmental or regulatory authorities to certain lease payments and to the
import, re-export or deregistration of the aircraft. There is a significant risk
that subsequent legal and administrative changes will increase such requirements
or that a license, consent or approval, once given, will be withdrawn. We may be
unable to receive licenses, consents or approvals needed in connection with
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future re-leasing or sale of an aircraft. In any such case, our cash flows may
be insufficient to make payments on the notes.
IF WITHHOLDING TAXES ARE IMPOSED ON LEASE RENTALS, THESE TAXES WOULD REDUCE
OUR CASH FLOW AVAILABLE FOR PAYMENTS ON THE NOTES.
We have attempted to structure our leases in such a way that either no
withholding taxes will be applicable to payments by the lessees under the leases
or, if withholding taxes are applicable, the lessees would be required to pay
corresponding additional amounts. If such taxes must be paid and we cannot
recover these additional amounts from the lessee, these amounts will be
unavailable for note payments.
RISK OF LESSEE DEFAULT
LESSEES IN WEAK FINANCIAL CONDITION COULD FAIL TO MAKE LEASE PAYMENTS. THIS
WOULD REDUCE THE CASH FLOW AVAILABLE TO MAKE PAYMENTS ON THE NOTES.
There is a significant risk that lessees in weak financial condition may
default on their obligations under the leases. If lessees do not make rent and
maintenance payments or are significantly in arrears, we will be unable to make
payments on the notes. The ability of each lessee to perform its obligations
under its lease will depend primarily on its financial condition. A lessee's
financial condition may be affected by various factors beyond its control,
including competition, fare levels, passenger demand, operating costs, the cost
and availability of finance, and environmental and other governmental regulation
of the air transportation business. The economic conditions of the regions where
our lessees operate will also affect their ability to meet their lease
obligations. Many of our lessees are based or operate in regions such as Asia or
Latin America that from time to time experience severe economic crises. You
should refer to "The Aircraft, Related Leases and Collateral -- The Lessees --
Regional Concentrations", Appendix 1 and Appendix 2 for a detailed discussion of
the regional concentrations of our lessees and the economic trends of the
regions that may impact the lessees' financial condition.
Some of our lessees are in a weak financial position. Investors should also
expect this to be the case with future lessees. As a result, a large proportion
of lessees may consistently be significantly in arrears in their rental payments
or maintenance payments. The environment for commercial aircraft operators in
most geographic regions has been generally favorable in the past few years.
Therefore, the current level of defaults and lessee arrears should not be seen
as representative of future defaults and arrears as economic conditions may
deteriorate. We can give no assurance that defaults and amounts in arrears will
not increase as the market for aircraft on operating lease experiences
anticipated cyclical downturns, particularly in regions such as Asia or Latin
America. You should refer to "The Aircraft, Related Leases and Collateral -- The
Lessees -- Payment History", Appendix 1 and Appendix 2 for a detailed discussion
of the lessees that are having financial difficulties or are in arrears on their
lease obligations.
OUR ABILITY TO RE-LEASE AIRCRAFT AND GENERATE CASH TO MAKE PAYMENTS ON THE
NOTES WILL BE IMPAIRED IF WE CANNOT TERMINATE LEASES AND REPOSSESS AIRCRAFT
WHEN A LESSEE DEFAULTS.
We have the right to terminate the lease and repossess the aircraft if
there is an event of default under a lease. However, we may be unable to
terminate the lease or may incur substantial costs if we terminate a lease and
repossess the aircraft. If we cannot repossess the aircraft, it will not be
available for re-lease or sale. In that event, or if we incur substantial costs
in terminating a lease and repossessing an aircraft, we may be unable to make
payments on the notes.
Our ability to terminate the lease and repossess the aircraft may be
limited by the following factors:
- a lessee contesting the AerCo Group's right to terminate the lease and
repossess the aircraft;
- our inability to export, deregister and redeploy the aircraft;
- legal restrictions on our ability to terminate or repossess the
aircraft; and
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- the appointment of a trustee in bankruptcy or similar officer in the
case of a bankrupt or insolvent lessee, as in the case of our B747-200B
aircraft which is on lease to Tower Air.
Even if we are able to terminate the lease and repossess the aircraft, we
may incur substantial costs, including:
- the direct costs associated with the termination of the lease or
repossession of an aircraft, including technical and legal costs;
- the cost of returning the aircraft to the appropriate jurisdiction;
- the payment of debts and taxes secured by liens on the aircraft that
were not paid by the lessee;
- the costs of retrieving or recreating aircraft records that are required
for re-registering the aircraft;
- the costs of putting the aircraft back in a condition suitable for
leasing or sale;
- costs of obtaining a certificate of airworthiness for the aircraft; and
- swap breakage costs incurred under our agreements with swap providers.
RISKS RELATING TO PAYMENTS ON THE NOTES
IF OUR ASSUMPTIONS ABOUT CASH FLOW AND OPERATING COSTS DO NOT MATCH ACTUAL
EXPERIENCE, WE MAY BE UNABLE TO MAKE NOTE PAYMENTS ON TIME OR AT ALL.
We have determined the expected final payment dates for the notes based on
assumptions about our future cash flows and interest and operating costs and
possible future economic conditions. The purpose of these assumptions is to
illustrate the payment provisions of the notes. Many of these assumptions relate
to future political, economic and market conditions that are outside our control
and are difficult or impossible to predict. Market interest rates are an example
of such an assumption. Other assumptions relate to future events that depend on
the actions of lessees or others with whom we deal. Insurance recoveries and
maintenance payments are examples of such assumptions. For this reason, it is
unlikely that our experience in the future will be consistent with the
assumptions we have made relating to cash flow and operating costs. As a result,
we may be unable to make payments on the notes at the times and in the amounts
that our assumptions indicate.
You should refer to "Description of the Notes -- AerCo's Performance
Assumptions" for more details about the assumptions we have made about cash flow
and operating costs.
YOUR RIGHT TO RECEIVE PAYMENTS ON YOUR NOTES RANKS JUNIOR TO OUR EXPENSES,
CERTAIN OTHER PAYMENTS WE MAY MAKE AND ANY MORE SENIOR SUBCLASSES OF NOTES.
Our expenses and certain other payments that we must make rank senior to
the notes and are payable out of our funds before any payments are made on the
notes. Depending on the amount of these more senior payments, we may be unable
to make the required payments on the notes.
In addition, your right to receive payments of interest, principal and any
premium on your notes will rank junior to payments on more senior subclasses of
notes. If an event of default occurs, then the holders of a class of notes may
not exercise remedies under the indenture until all amounts we owe on more
senior classes of notes and our other more senior obligations have been paid. In
that case, holders of the most senior class of notes will control the exercise
of these remedies.
THERE IS NO PUBLIC MARKET FOR THE NOTES. AS A RESULT YOU MAY BE UNABLE TO
SELL YOUR NOTES OR THE PRICE OF THE NOTES MAY SUFFER.
The notes have a limited trading market which may harm your ability to sell
the notes or the price at which you sell them. The notes are listed only on the
Luxembourg Stock Exchange. No one has an obligation to make a market in the
notes. We do not intend to seek approval for quotation through any
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automated quotation system. Future trading prices for the notes will depend on
many factors, including general economic conditions and our financial condition,
performance and prospects.
WE MAY BE UNABLE TO REFINANCE THE SUBCLASS A-3, SUBCLASS B-2 AND SUBCLASS
C-2 NOTES IN THE CAPITAL MARKETS. THIS MAY DELAY THE REPAYMENT OF PRINCIPAL
AND LOWER THE MARKET PRICE OF OUR OTHER SUBCLASSES OF NOTES.
The subclass A-3, subclass B-2 and subclass C-2 notes may reach their
expected final payment date before we have received sufficient cash flows to
repay them. In that case, we plan to refinance the subclass A-3, subclass B-2
and subclass C-2 notes by issuing refinancing notes. The refinancing notes will
rank equally with the other class A, class B or class C notes, as the case may
be, but the interest rate, principal payment provisions and other terms will be
different. Our ability to refinance the subclass A-3, subclass B-2 and subclass
C-2 notes will depend on many factors outside our control. These factors include
general conditions in the capital markets and the markets' perception of the
commercial aviation industry, the aircraft leasing business generally or our own
company. If we cannot refinance the subclass A-3, subclass B-2 and subclass C-2
notes on acceptable terms, we may not be able to repay the subclass A-3,
subclass B-2 and subclass C-2 notes by their expected final payment date. This
may also further delay repayment of principal on the class B and class C notes
and may result in lower market prices for the notes.
In the future, we may issue additional notes and refinancing notes that may
also require refinancing like the subclass A-3, subclass B-2 and subclass C-2
notes. These notes would present the same refinancing risk that we describe
above.
BANKRUPTCY RISKS
IF AERFI OR ANY OF ITS SUBSIDIARIES BECOMES BANKRUPT OR INSOLVENT, THE
AIRCRAFT AND OUR OTHER ASSETS MAY NOT BE AVAILABLE TO REPAY THE NOTES AND
OUR OTHER OBLIGATIONS.
We have taken steps in the previous and present transaction to structure
our company, and the acquisition of our aircraft owning companies to ensure that
our assets are not consolidated with the AerFi Group's assets and do not become
available to the AerFi Group's creditors in any bankruptcy or insolvency
proceeding involving the AerFi Group.
If AerFi or any of its subsidiaries becomes bankrupt or insolvent, there is
a legal risk that a court or other authority could decide that these steps were
not effective to insulate our assets from the AerFi Group's assets or that the
AerFi Group's transfer of aircraft to us was improper. As a result, the aircraft
and our other assets could become available to repay both AerFi's creditors and
our creditors, including you. We could also lose all of our rights in the
aircraft and our other assets. In either case, it may be impossible to repay
amounts outstanding under the notes. You should refer to "The
Parties -- Bankruptcy Considerations" for a detailed discussion of these
bankruptcy issues.
CERTAIN INCOME TAX RISKS
IF PAYMENTS OF PRINCIPAL AND INTEREST ON THE NOTES BECOME SUBJECT TO
WITHHOLDING TAX, WE WILL NOT MAKE ADDITIONAL PAYMENTS TO YOU.
We will not make any additional payments to noteholders for any withholding
or deduction that is required under applicable law on payments on the notes. If
we are required to make a withholding or deduction, whether because of the
implementation of the proposed E.U. Savings Directive or for any other reason,
we will use reasonable efforts to avoid the application of withholding taxes. If
we cannot avoid the withholding taxes, we may redeem the notes. If withholding
taxes are imposed on the notes and we do not redeem them, we will reduce the
amount of interest that you will receive by the amount of the withholding taxes.
We have received opinions from our tax advisors that payments on the notes will
not be subject to Jersey or Irish withholding tax. You should be aware, however,
that these opinions represent only the best judgment of counsel and are not
binding on the applicable tax authorities or the courts. The
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opinions depend upon certain factual assumptions and the existence of different
facts could lead to circumstances not anticipated by counsel.
Ownership of the notes entails certain risks regarding the application of
the tax laws of Ireland, the United States, Jersey and the jurisdictions in
which the members of the AerCo Group and the lessees are organized, reside or
operate. You should refer to "Tax Considerations" for a more detailed discussion
of the possible tax consequences of owning the notes.
OUR OPERATIONS MAY BECOME SUBJECT TO INCOME TAXES, WHICH WOULD REDUCE THE
CASH FLOW AVAILABLE TO MAKE PAYMENTS ON THE NOTES.
Our operations may be subject to the income tax laws of Ireland, the United
States, Jersey and other jurisdictions. There is also a risk that the servicer's
or standby servicer's future management of the aircraft might expose members of
the AerCo Group to tax liabilities outside Ireland. If our income is subject to
taxation, the cash flows available to make payments on the notes may be reduced.
IF WE LOSE OUR IRISH TAX BENEFITS, THE RATING AGENCIES MAY DOWNGRADE THE
NOTES AND WE MAY BE UNABLE TO MAKE REQUIRED NOTE PAYMENTS.
Our Irish-resident aircraft owning companies and those we will be acquiring
from the AerFi Group are entitled to certain corporate tax benefits for Shannon,
Ireland certified companies, including a preferential corporate taxation rate of
10% through December 2005. The loss of these tax benefits could lead to a
downgrade in the then current ratings on the notes and it could also affect our
ability to make the required payments on the notes.
If, whether because of its acquisition by debis or otherwise, AerFi were
liquidated or were to cease to hold its 5% shareholding in AerCo, or if the
AerFi Group were to reduce or relocate its operations for any reason such that
it failed to maintain, among other things, certain employment levels at Shannon,
Ireland, or if a member of the AerFi Group were to resign or be removed as
servicer, administrative agent or cash manager of the AerCo Group, then our
aircraft owning companies and those we have contracted to acquire from AerFi may
become subject to Irish corporate taxation at the general Irish statutory rate.
That rate is currently 24%. Irish tax law provides for a reduction of this rate
to 20% for 2001, 16% for 2002 and 12.50% for 2003 and subsequent years. AerFi
has agreed to use its best efforts to maintain the Shannon corporate tax
benefits for the benefit of the AerCo Group.
Upon the scheduled termination of the Irish preferential 10% tax rate on
December 31, 2005, AerCo and the other Irish tax-resident members of the AerCo
Group will become subject to Irish corporate tax on their net trading income,
which would include leasing income, at a 12.5% rate as provided for in the Irish
Finance Act of 1999. This legislation provides for non-trading income to be
taxed at 25%. There can be no assurance that these tax rates will not be changed
in the future.
You should refer to "Tax Considerations -- Irish Tax Considerations --
Irish Income and Withholding Taxes on Payments on the Notes" for additional
discussions of the Irish tax benefits.
THE ACTIVITIES OF OUR SERVICE PROVIDERS OR LOSS OF TREATY BENEFITS COULD
EXPOSE US TO U.S. FEDERAL INCOME TAXATION, WHICH COULD HARM OUR ABILITY TO
MAKE PAYMENTS ON THE NOTES.
AerCo and its non-U.S. aircraft owning subsidiaries do not expect to have
any material U.S. federal income tax liability. However, this conclusion will
depend, in part, on:
- the nature of such companies' income and operations, and
- in the case of AerCo and its Irish-resident subsidiary companies,
qualification for the benefits of the income tax treaty between the
United States and Ireland.
There can be no assurance that the activities of the servicer, the
administrative agent and other service providers, including, where applicable,
the standby servicer, will not expose AerCo and its non-U.S.
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aircraft owning subsidiaries to U.S. federal income tax on part or all of their
income, which would reduce the cash flow available to make payments on the
notes.
Following the acquisition of AerFi by debis, AerCo and its Irish-resident
aircraft owning subsidiaries may no longer qualify for the benefits of the
United States-Ireland income tax treaty, and as a result may be subject to
United States federal income tax on part or all of their income, which would
reduce the cash flow available to make payments on the notes.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and the conditions set forth in this prospectus and in the
accompanying letter of transmittal which together constitute the exchange offer,
AerCo will accept for exchange old notes which are properly tendered on or
before the expiration date and not withdrawn as permitted below. The term
"expiration date" means 5:00 p.m., New York City time, on January 12, 2001. If
AerCo, however, in its sole discretion, extends the period for which the
exchange offer is open, the expiration date means the latest time and date to
which the exchange offer is extended.
On or about the date set forth on the cover page of this prospectus, we
will first send this prospectus, together with the letter of transmittal, to all
holders of old notes known to us. Our obligation to accept old notes for
exchange is subject to certain conditions as listed under "-- Conditions to the
Exchange Offer" below.
AerCo expressly reserves the right to extend the time during which the
exchange offer is open, and delay acceptance of any old notes, by giving oral or
written notice of any extension to the exchange agent and the holders. During
any extension, all old notes previously tendered will remain subject to the
exchange offer and may be accepted for exchange by AerCo. AerCo has agreed under
the registration rights agreement to keep the exchange offer open for at least
20 business days after the date notice of the exchange offer is mailed to the
holders of the old notes or longer if required by applicable law.
AerCo expressly reserves the right to amend or terminate the exchange
offer, and to refuse any old notes not accepted for exchange, upon the
occurrence of any of the conditions of the exchange offer specified below under
"-- Conditions to the Exchange Offer." AerCo will give oral or written notice of
any extension, amendment, non-acceptance or termination to the holders of the
old notes as promptly as practicable. We will also issue such notice in the case
of any extension by means of a press release or other public announcement no
later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date.
Holders of old notes do not have any appraisal or dissenters' rights under
the indenture in connection with the exchange offer. AerCo intends to conduct
the exchange offer in accordance with the applicable requirements of the
Exchange Act of 1934, as amended ("Exchange Act") and the rules and regulations
of the Commission.
PROCEDURES FOR TENDERING OLD NOTES
The tender to AerCo of old notes by a holder as described below and the
acceptance by AerCo will constitute a binding agreement between the tendering
holder and AerCo upon the terms and subject to the conditions set forth in this
prospectus and in the accompanying letter of transmittal.
Except as set forth below, a holder including any participant in the
Depository Trust Company ("DTC") system whose name appears on a security
position listing as a holder of such old notes who wishes to tender old notes
for exchange under the exchange offer must transmit to the exchange agent on or
before the expiration date either:
- a properly completed and executed letter of transmittal or a facsimile
of the letter, including all other documents required by the letter of
transmittal, to the exchange agent at the address listed below under "--
Exchange Agent"; or
- a computer-generated message, transmitted through DTC's ATOP system and
received by the exchange agent and forming part of a book-entry
confirmation, in which the holder agrees to be bound by the terms of the
letter of transmittal.
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To ensure timely delivery of the old notes:
- the exchange agent must receive a confirmation of a book-entry transfer
of the old notes into its account at DTC before the expiration date; or
- the holder of old notes must comply with the guaranteed delivery
procedures described below.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT YOUR ELECTION AND RISK. IF THE DELIVERY IS BY MAIL, WE
RECOMMEND THAT YOU USE REGISTERED MAIL, WITH RETURN RECEIPT REQUESTED. IN ALL
CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL SHOULD BE SENT TO AERCO.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed unless the old notes surrendered for exchange are tendered by a
holder of the old notes who has not completed the box entitled "Special Issuance
Instructions" on the letter of transmittal or for the account of a firm which is
a member of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. or a commercial bank or trust
company having an office or correspondent in the United States. If signatures on
a letter of transmittal or a notice of withdrawal are required to be guaranteed,
the guarantees must be by a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or by a commercial bank or trust company having an office or
correspondent in the United States.
AerCo will determine in its sole discretion all questions as to the
validity, form, eligibility and acceptance of old notes tendered for exchange.
AerCo's decision in this respect will be final and binding. AerCo reserves the
absolute right to reject any tenders of any old notes not properly tendered or
to reject any old notes acceptance of which might, in the judgment of AerCo or
its counsel, be unlawful. AerCo also reserves the absolute right in its sole
discretion to waive any defects or irregularities or conditions of the exchange
offer as to any old notes either before or after the expiration date. AerCo's
interpretation of the terms and conditions of the exchange offer or any old
notes either before or after the expiration date shall be final and binding on
all parties. Unless waived, any defects or irregularities in connection with the
tenders of old notes for exchange must be cured within a reasonable period of
time as AerCo shall determine. Neither AerCo, the exchange agent nor any other
person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of old notes for exchange, nor shall any
of them incur any liability for failure to give such notification.
If a person or persons other than the holders of old notes sign the letter
of transmittal, the letter of transmittal must be accompanied by appropriate
powers of attorney, signed exactly as the name or names of the holders that
appear on the security position listing maintained by DTC.
If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, sign the letter of transmittal or powers of attorney, such person
should so indicate when signing and, unless waived by AerCo, proper evidence
satisfactory to AerCo of its authority to so act must be submitted.
By tendering, each holder of old notes will represent to AerCo that:
- the person receiving the new notes, whether or not the person is a
holder, is acquiring the new notes under the exchange offer in the
ordinary course of business,
- neither the holder of old notes nor any such other person has an
arrangement or understanding with any person to participate in the
distribution of the new notes,
- if the holder is not a broker-dealer, or is a broker-dealer but will not
receive new notes for its own account in exchange for old notes, neither
the holder nor any such other person is engaged in or intends to
participate in the distribution of the new notes, and
- neither the holder nor any other person is an "affiliate" of AerCo
within the meaning of Rule 405 under the Securities Act.
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<PAGE> 35
By tendering old notes, each holder of old notes that is a broker-dealer,
whether or not it is also an affiliate, that will receive new notes for its own
account pursuant to the exchange offer will represent that old notes to be
exchanged were acquired by it as a result of market-making activities or other
trading activities and will acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
the new notes. However, by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
AerCo will accept, promptly after the expiration date, all old notes properly
tendered and will issue the new notes promptly after acceptance of the old
notes. For purposes of the exchange offer, AerCo shall be deemed to have
accepted properly tendered old notes for exchange when, as and if AerCo has
given oral or written notice thereof to the exchange agent.
In all cases, issuance of new notes for old notes that are accepted for
exchange under the exchange offer will be made only after timely receipt by the
exchange agent of all the documents listed under "-- Procedures for Tendering
Old Notes". If any tendered old notes are not accepted for any reason set forth
in the terms and conditions of the exchange offer, such unaccepted or
non-exchanged old notes will be credited to an account maintained with DTC as
promptly as practicable after the expiration or termination of the exchange
offer.
INTEREST ON THE NEW NOTES
Holders of old notes that are accepted for exchange will not receive
accrued interest on the old notes at the time of exchange. However, each new
note will bear interest from the most recent date to which interest has been
paid on the old notes.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account for the old
notes at DTC for purposes of the exchange offer promptly after the date of this
prospectus. All deliveries of old notes must be made by book-entry transfer to
the account maintained by the exchange agent at DTC. Any financial institution
that is a participant in the DTC system may make book-entry delivery of old
notes by causing DTC to transfer such old notes into the exchange agent's
account in accordance with DTC's ATOP procedures for transfer. Holders of old
notes who are unable to deliver confirmation of the book-entry tender of their
old notes into the exchange agent's account at DTC or all other documents
required by the letter of transmittal to the exchange agent on or prior to the
expiration date, must tender their old notes according to the guaranteed
delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
If a holder of the old notes desires to tender them and time will not
permit the holder's required documents to reach the exchange agent on or before
the expiration date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if:
- the tender is made through a firm which is a member of a registered
national securities exchange or a member of the National Association of
Security Dealers, Inc. or a commercial bank or trust company having an
office or correspondent in the United States,
- on or before the expiration date, the exchange agent receives from such
firm, commercial bank or trust company either a properly completed and
duly executed letter of transmittal, or facsimile thereof or a properly
transmitted agent's message and notice of guaranteed delivery,
substantially in the form provided by AerCo listing:
-- the name and address of the holder of old notes,
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<PAGE> 36
-- the amount of old notes tendered,
-- stating that the tender is being made thereby and guaranteeing that
within five New York Stock Exchange trading days after the date of
execution of the notice of guaranteed delivery, a book-entry
confirmation and all other documents required by the letter of
transmittal will be deposited by such firm, commercial bank or trust
company with the exchange agent, and
- a book-entry confirmation and all other documents required by the letter
of transmittal, are received by the exchange agent within five New York
Stock Exchange trading days after the date of execution of the notice of
guaranteed delivery.
WITHDRAWAL RIGHTS
Tenders of old notes may be withdrawn at any time before the expiration
date.
For a withdrawal to be effective, either a written notice of withdrawal
must be received by the exchange agent at one of the addresses set forth below
under "-- Exchange Agent" or the appropriate procedures of DTC's ATOP system
must be complied with. Any notice of withdrawal must specify the name of the
person that tendered the old notes to be withdrawn and identify the old notes to
be withdrawn. Any notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawn old notes and otherwise comply
with the procedures of DTC. All questions as to the validity, form and
eligibility of such notices will be determined by AerCo, whose determination
shall be final and binding on all parties. Any old notes so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
exchange offer. Any old notes which holders have tendered for exchange but which
are not exchanged for any reason will be credited to an account maintained with
DTC for the old notes as soon as practicable after withdrawal, rejection of
tender or termination of the exchange offer. Holders who have properly withdrawn
old notes may retender old notes by following one of the procedures described
under "-- Procedures for Tendering Old Notes" above at any time on or before the
expiration date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the exchange offer, AerCo shall not
be required to accept any old notes for exchange or to issue new notes in
exchange for any old notes. AerCo may terminate or amend the exchange offer if,
at any time before the acceptance of such old notes for exchange or the exchange
of the new notes for such old notes, such acceptance or issuance would violate
applicable law or any interpretation of the staff of the Commission.
The foregoing condition is for the sole benefit of AerCo and may be
asserted by AerCo regardless of the circumstances giving rise to such condition
or may be waived by AerCo in whole or in part at any time and from time to time
in its sole discretion. The failure by AerCo at any time to exercise the
foregoing rights shall not be deemed a waiver of any such right and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time.
In addition, AerCo will not accept for exchange any old notes tendered, and
no new notes will be issued in exchange for any such old notes, if at such time
any stop order shall be threatened or in effect with respect to either the
registration statement of which this prospectus constitutes a part or the
qualification of the indenture under the Trust Indenture Act of 1939, as
amended.
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EXCHANGE AGENT
Bankers Trust Company has been appointed as the exchange agent for the
exchange offer. All executed letters of transmittal should be delivered to the
exchange agent at one of the addresses set forth below. Questions and requests
for assistance, requests for additional copies of this prospectus or of the
letter of transmittal and requests for notices of guaranteed delivery should be
directed to the exchange agent, addressed as follows:
Delivery To: Bankers Trust Company, as Exchange Agent
<TABLE>
<S> <C> <C>
By Facsimile: By Overnight Mail or Courier: By Hand Delivery:
BT Services Tennessee, Inc. BT Services Tennessee, Inc. Bankers Trust Company
Reorganization Unit Corporate Trust & Agency Group Corporate Trust & Agency Group
P.O. Box 292737 Reorganization Unit Attn: Reorganization Department
Nashville, Tennessee 648 Grassmere Park Road Receipt & Delivery Window
37229-2737 Nashville, Tennessee 37211 123 Washington Street, 1st Floor
New York, New York 10006
Facsimile Transmission Number: Confirm by Telephone: Information:
(615) 835-3701 (615) 835-3572 (800) 735-7777
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AN ADDRESS
SET FORTH ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN TO A NUMBER SET FORTH
ABOVE WILL NOT BE A VALID DELIVERY.
FEES AND EXPENSES
The principal solicitation is being made by mail. Additional solicitation
may be made by telegraph, telephone or in person by the exchange agent, on
behalf of AerCo. No additional compensation will be paid to the exchange agent
who engages in soliciting tenders. AerCo will not pay brokers, dealers, or
others soliciting acceptances of the exchange offer. AerCo however, will pay the
exchange agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection with the exchange
offer.
The cash expenses to be incurred in connection with the exchange offer will
be paid by AerCo and are estimated in the aggregate to be $500,000.
TRANSFER TAXES
Holders who tender their old notes for exchange will not be obligated to
pay any transfer taxes. If, however, a transfer tax is imposed for any reason
other than the transfer of old notes to AerCo or its order pursuant to the
exchange offer, the amount of any such transfer taxes will be payable by the
tendering holder. If a tendering holder does not submit satisfactory evidence of
payment of or exemption from such taxes, the amount of such transfer taxes will
be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of old notes who do not exchange their old notes for new notes
under the exchange offer will continue to be subject to the transfer
restrictions of the old notes. In general, the old notes may not be offered or
sold, unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. AerCo does not intend to register the old
notes under the Securities Act.
To comply with the securities laws of certain jurisdictions, it may be
necessary to qualify for sale or register the new notes prior to offering or
selling such new notes. We have agreed to register or qualify the new notes held
by broker-dealers for offer or sale under the securities or blue sky laws of
such jurisdictions as any such holder reasonably requests in writing. Unless a
holder makes such a request, we do not intend to take any action to register or
qualify the new notes for resale in any such jurisdictions. In addition, the
tender of old notes pursuant to the exchange offer will reduce the principal
amount of the old notes outstanding. This may have an adverse effect upon, and
increase the volatility of, the market price of the old notes due to a reduction
in liquidity.
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<PAGE> 38
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the new notes
offered hereby. New notes will be exchanged for old notes as described in this
prospectus on our receipt of old notes in like principal amount. We will cancel
all of the old notes surrendered to us in exchange for the new notes. The net
cash proceeds to us from the sale of the old notes were approximately $955.3
million. We used these net proceeds, together with the proceeds of the issuance
of the subclass D-2 and subclass E-2 notes to AerFi of approximately $209.1
million, to:
- refinance our then existing subclass A-1 notes ($340.0 million);
- refinance our then existing subclass D-1 notes ($80.0 million);
- fund an increase in the cash portion of the liquidity reserve amount
($32.4 million);
- fund the aircraft purchase account for the purchase of the aircraft
owning companies, and the additional aircraft or substitute aircraft, if
any (approximately $706.4 million); and
- pay certain expenses in connection with the offering (approximately $5.6
million).
See "The Aircraft, Related Leases and Collateral" for more details on the
refinancing and additional aircraft acquisition.
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THE PARTIES
AERCO
AerCo is a special purpose limited liability company formed on June 4, 1998
under the laws of Jersey to purchase and own a portfolio of aircraft. We are
resident in Ireland for tax purposes and are entitled to certain corporate tax
benefits available to Shannon, Ireland certified companies.
We have an authorized share capital of 10,000 ordinary shares, $1 par value
per share, 20 of which are issued and outstanding. Nineteen shares are held by
Juris Limited and Lively Limited, each a Jersey limited liability company, for
the benefit of the AerCo Holding Trust, a charitable trust established under the
laws of Jersey (the "charitable trust"). One share is held by AerFi.
We have taken steps to structure the AerCo Group and the acquisition of our
aircraft to ensure that our assets are not consolidated with the assets of AerFi
or any of its affiliates and do not otherwise become available to their
creditors in any bankruptcy or insolvency proceeding involving AerFi or any of
its affiliates. For a description of the risks you could face if these steps are
not effective, see "Risk Factors -- Bankruptcy Risks".
A majority of our directors are independent of AerFi, although certain
significant transactions may only be approved by a unanimous vote of our
directors. We have no employees or executive officers. Accordingly, we rely upon
the servicer, the administrative agent, the cash manager and other service
providers for all asset servicing, executive and administrative functions. See
"Management of the AerCo Group" for a full description of the services provided
by the servicer, the administrative agent and other service providers.
Our registered and principal office is located at 22 Grenville Street, St.
Helier, Jersey, JE4 8PX, Channel Islands and our telephone number is
+44-1534-609000.
INITIAL ACQUISITION
On July 15, 1998, AerCo purchased all of the outstanding capital stock of
ALPS 94-1, a securitization vehicle, from the trustees of a charitable trust for
a nominal amount. This nominal purchase price reflected the very limited
economic entitlements of these trustees as shareholders of ALPS 94-1. On July
15, 1998, ALPS 94-1 was the owner of 25 commercial jet aircraft.
On July 15, 1998, AerCo also purchased all of the capital stock of three
wholly-owned, newly incorporated subsidiaries of AerFi, AerCo Ireland Limited,
AerCo Ireland II Limited and AerCo USA Inc. (together the "AerFi transferred
companies") for a net purchase price equal to $0.3 million. On July 15, 1998,
the AerFi transferred companies were the owners of ten commercial jet aircraft.
AerCo financed the purchase of the aircraft through an issuance of notes.
On July 15, 1998, AerCo loaned ALPS 94-1 a portion of the net cash proceeds from
this issuance of notes for the purpose of immediately redeeming or repaying ALPS
94-1's existing financial indebtedness and paying fees and other expenses
payable by ALPS 94-1 in connection with the refinancing of ALPS 94-1 and the
offering. On July 15, 1998, AerCo also loaned each AerFi transferred company a
portion of the net proceeds from the issuance of the notes to immediately repay
its indebtedness to AerFi. All letters of credit, guarantees or similar
arrangements securing obligations of any lessee of the transferred aircraft were
transferred to, renewed, amended or reissued in the name of, an AerFi
transferred company.
On July 15, 1998, ALPS 94-1 and GECAS, the former servicer to ALPS 94-1 and
existing servicer to AerFi, also reached an agreement to terminate the existing
ALPS 94-1 servicing agreement, in exchange for a termination fee. ALPS 94-1
agreed, upon termination of the ALPS 94-1 servicing agreement to waive all
claims it may have against GECAS, its affiliates and their representatives. ALPS
94-1 also agreed to indemnify GECAS, its affiliates and their representatives
for any losses they may have incurred in connection with the termination of the
ALPS 94-1 servicing agreement, the offering and the issuance of the notes and
the refinancing of ALPS 94-1.
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The trustees of the charitable trust which owned the capital stock of ALPS
94-1 made no representations, warranties or indemnities in selling their shares
to AerCo. AerFi made customary representations and warranties in the share
purchase agreement for the acquisition of the AerFi transferred companies and
aircraft, including representations relating to solvency, undisclosed contingent
liabilities and insurance. AerFi agreed to indemnify AerCo for breaches of its
representations and warranties relating to the AerFi transferred companies and
the transferred aircraft. These representations and warranties survive until
July 15, 2001. AerCo's potential recovery under these representations and
warranties is limited to approximately $185 million.
On April 16, 1999, AerCo commenced an exchange offer under which the
subclass A-1, subclass A-2, subclass B-1 and subclass C-1 notes issued on July
15, 1998 were exchanged for new notes of corresponding subclasses which were
registered with the Commission.
THE REFINANCING AND ADDITIONAL AIRCRAFT ACQUISITION
On July 17, 2000, we made an additional offering of subclass A-3, subclass
A-4, subclass B-2 and subclass C-2 notes in the aggregate principal amount of
$960 million and used these proceeds, together with the proceeds from an
offering of our subclass D-2 and subclass E-2 notes to AerFi, to finance our
acquisition of 30 additional aircraft and to refinance our then existing
subclass A-1 and subclass D-1 notes. The 30 additional aircraft had an appraised
value of $724.1 million at April 30, 2000 and are currently on lease to 20
lessees in 13 countries.
Because of the timing uncertainties of obtaining lessee consents that a
direct transfer of aircraft from the AerFi Group to AerCo presented, AerFi
structured the acquisition of the additional aircraft and associated leases as
the sale of the capital stock of wholly-owned, recently incorporated
subsidiaries to occur in a series of transactions on or following the closing of
the additional offering. Prior to each acquisition, AerFi pre-positions
ownership of the aircraft in the appropriate aircraft owning companies. Each
aircraft owning company finances its acquisition of the applicable aircraft with
debt payable to the AerFi Group or third-party creditors. We expect that AerCo
will purchase all of the outstanding capital stock of the appropriate aircraft
owning companies from the AerFi Group and refinance indebtedness of those
companies to the AerFi Group or third party creditors for an aggregate amount
equal to approximately $706.4 million, calculated as follows:
(1) the aggregate appraised value at April 30, 2000 of the 30 aircraft
to be transferred ($724.1 million);
less the sum of:
(2) the amount of cash security deposits held in respect of those
aircraft (approximately $7.4 million for all 30 additional aircraft as of
June 30, 2000); and
(3) the amount of the transaction expenses of $10.3 million inclusive
of subscription discounts and commissions.
The cumulative aggregate net purchase price of the capital stock is paid in
installments and the related indebtedness is simultaneously repaid as the shares
of each aircraft owning company are delivered. All of the transaction expenses
were paid on July 17, 2000. We deposited the proceeds of the additional offering
allocable to those remaining aircraft not delivered on July 17, 2000 into our
aircraft purchase account and have been using and will continue to use these
funds to purchase the remaining aircraft as they are ready for delivery.
As aircraft are delivered from the AerFi Group to AerCo, AerCo loans each
aircraft owning company a portion of the net proceeds of the offering from the
aircraft purchase account to repay its indebtedness to the AerFi Group or third
party creditors. As the aircraft are delivered from the AerFi Group to AerCo,
all letters of credit, guarantees or similar arrangements securing obligations
of any lessee of the AerFi Group
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<PAGE> 41
aircraft are transferred to, renewed, amended or reissued in the name of, the
relevant aircraft owning company.
Only six of the 30 additional aircraft were delivered to AerCo as of July
17, 2000 because the AerFi Group needed additional time in order to obtain
lessee consents, necessary governmental authorizations, revised insurance
certificates and meet other requirements in order to transfer such aircraft. A
further 18 of the aircraft had been purchased by AerCo as of November 2, 2000.
Because the AerFi Group's ability to deliver the remaining six aircraft depends
on obtaining lessee consents and other matters not within its control, we cannot
assure you that the remaining aircraft will be delivered within the specified
period. For a description of the risks you could face if any or all of the
remaining aircraft are not delivered to us, see "Risk Factors -- Risks Relating
to AerCo and Certain Third Parties".
If an additional aircraft cannot be delivered, we may acquire a substitute
aircraft proposed by the AerFi Group if certain conditions are met. Under our
purchase agreement with the AerFi Group, our obligation to purchase an
additional aircraft is dependent on the AerFi Group's being able to deliver the
aircraft by July 10, 2001. If, with respect to any of the remaining six
aircraft, any of the conditions to delivery is not met within the specified
period or if AerFi notifies AerCo that it has determined that these conditions
will not be met, then a "non-delivery event" will occur with respect to the
relevant aircraft unless a substitute aircraft can be delivered within the
specified period. In addition, if AerFi defaults on its obligations under the
provisions of the purchase agreement described below, then a non-delivery event
will occur with respect to all of the remaining aircraft. The net proceeds of
the additional notes offering allocable to the purchase price for a remaining
aircraft will remain in the aircraft purchase account until such time as the
aircraft has been delivered or a non-delivery event has occurred. In addition,
the subclass D-2 notes and the subclass E-2 notes allocable to the purchase
price of a remaining aircraft will not be issued to AerFi until such time as the
aircraft is delivered to AerCo. The amount of cash payable out of the aircraft
purchase account to AerFi for each delivered aircraft was, in the case of the
first 15 deliveries, subject to a discount of up to 10%, reducing to 1% for the
fifteenth delivery, and, in the case of all subsequent deliveries, is increased
by an amount designed to reimburse AerFi for the preceding discounts.
In consideration of AerCo's agreeing to purchase the aircraft owning
companies and raising funds in anticipation of delivery of all the aircraft,
AerFi has agreed to pay to AerCo, for each remaining aircraft, an amount equal
to gross lease rentals on the remaining aircraft received by AerFi from July 17,
2000. AerCo will pay to AerFi an amount equal to (a) any interest earned on the
funds in the aircraft purchase account allocable to the remaining aircraft,
which funds would have been transferred to AerFi had the remaining aircraft been
delivered to AerCo on July 17, 2000, and (b) an amount equal to interest which
would have been payable to AerFi on the relevant principal amount of the
subclass D-2 and subclass E-2 notes according to the priority of payments had
AerFi been issued such notes on July 17, 2000. Amounts payable by AerFi to AerCo
are paid each month and are deposited into the collection account in time to be
paid to the note holders on each payment date, together with other cash amounts
received under leases of aircraft already owned by the AerCo Group.
When AerFi has met the necessary conditions to the transfer of each
remaining aircraft, such aircraft will be transferred to AerCo. Until a
remaining aircraft has been delivered to AerCo, AerFi will pay, and AerCo will
accrue, net expenses relating to the ownership of the relevant aircraft and the
related leases which would have been paid by AerCo had the aircraft been
delivered on July 17, 2000. These expenses are those relating to the management
of the leases (not including payments under the servicing agreement) from July
17, 2000 and maintenance expenses not paid under the servicing agreement as of
July 17, 2000 by the lessees directly or from supplemental rent paid by the
lessees for maintenance costs. Upon delivery of each remaining aircraft, AerCo
will pay to AerFi an adjusted purchase price which will consist of the purchase
price described above allocable to the aircraft, as adjusted for the related
lease management and aircraft maintenance expenses incurred by AerFi since July
17, 2000, net of any related aircraft maintenance income received by AerFi since
July 17, 2000. In addition, at that time, AerCo will issue to AerFi the subclass
D-2 and subclass E-2 notes allocable to the purchase price of the aircraft.
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If a non-delivery event occurs, funds held in the aircraft purchase account
allocable to the relevant aircraft will then be transferred to the collection
account and will be used to make payments on the notes on the next payment date
in accordance with the order of priorities specified in the notes themselves.
AerFi made customary representations and warranties in the share purchase
agreement for the acquisition of the additional aircraft including
representations relating to solvency, undisclosed contingent liabilities and
insurance. The AerFi Group is obligated to indemnify us for breaches of their
representations and warranties relating to the aircraft owning companies and the
30 additional aircraft which they have sold or have contracted to sell to us.
The representations and warranties with respect to an aircraft owning company
and its related aircraft will survive for three years from the date of delivery
of that aircraft owning company. Our potential recovery under these
representations and warranties is limited to approximately $175.0 million
regardless of how many additional aircraft and related aircraft owning companies
are ultimately acquired by us.
BANKRUPTCY CONSIDERATIONS
We have taken steps in structuring the transactions described in this
prospectus to ensure that our assets and liabilities will not be consolidated
with those of AerFi if AerFi becomes the subject of an application for relief
under applicable bankruptcy or insolvency laws. We took similar steps in
relation to our prior acquisition of companies from the AerFi Group in 1998 for
the same purpose. These steps include:
- the creation of AerCo as a separate legal entity outside Ireland;
- the requirement that the AerFi Group hold no more than the 5% of AerCo's
capital stock necessary to assist us and certain of our subsidiaries in
obtaining certain corporate tax benefits for Shannon, Ireland certified
companies;
- the requirement that the AerFi Group not control the composition of the
majority of AerCo's board of directors; and
- the inclusion in various transaction documents of provisions requiring
that our business and affairs and the business and affairs of our
subsidiaries are at all times identifiable and separately managed from
those of AerFi.
McCann FitzGerald, our Irish counsel, has delivered an opinion in
connection with the acquisition and transfer of the Irish AerFi companies to
AerCo concluding that on the basis of certain assumptions and subject to certain
qualifications and reservations:
- in any examination of AerFi or any of its affiliates, an Irish examiner
would not be able to contend successfully that an examiner should be
appointed to any member of the AerCo Group on the grounds that, after
July 17, 2000, such member is a "related company" of AerFi or such
affiliate; and
- an Irish court should not treat AerFi or any of its affiliates, on the
one hand, and any member of the AerCo Group, on the other, as a single
entity in any winding up of AerFi or such affiliate and order
-- the pooling of any of the assets and liabilities of any member of the
AerCo Group with those of AerFi or any affiliate; or
-- the contribution of any of the assets of any member of the AerCo Group
to the repayment of the debts of AerFi or any affiliate.
In the context of liquidation, examination or receivership of AerFi or any
of its affiliates, a liquidator, receiver, examiner, creditor or shareholder of
AerFi or any of its affiliates could take the position that the disposal of the
shares of any of the AerFi transferred companies pursuant to the share purchase
agreements constituted improper transfers or fraudulent conveyances and could
therefore seek the invalidation of such sales and the return to AerFi of such
shares or proceeds of subsequent sales of the
41
<PAGE> 43
shares. With respect to these issues, we have received an opinion of Irish
counsel, McCann FitzGerald, concluding that, on the basis of certain
assumptions, including as to the adequacy of consideration and subject to
certain qualifications and reservations set forth in such opinion, an Irish
court would not regard the completed sale of the shares of the AerFi Group
transferred companies pursuant to the share purchase agreements as improper
transfers or fraudulent conveyances and order any such assets to be returned to
AerFi on such grounds.
AerFi and AerCo have taken or will take, in the case of the AerFi Group
companies not yet transferred to AerCo, appropriate steps to transfer the shares
of the AerFi Group companies to AerCo. A liquidator, receiver, examiner,
creditor or shareholder of AerFi, any such seller or any relevant affiliate,
however, could seek to recharacterize the transfer of the shares of the AerFi
Group companies as a pledge of collateral as security for a financing of AerFi.
A successful recharacterization of the share transfers as a pledge or granting
of security could:
- in certain circumstances result in the complete forfeiture of the rights
of the AerCo Group in the transferred aircraft or the shares of the
AerFi Group companies, possibly resulting in the AerCo Group being
considered a general unsecured creditor of AerFi or the applicable
seller with a claim in an amount equal to the purchase price paid for
such aircraft or such shares, or
- in other circumstances result in the AerCo Group being a secured
creditor of AerFi or the applicable seller or of the relevant affiliate.
We have received an opinion of McCann FitzGerald concluding that,
notwithstanding the uncertainty resulting from the lack of substantive Irish
case law on the issue of recharacterization, and subject to the qualifications
and reservations, including as to difference of treatment of the sales for
accounting purposes, and based on the assumptions set forth in the opinion, the
sales of the shares of the AerFi Group companies once completed would not be
recharacterized as a pledge of such assets to secure a loan from the AerCo Group
to AerFi. The assumptions to the opinion include, in addition to the assumption
as to the adequacy of consideration, the assumption that both AerFi and the
AerCo Group will, so far as permissible in accordance with current accounting
standards, act in a manner consistent with the shares having been sold.
Vinge, our Swedish counsel, has delivered an opinion in connection with
each sale and transfer of aircraft from a Swedish legal entity currently holding
title to such aircraft concluding, subject to certain assumptions (including
assumptions as to the delivery of notice to any operator of an aircraft on lease
that ownership of the aircraft has been transferred from the seller to the
purchaser and as to the adequacy of consideration) and certain qualifications
and reservations set forth in the opinion, that in a bankruptcy proceeding
involving any seller which is a Swedish legal entity (a) the sale of the
aircraft would not be recharacterized as an agreement purporting to create a
security interest over or in respect of the aircraft but would be treated as a
sale and that therefore the aircraft would not constitute property of the
seller's estate for the purposes of such bankruptcy proceeding and (b) a Swedish
court would not grant an order consolidating the assets and liabilities of any
other corporate person with those of the seller.
We can give you no assurance, however, that the circumstances and
assumptions upon which counsel have based their opinions will not change, that a
court of competent jurisdiction would not decide differently from the views
expressed in such counsel's opinions or that such opinions will prove to be
correct. Such opinions represent only the best judgment of counsel and are not
binding on the courts. In particular, such opinions depend on certain factual
assumptions and the occurrence of different facts could lead a court to reach a
different conclusion. Further, the issues discussed in this subsection could
arise in other jurisdictions in which we have not received similar legal
opinions. We can offer you no assurance that courts in these jurisdictions will
not decide these issues in a manner that could be adverse to your interests.
We will also take appropriate steps to structure any future acquisition of
additional aircraft or shares in additional aircraft owning subsidiaries of any
sellers, which may include the AerFi Group, to minimize the risk of
recharacterization described above. The nature and magnitude of such risk will
depend largely
42
<PAGE> 44
on the financial condition of the relevant seller and the bankruptcy and
insolvency laws of the jurisdiction or jurisdictions applicable to it and its
assets. There can be no assurance that a liquidator, receiver, examiner,
creditor or shareholder of the relevant seller could not seek to recharacterize
the acquisition of additional aircraft as described above or could not otherwise
seek to challenge our rights in the additional aircraft or the shares of the
companies owning them.
AERFI
AerFi is an Irish public limited liability company with its principal
offices located at Aviation House, Shannon, Co. Clare, Ireland. AerFi is a
lessor of modern commercial aircraft and is a significant participant in the
global aviation industry. AerFi was founded in 1975.
The AerFi Group, which includes AerFi and its subsidiaries, acts as
administrative agent and cash manager to AerCo. In addition, from July 17, 2000,
AerFi replaced Babcock & Brown as our servicer. We describe the terms of the
servicing agreement under which AerFi will act as servicer under "Management of
the AerCo Group -- The Servicer".
On September 21, 2000, AerFi entered into an agreement with amongst others,
debis, under which debis agreed on certain terms and conditions to make a cash
offer to acquire all of the ordinary share capital of AerFi. This transaction
was completed on November 16, 2000. As of the date of this prospectus, debis
owned 98.2% of the outstanding ordinary share capital of AerFi and will acquire
the remaining 1.8% through a compulsory squeeze-out.
At November 2, 2000, AerFi had 45 commercial aircraft in its portfolio,
which were on lease to 22 lessees in 14 countries. This includes the six
additional aircraft which remain to be delivered by the AerFi Group to AerCo.
Assuming delivery of all of these aircraft to AerCo, AerFi will have 39
commercial aircraft in its portfolio, which are currently on lease to 20
airlines in 13 countries.
At November 2, 2000, AerFi employed 55 people. In addition to its principal
office in Shannon, Ireland, the AerFi Group also has offices in Malmo, Sweden
and Fort Lauderdale, Florida.
AerFi Financial Services (Ireland) Limited acts as administrative agent and
AerFi Cash Manager Limited acts as cash manager to Airplanes Group, another
aircraft securitization vehicle. Other subsidiaries of AerFi act as
administrative agent and cash manager to GPA-ATR Limited, a turboprop aircraft
joint venture company in which AerFi Jetprop Limited holds 50% of the share
capital.
AerFi is the holder of all of our subclass D-2, subclass E-1 and subclass
E-2 notes.
In accordance with Irish and U.K. GAAP, AerFi had audited profits on
ordinary activities before taxation for the year ended March 31, 2000 of $68.2
million (1999: $47.7 million). Also at that date, AerFi's audited total assets
amounted to $1,408.7 million, shareholders' funds were $429.6 million and gross
debt amounted to $771.2 million. In addition, at March 31, 2000, AerFi had cash
on hand of $268.7 million ($129.8 million of which was restricted).
SERVICER
From July 17, 2000, AerFi replaced Babcock & Brown as servicer with respect
to the aircraft pursuant to a servicing agreement among AerCo, its subsidiaries
and AerFi. The servicer performs certain aircraft-related services, including
marketing the aircraft for lease or sale and monitoring lessee compliance with
lease terms, with a view towards maximizing the present value of the cash flows
derived from the sale or lease of the aircraft. For a full description of the
servicing agreement with AerFi, see "Management of the AerCo Group -- The
Servicer".
43
<PAGE> 45
Significant differences between the servicing agreement with AerFi and the
prior servicing agreement with Babcock & Brown are:
- AerFi's indemnity in favor of AerCo is unlimited. Babcock & Brown's
indemnity was limited to a maximum of $21.0 million in the aggregate
with respect to any and all losses, except losses arising from fraud on
the part of Babcock & Brown.
- AerFi will not receive any incentive fees. Babcock & Brown was entitled
to a results-based incentive fee and sales-based incentive fees. AerFi
will receive the same annual, monthly retainer and rental fees and sales
fees as Babcock & Brown received.
- AerCo could terminate the appointment of Babcock & Brown on six months'
written notice on payment of termination and other fees. AerCo does not
have this right in respect of AerFi. AerFi has, in consideration of
being appointed servicer in place of Babcock & Brown, reimbursed AerCo
for the costs of terminating the appointment of Babcock & Brown as
servicer.
- AerCo can terminate the appointment of AerFi if AerFi undergoes, or may
undergo, a change of control or transfers, or intends to transfer more
than 50% of the outstanding class E notes to one or more non-affiliates
and, in either case, any credit rating agency which rates the notes
(other than the class E notes) notifies or confirms to AerCo that it
intends to downgrade, is downgrading or has downgraded the rating of any
of the notes (other than the class E notes). There was no similar
termination provision in the agreement with Babcock & Brown.
- Any termination of the AerFi Group's role as administrative agent or
cash manager will also cause the AerFi Group's role as servicer to
terminate.
- The administrative agent, an affiliate of AerFi, currently has an
obligation to report to AerCo on the performance of the servicer. With
AerFi as the servicer, this may result in a conflict of interest for
AerFi. As a consequence, AerCo's directors will be entitled to seek
separate advice on any matter where they believe such advice is
necessary in light of the potential conflicts of interest which the
AerFi Group may have as administrative agent, servicer and cash manager.
- The servicing agreement with AerFi will expire on payment in full of the
notes. The servicing agreement with Babcock & Brown would have expired
on July 15, 2008.
STANDBY SERVICER
For so long as required by the rating agencies, debis Aircraft Leasing
Limited, an Irish subsidiary of debis (the "standby servicer"), will act as
standby servicer with respect to the aircraft pursuant to the terms of a standby
servicing agreement entered into on July 17, 2000 among AerCo, debis and the
standby servicer. We have agreed with debis and the standby servicer that in the
event the standby servicer is called upon to act as servicer, it will also
provide the administrative agency services and cash management services under
substantially the same terms as the existing administrative agency agreement and
cash management agreement between the AerFi Group and us. In addition, if the
standby servicer is called upon to provide these services, the services shall be
provided for all AerCo leases and aircraft. Under our standby agreement with the
standby servicer, the standby servicer will provide the services on
substantially the same terms as they are provided by AerFi, except that the
standby servicer will be entitled to a sales-based incentive fee and AerCo will
be able to terminate the standby servicing agreement on six months' notice upon
payment of a termination fee.
On September 21, 2000, AerFi entered into an agreement with amongst others,
debis, under which debis agreed on certain terms and conditions to make a cash
offer to acquire all of the ordinary share capital of AerFi. This transaction
was completed on November 16, 2000. As of the date of this prospectus, debis
owned 98.2% of the outstanding ordinary share capital of AerFi and will acquire
the remaining 1.8% through a compulsory squeeze out.
44
<PAGE> 46
THE AIRCRAFT, RELATED LEASES AND COLLATERAL
PORTFOLIO INFORMATION
Assuming that we take delivery of all of the additional aircraft, our total
portfolio will comprise 63 aircraft on lease to 37 lessees in 20 countries at
November 2, 2000. Except where we indicate otherwise, the information about our
portfolio in this prospectus assumes that we have acquired all 30 additional
aircraft.
As of April 30, 2000, the total appraised value of our existing aircraft
and the additional aircraft that we expect to acquire (including one aircraft
that is valued at scrap value) was $1,541.9 million. As of November 2, 2000, the
weighted average remaining contracted lease term of the portfolio (by appraised
values as of April 30, 2000 and without giving effect to purchase options or
extension options) was 43 months. The longest lease is scheduled to expire in
May 2017. Therefore, we will be required to re-lease each of the aircraft one or
more times prior to the final maturity date for the notes. See "Risk
Factors -- Lease Risks" for a description of the risks you could face if any
aircraft is not re-leased.
APPRAISERS' REPORTS
The AerCo Group obtained appraised values of the aircraft at 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
B747-200B 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 at 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 original aircraft was approximately
$817.8 million compared with an average base value for all 33 aircraft of $849.5
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 B747-200B
from base value to scrap value. The aggregate base and scrap values calculated
by each of the three appraisers for the 33 original aircraft are $833.1 million
in the case of BK Associates, Inc., $849.6 million in the case of Aircraft
Information Services, Inc. and $770.8 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 $724.1 million. The aggregate base
values calculated by each of the three appraisers for the 30 additional aircraft
are $725.5 million in the case of BK Associates, Inc., $754.8 million in the
case of Aircraft Information Services, Inc. and $691.9 million in the case of
Airclaims Limited.
You should not rely on the appraised value as a measure of the realizable
value of any aircraft. See "Risk Factors -- Aircraft Risks" for a discussion of
the risks associated with the appraised value.
45
<PAGE> 47
The following table lists the appraised values of the aircraft at April 30,
2000.
<TABLE>
<CAPTION>
APPRAISAL OF
----------------------------------------- AVERAGE
DATE OF AIRCRAFT APPRAISED
ENGINE SERIAL MANUFACTURE/ INFORMATION AIRCLAIMS VALUE AT
AIRCRAFT TYPE CONFIGURATION NUMBER CONVERSION SERVICES LIMITED BK ASSOCIATES APRIL 30, 2000
------------- ------------- ------ ------------ ------------- --------- ------------- --------------
(U.S.$'000S)
<S> <C> <C> <C> <C> <C> <C> <C>
A300B4-200 CF6-50C2 240 May-83 9,260 9,160 14,500 10,973
A320-200 V2500-A1 *+ 354 Oct-92 27,940 30,800 31,200 29,980
A320-200 V2500-A1 *+ 411 Mar-93 29,310 31,090 31,450 30,617
A320-200 V2527-A5 * 934 Jan-99 42,480 38,480 40,300 40,420
A320-200 CFM56-5A1 85 Feb-90 26,080 24,720 23,750 24,850
A320-200 CFM56-5A3 299 Apr-92 28,210 29,340 28,800 28,783
A320-200 V2500-A1 362 Nov-92 26,990 28,890 29,900 28,593
A320-200 CFM56-5A3 391 Feb-93 30,330 28,960 30,400 29,897
A320-200 CFM56-5A1 403 Dec-93 29,520 29,840 29,600 29,653
A321-200 V2533-A5 * 1207 Apr-00 56,450 48,860 51,000 52,103
B737-300 CFM56-3B1 *+ 23345 Jul-85 17,170 13,220 13,200 14,530
B737-300 CFM56-3C1 * 24834 Jun-90 22,790 21,200 22,050 22,013
B737-300 CFM56-3C1 *+ 24856 Aug-90 22,830 20,580 22,550 21,987
B737-300 CFM56-3B2 *+ 25041 Mar-91 23,550 22,710 23,450 23,237
B737-300 CFM56-3C1 *+ 25604 Jan-93 23,790 20,760 24,550 23,033
B737-300 CFM56-3B2 *+ 26440 Mar-92 23,340 22,560 24,550 23,483
B737-300 CFM56-3B1 24465 Aug-89 20,660 18,140 20,200 19,667
B737-300 CFM56-3B1 24677 Mar-90 21,710 19,280 20,950 20,647
B737-300 CFM56-3C1 24908 Mar-91 23,940 21,520 23,900 23,120
B737-300 CFM56-3C1 24909 Apr-91 22,790 21,990 22,800 22,527
B737-300 CFM56-3C1 26068 Jun-92 25,190 20,960 25,350 23,833
B737-300 CFM56-3B2 *+ 26442 May-92 23,840 22,100 23,250 23,063
B737-300QC CFM56-3B2 * 24021 Nov-88 22,090 22,270 20,550 21,637
B737-400 CFM56-3C1 *+ 24270 May-89 24,100 22,090 21,450 22,547
B737-400 CFM56-3C1 *+ 24271 Jun-89 24,210 22,500 22,250 22,987
B737-400 CFM56-3C1 *+ 24901 May-90 25,190 24,750 23,850 24,597
B737-400 CFM56-3C1 *+ 25594 May-92 27,360 25,710 26,800 26,623
B737-400 CFM56-3C1 *+ 27074 Apr-92 27,110 26,940 26,550 26,867
B737-400 CFM56-3C1 23868 Oct-88 22,550 19,350 20,250 20,717
B737-400 CFM56-3C1 23979 Jan-89 23,580 21,330 19,850 21,587
B737-400 CFM56-3C1 24685 May-90 25,060 23,930 24,500 24,497
B737-400 CFM56-3C1 24904 Feb-91 25,860 25,010 23,900 24,923
B737-400 CFM56-3C1 25764 Jun-92 25,600 22,500 25,800 24,633
B737-400 CFM56-3C1 25765 Jul-92 26,260 22,680 26,100 25,013
B737-400 CFM56-3C1 26066 Jun-92 25,720 24,380 25,500 25,200
B737-500 CFM56-3C1 *+ 24651 Apr-90 19,390 19,590 17,450 18,810
B737-500 CFM56-3C1 *+ 25768 May-95 24,020 21,880 21,400 22,433
B737-500 CFM56-3C1 *+ 25789 Feb-92 21,060 20,880 19,600 20,513
B737-500 CFM56-3C1 *+ 27153 Aug-93 21,120 20,760 19,500 20,460
B737-500 CFM56-3C1 *+ 27155 Mar-93 21,140 20,490 18,200 19,943
B737-500 CFM56-3C1 26067 Jun-92 21,270 22,330 19,150 20,917
B747-200B JT9D-7Q 22496 Oct-81 8,284 6,937 10,000 8,407
B757-200 PW2037 *+ 28486 May-99 55,600 46,210 52,150 51,320
B757-200 RB211-535E4 26152 Aug-92 40,430 33,920 40,500 38,283
B757-200 RB211-535E4 26153 Aug-92 42,180 35,240 41,100 39,507
B757-200 RB211-535E4 26158 Feb-93 43,700 37,110 41,650 40,820
B767-300ER PW4060 24947 Mar-91 59,600 53,860 58,350 57,270
B767-300ER PW4060 24999 Feb-91 60,180 53,920 56,200 56,767
DC8-71F CFM56-2C1 46040 Mar-91 14,380 16,000 12,250 14,210
DC8-71F CFM56-2C1 46064 Mar-92 15,080 13,590 13,430 14,033
F100 TAY650-15 *+ 11320 Apr-91 13,350 12,000 13,000 12,783
F100 TAY650-15 *+ 11322 Jun-91 13,480 11,490 13,050 12,673
F100 TAY650-15 11341 Aug-91 14,280 11,820 13,550 13,217
F100 TAY650-15 11350 Apr-92 13,130 11,650 14,750 13,177
F100 TAY650-15 11351 Sep-91 14,280 11,390 13,650 13,107
MD-82 JT8D-217C *+ 49570 Feb-88 19,180 14,610 17,750 17,180
MD-82 JT8D-219 * 49905 Oct-90 20,140 15,960 20,350 18,817
MD-82 JT8D-219 *+ 49931 Aug-90 20,230 16,230 20,400 18,953
MD-82 JT8D-219 *+ 49932 Sep-90 20,280 16,540 21,200 19,340
MD-82 JT8D-219 * 53245 Apr-92 22,230 18,680 22,400 21,103
MD-83 JT8D-219 49627 Apr-89 20,460 16,730 19,500 18,897
MD-83 JT8D-219 49790 Oct-89 20,810 16,830 20,050 19,230
MD-83 JT8D-219 49952 Dec-91 22,180 17,450 22,950 20,860
--------- --------- --------- ---------
1,604,324 1,462,697 1,558,580 1,541,867
========= ========= ========= =========
</TABLE>
---------------
* Indicates an additional aircraft
+ Indicates an additional aircraft that has been acquired by AerCo as of
November 2, 2000
46
<PAGE> 48
PORTFOLIO INFORMATION
THE AIRCRAFT
All of the original aircraft and the additional aircraft acquired or
expected to be acquired in connection with the offering of the old notes 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 November 2,
2000 (assuming that we take delivery of all of the additional aircraft) and the
percentage of appraised value of each aircraft at 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 15.75%
A321-200 1 Narrowbody 3 3.38%
Boeing (75.94%).................. B737-300 12 Narrowbody 3 16.94%
B737-300QC 1 Narrowbody 3 1.40%
B737-400 12 Narrowbody 3 18.82%
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 7.40%
MD-82 5 Narrowbody 3 6.19%
MD-83 3 Narrowbody 3 3.83%
DC8-71F 2 Freighter 3 1.83%
Fokker (4.21%)................... F100 5 Narrowbody 3 4.21%
--- ------
63 100.00%
=== ======
</TABLE>
47
<PAGE> 49
The following table sets forth the exposure of our existing and future
portfolio by lessee at November 2, 2000 by reference to the appraised value at
April 30, 2000.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF % OF AIRCRAFT BY
LESSEE(1) EXISTING AIRCRAFT ADDITIONAL AIRCRAFT(2) 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 3.72%
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 1 4.34%
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 1.94%
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 1.35%
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
(A.I.L.L.)................................ 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 lessees of the existing aircraft as of November 2, 2000 =
23
Total number of additional lessees resulting from the 30 additional aircraft
as of November 2, 2000 = 14
(2) As of November 2, 2000, 24 of the additional aircraft had been acquired by
AerCo.
48
<PAGE> 50
The following table lists the aircraft by country at November 2, 2000
according to the number of aircraft and the percentage of the appraised value at
April 30, 2000.
<TABLE>
<CAPTION>
% OF
NUMBER OF NUMBER OF AIRCRAFT BY
COUNTRY(1) EXISTING AIRCRAFT ADDITIONAL AIRCRAFT(2) APPRAISED VALUE
---------- ----------------- ---------------------- ---------------
<S> <C> <C> <C>
United Kingdom.............................. 5 5 20.91%
United States............................... 2 7 12.65%
China....................................... 2 3 8.22%
Turkey...................................... 5 -- 7.74%
Spain....................................... 3 1 7.27%
Brazil...................................... 4 3 7.00%
Canada...................................... 2 -- 5.64%
Italy....................................... 1 2 4.95%
South Korea................................. 2 1 4.67%
Belgium..................................... -- 2 2.95%
Philippines................................. 2 1 4.34%
Finland..................................... -- 2 2.59%
Colombia.................................... 1 -- 2.48%
Ireland..................................... -- 1 1.51%
Hungary..................................... 1 -- 1.46%
France...................................... -- 1 1.40%
Taiwan...................................... 1 -- 1.35%
Norway...................................... -- 1 1.22%
Chile....................................... 1 -- 0.92%
India....................................... 1 -- 0.71%
----- ----- -------
33 30 100.00%
===== ===== =======
</TABLE>
---------------
(1) Total number of countries = 20
(2) As of November 2, 2000, 24 of the additional aircraft had been acquired by
AerCo.
The following table lists the aircraft by region at November 2, 2000
according to the number of aircraft and to the percentage of the appraised value
at April 30, 2000.
<TABLE>
<CAPTION>
% OF
NUMBER OF NUMBER OF AIRCRAFT BY
REGION EXISTING AIRCRAFT ADDITIONAL AIRCRAFT(1) APPRAISED VALUE
------ ----------------- ---------------------- ---------------
<S> <C> <C> <C>
Developed Markets
Europe.................................... 9 15 42.80%
North America............................. 4 7 18.29%
Emerging
Asia...................................... 8 5 19.30%
Europe and the Middle East................ 6 -- 9.21%
Latin America............................. 6 3 10.40%
----- ----- -------
33 30 100.00%
===== ===== =======
</TABLE>
---------------
(1) As of November 2, 2000, 24 of the additional aircraft had been acquired by
AerCo.
49
<PAGE> 51
The following table lists the aircraft by year of aircraft manufacture or
conversion to freighter at November 2, 2000 according to the number of aircraft
and to the percentage of the appraised value at April 30, 2000.
<TABLE>
<CAPTION>
% OF
NUMBER OF NUMBER OF AIRCRAFT BY
YEAR OF MANUFACTURE OR CONVERSION EXISTING AIRCRAFT ADDITIONAL AIRCRAFT(1) 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 19.11%
1992........................................ 11 7 29.42%
1993........................................ 3 4 12.62%
1995........................................ -- 1 1.45%
1999........................................ -- 2 5.95%
2000........................................ -- 1 3.38%
----- ----- -------
33 30 100.00%
===== ===== =======
</TABLE>
---------------
(1) As of November 2, 2000, 24 of the additional aircraft had been acquired by
AerCo.
The following table lists the aircraft by seat category at November 2, 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 % OF
EXISTING NUMBER OF AIRCRAFT BY
SEAT CATEGORY AIRCRAFT TYPE AIRCRAFT ADDITIONAL AIRCRAFT(1) 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 62.92%
171-240 A321-200, B757-200....... 3 2 14.40%
241-350 A300-B4-200, B767-300ER.. 3 -- 8.11%
350+ B747-200B................ 1 -- 0.55%
Freighter DC8-71F.................. 2 -- 1.83%
----- ----- -------
33 30 100.00%
===== ===== =======
</TABLE>
---------------
(1) As of November 2, 2000, 24 of the additional aircraft had been acquired by
AerCo.
50
<PAGE> 52
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>
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 AirEurope 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
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(3) MD-82 JT8D-219 49932 Sep-90
+*United States TWA B757-200 PW2037 28486 May-99
United States Tower Air(4) B747-200B JT9D-7Q 22496 Oct-81
Europe............... Hungary Malev B737-300 CFM56-3C1 24909 Apr-91
(Emerging) 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
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
+*Philippines PAL B737-400 CFM56-3C1 25594 May-92
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
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 A.I.L.L.(2) DC8-71F CFM56-2C1 46040 Mar-91
Columbia Avianca B757-200 RB211-535E4 26152 Aug-92
<CAPTION>
APPRAISED
VALUE AT
REGION APRIL 30, 2000
------ --------------
(U.S.$'000S)
<S> <C>
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
28,593
20,513
20,717
40,420
52,103
29,980
30,617
29,897
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
Europe............... 22,527
(Emerging) 21,587
24,497
23,120
24,923
25,200
Asia................. 39,507
(Emerging) 23,833
23,033
20,460
19,943
10,973
19,667
20,647
26,623
24,633
25,013
22,433
20,860
Latin America........ 20,917
(Emerging) 13,217
13,177
13,107
12,783
12,673
22,013
14,210
38,283
---------
1,541,867
=========
</TABLE>
---------------
(1) As of November 2, 2000, 24 of the additional aircraft had been acquired by
AerCo. The AerCo Group will not own the remaining six additional aircraft
until all the relevant aircraft owning companies have been acquired by
AerCo, which will only happen after the transfer conditions have been met.
51
<PAGE> 53
(2) A.I.L.L. is an indirect 100% subsidiary of Lan Chile.
(3) Reno Air is a 100% subsidiary of American Airlines.
(4) Tower Air has filed for Chapter 11 bankruptcy protection. AerCo has
petitioned the relevant U.S. bankruptcy court to terminate the lease to
Tower Air.
* Indicates an additional aircraft.
+ Indicates an additional aircraft that has been acquired by AerCo as of
November 2, 2000.
THE LEASES
GENERAL
All leases are managed by AerFi as servicer under the servicing agreement.
The leases are all operating leases under which AerCo generally retains the
benefit, and bears 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 the AerFi Group 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
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 57 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 56.16% of the leases by appraised value at April 30, 2000.
The lessee has provided letters of credit in the case of 28 leases
representing 43.49% 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 eight leases or 12.77% of the leases by appraised value at April 30,
2000.
Under 15 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 12 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, 86.35% of the leases by appraised value at
April 30, 2000, are payable monthly in advance. Rentals under six of the leases,
8.99% of the leases by appraised value at April 30,
52
<PAGE> 54
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 that 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 May 2003. 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 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 July 17, 2000 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,
53
<PAGE> 55
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 7.84% 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 is a risk that the option purchase prices may be less
than the proportional portion of the unpaid principal of the notes allocable to
the aircraft being purchased.
Twenty-one of the leases or 34.50% 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. Two of the
leases or 3.56% 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. The 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, the 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 the AerCo Group
has the ability to acquire Stage 2 aircraft, these regulations may affect 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 the 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
54
<PAGE> 56
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 announced an AD that requires
operators of MD-11, MD-80 and DC-10 aircraft to replace certain insulation
blankets in order to reduce the risk of fire. Following acquisition of all the
additional aircraft, we will have eight MD-80 series aircraft representing
10.00% of our portfolio by appraised value at April 30, 2000. 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.
The U.S. Federal Aviation Administration is expected to issue an AD by the
end of 2001 mandating the modification of Boeing 737 aircraft when the aircraft
has completed 50,000 cycles. The estimated labour cost to implement such
modifications for each aircraft is approximately $230,000 per aircraft.
Following acquisition of all the additional aircraft, we will have 31 Boeing 737
aircraft in our portfolio, representing 45% of the portfolio by appraised value
at April 30, 2000. Based on the current cycles completed to date by our Boeing
737 aircraft, our Boeing 737 aircraft are not likely to require these
modifications prior to 2008. However, AerCo could incur significant costs in
ensuring its Boeing 737 aircraft comply with these standards, which could impact
adversely on AerCo's results of operations.
The U.S. Federal Aviation Administration is also expected to issue an AD
within twelve months mandating a re-design of the rudder systems of Boeing 737
aircraft. The average cost per aircraft of such modifications is expected to be
approximately $50,000. Upon completion of the acquisition of all the additional
aircraft, we will have 31 Boeing 737 aircraft in our portfolio, representing 45%
of the portfolio by appraised value at April 30, 2000. Depending on the time
period within which such modifications are required to be made, the costs may be
the responsibility of existing lessees. However, if the costs are not the
responsibility of some or all existing lessees, AerCo could incur significant
costs in ensuring its Boeing 737 aircraft comply with such modifications, which
could impact adversely on AerCo's results of operations.
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
lessees' 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
55
<PAGE> 57
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 $350.0 million and
$850.0 million, depending on aircraft type, for each aircraft. In general,
liability coverage on each aircraft includes third party legal liability,
property damage legal liability, 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 the AerCo Group as owner of the aircraft regardless of whether the
AerCo Group is in any way responsible for the loss for which liability is
asserted. In addition, claimants may assert claims against the 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 claims by third
parties against them for liabilities while the aircraft are owned by the 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, the AerCo Group purchases declining "total
loss only" coverage with respect to certain aircraft. As of June 30, 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 140% 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.
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<PAGE> 58
THE LESSEES
As of October 31, 2000, our aircraft, together with the aircraft we expect
to acquire, were leased to 37 lessees in 20 countries throughout the world.
REGIONAL CONCENTRATIONS
ASIAN CONCENTRATION. At October 31, 2000, 19.30% 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 4.67% of the aircraft by appraised
value at April 30, 2000.
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 4.34% 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 rescheduled 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 October 31, 2000, 10.40% 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 4.21% 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.
Colombia has recently suffered as a result of the deterioration in the
value of the Colombian Peso and the resulting negative impact on the Colombian
economy. AerCo leases one aircraft to a Colombian lessee, representing 2.48% of
the portfolio by appraised value at April 30, 2000. Continued weakness in the
value of the Colombian Peso, as well as general deterioration in the Colombian
economy, will mean that this lessee may be unable to generate sufficient
revenues in the Colombian currency to pay the U.S. dollar denominated rental
repayments under the lease. As of October 31, 2000, this Colombian lessee owed
$1.9 million, which is currently deferred under the terms of a standstill
agreement. The servicer has agreed not to exercise AerCo's remedies in respect
of events of default currently existing under the lease in order to permit the
Colombian lessee to have a stable business environment in which to develop,
negotiate and commence implementing a long-term business plan. During this
period, AerCo will receive approximately 61% of amounts due under the lease in
cash with the remainder provided by way of secured and unsecured notes issued by
the Colombian lessee which have a maturity date of January 31, 2001. The
Colombian lessee's other aircraft lessors and major creditors have agreed
similar forbearance arrangements. There can be no guarantee that the Colombian
lessee will be successful in preparing a realistic long-term business plan by
January 2001. In that event, AerCo will need to consider all of its alternatives
including, potentially, seeking the return of the aircraft.
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<PAGE> 59
EUROPEAN CONCENTRATION. At October 31, 2000, 52.01% of the aircraft by
appraised value at April 30, 2000 were leased by operators based in Europe.
Lessees of 42.80% of the aircraft are based in "developed" European markets,
principally the United Kingdom and Spain. Lessees of the remaining 9.21% of the
aircraft were based in "emerging" European markets, principally Turkey. One
lessee, Spanair, leased 7.27% of the aircraft by appraised value at April 30,
2000. As of October 31, 2000, 16.73% 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 October 31, 2000, 7.74% 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 October 31, 2000, 18.29% 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 air 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 for Chapter 11 bankruptcy protection and
several major U.S. airlines have ceased operations.
Tower Air, the lessee of one Boeing 747-200B aircraft, which represents
0.55% of the aircraft by appraised value at April 30, 2000 has filed for Chapter
11 bankruptcy protection. AerCo has petitioned the relevant U.S. bankruptcy
court to terminate the lease to Tower Air. 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. The
technical costs required to ensure that the aircraft is in a suitable condition
for re-leasing 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.
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 October 31, 2000, amounts outstanding for more than 30 days for
rental payments, maintenance reserves and other amounts due under the leases
equalled $5.1 million for four lessees who had a total of five aircraft on
lease. The outstanding amounts are net of agreed deferrals or other
restructurings, default interest and cash in transit.
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<PAGE> 60
As of October 31, 2000, a Colombian lessee representing 2.48% of the
portfolio by appraised value at April 30, 2000 owed $1.9 million, which is
currently deferred under the terms of a standstill agreement. See "-- Latin
American Concentration". The servicer has agreed not to exercise AerCo's
remedies in respect of events of default currently existing under the lease in
order to permit the Colombian lessee to have a stable business environment in
which to develop, negotiate and commence implementing a long-term business plan.
During this period, AerCo will receive approximately 61% of amounts due under
the lease in cash with the remainder provided by way of secured and unsecured
notes issued by the Colombian lessee which have a maturity date of January 31,
2001. The Colombian lessee's other aircraft lessors and major creditors have
agreed to similar forbearance arrangements. There can be no guarantee that the
Colombian lessee will be successful in preparing a realistic long-term business
plan by January 2001 and AerCo will need to consider all alternatives at that
stage including, potentially, seeking return of the aircraft.
As of October 31, 2000, Tower Air, a North American lessee representing
0.55% of the portfolio by appraised value at April 30, 2000, owed $5.2 million,
$4.9 million of which was in arrears for more than 30 days. Tower Air has filed
for Chapter 11 bankruptcy protection. AerCo has petitioned the relevant U.S.
bankruptcy court to terminate the lease to Tower Air.
PAL, the lessee of two B737-300 aircraft and one B737-400 aircraft,
representing 4.34% 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 October 31, 2000, these
arrearages amounted to $2.0 million. All amounts have been paid in accordance
with the scheduled terms as of October 31, 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. You should refer to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Interest Rate Risk and Management" for additional information on
swap breakage costs.
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.
DOWNTIME
There can be no assurance that AerCo's prior experience and AerFi's
experience will be indicative of the AerCo Group's ability to keep the aircraft
and any additional aircraft on-lease in the future. The 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. The
expiry date of the leases on two of the aircraft referred to in the table below
(one scheduled to expire in 2000 and one in 2001) is determined by reference to
the timing of certain maintenance events on these 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.
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<PAGE> 61
AERCO GROUP LEASE PLACEMENT REQUIREMENT AT OCTOBER 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............................................. 2 5 1 4 9
B757............................................. -- -- 1 1 1
B747............................................. -- -- -- -- 1
B767............................................. 1 1 -- -- --
DC8.............................................. -- -- -- 2 --
F100............................................. -- -- -- -- --
MD80............................................. -- -- 3 1 3
------- ----- ----- ----- ----- -----
Total............................................ 3 7 7 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
"The Aircraft, Related Leases and Collateral -- 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
2 B737-300F
15 B737-300QC
3 B737-200CA HK
1 B737-200QC HK
AILL.................... Bahamas 1998 Lan Chile (100%) See Lan Chile
Air Canada.............. Canada 1937 Institutions (70%) 35 A319-100
Private Investors (19%) 47 A320-200
Employees (11%) 4 A330-300
12 A340-300
17 DC9-32 HK
4 B737-200A
34 B737-200A HK
4 B737-200C A
2 B737-200C A HK
4 B747-400
3 B747-400 Combi
9 B767-200
7 B767-200EM
7 B767-200ER
26 B767-300ER
25 CRJ-100ER
Air Europe.............. Italy 1989 Volare Group (100%) 8 A320-200
5 B767-300ER
2 B777-200ER
</TABLE>
60
<PAGE> 62
<TABLE>
<CAPTION>
BEGAN GOVERNMENT/COMMERCIAL
LESSEE DOMICILE OPERATION AIRLINE/PRINCIPAL SHAREHOLDERS FLEET
------ -------- --------- ------------------------------ -----
<S> <C> <C> <C> <C>
Airtours................ United Kingdom 1990 Airtours Group (100%) 12 A320-200
4 A321-200
1 A330-300
3 A330-200
1 DC-10-30
6 B757-200
3 B767-300ER
4 DC-10-10
Air 2000................ United Kingdom 1986 First Choice Holidays (100%) 4 A320-200
5 A321-200
14 B757-200
4 B767-300ER
American Airlines....... USA 1934 AMR Corp. (100%) 35 A300-600R
50 B727-200A
13 B757-200A HK
48 B737-800
102 B757-200
8 B767-200
22 B767-200ER
49 B767-300ER
24 B777-200ER
3 DC10-10
5 DC10-30
75 F100
8 MD-11
229 MD-82
43 MD-83
4 MD-87
5 MD-90-30
Asiana.................. South Korea 1988 Kumho Group (47%) 1 A321-100
Unspecified Investors (47%) 4 A321-200
Syndicate of Banks (9%) 22 B737-400
3 B737-500
4 B747-400
5 B747-400 Combi
4 B747-400F
9 B767-300
1 B767-300ER
1 B767-300ERF
Avianca................. Colombia 1919 Groupo Valores Bavaria (62.5%) 4 B757-200
Unspecified Investors (37.5%) 4 B767-200ER
1 B767-300ER
10 F50 High
Performance
12 MD-83
BAX Global.............. United States 1972 Burlington Northern Air Freight (a 3 DC-8-62F HK
subsidiary of Pittston Burlington 1 DC-8-63F HK
Group) (100%) 11 DC-8-71F
1 B727-100 QC
2 B727-200 F HK
3 B727-200 AF HK
Blue Panorama........... Italy 1998 Antonio De Ponti, Sandro 3 B737-400
Guillianelli and Franco Pecci (100%) 1 B737-800
</TABLE>
61
<PAGE> 63
<TABLE>
<CAPTION>
BEGAN GOVERNMENT/COMMERCIAL
LESSEE DOMICILE OPERATION AIRLINE/PRINCIPAL SHAREHOLDERS FLEET
------ -------- --------- ------------------------------ -----
<S> <C> <C> <C> <C>
Braathens SAFE.......... Norway 1946 Braganza (33%) 5 B737-400
Unspecified Investors (31.2%) 17 B737-500
KLM (30%) 9 B737-700
Bramora (5%)
(Braganza and Bramora are Braathens
holding companies)
British Airways......... United Kingdom 1974 Publicly Listed Company 17 A319-130
5 A320-110
5 A320-210
7 B737-300
34 B737-400
8 B737-500
6 B737-200A
12 B747-200B
3 B747-200B Combi
57 B747-400
2 B747-400F
48 B757-200
21 B767-300ER
5 B777-200
33 B777-200ER
British Midland......... United Kingdom 1938 BBW Partnership (60%) 5 A320-230
Lufthansa (20%) 9 A321-230
SAS (20%) 7 B737-300
3 B737-400
11 B737-500
6 F100
3 F70
1 ERJ-145
China Southern.......... People's Republic 1991 China Southern Group (62.5%) 20 A320-230
of China Unspecified Investors (37.5%) 19 B737-300
11 B737-500
18 B757-200
4 B777-200
5 B777-200ER
China Xinjiang.......... People's Republic 1985 CAAC (50%) 5 ATR72 500
of China Xinjiang Province (50%) 2 B737-300
6 B757-200
3 Ilyushin II-86
5 Tupolev Tu-154 M
Delta Airlines.......... United States 1928 Publicly Quoted (95.4%) 15 MD-11
Swissair (4.6%) 120 MD-88
16 MD-90-30
95 B727-200A HK
26 B737-300
54 B737-200A HK
34 B737-800
118 B757-200
15 B767-200
28 B767-300
57 B767-300ER
6 B767-400ER
7 B777-200ER
6 L-1011-1
5 L-1011-250
7 L-1011-500
</TABLE>
62
<PAGE> 64
<TABLE>
<CAPTION>
BEGAN GOVERNMENT/COMMERCIAL
LESSEE DOMICILE OPERATION AIRLINE/PRINCIPAL SHAREHOLDERS FLEET
------ -------- --------- ------------------------------ -----
<S> <C> <C> <C> <C>
FEAT.................... Taiwan 1957 Unspecified Investors (67.05%) 4 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 (58.5%) 9 ATR72-200
Public (41.5%) 4 A319-110
4 A321-210
9 DC-9-51
1 DC-9-51 HK
4 MD-11
9 MD-82
12 MD-83
2 MD-87
5 B757-200
Frontier................ United States 1994 Unspecified Investors (49%) 18 B737-300
DDJ Capital Management (33%) 7 B737-200A HK
Wexford Management (10%)
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%) 15 B757-200
10 A320-200
2 DC10-30
Lan Chile............... Chile 1929 Grupo Cueto (38.5%) 11 B737-200A
Grupo Pifiera (33.1%) 1 B737-200QC
Others (20.3%) 1 A320-200
Grupo Ebler (8.1%) 2 A340-300
12 B767-300ER
3 B767-300ERF
Malev................... Hungary 1946 Government (97%) 6 B737-300
Municipalities (3%) 3 B737-400
2 B737-500
2 B767-200ER
1 B767-300ER
6 F70
5 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
3 F50 High Performance
3 F50
</TABLE>
63
<PAGE> 65
<TABLE>
<CAPTION>
BEGAN GOVERNMENT/COMMERCIAL
LESSEE DOMICILE OPERATION AIRLINE/PRINCIPAL SHAREHOLDERS FLEET
------ -------- --------- ------------------------------ -----
<S> <C> <C> <C> <C>
PAL..................... Philippines 1941 LT Group (57.7%) 3 A320-210
Top Wealth Enterprises, Maxell 8 A330-300
Holdings and Richmark Holdings 4 A340-310
(35.1%) 6 B737-300
Philippine Government (4.3%) 3 B747-400
Airline Employees (2.6%) 1 B747-400 Combi
Unspecified Investors (0.3%) 3 B747-200B
Pegasus................. Turkey 1990 Yapi Kredit Bank (49%) 7 B737-400
Alper Elchin (21%) 3 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%) 5 MD-82
SAS Leisure AB (Vingresor) (49%) 6 MD-82 (SAIC)
19 MD-83
3 MD-87
1 A320-200
1 A321-200
1 B757-200
2 B767-300ER
Sun Express............. Turkey 1990 THY (50%) 1 B737-300
Lufthansa (40%) 5 B737-800
Turkish Hotel Owners (10%)
TAM..................... Brazil 1986 Taxi Aereo Marilia (owned by Captain 7 A319-130
Rolim Amaro) (100%) 7 A320-230
5 A330-220
48 F100
2 F50
THY..................... Turkey 1933 Government of Turkey (98.17%) 6 A310-200
Others (1.83%) 7 A310-300
7 A340-310
9 RJ100
3 RJ70
2 B727-200F A
16 B737-400
2 B737-500
22 B737-800
Tower Air............... United States 1982 Tower Travel (75%) 1 B747-100
Public (25%) 2 B747-200B
TWA..................... United States 1930 Unspecified Investors (65%) 13 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)
11 B717-200
27 B757-200
8 B767-200EM
9 B767-300ER
</TABLE>
64
<PAGE> 66
<TABLE>
<CAPTION>
BEGAN GOVERNMENT/COMMERCIAL
LESSEE DOMICILE OPERATION AIRLINE/PRINCIPAL SHAREHOLDERS FLEET
------ -------- --------- ------------------------------ -----
<S> <C> <C> <C> <C>
Varig................... Brazil 1927 Ruben Berta Foundation (of employees 2 DC-10-30F
and executives) (55.63%) 3 MD-11ER
Unspecified Investors (43.94%) 12 MD-11
Rio Grande do Sul State Government 1 B727-100C
(0.43%) 2 B727-100F
2 B727-100QC
34 B737-300
4 B737-400
13 B737-200A
5 B737-700
5 B767-200ER
6 B767-300ER
Virgin Express.......... Belgium 1991 Virgin Group (54%) 6 B737-300
Unspecified Investors (46%) 6 B737-400
Virgin Express (Ireland) Ireland 1988 Virgin Express (100%) 6 B737-300
Limited............... 2 B737-400
Xiamen Airlines......... People's Republic 1984 China Southern (60%) 1 B737-300
of China Fujian Investment and Enterprise 4 B737-500
Corporation (20%) 3 B737-200A
Xiamen Province (20%) 1 B737-200CA
5 B737-700
5 B757-200
</TABLE>
---------------
Source: Airclaims Limited CASE Database, October 17, 2000.
RECENT DEVELOPMENTS
On November 15, 2000, Aerfi delivered one further additional aircraft, a
B737-300QC, serial number 24021, on lease to Aeropostale, to AerCo. Following
the delivery of this aircraft, AerCo owned 25 of the 30 additional aircraft with
five of the 30 addition aircraft remaining to be acquired by AerCo.
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<PAGE> 67
THE COMMERCIAL AIRCRAFT INDUSTRY
The demand for air travel can be measured in Revenue Passenger Miles, or
"RPMs". RPMs are calculated by multiplying the number of fare-paying passengers
carried (on Western commercial jet aircraft) by the distance flown in miles. In
1999, the total number of RPMs flown was 1,962 billion. The data presented in
this section for 1999 is based on data published by The Airline Monitor. The air
travel markets in the United States and Europe are the largest in the world. A
breakdown of the world market is shown in the chart below.
WORLD RPMS BY REGION
[WORLD RPMS BY REGION PIE CHART]
PIE CHART BREAKING DOWN WORLD RPMS BY REGION (UNITED STATES: 34.06%; EUROPE:
27.94%; ASIA: 22.44%; REST OF WORLD, COMPRISING CANADA, LATIN AMERICA, AFRICA,
MIDDLE EAST AND C.I.S.: 15.56%) (SOURCE: THE AIRLINE MONITOR)
The global air travel market grew 6.4% in 1999 and had a compound annual
growth rate from 1990 to 1999 of approximately 5.6%. There is a high degree of
consistency among analysts and competitors about the likely growth of this
industry. The Airline Monitor expects growth to continue and is projecting an
underlying growth rate between 2000 and 2009 of 5.2% whereas for the same period
Boeing expects 4.7% and Airbus 5.2%. However, this projected rate of increase is
not uniform and varies both over time and regionally primarily as a result of
economic factors and the maturity of the relevant market.
For example, Boeing forecasts a 10.3% annual average increase in travel
within China over the 10 year period from 2000-2009, while it expects travel
within North America to increase at an annual rate of 2.5% over the same period.
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<PAGE> 68
The following graphs show historical and projected RPMs on a regional basis
as stated in The Airline Monitor.
<TABLE>
<S> <C>
[UNITED STATES Graph] Graph showing [EUROPE Graph] Graph showing historical and
historical and projected RPMs in the United projected RPMs in Europe 1990-2005 (expected
States 1990-2005 (expected growth to 2005 is growth to 2005 is 4.4% pa)
3.8% pa)
[ASIA/PACIFIC Graph] Graph showing historical [REST OF THE WORLD Graph] Graph showing
and projected RPMs in Asia/Pacific 1990-2005 historical and projected RPMs in the Rest of
(expected growth to 2005 is 7.1% pa) the World 1990-2005 (expected growth to 2005
is 5.5% pa)
</TABLE>
In addition to the underlying cyclical economic factors, the operating
environment within the air travel industry has been changing dramatically during
the 1990s. The trend of U.S.-style deregulation and privatization of airlines is
now virtually complete in Europe and is increasingly evident in other countries
and regions all over the world. Deregulation of travel between countries and
regions is also increasing, with open skies agreements now concluded between the
U.S. and 35 countries and recently between the EU and the Mercosur countries in
South America.
The load factor is a measure of how many passengers an aircraft is carrying
as a proportion of the maximum number that it could carry. Load factors in 1999
were 3.6% higher than in 1990 as the airlines operate much more efficiently.
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<PAGE> 69
WORLD LOAD FACTORS
[GRAPH]
GRAPH SHOWING WORLD LOAD FACTORS 1990-1999 (SOURCE: THE AIRLINE MONITOR)
The demand for aircraft has also been strong since 1996 with low
availability of used aircraft and deliveries of new aircraft in subsequent years
reaching historically high levels. Some of this demand is artificially increased
as many of the first and second generation commercial jets are being retired
either because of age or obsolescence. This program of retirements is still at a
relatively early stage and as at October 2000 only 2,878 aircraft had been
retired of the 5,396 aircraft that were more than 25 years old. Between 2000 and
2005, The Airline Monitor expects 5,613 new aircraft to be delivered, of which
3,734 will be required for growth and 1,879 will be required for aircraft
replacement.
AIRCRAFT DELIVERIES AND RETIREMENTS
[GRAPH]
GRAPH SHOWING AIRCRAFT DELIVERIES AND RETIREMENTS AS PERCENTAGE OF WORLD FLEET
AND NET RETIRALS 1990-1999 (SOURCE: THE AIRLINE MONITOR)
The primary factor in determining the operating lease rate that can be
obtained for an aircraft is the availability of competing aircraft at that time.
During the last ten years, availability has declined from historically high
levels with the overall surplus in August 2000 representing only 4.2% of the
world fleet. In
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<PAGE> 70
recent years however, there has been a relatively higher availability of
widebody aircraft (as a percentage of the world widebody fleet) than narrowbody
aircraft because of technological developments and the crisis in Asia. An
increase in the number of new aircraft being delivered combined with the slower
overall growth in air travel has led to a recent increase in the number of
aircraft available and, as a result, to a reduction in the operating lease rates
that can be obtained for competing aircraft. Other material factors in
determining lease rates include the cost of new aircraft and the level of
interest rates.
AIRCRAFT AVAILABLE FOR SALE OR LEASE
[GRAPH]
GRAPH SHOWING NUMBERS OF AIRCRAFT AVAILABLE FOR SALE OR LEASE (NARROWBODY AND
WIDEBODY) 1990 - AUGUST 2000 (SOURCE: THE AIRLINE MONITOR)
The types of aircraft required by an airline are dictated principally by
the structure of its routes and traffic volume. Approximately 70% of
western-built commercial jet aircraft are narrowbody aircraft with the balance
being widebody aircraft. Within the widebody sector, the availability of newer
twin engined long-range aircraft is likely to result in a continued weak market
for earlier models such as the A300-B4, A310, B747-100, B747-200 and DC10. The
new models have lower operating costs and allow airlines to develop new
long-haul routes more efficiently as well as to increase service frequency on
established routes. This development has caused more widebody aircraft to be
withdrawn from service relative to their age than narrowbody aircraft, where
technological change has been less significant.
There are currently two major manufacturers of commercial jet aircraft,
Boeing and Airbus.
There has long been a long-term trend toward consolidation of the
commercial aircraft manufacturing industry, evidenced by the merger between
Boeing and McDonnell Douglas, the creation of the Airbus consortium by four
European manufacturers (Aerospatiale, British Aerospace, DaimlerChrysler and
CASA) and the exit of former participants such as Fokker, Lockheed and Convair.
The long lead time, high capital cost and technological sophistication required
to bring a new aircraft model to the market create significant barriers to entry
into the industry, particularly for narrowbody and widebody jet aircraft.
Although most new aircraft are ordered under long-term, multi-aircraft
contracts, the volume of aircraft production has varied significantly over the
years, reflecting the changing state of the commercial aviation industry and the
economy in general. Manufacturers generally adjust production levels in response
to their customers' desires and financial capacity to take delivery of ordered
aircraft which in turn may be affected by the level of air traffic and the
availability of competitive used aircraft. The level of production in 1999 was
above the long-term requirement implied by industry forecasts, including those
published by Boeing and Airbus. These levels of production have been accompanied
by very aggressive pricing strategies in an effort by these manufacturers to
maximise their market share.
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MANAGEMENT OF THE AERCO GROUP
Except as described in this prospectus, particularly upon an event of
default, neither you nor the trustee has a right to participate in AerCo's
management or affairs. Neither you nor the trustee can supervise the functions
relating to the leases and the re-lease of the aircraft, which will be delegated
to AerFi under the servicing agreement.
DIRECTORS
AerCo's board of directors will have no more than five members at any time.
The holder or holders of a majority in aggregate principal amount of AerCo's
class E notes have the right to appoint two directors while the class E notes
are outstanding. The remaining directors must be independent directors. The
current independent directors are Mr. Frederick W. Bradley, Jr., Chairman of
AerCo, Mr. Kenneth N. Peters and Mr. G. Adrian Robinson. The succeeding
independent directors will be appointed by a majority of the then standing
directors. If no independent directors are serving on the board at any time,
three new independent directors will be appointed in accordance with AerCo's
Articles of Association. Mr. Edward Hansom and Ms. Rose Hynes were appointed
directors by AerFi as holder of the majority of the subclass E-1 notes. Any
resolution of the board of directors will require the affirmative vote of a
majority of the independent directors. Transactions and proceedings that relate
to certain insolvency proceedings, amendments to AerCo's Memorandum or Articles
of Association, acquisition of additional aircraft, mergers or the sale of all
or substantially all of AerCo's assets may only be approved by a unanimous vote
of all directors. The servicing, administrative agency and cash management
agreements between AerCo and the AerFi Group and the standby servicing,
administrative agency and cash management agreements between AerCo, debis and
the standby servicer provide that certain actions shall be taken by AerCo by a
special board resolution. A special board resolution will require the
affirmative vote of a majority of the independent directors and, at any time at
which the servicer and its affiliates hold the majority of AerCo's class E
notes, the two directors appointed by the holder of AerCo's class E notes will
not have the right to vote in respect of a special board resolution.
The directors, their ages and principal activities are as follows:
<TABLE>
<CAPTION>
NAME AGE OFFICES HELD WITH THE REGISTRANT
---- --- --------------------------------
<S> <C> <C>
Frederick W. Bradley, Jr.................. 73 Director and Chairman
Kenneth N. Peters......................... 65 Director
G. Adrian Robinson........................ 51 Director
Edward Hansom............................. 42 Director
Rose Hynes................................ 42 Director
</TABLE>
Frederick W. Bradley, Jr. -- From 1969 until 1992, Mr. Bradley was a Senior
Vice President of Citibank N.A., in charge of the bank's global airline and
aerospace business, having joined Citibank in 1958. Mr. Bradley has served as a
director and Chairman of ALPS 94-1 since 1994. Mr. Bradley also serves as a
director and Chairman of Aircraft Lease Portfolio Securitisation 92-1 Limited.
Mr. Bradley retired as a director of America West Airlines, Inc. in 1999, after
serving seven years on its board. Mr. Bradley is also a director of First
Citicorp Life Insurance Co., and the Institute of Air Transport, Paris, France
and is president of the International Air Transport Association's (IATA)
International Airline Training Fund of the United States.
Kenneth N. Peters -- Mr. Peters was Assistant Treasurer of The Boeing
Company from 1985 to 1995 and was Vice President, Customer Financing at The
Boeing Company from 1995 until his retirement from The Boeing Company in 1997.
From 1960 to 1985, Mr. Peters held various positions with The Boeing Company
including the positions of Manager and Director of Customer Financing within the
Corporate Treasurer's Organization.
G. Adrian Robinson -- Mr. Robinson has been an Aerospace Consultant since
1992. From 1990 to 1992 Mr. Robinson was a Deputy General Manager of The Nippon
Credit Bank. Until 1989, he was a
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Managing Director, Special Finance Group of Chemical Bank, which he joined in
1986. Mr. Robinson also serves as a director of ALPS 94-1 and its subsidiaries
and Aircraft Lease Portfolio Securitisation 92-1 Limited and its subsidiaries.
Mr. Robinson also provides consulting services from time to time to Air 2000 and
JMC Airlines, two of the lessees.
Edward Hansom -- Mr. Hansom is Chief Financial Officer and a director of
AerFi. He joined AerFi in 1988 from the treasury division of Schroders. Prior to
taking up his current position in May 1997, Mr. Hansom was General Manager,
Treasury of AerFi.
Rose Hynes -- Ms. Hynes is General Counsel of AerFi. She joined AerFi in
1988, having previously been a partner in an Irish law firm. Prior to taking up
her current position with AerFi in May 1997, she was Vice President, Corporate
Finance of AerFi. Ms. Hynes also serves as a director of Aer Lingus and certain
of its subsidiaries.
AerCo's directors are non-executive and AerCo does not and will not have
any employees or executive officers. Accordingly, the board of directors relies
upon AerFi, as servicer, the administrative agent, and the cash manager and the
other service providers for all asset servicing, executive and administrative
functions under the service provider agreements. Certain individuals other than
the directors listed above serve as directors of various subsidiaries of AerCo.
All directors are compensated for travel and other expenses incurred by
them in the performance of their duties. The AerCo Group pays each independent
director an aggregate fee of $75,000 per annum for their services. The directors
appointed by the holder of a majority in aggregate principal amount of the class
E notes do not and will not receive remuneration from AerCo for their services.
Mr. Bradley, Mr. Peters and Mr. Robinson also act as directors of certain
AerCo Group subsidiaries. Mr. Bradley, Mr. Peters and Mr. Robinson each receive
$1,000 for each day, or portion of a day, which they are required to devote to
the activities of those subsidiaries and AerCo, excluding board meetings of
AerCo and ALPS 94-1.
BENEFICIAL OWNERSHIP OF AERCO
<TABLE>
<CAPTION>
NUMBER OF PERCENT
TITLE OF CLASS NAME AND ADDRESS SHARES OF CLASS
-------------- ---------------- --------- --------
<S> <C> <C> <C>
Ordinary Mourant & Co. Trustees Limited,................... 19 Shares 95%
Shares as trustee of AerCo Holding Trust
22 Grenville Street
St. Helier
Jersey, Channel Islands
AerFi Group plc................................... 1 Share 5%
Aviation House
Shannon
Ireland
</TABLE>
Under the shareholders undertaking entered into on July 15, 1998 by Mourant
& Co. Trustees Limited as trustee of the charitable trust (the "charitable trust
trustee"), the nominees, AerFi, AerCo and the trustee, the charitable trust
trustee and AerFi agreed that, as long as the notes are outstanding, they will
not, without the prior written approval of the trustee and all the directors,
transfer any part of the ordinary shares held by them or any interest therein
unless the transferee:
(1) in the case of the ordinary shares held by the nominees for the
charitable trust trustee, is a trustee of a trust formed for
charitable purposes substantially identical to those for which the
charitable trust is established; and
(2) enters into an agreement substantially identical to the shareholders
undertaking in favor of the trustee.
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In consideration for the undertakings given by the charitable trust trustee
in the shareholders undertaking, the charitable trust trustee is entitled to
receive from AerCo an undertaking fee equal to $1,500 per annum. Under the
instrument of trust establishing the charitable trust, a certificate given by
the directors to the charitable trust trustee that its voting of the ordinary
shares in a specified manner is in the best commercial interests of AerCo shall,
for the purposes of the exercise of the charitable trust trustee's discretion,
be conclusive that any such action is in AerCo's best commercial interests.
THE SERVICER
AerFi and its affiliates cannot be held responsible for any liabilities of
AerCo or its affiliates, including any payments due to you on the notes.
OPERATING GUIDELINES
AerFi provides services to the AerCo Group under the servicing agreement
dated as of July 17, 2000. AerFi will not have any fiduciary or other implied
duties to you or AerCo, and its obligations will be limited to the express terms
of the servicing agreement. AerFi will act in accordance with applicable law and
with AerCo's directions.
AerFi must also comply with the following two contractual standards in
performing its services:
(1) It must perform its services with reasonable care and diligence at all
times as if it were the owner of the aircraft consistent with the
customary commercial practice of a prudent international aircraft
lessor in the management, servicing and marketing of commercial jet
aircraft and related assets. We refer to this as the "AerFi services
standard".
(2) If a conflict of interest arises regarding AerFi's management,
servicing or marketing of: (a) any two aircraft or (b) any aircraft
and any other assets owned, managed, serviced or marketed by the AerFi
Group, AerFi is required to notify AerCo and perform the services in
good faith. If (x) the two aircraft or (y) the aircraft and other
assets owned, managed, serviced or marketed by the AerFi Group are
substantially similar in terms of objectively identifiable
characteristics that are relevant for the particular services to be
performed, AerFi will not discriminate among the aircraft or between
any of the aircraft and any other aircraft then owned, managed,
serviced or marketed by the AerFi Group on an unreasonable basis. We
refer to this as the "AerFi conflicts standard".
All transactions to be entered into by AerFi on behalf of the AerCo Group,
other than with other persons within the AerCo Group, must be at arm's length
and on fair market value terms unless otherwise agreed or directed by AerCo. The
following transactions or matters with respect to the aircraft require AerCo's
specific written approval:
- sales of or agreements to sell aircraft or any related aircraft engine
unless required by the lease;
- entering into new leases that do not comply with the operating covenants
or any express direction of AerCo;
- entering into amendments, renewals or extensions of existing leases that
do not comply with the operating covenants or any express direction of
AerCo;
- terminating any lease or leases with any single lessee or related
lessees with respect to any aircraft having an aggregate depreciated net
book value over $100.0 million;
- entering into any contract for modification or maintenance of the
aircraft not provided for in the AerCo budget if:
-- the cost to AerCo is more than the estimated cost of a heavy
maintenance check for the airframe and the engines and the available
maintenance reserves or other collateral under the related lease,
whichever is greater, or
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-- the modification or maintenance is outside the ordinary course of the
AerCo Group's business;
- entering into any capital commitment or confirming any order or
commitment to acquire aircraft or engines;
- issuing any guarantee on behalf of any person within the AerCo Group
other than guarantees:
-- by one AerCo Group member of the lease obligations of another, or
-- for trade payables incurred in the ordinary course of the AerCo
Group's business;
- entering into any agreements for services costing more than $50,000 to
be provided by third parties at the AerCo Group's cost, unless this is
an expense provided for in the budget;
- entering into or amending or granting a waiver in any transaction with
AerFi or any of its affiliates on behalf of any person within the AerCo
Group; and
- entering into any agreement or commitment which is inconsistent with any
express direction of AerCo.
AerFi has agreed not to (1) execute any letter of intent, new lease
agreement, amendment to an existing lease or any agreement in respect of a sale
of any AerCo Group aircraft or aircraft assets outside Ireland (except pursuant
to a specific power of attorney issued on a case-by-case basis in Ireland), or
(2) make any material operational decision in respect of any AerCo Group
aircraft or aircraft assets outside Ireland.
LIMITATION ON LIABILITY
AerFi is not liable to any person, other than the AerCo Group to the
limited extent described below, for any losses relating to:
- the sale, lease or purchase of our aircraft on less favorable terms than
might have been achieved at any time, so long as the transactions were
entered into on the basis of a commercial decision or recommendation of
AerFi in accordance with the AerFi services standard;
- AerFi's obligation to apply the AerFi conflicts standard in performing
its services, except where the losses are finally adjudicated to have
been caused directly by the negligence, recklessness, wilful misconduct
or fraud of AerFi or its representatives;
- the ownership, operation, maintenance, acquisition, leasing, financing,
refinancing or sale of any of our aircraft, or any action, or failure to
act on the part of any person at any time prior to the effective date of
the servicing agreement;
- any action that AerCo instructs AerFi to take, limit or terminate
despite AerFi's contrary recommendation;
- the AerCo Group's refusal to take any action that AerFi recommends;
- circumstances where any person within the AerCo Group has received
amounts sufficient to cover such losses; or
- the gross negligence, recklessness, fraud or wilful misconduct of any
person within the AerCo Group.
INDEMNIFICATION
The AerCo Group will indemnify AerFi and its representatives on an
after-tax basis for any losses that may be asserted against them relating to:
- AerFi's performance under the servicing agreement, except where the
losses are finally adjudicated to have been caused by AerFi's
negligence, recklessness, fraud or wilful misconduct in performing its
obligations;
- errors in judgment or omissions by AerFi or any action taken, limited or
terminated in accordance with AerCo's instructions, except where the
losses are finally adjudicated to have been caused by AerFi's
negligence, recklessness, fraud or wilful misconduct in performing its
obligations; or
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- any of the circumstances under which AerFi would not be liable to AerCo
as described above.
AerFi will indemnify the AerCo Group on an after-tax basis for losses
arising from the performance of its services, where the losses are finally
adjudicated to have:
- been caused directly by the negligence, recklessness, fraud or wilful
misconduct of AerFi or any of its delegates in respect of its
obligations to apply the AerFi services standard or the AerFi conflicts
standard in connection with the performance of its services; or
- directly resulted from a breach by AerFi of the express terms and
conditions of the servicing agreement.
AerFi's obligation to indemnify AerCo excludes circumstances where any
person within the AerCo Group has already received an amount sufficient to cover
such losses.
AIRCRAFT SERVICES
AerFi provides a wide range of services to the AerCo Group, including:
- lease marketing, such as remarketing, lease drafting, negotiation and
execution;
- aircraft management, such as rent collection, aircraft maintenance,
insurance, contract compliance and enforcement against current lessees,
and accepting delivery and redelivery of aircraft;
- aircraft sales;
- arranging valuations and monitoring and advising AerCo on regulatory
developments;
- assisting the AerCo Group to stay in compliance with certain covenants
under the indenture;
- providing the AerCo Group with data and information relating to our
aircraft and the commercial aviation industry;
- assistance with any public or private offerings and sale of refinancing
notes or additional notes;
- assistance with permitted tax-related dispositions or other permissible
tax-based financings;
- legal and other professional services relating to the lease, sale or
financing of our aircraft, and the amendment modification or enforcement
of our aircraft leases; and
- periodic reporting of operational, financial and other information on
our aircraft and leases.
AerFi has agreed to:
- engage and maintain the necessary staff and supporting resources
required to perform its services;
- grant the AerCo Group and its agents, access to its information,
programs, records and personnel to enable the AerCo Group to monitor its
compliance with the servicing agreement and for general AerCo Group
business; and
- separate its own funds from the funds of any person within the AerCo
Group.
BUDGETS
AerCo adopts an annual and a three-year budget each year for all aircraft.
AerFi has agreed to use reasonable commercial efforts to achieve the annual
budget.
MANAGEMENT FEES
AerFi will be paid an annual retainer fee of approximately 0.10% of the
initial appraised value of each aircraft in our fleet. The retainer fee is
payable monthly in arrears in equal installments and subject to pro-rata
reduction for any month in which we do not own all the aircraft currently in our
fleet. In calculating the retainer fee, the initial appraised value may not be
reduced below $250.0 million until all of
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the aircraft are sold. AerFi will also receive a monthly fee, equal to 1% of the
aggregate rent paid for that month or portion of a month that the AerCo Group
owns the related aircraft which are subject to AerFi servicing.
AerFi also will be reimbursed for certain expenses incurred in connection
with its performance of the services which in the aggregate may constitute a
significant additional component of AerCo's total overhead costs.
Additionally, AerFi will be paid a fee at any time during the term of the
servicing agreement on the actual date of sale of any of our aircraft in the
amount of 1.25% multiplied by 90% of the initial appraised value of the relevant
aircraft, net of transaction expenses, subject to certain conditions.
TERM AND TERMINATION
The servicing agreement is for a term commencing on July 17, 2000 and
expiring on the date of payment in full of all amounts outstanding to be paid on
the notes and the other securities issued by AerCo as relating to additional
aircraft owned by the AerCo Group.
AerFi may terminate the servicing agreement if:
- AerCo does not pay:
-- any servicing fees within five business days of a written delinquency
notice, or
-- any other amount payable by any person within the AerCo Group within
10 business days of a delinquency notice;
- any person within the AerCo Group violates any material term, covenant,
condition or agreement under the servicing agreement or any other
operative document;
- an involuntary proceeding under applicable bankruptcy, insolvency,
receivership or similar law against AerCo, any of its subsidiaries or a
substantial part of the property or assets of any person within the
AerCo Group, continues undismissed for 100 days or an order or decree
approving any of the foregoing shall be entered or any such person goes
into liquidation, suffers a receiver or mortgagee to take possession of
all or substantially all of its assets or have an examiner appointed
over it, or a petition or proceeding is presented for any of the
foregoing and not discharged within 100 days;
- a voluntary proceeding is commenced under bankruptcy, insolvency,
receivership or similar law against AerCo or any of its subsidiaries,
AerCo or any of its subsidiaries consents to the institution of, or
fails to contest the filing of, any petition described above, or files
an answer admitting the material allegations of any such petition, or
makes a general assignment for the benefit of its creditors;
- AerFi becomes liable for taxes, except certain income and employment
taxes, arising from its performing services to AerCo, if:
-- AerFi cannot avoid the taxes using reasonable commercial efforts, and
-- AerCo does not indemnify AerFi for the taxes;
- directions given by AerCo or any of its subsidiaries are, or if carried
out would be, unlawful under applicable law.
AerCo may terminate the servicing agreement if:
- AerFi materially breaches any of its obligations under the servicing
agreement, including its obligation not to execute lease documents or
make other operational decisions outside Ireland as described above, and
fails to cure the breach after written notice from AerCo;
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- AerFi ceases or gives notice that it will cease to be actively involved
in the aircraft advisory and management business;
- AerCo repays, refinances or defeases all of its public or private debt
securities in full;
- AerFi undergoes, or may undergo, a change of control or transfers, or
intends to transfer, more than 50% of the outstanding class E notes to
one or more non-affiliates and, in either case, any credit rating agency
which rates the notes (other than the class E notes) notifies or
confirms to AerCo that it intends to downgrade, is downgrading or has
downgraded the rating of any of the notes (other than the class E
notes). AerFi will inform AerCo of any change of control of which it has
actual knowledge or if it proposes to sell more than 50% of the
outstanding class E notes to one or more non-affiliates;
- an involuntary proceeding under bankruptcy, insolvency, receivership or
similar law, against AerFi or a substantial part of its property or
assets, continues undismissed for 100 days or an order or decree
approving any of the foregoing shall be entered or AerFi goes into
liquidation, suffers a receiver or mortgagee to take possession of all
or substantially all of its assets or has an examiner appointed over it,
or a petition or proceeding for any of the foregoing is presented and
not discharged within 100 days;
- a voluntary proceeding is commenced against AerFi under bankruptcy,
insolvency, receivership or similar law upon consent by AerFi to the
institution of, or failure by AerFi to contest the filing of, any
petition described above, or filing of an answer admitting the material
allegations of any such petition, or the making of a general assignment
for the benefit of its creditors; or
- AerFi and AerCo fail to resolve a conflict as provided in the servicing
agreement.
AerCo may terminate the servicing agreement for any aircraft to which any
of the following conditions apply:
- in the case of marketing for re-lease of an aircraft, such aircraft has
been off-lease and is reasonably available for re-lease for more than
180 days after expiry of the agreed lease marketing period; or
- AerFi fails, within a reasonable period of time not to exceed 180 days,
to submit to AerCo a bona fide third party offer to purchase an aircraft
after written direction from AerCo to arrange such a sale; or
- AerFi recommends a course of action for an aircraft or lease to AerCo
which AerCo does not approve and, after negotiation in good faith, AerFi
refuses to amend, withdraw or replace such recommendation with one that
is consistent with its obligations.
The servicing agreement will terminate automatically if either of the
administrative agency or cash management agreement is terminated.
In no event will the servicing agreement terminate unless and until a
successor servicer shall have been appointed and have accepted the appointment.
ASSIGNMENT OF SERVICING AGREEMENT
AerFi and AerCo may not assign their rights and obligations under the
servicing agreement without each other's prior written consent.
PRIORITY OF PAYMENT OF SERVICING FEES AND REIMBURSABLE EXPENDITURES
AerFi's fees and expenses rank senior in priority of payment to all
payments on the notes.
ADDITIONAL SERVICERS
AerCo may appoint AerFi to service additional aircraft on the terms of the
servicing agreement.
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CORPORATE MANAGEMENT
ADMINISTRATIVE AGENT
The administrative agent, which is AerFi Administrative Services Limited (a
subsidiary of AerFi), provides administrative and accounting services to the
board of directors including:
- acting as liaison with the rating agencies;
- establishing and maintaining the AerCo Group's accounting ledgers;
- providing quarterly and annual draft accounts for the AerCo Group and
individual companies within the AerCo Group;
- preparing annual and three year budgets;
- authorizing payment of certain expenses;
- coordinating any amendments to the transaction agreements, other than
the leases;
- procuring, supervising and coordinating the AerCo Group's outside legal
counsel, accounting, tax and other professional advisors;
- preparing and coordinating reports to investors and the Commission;
- assisting the AerCo Group's tax advisors with the preparation and filing
of all required tax returns;
- assisting the AerCo Group in developing and implementing its interest
rate management policy and developing financial models, cash flow
projections and forecasts and in making aircraft lease, sale and capital
investment decisions;
- advising the AerCo Group on the appropriate levels of the liquidity
reserve amount; and
- assisting the AerCo Group with the public or private offerings of
refinancing notes.
AerCo's board of directors may ask the administrative agent to provide
additional administrative services. However, the administrative agent is not
obligated to perform any additional services that could reasonably result in the
business of AerCo or any of its subsidiaries ceasing to be separate and readily
identifiable from, and independent of, the administrative agent, AerFi or any of
their respective affiliates.
The administrative agent receives a monthly administrative fee equal to 2%
of the rental payments for each month. The administrative fee must be at least a
minimum of $200,000 per year and will be adjusted for inflation. The
administrative agent will receive an additional fee for services provided in
connection with the public or private offering of securities by AerCo equal to
0.025% of the net proceeds of the offering. The administrative agent is
reimbursed for certain expenses incurred in performing its services under the
administrative agency agreement.
In certain circumstances, AerCo may terminate the administrative agency
agreement and, in certain other circumstances, the administrative agent may
terminate it. The administrative agency agreement will terminate automatically
if either of the servicing agreement or the cash management agreement is
terminated.
In no event will the administrative agency agreement terminate unless and
until a successor administrative agent shall have been appointed and have
accepted the appointment.
The administrative agent is obligated to devote the same amount of time and
attention and is required to exercise the same level of skill, care and
diligence in the performance of its services as it would if it were
administering such services on its own behalf. We refer to this as the
"administrative agent's services standard".
In addition, if any conflicts of interest arise with respect to the
administrative agent's role and its other interests, the administrative agent
must report such conflict promptly to AerCo and must act in a manner that treats
AerCo equally with the entities giving rise to the conflict of interest, does
not violate
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the administrative agent's services standard or any of its covenants under the
administrative agency agreement and would not be reasonably likely to have a
material adverse effect on AerCo. We refer to this as the "administrative
agent's conflict duties".
CASH MANAGER
The cash manager, which is AerFi Cash Manager II Limited (a subsidiary of
AerFi), provides cash management and related services to the AerCo Group. The
cash manager's duties include informing the servicer and the administrative
agent of the aggregate deposits in the accounts and any other information that
is required about the accounts. The cash manager is authorized to invest funds
held by the AerCo Group in the accounts other than the tax defeasance account in
certain prescribed investments on permitted terms.
The cash manager also calculates certain monthly payments and makes all
other calculations as required under the cash management agreement based on data
provided by the servicer on the aircraft and the leases. The cash manager also
provides information required by the trustee to provide reports to the
noteholders.
The cash manager receives a fee of $250,000 per year for its services to
the AerCo Group. The fee is subject to adjustment for inflation. The cash
manager will not be liable to the AerCo Group for any losses or taxes payable by
the AerCo Group unless the losses or taxes arise from the cash manager's own
gross negligence, simple negligence in the handling of funds, willful
misconduct, deceit or fraud or that of its officers, directors, agents or
employees. The cash manager will be indemnified by the members of the AerCo
Group for any loss, liability or tax incurred by the cash manager, its officers,
directors, agents and employees as a result of the performance of services under
the cash management agreement. The AerCo Group will not indemnify the cash
manager for losses caused by its own deceit, fraud, willful default or
negligence or that of its officers, directors, agents and employees.
In certain circumstances, AerCo or the cash manager may terminate the cash
management agreement. The cash management agreement will terminate automatically
if either of the servicing agreement or administrative agency agreement is
terminated.
In no event will the cash management agreement terminate unless and until a
successor cash manager shall have been appointed and have accepted the
appointment.
COMPANY SECRETARY
The company secretary maintains company books and records, including minute
books and stock transfer records. It makes available telephone, telecopy, telex
and post office box facilities and will maintain a registered office in the
relevant jurisdictions.
Mourant & Co. Secretaries Limited acts as company secretary for members of
the AerCo Group that are incorporated in Jersey.
STANDBY SERVICER, CASH MANAGER AND ADMINISTRATIVE AGENT
debis Aircraft Leasing Limited, the standby servicer, acts as standby
servicer, cash manager and administrative agent with respect to the aircraft
pursuant to the terms of the standby servicing, administrative agency and cash
management agreement dated as of July 17, 2000 between AerCo, debis and the
standby servicer. In the event the standby servicer is called upon to provide
services, such services shall be provided for all leases and aircraft and shall
be performed under substantially the same terms and conditions as the AerFi
Group performs its services under the servicing, administrative agency and cash
management agreements. AerCo may terminate the standby arrangement if it pays a
termination fee. In that case, AerCo will have to find an alternative standby
servicer.
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The standby servicing agreement differs materially from the servicing
agreement with AerFi in the following respects only:
- the standby servicer's indemnity in favor of AerCo is limited to a
maximum aggregate amount equal to the greater of (x) 2.5% of the initial
appraised value for all aircraft and (y) $20.0 million with respect to
any and all losses, except losses arising from fraud on the part of the
standby servicer. AerFi's indemnity in favor of AerCo is unlimited;
- the standby servicer is entitled to sales based incentive fees equal to
10% of the net gains earned on the sale of any aircraft for an amount in
excess of 90% of initial appraised value. AerFi will not receive any
incentive fees; and
- AerCo can, upon payment of a termination fee equal to 0.25% of the
initial appraised value of the aircraft portfolio, terminate the
appointment of the standby servicer on six months' written notice. AerCo
does not have this right in respect of AerFi.
The standby servicer does not presently hold the necessary authorizations
from the Irish authorities to act as cash manager, but has agreed to use
reasonable efforts to obtain those authorizations as soon as practicable after
July 17, 2000.
debis is engaged in the leasing and management of commercial jet aircraft
under operating leases. debis is owned by DaimlerChrysler (DaimlerChrysler
Services (35%), DaimlerChrysler Aerospace (10%)) and German banks (Hypo
Vereinsbank (15%), Dresdner Bank (15%), Bayerische Landesbank (15%), and DG Bank
(10%)) and has a portfolio of 100 owned and managed aircraft (36 Airbus, 4
Boeing, 59 Fokker and 1 Dornier aircraft) valued at approximately $2.5 billion.
The debis portfolio is comprised of 22 Airbus A320-series aircraft, 9 Airbus
A330 aircraft, 3 Airbus A340 aircraft, 2 Airbus A300 freighter aircraft, 4
Boeing 737-400 aircraft, 27 Fokker 50 aircraft, 6 Fokker 70 aircraft, 26 Fokker
100 aircraft and 1 Dornier 228 aircraft. The aircraft are leased to 33 airlines
in 22 countries worldwide. In addition, debis has 32 Airbus A320-series aircraft
on order, with a market value of approximately $1.5 billion.
Since debis commenced operations with the purchase of the Fokker leasing
portfolio (35 aircraft) in late 1995, debis has diversified its fleet, primarily
through the acquisition of Airbus narrowbody aircraft in the context of sale and
leaseback transactions. In mid-1999, debis acquired a 15-aircraft-lease
portfolio from Airbus Industrie Financial Services. Today, debis has a fleet mix
(by book value) of 75% Airbus, 18% Fokker and 7% Boeing aircraft. The average
age of the fleet is 5.9 years. All aircraft meet Stage 3 noise standards.
While debis mainly purchases readily marketable narrowbody jets, its
current fleet also contains 14 widebody aircraft.
Based at Amsterdam's Schiphol airport, debis currently has 49 employees
that handle leasing, management and re-marketing relationships. debis'
management services include collecting rental payments, arranging and monitoring
aircraft maintenance performed by others, technical inspection of aircraft,
arranging and monitoring insurance, arranging for aircraft valuations,
registration and de-registration of aircraft, monitoring compliance with lease
arrangements and enforcement of lease provisions against lessees, conforming
compliance with applicable ADs and facilitating delivery and redelivery of
aircraft. Each member of debis' management team has an average of twenty years
experience in the aviation industry.
On September 21, 2000, AerFi entered into an agreement with amongst others,
debis, under which debis agreed on certain terms and conditions to make a cash
offer to acquire all of the ordinary share capital of AerFi. This transaction
was completed on November 16, 2000. As of the date of this prospectus, debis
owns 98.2% of the outstanding ordinary share capital of AerFi and will acquire
the remaining 1.8% through a compulsory squeeze out.
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SELECTED CONSOLIDATED FINANCIAL DATA
AerCo was formed on June 4, 1998 and did not conduct any business
operations until July 15, 1998 when it acquired an aircraft portfolio of 25
aircraft through the acquisition of all the outstanding capital stock of ALPS
94-1 and ten aircraft through the acquisition of all the outstanding capital
stock of certain aircraft owning subsidiaries of AerFi. We have included the
following audited historical financial statements in this prospectus as follows:
- Consolidated financial statements of AerCo for the year ended March 31,
2000 and for the period from July 15, 1998 to March 31, 1999.
- Consolidated financial statements of ALPS 94-1 for the year ended June
30, 1998 and for the period from July 1, 1998 to July 14, 1998.
- Financial statements for the ten aircraft transferred by the AerFi Group
to AerCo on July 15, 1998 for the year ended June 30, 1998 and for the
period from July 1, 1998 to July 14, 1998.
In addition, we have also included elsewhere in this prospectus the
following historical financial statements for the 30 additional aircraft that we
agreed to acquire through the acquisition of all the outstanding capital stock
of certain aircraft owning subsidiaries of AerFi on July 17, 2000:
- Financial statements for the new AerFi transferring aircraft for the
three years ended March 31, 1998, 1999 and 2000.
- Financial statements for the Indigo transferring aircraft for the year
ended December 31, 1998 and for the period from January 1, 1999 to
December 15, 1999.
Details of the contents of each of the above sets of financial statements
are given on pages F-2 and F-3.
The selected consolidated financial data set forth below have been
extracted from the audited historical financial statements of AerCo and ALPS
94-1 described above and from the audited consolidated financial statements of
ALPS 94-1 for each of the fiscal years ended June 30, 1996 and 1997. KPMG,
independent chartered accountants, audited the consolidated financial statements
of (i) ALPS 94-1 for the year ended June 30, 1998 and for the period from July
1, 1998 to July 14, 1998 and (ii) AerCo for the period from July 15, 1998 to
March 31, 1999 and for the year ended March 31, 2000.
The selected financial data of ALPS 94-1 include the results of operations
and financial condition of the 27 aircraft originally acquired by ALPS 94-1 from
AerFi in August 1994, including:
- the Boeing 767-300ER aircraft that was purchased by the AerFi Group from
ALPS 94-1 prior to the closing of the initial offering of notes by AerCo
on July 15, 1998; and
- the A300-B4-200 aircraft up to April 28, 1998 when the AerFi Group
acquired this aircraft from ALPS 94-1. The AerFi Group subsequently sold
this aircraft to AerCo.
Comparative financial information for ALPS 94-1 is presented because ALPS
94-1 is considered to be the predecessor business of AerCo. We believe that the
ALPS 94-1 selected financial data set forth below is an appropriate presentation
because:
- AerCo was formed mainly for the purpose of refinancing the aircraft
portfolio of ALPS 94-1;
- our initial portfolio of 35 aircraft included 26 of the 27 aircraft that
ALPS 94-1 originally acquired from AerFi;
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<PAGE> 82
- the original ALPS 94-1 aircraft represented 79% of our initial portfolio
by appraised value as at March 1, 1998; and
- our ongoing aircraft leasing activities are largely the same as those
conducted by ALPS 94-1.
Such data, however, is not indicative of the financial results of the AerCo
Group for the period from July 15, 1998 to March 31, 1999 and for the year ended
March 31, 2000.
The historical financial statements of the AerCo Group (including ALPS 94-1
and the aircraft transferred by the AerFi Group to AerCo in 1998) and the new
AerFi transferring aircraft have been prepared in accordance with U.K. GAAP,
which differ in certain significant respects from U.S. GAAP. For a discussion of
the principal differences and a reconciliation from U.K. GAAP to U.S. GAAP of
shareholders' deficit and net income or loss for the year, see the notes to the
relevant financial statements included elsewhere in this prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- The Period from July 15, 1998 to March
31, 1999 Compared with the Nine Month Period Ended March 31, 1998 -- Differences
between U.K. GAAP and U.S. GAAP". The historical financial statements for the
Indigo transferring aircraft have been prepared under U.S. GAAP.
We have also included in this prospectus unaudited pro forma combined
financial information for the AerCo Group for the year ended March 31, 2000.
Such pro forma combined financial information gives effect, among other things,
to the issuance by AerCo of the old notes, the refinancing of our subclass A-1
and subclass D-1 notes, the acquisition of the new AerFi transferring aircraft
and the acquisition by AerFi of one A321-200 in April 2000 and other
transactions described in "Unaudited Pro Forma Combined Financial Information".
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<PAGE> 83
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
<TABLE>
<CAPTION>
ALPS 94-1 AERCO
--------------------------------------------------- -------------------------
PERIOD FROM PERIOD FROM
FISCAL FISCAL FISCAL JULY 1, JULY 15, FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED 1998 TO 1998 TO YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JULY 14, MARCH 31, MARCH 31,
1996 1997 1998 1998 1999 2000
----------- ---------- ---------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.K. GAAP
Revenues
Aircraft leasing.................... $ 102,460 $ 101,434 $ 100,682 $ 3,635 $ 82,826 $ 109,146
Expenses
Depreciation........................ (17,978) (38,062) (37,826) (1,519) (33,821) (46,998)
Exceptional item --
Additional depreciation........... -- (34,385) -- -- -- --
Provision for impairment in aircraft
value............................. (12,000) -- (8,720) -- -- (13,079)
Amortization of goodwill............ -- -- -- -- (1,669) (2,356)
Net interest expense................ (73,576) (71,037) (69,785) (2,757) (54,108) (78,818)
Other expenses...................... (5,581) (5,053) (6,599) (646) (8,311) (15,742)
Exceptional item --
Termination fee................... -- -- (12,700) -- -- --
----------- --------- --------- --------- ----------- -----------
Loss from operations.................. (6,675) (47,103) (34,948) (1,287) (15,083) (47,847)
Profit/(loss) on sale of aircraft..... -- -- 2,426 10 10 (941)
Reduction in indebtedness............. -- 5,258 -- -- -- --
----------- --------- --------- --------- ----------- -----------
Loss before provision for taxes....... (6,675) (41,845) (32,522) (1,277) (15,073) (48,788)
Taxes................................. (200) 143 (33) -- (35) (51)
Dividends............................. -- -- -- -- -- --
----------- --------- --------- --------- ----------- -----------
Net loss.............................. $ (6,875) $ (41,702) $ (32,555) $ (1,277) $ (15,108) $ (48,839)
=========== ========= ========= ========= =========== ===========
U.S. GAAP EXTRACT
Depreciation.......................... $ (32,338) $ (32,339) $ (32,053) $ (1,276) $ (28,062) $ (38,354)
Provision for impairment in aircraft
value............................... $ (12,000) $ -- $ (520) $ -- $ -- $ (6,100)
Reduction in indebtedness............. $ -- $ 5,258 $ -- $ -- $ -- $ --
Net income/(loss)..................... $ (21,590) $ (1,594) $ (20,808) $ 5,973 $ 19,760 $ (31,235)
</TABLE>
CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
ALPS 94-1 AERCO
--------------------------------------------------- -------------------------
AS OF AS OF AS OF AS OF AS OF AS OF
JUNE 30, JUNE 30, JUNE 30, JULY 14, MARCH 31, MARCH 31,
1996 1997 1998 1998 1999 2000
----------- ---------- ---------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.K. GAAP EXTRACT
Aircraft, net of accumulated
depreciation and provision for
impairment in aircraft value........ $ 927,043 $ 854,596 $ 800,090 $ 732,905 $ 904,253 $ 829,194
Total assets.......................... $ 1,021,356 $ 950,031 $ 890,873 $ 881,804 $1,019,328 $ 943,457
Indebtedness........................ (953,376) (919,157) (877,128) (875,015) (949,217) (901,198)
Provision for maintenance........... (37,571) (44,274) (42,336) (41,274) (39,697) (32,216)
Total liabilities..................... $(1,024,345) $(994,722) $(968,119) $(960,327) $(1,034,436) $(1,007,404)
Shareholders' deficit................. $ (2,989) $ (44,691) $ (77,246) $ (78,523) $ (15,108) $ (63,947)
U.S. GAAP EXTRACT
Aircraft, net of accumulated
depreciation and provision for
impairment in aircraft value........ $ 766,811 $ 734,472 $ 691,713 $ 631,778 $ 767,820 $ 708,009
Indebtedness.......................... $ (953,376) $(919,157) $(877,128) $(875,015) $ (953,908) $ (904,991)
Shareholders' deficit................. $ (182,781) $(184,375) $(203,210) $(197,237) $ (169,238) $ (200,473)
</TABLE>
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CONSOLIDATED STATEMENTS OF CASH FLOWS AND OTHER DATA
<TABLE>
<CAPTION>
ALPS 94-1 AERCO
-------------------------------------------------- ------------------------
PERIOD FROM PERIOD FROM
FISCAL FISCAL FISCAL JULY 1, JULY 15, FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED 1998 TO 1998 TO YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JULY 14, MARCH 31, MARCH 31,
1996 1997 1998 1998 1999 2000
---------- ---------- ---------- ----------- ----------- ----------
(IN THOUSANDS, EXCEPT RATIO DATA)
<S> <C> <C> <C> <C> <C> <C>
U.K. GAAP EXTRACT
Cash paid in respect of interest...... $ (64,002) $(59,872) $(54,815) $ (3,872) $ (39,013) $ (56,150)
Net cash provided/(utilized) by
operating activities (after payment
of interest)........................ $ 45,532 $ 45,119 $ 45,721 $ (4,077) $ 27,961 $ 35,672
Net cash provided by investing
activities.......................... $ -- $ -- $ 10,386 $ 65,677 $ 14,500 $ 14,041
Net cash provided by/(used in)
financing activities................ $ (36,025) $(43,494) $(59,108) $ (3,719) $ 948,544 $ (48,917)
Net movements in cash................. $ (25,803) $ (2,886) $ 134 $ 94,567 $ 25,618 $ 795
U.K. GAAP(1)(2)
Ratio of Earnings to Fixed Charges.... 0.909 0.411 0.534 0.537 0.721 0.381
U.S. GAAP(1)(2)
Ratio of Earnings to Fixed Charges.... 0.709 0.976 0.702 3.166 1.366 0.604
</TABLE>
In relation to "Ratio of Earnings to Fixed Charges" under both U.K. GAAP
and U.S. GAAP, you should note the following:
(1) Earnings include pretax income from continuing operations plus fixed
charges. Fixed charges are the total of (i) interest, whether expensed
or capitalized, (ii) amortization of debt expense and discount or
premium relating to any indebtedness, whether expensed or capitalized
and (iii) the portion of rental expense that can be demonstrated to be
representative of the interest factor in the particular case.
(2) A ratio of less than one indicates that earnings are inadequate to
cover fixed charges. The amount by which fixed charges exceeded
earnings for ALPS 94-1 (i) for the years ended June 30, 1996, 1997 and
1998 and for the period July 1, 1998 to July 14, 1998 under U.K. GAAP
was $6.7 million, $41.9 million, $32.5 million and $1.3 million,
respectively, and (ii) for the years ended June 30, 1996, 1997 and
1998 under U.S. GAAP was $21.4 million, $1.7 million and $20.8
million, respectively. The amount by which fixed charges exceeded
earnings for AerCo for the period from July 15, 1998 to March 31, 1999
and for the year ended March 31, 2000 under U.K. GAAP was $15.1
million and $48.8 million and for the year ended March 31, 2000 under
U.S. GAAP was $31.2 million.
For a discussion of the differences between AerCo's and ALPS 94-1's results
of operations and financial position under U.S. GAAP compared with U.K. GAAP,
see notes 25, 26, 27 and 28 to the AerCo audited consolidated financial
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations -- The Period from July 15, 1998
to March 31, 1999 Compared with the Nine Month Period Ended March 31, 1998 --
Differences between U.K. GAAP and U.S. GAAP".
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<PAGE> 85
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition and Results
of Operations set forth below, except the discussion under "-- Financial
Resources and Liquidity," is based on the aircraft owned by the AerCo Group at
March 31, 2000 and therefore is limited to a discussion of historical financial
data with respect to those aircraft and the related leases. Investors should
note, however, that because the following discussion does not cover historical
data with respect to the 30 additional aircraft to be sold by the AerFi Group to
the AerCo Group on and after July 17, 2000, it will not be indicative of an
analysis of the consolidated financial results of AerCo in future periods.
GENERAL
AerCo was incorporated on June 4, 1998. However, it did not conduct any
business operations until it acquired its initial aircraft portfolio and issued
notes on July 15, 1998. On that date AerCo purchased all of the outstanding
capital stock of ALPS 94-1 and also purchased all of the capital stock of
certain AerFi aircraft owning companies. The AerFi aircraft owning companies
owned 10 aircraft at July 15, 1998.
The following discussion of AerCo's results of operations for 2000 compared
to 1999 is based on the audited results of AerCo for the year ended March 31,
2000 compared with the eight and one-half month period from July 15, 1998 to
March 31, 1999.
RESULTS OF OPERATIONS -- YEAR ENDED MARCH 31, 2000 COMPARED WITH THE EIGHT AND
ONE-HALF MONTH PERIOD FROM JULY 15, 1998 TO MARCH 31, 1999
OVERVIEW
The AerCo Group's results for the year ended March 31, 2000 were adversely
affected by the significant increase in the number of aircraft available for
lease or sale in the period, with a corresponding negative impact on aircraft
values and lease rates particularly for older widebody aircraft. Although growth
in air travel increased in 1999, reflecting a measure of economic recovery in
the Asia Pacific region and strong performance in the rest of the world,
aircraft lease rates generally declined. In addition, AerCo's results for the
year have been significantly adversely affected by financial difficulties
experienced by one North American lessee in meeting its contracted lease
payments. The lessee, Tower Air, has filed for Chapter 11 bankruptcy protection
and, as a result, AerCo may have to take redelivery of one B747-200B aircraft on
lease to that lessee in the near term. See "The Aircraft, Related Leases and
Collateral -- The Lessees -- North American Concentration". During the year, as
a result of the deterioration in the value of the Colombian currency and
negative impact on the Colombian economy, one Colombian lessee continued to
experience difficulties in meeting its contracted rental and other payments. See
"The Aircraft, Related Leases and Collateral -- The Lessees -- Latin American
Concentration". Excess supply of aircraft in the operating lease market is
continuing. This gave rise to a softening of lease rates and more limited
placement prospects for aircraft which came off lease during the year. In
addition, any slowdown in economic growth may result in the AerCo Group
increasingly having to address the problems of lessees in financial difficulty
with lease reschedulings, rent deferrals and other restructuring arrangements.
In these circumstances, AerCo's ability to pay interest on, and repay principal
of, the notes may be adversely affected.
REVENUES
Revenues for the AerCo Group in the year ended March 31, 2000 were $109.1
million compared with $82.8 million in the period from July 15, 1998 to March
31, 1999. Rentals from European and Asia Pacific carriers represented 48.5%
(1999 -- 48.8%) and 23.5% (1999 -- 25.4%), of AerCo's leasing revenues in the
year ended March 31, 2000. One lessee accounted for more than 10% of AerCo's
leasing revenues (Spanair: 11.1%). The same lessee accounted for more than 10%
of AerCo's leasing revenues in the period from July 15, 1998 to March 31, 1999,
(Spanair: 10.5%). At March 31, 2000 and March 31, 1999, AerCo had no aircraft
off-lease.
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Rental rates on 14 of the 22 new leases entered into by the AerCo Group
since July 1998 reflect the current softening in lease rates in the commercial
aviation market for operating lease rentals. These rates were on average 15%
below the previous lease rates for these aircraft. Rental rates on the remaining
eight leases entered into by the AerCo Group in the period were on average 8%
above previous lease rates for these aircraft. The AerCo Group entered into 12
new leases/lease extensions in the year ended March 31, 2000 for the following
aircraft: one F100 (71 months), five B737-300s (65 months, 60 months, 12 months,
65 months and 36 months), two B737-400s (56 months and 48 months), one B737-500
(42 months), two A320-200s (24 months and 36 months) and one B767-200ER (1
month). The AerCo Group entered into 10 new leases/lease extensions in the year
ending March 31, 1999 with respect to one B757-200 (72 months), three MD-83s (60
months, 60 months and 40 months), two A320-200s (60 months and 11 months), one
B737-400 (57 months), one F100 (35 months), one B737-300 (24 months) and one
B737-500 (2 months).
SALE OF AIRCRAFT
Two aircraft have been sold. Sales proceeds of $14.7 million from the sale
of one aircraft, an F100 sold to an affiliate of Portugalia, were received by
the AerCo Group in the year ended March 31, 2000. The net book value of this
aircraft at the date of sale was $15.6 million. Sales proceeds of $14.5 million
from the sale of another F100 also sold to an affiliate of Portugalia, were
received by the AerCo Group in the period from July 15, 1998 to March 31, 1999.
The net book value of this second aircraft at the date of sale was $13.9 million
and other sales costs were $0.6 million.
DEPRECIATION AND PROVISION FOR IMPAIRMENT IN AIRCRAFT VALUES
The depreciation charge for the AerCo Group for the year ended March 31,
2000 amounted to $47.0 million compared to $33.8 million in the period from July
15, 1998 to March 31, 1999. The AerCo Group has depreciated each aircraft at a
rate calculated to write-off the cost of the aircraft to its estimated residual
value of generally 15% of its initial appraised value, on a straight-line basis,
over its estimated useful economic life of 25 years from the date of
manufacture.
For the year ended March 31, 2000, the directors of AerCo determined to
make a provision of $13.1 million in respect of an impairment in the value of
the AerCo Group's one B747-200B aircraft. The directors arrived at such
determination based on the financial condition of the aircraft's current lessee,
the physical condition of the aircraft and the unfavorable market conditions for
this aircraft type. The carrying value of this aircraft at March 31, 2000 was
$5.4 million net of maintenance provisions of $3.6 million and an amount of $3.5
million provided in respect of one engine on this aircraft. For more information
regarding this aircraft, you should refer to "The Aircraft, Related Leases and
Collateral -- The Lessees -- North American Concentration".
NET INTEREST EXPENSE
Net interest expense for AerCo amounted to $78.8 million in the year ended
March 31, 2000 compared to $54.1 million in the period from July 15, 1998 to
March 31, 1999. The increase in net interest expense for AerCo of $24.7 million
in the year ended March 31, 2000 was primarily due to a combination of the
longer accounting period and a higher interest rate environment in the year
ended March 31, 2000 compared to the period from July 15, 1998 to March 31,
1999. The average indebtedness outstanding for AerCo during the year ended March
31, 2000 was $925.2 million compared to $973.8 million for the period from July
15, 1998 to March 31, 1999.
Under the terms of the AerCo subclass E-1 notes, interest accrues at a rate
of 20% per annum payable monthly in arrears. Except for the subclass E-1 note
primary interest amount, which is payable at the rate of 15% per annum
multiplied by the initial outstanding principal balance of the subclass E-1
notes, no interest is payable on the subclass E-1 notes until all of the
interest, principal and premium, if any, on the notes have been repaid in full.
The subclass E-1 note primary interest amount is paid on each payment date only
to the extent that AerCo has available collections sufficient to make such
payment after
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<PAGE> 87
paying or providing for each of the items ranking prior to such payment in the
order of priority. Approximately $23.9 million was accrued during the year ended
March 31, 2000 in respect of unpaid interest on the subclass E-1 notes compared
with $14.1 million during the period from July 15, 1998 to March 31, 1999. Cash
paid in respect of interest amounted to $56.2 million in the year ended March
31, 2000 compared with net interest expense of $78.8 million and cash paid in
respect of interest amounted to $39.0 million in the period from July 15, 1998
to March 31, 1999 compared with net interest expense of $54.1 million,
principally reflecting subclass E-1 note interest accrued but not paid in each
period.
Net interest expense also includes expenses incurred under AerCo's interest
rate swaps. AerCo has entered into interest rate swaps in order to correlate its
contracted fixed and floating rate rental payments to the fixed and floating
rate interest payments on the notes, resulting in a charge of $1.4 million in
the year ended March 31, 2000 and a charge of $1.2 million in the period from
July 15, 1998 to March 31, 1999.
Net interest expense is stated after deducting interest income earned
during the relevant period. In the year ended March 31, 2000, AerCo earned
interest income of $2.1 million compared with $1.9 million in the period from
July 15, 1998 to March 31, 1999.
OTHER EXPENSES
Other expenses consist of servicer fees, administrative agency fees, cash
manager fees, insurance premiums (political risk and directors' liability
insurance), other service provider costs and miscellaneous expenditure items.
Other expenses for AerCo amounted to $15.7 million in the year ended March 31,
2000 compared to $8.3 million in the period from July 15, 1998 to March 31,
1999.
In the year ended March 31, 2000, servicer, administrative agency and cash
manager fees payable by AerCo to Babcock & Brown and the AerFi Group totalled
$6.4 million compared with $4.4 million in the period from July 15, 1998 to
March 31, 1999. Substantially all of the AerCo fees represent revenue based fees
calculated as a monthly percentage of lease rentals received on aircraft under
management.
The AerCo Group's practice is to provide specifically for any bad debt
amounts due but unpaid by lessees. Each provision is based primarily on the
amount due in excess of security held and also takes into account the financial
strength and condition of a lessee and the economic conditions existing in the
lessee's operating environment. A small number of the AerCo Group's lessees
failed to meet their contractual obligations in the year ended March 31, 2000,
resulting in the requirement for additional provisions in respect of bad and
doubtful debts in respect of these lessees. Overall, there was a net provision
of $2.15 million required in respect of bad and doubtful debts in the year ended
March 31, 2000 primarily in respect of Tower Air, compared with a net provision
of $0.55 million in the period from July 15, 1998 to March 31, 1999 primarily in
respect of PAL.
In the year ended March 31, 2000, AerCo made a provision of $3.5 million in
respect of an engine on the B747-200B aircraft on lease to Tower Air.
GOODWILL
On July 15, 1998 AerCo acquired 100% of the capital stock of ALPS 94-1,
thus indirectly acquiring a portfolio of 25 aircraft and the related leases, and
purchased certain aircraft owning subsidiaries of AerFi, which owned 10 aircraft
and related leases. The difference between the fair value of the net assets
acquired and the consideration paid by AerCo for the acquisition of ALPS 94-1
and the AerFi aircraft owning companies of $47.1 million represents purchased
goodwill, which is capitalized on the balance sheet of AerCo and amortized on a
straight-line basis over its estimated economic life. In the results of AerCo
for the year ended March 31, 2000, goodwill of $2.4 million was amortized
compared with $1.7 million in the period from July 15, 1998 to March 31, 1999.
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OPERATING LOSS
In the year ended March 31, 2000, AerCo recorded an operating loss of $48.8
million compared with an operating loss of $15.1 million for the period from
July 15, 1998 to March 31, 1999.
TAXES
AerCo had a tax charge of approximately $0.05 million in the year ended
March 31, 2000, compared with a tax charge of approximately $0.03 million for
the period from July 15, 1998 to March 31, 1999.
NET LOSS/NET PROFIT
As a result of the above factors, AerCo had a net loss of $48.8 million for
the year ended March 31, 2000 compared with a net loss of $15.1 million in the
period from July 15, 1998 to March 31, 1999.
RESULTS OF OPERATIONS -- THE PERIOD FROM JULY 15, 1998 TO MARCH 31, 1999
COMPARED WITH THE NINE MONTH PERIOD ENDED MARCH 31, 1998
OVERVIEW
The following discussion of AerCo's results of operations for 1999 compared
to 1998 is based on the audited results of AerCo for the eight and one-half
month period from July 15, 1998 to March 31, 1999 compared with the unaudited
pro forma combined statement of operations data for the AerCo Group transferred
aircraft for the nine month period ended March 31, 1998. The pro forma combined
statement of operations data which is set out in the table below, was prepared
on the assumption that AerCo issued its existing notes and acquired ALPS 94-1
and the AerFi transferred aircraft on July 1, 1997.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
AERCO
PRO FORMA COMBINED AERCO
ALPS 94-1 FINANCIAL INFORMATION PERIOD FROM
NINE MONTHS ENDED NINE MONTHS ENDED JULY 15, 1998 TO
MARCH 31, 1998 MARCH 31, 1998 MARCH 31, 1999
----------------- --------------------- -----------------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues
Aircraft leasing......................... $ 76,098 $ 85,830 $ 82,826
Expenses
Depreciation............................. (28,569) (33,805) (33,821)
Impairment Provision..................... (8,720) -- --
Net interest expense..................... (52,340) (58,881) (54,108)
Other expenses........................... (4,278) (8,842) (8,311)
Amortisation of goodwill................. -- (1,764) (1,669)
-------- -------- --------
Operating loss............................. (17,809) (17,462) (15,083)
Profit on sale of aircraft................. -- -- 10
-------- -------- --------
Loss before taxes.......................... (17,809) (17,462) (15,073)
Taxes...................................... (15) 1,454 (35)
-------- -------- --------
Net loss................................... $(17,824) $(16,008) $(15,108)
======== ======== ========
</TABLE>
AerCo's results for the period from July 15, 1998 to March 31, 1999
reflected a continuation of reasonably favorable industry conditions for the
period. Despite the generally favorable conditions, we were engaged in
restructuring discussions with PAL, a lessee of two B737-300 aircraft. Tower Air
experienced delays in meeting its contracted lease payments. In the latter part
of the period, as a result of the Brazilian currency devaluation, one Brazilian
lessee experienced difficult trading conditions, while a Colombian
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<PAGE> 89
lessee also began to experience difficulties in meeting its contracted rental
and other payment obligations. See "The Aircraft, Related Leases and Collateral
-- The Lessees -- Latin American Concentration".
REVENUES
Revenues for AerCo in the period from July 15, 1998 to March 31, 1999 were
$82.8 million compared with ALPS 94-1 revenues for the nine months ended March
31, 1998 of $76.1 million. AerCo pro forma revenues for the nine months ended
March 31, 1998 were $85.8 million. Rentals from European and Asia Pacific
carriers represented 48.8% (1998 -- 50.9%) and 25.4% (1998 -- 26.4%) of AerCo's
leasing revenues in the period from July 15, 1998 to March 31, 1999. One lessee
accounted for more than 10% of AerCo's leasing revenues (Spanair: 10.5%). The
same lessee accounted for more than 10% of AerCo's leasing revenues in the nine
months ended March 31, 1998, (Spanair: 10.7%). At March 31, 1999, AerCo had no
aircraft off-lease.
Rental rates on four of the 10 new leases written by AerCo between July 15,
1998 and March 31, 1999 reflected the softening in lease rates in the commercial
aviation market for operating lease rentals. During the period, these rates were
on average 10% below the previous lease rates for these aircraft. Rental rates
on the remaining six leases written by AerCo in the period were on average 9%
above previous lease rates for these aircraft. During the period ended March 31,
1999, AerCo entered into new leases with respect to one B757-200 (72 months),
three MD-83s (60 months, 60 months and 40 months), one B737-300 (24 months), two
A320-200s (60 months and 11 months), one F100 (35 months), one B737-400 (57
months) and one B737-500 (2 months).
PROFIT ON SALE OF AIRCRAFT
Sales proceeds of $14.5 million from the sale of one aircraft, an F100 sold
to an affiliate of Portugalia, were received by AerCo in the period from July
15, 1998 to March 31, 1999. The net book value of this aircraft at the date of
sale was $13.9 million and other sales costs were $0.6 million. There were no
aircraft sales in the nine months ended March 31, 1998.
DEPRECIATION
The depreciation charge for AerCo in the period from July 15, 1998 to March
31, 1999 amounted to $33.8 million. The pro forma depreciation charge for AerCo
in the nine months ended March 31, 1998 amounted to $33.8 million. AerCo has
depreciated each aircraft at a rate calculated to write-off the cost of the
aircraft to its estimated residual value of 15% of its initial appraised value,
on a straight-line basis, over its estimated useful economic life.
NET INTEREST EXPENSE
Net interest expense for AerCo amounted to $54.1 million in the period from
July 15, 1998 to March 31, 1999 compared to $52.3 million for ALPS 94-1 in the
nine months ended March 31, 1998. Pro forma net interest expense for AerCo
amounted to $58.9 million for the nine months ended March 31, 1998. The decrease
in net interest expense for AerCo of $4.8 million in 1999 was primarily due to a
combination of a lower interest rate environment and the slightly shorter
accounting period.
Net interest expense is stated after deducting interest income earned
during the relevant period. In the period from July 15, 1998 to March 31, 1999,
AerCo earned interest income of $1.9 million compared with $1.7 million in the
nine months ended March 31, 1998.
OTHER EXPENSES
Other expenses consist of servicer fees, administrative agency fees, cash
manager fees, insurance premiums (political risk and directors' liability
insurance), other service provider costs and miscellaneous expenditure items.
Other expenses for AerCo amounted to $8.3 million in the period from July 15,
1998 to March 31, 1999 compared with $4.3 million for ALPS 94-1 for the nine
months ended March 31, 1998.
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<PAGE> 90
Pro forma other expenses for the AerCo Group amounted to $8.8 million for the
nine months ended March 31, 1998.
In the period from July 15, 1998 to March 31, 1999, servicer,
administrative agency and cash manager fees payable by AerCo to Babcock & Brown
and AerFi totaled $4.4 million compared with $4.3 million for the nine months
ended March 31, 1998. Substantially all of the AerCo fees represent revenue
based fees calculated as a monthly percentage of lease rentals received on
aircraft under management.
There was a net provision of $0.55 million required in respect of bad and
doubtful debts in the period from July 15, 1998 to March 31, 1999 primarily in
respect of PAL, compared with a net release of $0.2 million in the nine months
ended March 31, 1998.
GOODWILL
In the period from July 15, 1998 to March 31, 1999, AerCo amortized
goodwill of $1.7 million compared with pro forma goodwill of $1.8 million for
the nine months ended March 31, 1998.
OPERATING LOSS
In the period from July 15, 1998 to March 31, 1999, AerCo recorded an
operating loss of $15.1 million compared with a loss of $17.8 million for ALPS
94-1 in the nine months ended March 31, 1998. AerCo recorded a pro forma
operating loss of $17.5 million for the nine months ended March 31, 1998.
TAXES
AerCo had a tax charge of approximately $0.03 million in the period from
July 15, 1998 to March 31, 1999, compared with a tax charge for ALPS 94-1 of
$0.01 million in the nine months ended March 31, 1998. AerCo had a pro forma tax
credit of $1.4 million in the nine months ended March 31, 1998.
NET LOSS
As a result of the above factors, AerCo had a net loss of $15.1 million in
the period from July 15, 1998 to March 31, 1999, compared with a net loss of
$17.8 million for ALPS 94-1 in the nine months ended March 31, 1998. AerCo had a
pro forma net loss of $16.1 million for the nine months ended March 31, 1998.
DIFFERENCES BETWEEN U.K. GAAP AND U.S. GAAP
The principal differences between U.S. GAAP and U.K. GAAP that have
affected the results of operations and financial position of AerCo and ALPS 94-1
relate to the accounting treatment of aircraft cost and depreciation, goodwill
and issue costs.
Aircraft are stated at purchase cost under U.K. GAAP. Under U.S. GAAP
aircraft are stated at AerFi's amortized cost at the date of delivery to, and
acquisition by, AerCo and ALPS 94-1, respectively. The difference between the
purchase cost and AerFi's amortized cost is treated as a distribution to AerFi.
The impact is to reduce the net book value of aircraft and shareholders' equity
under U.S. GAAP compared with U.K. GAAP.
Under U.K. GAAP AerCo has depreciated each aircraft at a rate calculated to
write off the cost of the aircraft from July 15, 1998, the date of acquisition,
on a straight-line basis to a residual value of generally 15% of its cost. Under
U.S. GAAP aircraft are depreciated on a straight-line basis at a rate designed
to write off AerFi's amortized cost at the date of delivery to AerCo to a
residual value of generally 15% of its cost over a period of 25 years from the
date of manufacture.
Under U.K. GAAP the difference between the fair value of the net assets of
ALPS 94-1 and the AerFi transferred aircraft, and the purchase consideration
paid by AerCo to acquire these entities gives rise
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<PAGE> 91
to goodwill of $47.1 million which is capitalized and amortized over a period of
20 years. No goodwill arises under U.S. GAAP as the transaction is accounted for
on a predecessor cost basis as a transaction between entities under common
control.
Under U.K. GAAP the costs of issuance arising on the completion of a
refinancing transaction are disclosed as a reduction of the related
indebtedness. Under U.S. GAAP the costs of issuance are disclosed separately as
deferred financing costs.
For a discussion of these and other differences between U.K. GAAP and U.S.
GAAP, including certain income recognition and depreciation differences relating
to AerCo's acquisition of the capital stock of ALPS 94-1 and the AerFi aircraft
owning companies see notes 25, 26, 27 and 28 to the AerCo audited consolidated
financial statements.
FINANCIAL RESOURCES AND LIQUIDITY
LIQUIDITY
You should refer to Appendix 1 and Appendix 2 for more information
regarding the cash flow performance of AerCo for the period from July 15, 1998
to the June 15, 2000 and for the period from July 17, 2000 to September 15,
2000.
AerCo's primary source of liquidity is rental payments made by lessees
under the lease agreements. The principal uses of cash rental payments are
expenses related to the aircraft and their servicing, corporate expenses and the
payment of interest on and principal of indebtedness. Such indebtedness consists
of the notes subject to this exchange offer, AerCo's previously outstanding
notes that were not refinanced on July 17, 2000 and the subclass D-2, subclass
E-1 and subclass E-2 notes which are held by AerFi.
The cash balances (including short-term investments in commercial paper) at
March 31, 2000 amounted to $66.4 million compared to $65.6 million at March 31,
1999. Under the terms of its indebtedness, AerCo is required to maintain cash
balances in an amount equal to (1) the amount of lessee security deposits ($16.3
million at March 31, 2000), and (2) the "liquidity reserve amount" ($40.0
million at March 31, 2000).
The terms of AerCo's indebtedness restrict the use of such cash so that it
is generally not available to service debt. The liquidity reserve amount has
been determined largely based on an analysis of historical experience,
assumptions regarding the AerCo Group's future experience and the frequency and
cost of certain contingencies in respect of the aircraft. It is intended to
provide liquidity for meeting the cost of maintenance obligations and
non-maintenance, aircraft-related contingencies such as removing regulatory
liens, complying with ADs and repossessing and re-leasing aircraft. In analyzing
the future impact of these costs, assumptions have been made regarding their
frequency and amount based upon historical experience. There can be no
assurance, however, that historical experience will prove to be relevant or that
actual cash received by the AerCo Group will not be significantly less than that
assumed. Any significant variation may materially adversely affect AerCo's
ability to make payments of interest and principal on the notes.
During the next two years, AerCo may have to incur unusually high cash
expenditures for the purpose of airframe and engine overhauls and complying with
new regulatory requirements for aircraft operating in Europe and North America.
These payments could adversely affect AerCo's ability to make certain principal
payments on the notes, depending on their level and timing.
OPERATING ACTIVITIES
Net cash provided by AerCo's operating activities in the year ended March
31, 2000 amounted to $35.7 million compared with $28.0 million for the period
ended March 31, 1999. These amounts are net of cash paid in respect of interest
of $56.2 million, net maintenance cash outflows of $7.5 million and security
deposits refunded of $1.5 million. The potential maintenance and regulatory
compliance expenditures described above may have an adverse impact on AerCo's
net operating cash flow in 2001.
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<PAGE> 92
INVESTING AND FINANCING ACTIVITIES
Cash flows used in financing activities in the year ended March 31, 2000
reflect the repayment of $48.9 million of principal on the subclass A-2,
subclass B-1 and subclass C-1 notes. Cash flows used in financing activities for
the period from July 15, 1998 to March 31, 1999 reflect the issue by AerCo of
its subclass A-E notes on July 15, 1998 of $992.0 million less discount costs of
$5.4 million and the repayment of $38.1 million of principal on the AerCo
subclass A-2 and subclass B-1 notes in the period.
INDEBTEDNESS
As of October 31, 2000, the outstanding indebtedness of AerCo consisted of
the amounts set forth below. Interest on the notes is payable monthly in arrears
and accrues at the following per annum rates:
<TABLE>
<CAPTION>
OUTSTANDING
PRINCIPAL AMOUNT AT ANNUAL INTEREST RATE EXPECTED FINAL
SUBCLASS OF NOTES OCTOBER 31, 2000 (PAYABLE MONTHLY) PAYMENT DATE FINAL MATURITY DATE
----------------- ------------------- -------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Subclass A-2.................. 191,122,486 LIBOR + 0.32 % December 15, 2005 July 15, 2023
Subclass A-3.................. 565,000,000 LIBOR + 0.46 % June 15, 2002 July 15, 2025
Subclass A-4.................. 218,504,983 LIBOR + 0.52 % May 15, 2011 July 15, 2025
Subclass B-1.................. 74,628,132 LIBOR + 0.60 % July 15, 2013 July 15, 2023
Subclass B-2.................. 79,797,378 LIBOR + 1.05 % June 15, 2008 July 15, 2025
Subclass C-1.................. 84,043,091 LIBOR + 1.35 % July 15, 2013 July 15, 2023
Subclass C-2.................. 79,981,846 LIBOR + 2.05 % June 15, 2008 July 15, 2025
Subclass D-2(1)............... 92,909,102 8.50% March 15, 2014 July 15, 2025
Subclass E-1.................. 111,973,000 20.00% July 15, 2023 July 15, 2023
Subclass E-2(1)............... 83,094,228 20.00% July 15, 2025 July 15, 2025
</TABLE>
---------------
(1) Upon the delivery of all 30 additional aircraft, the outstanding principal
amount of subclass D-2 and subclass E-2 notes would be $100 million and
approximately $109.1 million, respectively. See "The Parties -- The
Refinancing and Additional Aircraft Acquisition".
We used part of the proceeds of the additional notes offering on July 17,
2000 and the issuance of the subclass D-2 and subclass E-2 notes to refinance
all of the then outstanding subclass A-1 notes and subclass D-1 notes.
Interest on any subclass of floating rate notes is calculated on the basis
of a 360-day year and the actual number of days elapsed in the interest accrual
period. Interest on any subclass of fixed rate notes is calculated on the basis
of a 360-day year consisting of twelve 30-day months.
Interest Rate Sensitivity
AerCo's principal market risk exposure is to changes in interest rates.
This exposure arises from its notes and the derivative instruments used by AerCo
to manage interest rate risk. The basic terms of each subclass of notes,
including the outstanding principal amount and estimated fair value as of
October 31, 2000, are as follows:
<TABLE>
<CAPTION>
PRINCIPAL
ANNUAL AMOUNT AT ESTIMATED
INTEREST RATE OCTOBER 31, 2000 EXCEPTED FINAL FINAL FAIR VALUE AT
SUBCLASS OF NOTES (PAYABLE MONTHLY) $MILLION PAYMENT DATE MATURITY DATE OCTOBER 31, 2000
----------------- ----------------- ---------------- ----------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Subclass A-2 (LIBOR+0.32%) 191 December 15, 2005 July 15, 2023 190,764,131
Subclass A-3 (LIBOR+0.46%) 565 June 15, 2002 July 15, 2025 565,507,617
Subclass A-4 (LIBOR+0.52%) 219 May 15, 2011 July 15, 2025 218,419,629
Subclass B-1 (LIBOR+0.60%) 75 July 15, 2013 July 15, 2023 73,368,782
Subclass B-2 (LIBOR+1.05%) 80 June 15, 2008 July 15, 2025 80,115,321
Subclass C-1 (LIBOR+1.35%) 84 July 15, 2013 July 15, 2023 81,140,959
Subclass C-2 (LIBOR+2.05%) 80 June 15, 2008 July 15, 2025 80,250,535
Subclass D-2 (8.5% -- Fixed) 93 March 15, 2014 July 15, 2025 74,327,281
Subclass E-1 (20% -- Fixed) 112 July 15, 2023 July 15, 2023 27,993,250
Subclass E-2 (20% -- Fixed) 83 July 15, 2025 July 15, 2025 20,773,557
----- -------------
1,582 1,412,661,062
===== =============
</TABLE>
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<PAGE> 93
INTEREST RATE RISK AND MANAGEMENT
The leasing revenues of AerCo are generated primarily from lease rental
payments which are either fixed or floating. In some cases, leases carry fixed
and floating rental payments for different rental periods. In the case of
floating rate leases, an element of the rental varies in line with changes in
LIBOR, generally six-month LIBOR. See "The Aircraft, Related Leases and
Collateral -- The Leases" for more information regarding the terms of our
leases. As of October 31, 2000, leases with respect to approximately 80.37% of
the aircraft by appraised value at April 30, 2000 provided for fixed rate rental
payments and approximately 19.63% provided for floating rate payments (excluding
the aircraft leased to Tower Air, which has filed for Chapter 11 bankruptcy
protection).
In general, an exposure to interest rate risk arises when AerCo's fixed and
floating interest obligations do not correlate to the mix of fixed and floating
rate lease rental payments for different rental periods. This interest rate
exposure can be managed through the use of interest rate swaps and other
derivative instruments. The mix of fixed and floating rental payments contains a
higher percentage of fixed rate payments than the percentage of fixed rate
interest payments on the notes. In part, this reflects the fact that the reset
periods on floating rental payments are generally longer than the monthly reset
periods on the floating rate notes. AerCo enters into interest rate swaps in
order to correlate the contracted fixed and floating rental payments to the
fixed and floating interest rate payments on the notes.
Under the swaps, AerCo generally pays fixed amounts and receives floating
amounts on a monthly basis. The swaps amortize on the basis of the expected
paydown schedule of the class A, class B and class C notes, the expiry dates of
the leases under which lessees are contracted to make fixed rate rental payments
and the LIBOR reset dates under the floating rate leases. At least every three
months, and in practice more frequently, the administrative agent seeks to enter
into additional swaps or sell at market value or unwind part or all of the swaps
and any future swaps in order to rebalance the fixed and floating mix of
interest obligations and the fixed and floating mix of rental payments. As of
October 31, 2000, none of AerCo's existing swaps had a maturity date extending
beyond January 2008. The fair value of the swaps to AerCo at October 31, 2000
was negative $3.3 million.
Additional interest rate exposure will arise to the extent that lessees
owing fixed rate rental payments default and interest rates have declined
between the contract date of the lease and the date of default. This exposure
can be managed through the purchase of options on interest rate swaps. Because
of the credit quality of the lessees and the current interest rate environment,
AerCo does not currently intend to acquire any options on interest rate swaps.
If the credit quality of the lessees changes materially, or if the interest rate
environment warrants it, AerCo may decide to purchase options on interest rate
swaps, or enter into other derivative transactions such as credit derivatives as
a means of managing such risk.
Through the use of interest rate swaps and other interest rate hedging
instruments, it is AerCo's policy not to be adversely exposed to material
movements in interest rates. We cannot assure you, however, that AerCo's
interest rate risk management strategies will be effective in this regard. Any
change to AerCo's policy with regard to its dealing in interest rate hedging
products is subject to periodic review by the rating agencies.
The directors of AerCo are responsible for reviewing and approving the
overall interest rate management policies and transaction authority limits. As
described below, the administrative agent, acting within the overall policies
and limits, approves specific hedging instruments. Counterparty risk is
monitored on an ongoing basis. Counterparties are subject to the prior approval
of the directors of AerCo. AerCo's counterparties consist primarily of the
affiliates of major U.S. and European financial institutions (which may include
special purpose derivative vehicles) whose credit ratings are consistent with
maintaining the ratings of the most senior class of notes then outstanding.
AerCo intends to increase the number of swap counterparties from two to at least
five.
In implementing its interest rate management policy described above, AerCo
seeks to manage its exposure to adverse changes in interest rates based on
regular reviews of its interest rate risk. Typically, before each payment date,
the administrative agent, on behalf of AerCo, estimates future principal
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<PAGE> 94
payments on the notes based on a model of its cash flows. The fixed and floating
rate components of our lease portfolio are then estimated. The administrative
agent reviews this estimate whenever lease rentals (whether fixed or floating
rate) are reset under the terms of the leases. This analysis invariably
indicates that AerCo is "short" floating rate revenues and thus is adversely
exposed to increases in LIBOR, the benchmark interest rate for the notes and the
floating rate leases. After taking into account its available cash balance and
its swap portfolio, AerCo then enters into additional interest rate swaps to
hedge against the estimated amount of this shortfall. This interest rate swap
portfolio is reviewed regularly on the basis described above.
As an example, on September 29, 2000, AerCo entered into an interest rate
swap. With respect to the monthly period from November 15, 2000 to December 15,
2000, the estimated note balances (classes A through C) were $1,294.4 million,
leases maturing or rolling over amounted to $40.0 million, and relevant cash
deposits amounted to $65.0 million. As the swaps which had been previously
entered into carried a notional principal balance of $1,023.0 million, the new
swap has a notional principal balance in that particular one month period of
$165.0 million.
The following table sets forth terms of AerCo's swap portfolio as of
October 31, 2000. In its swaps, AerCo generally pays a fixed monthly coupon and
receives one month LIBOR on the notional principal balance.
<TABLE>
<CAPTION>
CURRENT NOTIONAL FIXED MONTHLY
BALANCE ($000S) EFFECTIVE DATE MATURITY DATE PAY RATE %
---------------- ------------------ ------------------ -------------
<S> <C> <C> <C>
60,000 July 15, 1998 May 15, 2001 5.6690%
125,000 July 15, 1998 September 15, 2004 5.7530%
40,000 August 17, 1998 August 15, 2004 5.8240%
20,000 September 28, 1998 January 15, 2004 5.0810%
25,000 January 15, 1999 April 15, 2004 5.2140%
15,000 February 23, 1999 March 15, 2004 5.3675%
10,000 July 15, 1999 March 15, 2005 6.2650%
70,000 July 27, 1999 March 15, 2006 6.3650%
40,000 October 20, 1999 November 15, 2000 5.9800%
15,000 March 15, 2000 March 15, 2001 6.2900%
0* November 15, 2000 March 15, 2004 7.1925%
0* May 15, 2001 March 15, 2005 7.1200%
35,000 May 25, 2000 November 15, 2000 6.9175%
95,000 July 17, 2000 November 15, 2004 6.9530%
80,000 July 17, 2000 June 15, 2007 7.0000%
28,000 July 17, 2000 January 15, 2006 7.0000%
36,000 July 17, 2000 April 15, 2007 7.0100%
15,000 July 17, 2000 November 15, 2001 6.9100%
15,000 July 17, 2000 April 15, 2004 6.9700%
15,000 July 17, 2000 October 15, 2005 6.9900%
15,000 July 17, 2000 June 15, 2005 6.9900%
17,000 July 17, 2000 December 15, 2003 6.9600%
18,000 July 17, 2000 November 15, 2000 6.7200%
14,000 July 17, 2000 March 15, 2006 7.0000%
14,000 July 17, 2000 October 15, 2005 6.9900%
36,000 July 17, 2000 January 15, 2008 7.0200%
12,000 July 17, 2000 November 15, 2003 6.9600%
13,000 July 17, 2000 June 15, 2002 6.9400%
13,000 July 17, 2000 June 15, 2002 6.9400%
21,000 July 17, 2000 November 15, 2004 6.9550%
</TABLE>
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<PAGE> 95
<TABLE>
<CAPTION>
CURRENT NOTIONAL FIXED MONTHLY
BALANCE ($000S) EFFECTIVE DATE MATURITY DATE PAY RATE %
---------------- ------------------ ------------------ -------------
<S> <C> <C> <C>
16,000 July 17, 2000 April 15, 2004 6.9490%
15,000 July 17, 2000 May 15, 2004 6.9500%
16,000 July 17, 2000 October 15, 2004 6.9560%
16,000 July 17, 2000 March 15, 2005 6.9610%
13,000 July 17, 2000 February 15, 2005 6.9590%
15,000 July 17, 2000 July 15, 2004 6.9560%
45,000 August 15, 2000 January 15, 2001 6.7950%
35,000 September 15, 2000 May 15, 2006 6.6930%
130,000 October 16, 2000 February 15, 2006 6.5370%
--------------
1,213,000
--------------
--------------
</TABLE>
---------------
* These are forward starting swaps which will become effective on the date shown
on the "Effective Date" column.
The quantitative disclosure and other statements in this section are
forward-looking statements that involve risks and uncertainties. Although our
policy is to limit our exposure to changes in interest rates, we could suffer
higher cash flow losses than described above as a result of actual future
changes in interest rates. You should also note that our future exposure to
interest rate movements will change as the composition of our lease portfolio
changes or if we issue new subclasses of additional notes or refinancing notes
with different interest rate provisions from the notes. You should also refer to
"Risk Factors" for more information, about risks, especially lessee credit risk,
that could intensify our exposure to changes in interest rates.
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<PAGE> 96
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined financial information set forth below
reflects the refinancing and additional aircraft acquisition and therefore
includes the following:
- the issuance of the subclass A-3, subclass A-4, subclass B-2 and subclass
C-2 notes (before payment of subscription discounts, commissions and
other expenses in connection with the offering estimated to be
approximately $10.3 million);
- the issuance of the subclass D-2 and subclass E-2 notes to AerFi;
- the refinancing of our subclass A-1 notes ($340.0 million);
- the refinancing of our subclass D-1 notes ($80.0 million);
- the new servicing agreement with AerFi;
- the increase in the liquidity reserve amount ($32.4 million), which for
pro forma purposes is assumed to consist entirely of cash; and
- the acquisition of the new AerFi transferring aircraft (the financial
statements for which are set out on pages F-51 to F-68) and the
acquisition by AerFi of one A321-200 in April 2000.
We refer to these transactions collectively as the "Transaction".
The unaudited pro forma combined statement of operations for the year ended
March 31, 2000 presents the pro forma results as if the Transaction had occurred
on April 1, 1999. The unaudited pro forma combined balance sheet as of March 31,
2000 is presented as if the Transaction had occurred on such date.
As described below, the adjustments made to the audited financial
statements of AerCo and the new AerFi transferring aircraft and to the unaudited
financial information for the Indigo transferring aircraft relate to, among
other things, historical indebtedness, net interest expense, other expenses,
goodwill, and tax amounts. The unaudited pro forma combined financial
information is presented on the basis that the existing aircraft and the
additional aircraft had been operated separately by AerCo for the year ended
March 31, 2000. Any aircraft acquired by Indigo during the year ended March 31,
2000 are reflected in the unaudited pro forma combined statement of operations
from their date of acquisition.
The unaudited pro forma combined financial information should be read in
conjunction with and is qualified in its entirety by reference to "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical financial statements of AerCo, the new AerFi transferring
aircraft and the Indigo transferring aircraft included elsewhere in this
prospectus.
The unaudited pro forma combined financial information set forth below has
been prepared in accordance with U.K. GAAP. U.K. GAAP differs in certain
respects from U.S. GAAP. A reconciliation from U.K. GAAP to U.S. GAAP of net
assets/(liabilities) and net loss for the year ended March 31, 2000 is also
presented below.
Not all of the new AerFi transferring aircraft were delivered by the AerFi
Group to the AerCo Group on July 17, 2000 because the AerFi Group needed
additional time in order to obtain lessee consents and meet other requirements
in order to transfer such aircraft. We deposited the proceeds of the additional
refinancing into the aircraft purchase account and have been using and will
continue to use these funds to purchase the remaining new AerFi transferring
aircraft as they are ready for delivery. In consideration of AerCo's agreeing to
purchase the aircraft-owning companies and raising funds in anticipation of
delivery of all of the new AerFi transferring aircraft, AerFi entered into an
agreement with AerCo such that certain of the economic benefits and risks of
owning the additional aircraft up to the transfer date would be passed to AerCo
in the manner described in "The Parties -- The Refinancing and Additional
Aircraft Acquisition".
Aircraft transferred subsequent to July 17, 2000 pursuant to this
arrangement are accounted for as if they had been transferred on July 17, 2000
for purposes of both U.K. GAAP and U.S. GAAP.
95
<PAGE> 97
Accordingly, the unaudited pro forma combined financial information has been
prepared assuming all of the new AerFi transferring aircraft are transferred.
If an additional aircraft cannot be delivered, we may acquire a substitute
aircraft proposed by the AerFi Group if certain conditions are met. Under our
purchase agreement with AerFi, our obligation to purchase any additional
aircraft is dependent upon the AerFi Group being able to deliver such aircraft
by July 10, 2001. Any amounts remaining in the aircraft purchase account at that
time will be used by AerCo to make payments on the additional notes and our
other obligations according to the priority of payments.
As of November 2, 2000, 24 of the 30 new AerFi transferring aircraft had
been purchased by AerCo. The six aircraft remaining to be transferred as of
November 2, 2000 have an appraised value of $176 million at April 30, 2000
representing 11.4% of the total combined fleet appraised value of $1,541.8
million. The balance of the aircraft purchase account as of November 2, 2000 was
$156.8 million.
While the AerFi Group have advised us that they expect to be able to
deliver the remaining six aircraft in the period specified in the purchase
agreement, their ability to deliver the aircraft depends on obtaining lessee
consents and other matters not within their control. Accordingly, we cannot
assure you that the remaining aircraft will be delivered within the specified
period.
The unaudited pro forma combined financial information is provided for
illustrative purposes and does not demonstrate what AerCo's results of
operations would have been had the transaction been completed on April 1, 1999
or what AerCo's financial position would have been had the transaction occurred
on March 31, 2000 or predict results of operations or net assets for any future
period or at any future date.
AERCO GROUP
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH
31, 2000
<TABLE>
<CAPTION>
AUDITED HISTORICAL
RESULTS
----------------------- UNAUDITED
NEW AERFI INDIGO UNAUDITED
TRANSFERRING TRANSFERRING PRO FORMA NOTE 4 PRO FORMA
AERCO(1) AIRCRAFT(2) AIRCRAFT(3) ADJUSTMENTS(4) REFERENCE COMBINED
-------- ------------ ------------ -------------- --------- ---------
$M $M $M $M $M
<S> <C> <C> <C> <C> <C> <C>
Revenues
Aircraft leasing............. 109 26 53 188
Expenses
Depreciation................. (47) (10) (19) (76)
Impairment Provision......... (13) -- -- (13)
Net interest expense......... (79) (12) (24) (40) (i) (155)
Other expenses............... (16) (2) (4) 4 (ii) (18)
Goodwill..................... (2) -- -- (1) (iii) (3)
----- ----- ----- ----- -----
Total expenses................. (157) (24) (47) (37) (265)
----- ----- ----- ----- -----
Net (loss)/profit before tax... (48) 2 6 (37) (77)
Loss on sale of aircraft..... (1) -- -- (1)
(Provision)/benefit for
taxes..................... -- -- (2) 2 (iv) --
----- ----- ----- ----- -----
Net (loss)/profit for the
year......................... (49) 2 4 (35) (78)
===== ===== ===== ===== =====
</TABLE>
---------------
(1) Derived from the audited AerCo consolidated financial statements for the
year ended March 31, 2000.
(2) Derived from the audited new AerFi transferring aircraft financial
statements for the year ended March 31, 2000 included elsewhere in this
prospectus which reflects the acquisition of the Indigo transferring
aircraft on December 16, 1999, the date on which AerFi acquired Indigo,
together with the acquisition of one additional aircraft during the year.
(3) Derived from the unaudited Indigo transferring aircraft financial
information for the period from April 1, 1999 to December 15, 1999. The
results of operations of the Indigo transferring aircraft
96
<PAGE> 98
reflects the acquisition of 8 aircraft during the period and therefore only
includes the results of operations of such aircraft from their date of
acquisition.
(4) Represents the adjustments to the combined historical statements of
operations of AerCo, the new AerFi transferring aircraft and the Indigo
transferring aircraft to account for the transaction as if it had occurred
on April 1, 1999, including:
(i) The unaudited pro forma combined statement of operations reflects net
interest expense (including interest on the subclass E-2 notes) which
would have been incurred had the transaction occurred on April 1,
1999 and had the new AerCo notes been issued on that date bearing
interest at the assumed rates set forth in "Description of the Notes
-- AerCo's Performance Assumptions -- Financing-Related Assumptions".
Deferred transaction costs of $2.0 million are also amortized during
the year and included within net interest expense.
Pro forma interest expense reflects the following adjustments:
<TABLE>
<CAPTION>
$M
-----
<S> <C>
INTEREST SAVINGS ON EXISTING DEBT:
Subclass A-1 notes........................................ 19
Subclass D-1 notes........................................ 7
Indigo transferring aircraft debt......................... 24
New AerFi transferring aircraft debt...................... 12
-----
62
-----
INTEREST EXPENSE ON ISSUE OF NOTES:
Subclass A-3 notes........................................ (40)
Subclass A-4 notes........................................ (15)
Subclass B-2 notes........................................ (6)
Subclass C-2 notes........................................ (7)
Subclass D-2 notes........................................ (8)
Subclass E-2 notes........................................ (24)
Amortization of deferred financing costs.................. (2)
-----
(102)
-----
Pro forma interest adjustment............................... (40)
=====
</TABLE>
(ii) As part of the transaction, AerCo entered into a new servicing
agreement with AerFi which does not include results based incentive
fees. The existing AerCo cash management and administrative agency
agreements with the AerFi Group remain in place for the current and
additional aircraft. The unaudited pro forma combined statement of
operations reflects the assumed fees payable under those agreements
as calculated in accordance with the relevant assumption set forth in
"Description of the Notes".
(iii) Reflects the straight line amortization, over a 20 year period, of
goodwill arising on the acquisition by AerCo of the new AerFi
transferring aircraft.
(iv) Taxation reflects the effect of losses in AerCo arising as a result of
the completion of the transaction.
97
<PAGE> 99
AERCO GROUP
UNAUDITED PRO FORMA COMBINED BALANCE SHEET AT MARCH 31, 2000
<TABLE>
<CAPTION>
NEW AERFI
TRANSFERRING PRO FORMA NOTE 3 PRO FORMA
AERCO(1) AIRCRAFT(2) ADJUSTMENTS(3) REFERENCE COMBINED
-------- ------------ -------------- --------- ---------
$M $M $M $M
<S> <C> <C> <C> <C> <C>
Current assets
Cash................................. 66 17 10 (ii) 93
Accounts receivable.................. 5 2 (1) (iii) 6
----- --- ---- -----
Total current assets................... 71 19 9 99
Intangible assets
Goodwill............................. 43 6 17 (vi) 66
Fixed assets
Aircraft............................. 829 653 71 (i) 1,553
----- --- ---- -----
Total assets........................... 943 678 97 1,718
===== === ==== =====
Liabilities
Accrued expenses & other
liabilities....................... 58 10 (5) (iii) 63
Indebtedness......................... 709 467 143 (iv) 1,319
Indebtedness to AerFi................ 192 16 113 (iv) 321
Provision for maintenance............ 32 24 -- 56
Security deposits.................... 16 8 (1) 23
----- --- ---- -----
Total liabilities...................... 1,007 525 250 1,782
Shareholders' equity and net
liabilities.......................... (64) 153 (153) (v) (64)
----- --- ---- -----
943 678 97 1,718
===== === ==== =====
</TABLE>
---------------
(1) Derived from the audited AerCo consolidated financial statements for the
year ended March 31, 2000.
(2) Derived from the audited new AerFi transferring aircraft financial
statements for the year ended March 31, 2000 which reflects the acquisition
of the Indigo transferring aircraft on December 16, 1999, the date on which
AerFi acquired Indigo, together with the acquisition of one additional
aircraft during the year.
(3) Represents the adjustments to the unaudited pro forma combined balance sheet
and statement of net assets of AerCo and the new AerFi transferring aircraft
to account for the transaction as if it had occurred on March 31, 2000:
(i) Aircraft has been adjusted by $71 million to reflect (a) the increase
in the fleet of $46 million in respect of the price paid by AerFi to
purchase one A321-200 in April 2000 as if the acquisition had
occurred on March 31, 2000 and (b) an increase of $25 million to
reflect the inclusion of the aircraft to be acquired by AerCo at
their appraised value of $724 million.
(ii) The expected cash balances to be held by the AerCo Group on
completion of the transaction are $93.0 million (equal to the new
liquidity reserve amount of $65 million, accrued expenses of $5.0
million and security deposits of $23 million (as of March 31, 2000)).
The increase in the cash balance reflects the increase in the
liquidity reserve amount as a result of the refinancing transaction.
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<PAGE> 100
The application of the proceeds from the issuance of the new AerCo
notes on a pro forma basis may be summarized.
<TABLE>
<CAPTION>
$M
----
<S> <C>
Proceeds on issue of new notes & refinancing of
subclass A-1 and subclass D-1 notes
A-C notes (net)................................ 950
D and E notes.................................. 209
----
1,159
----
Settlement of Indebtedness
Refinancing of subclass A-1 notes.............. (340)
Refinancing of subclass D-1 notes.............. (80)
Indebtedness to AerFi.......................... (16)
Indebtedness................................... (467)
----
(903)
----
Payment to AerFi in respect of:
Adjustment to AerFi indebtedness arising on
AerCo's acquisition of the aircraft owning
companies from AerFi........................... (148)
Net purchase consideration for the acquisition
of the aircraft owning companies from AerFi.... (98)
----
Net movement in cash............................. 10
====
</TABLE>
(iii) Accounts receivable and accrued expenses and other liabilities
reflect only the assets and liabilities of AerCo and the new AerFi
transferring aircraft on completion of the transaction.
(iv) Represents adjustments to indebtedness as follows:
<TABLE>
<CAPTION>
$M
----
<S> <C>
Indebtedness
Issuance of new class A-C notes (net of
costs)......................................... 950
Repayment of subclass A-1 notes................ (340)
Repayment of third party indebtedness of the
new AerFi transferring aircraft............. (467)
----
143
====
</TABLE>
<TABLE>
<CAPTION>
$M
----
<S> <C>
Indebtedness to AerFi
Issuance of new subclass D-2 and E-2 notes..... 209
Repayment of subclass D-1 notes................ (80)
Repayment of AerFi indebtedness with respect to
new AerFi transferring aircraft............. (16)
----
113
====
</TABLE>
(v) The acquisition by AerCo of the new AerFi transferring aircraft and
the A321 aircraft from AerFi was to be achieved through the sale by
AerFi of the stock of approximately 18 subsidiary companies owning
these aircraft subsequent to March 31, 2000 (and also subsequent to
July 17, 2000) for a consideration of $707 million, consisting of net
purchase consideration of $98 million and the estimated indebtedness
of these companies to AerFi arising on the transfer of the respective
aircraft from AerFi to those subsidiaries of $609 million on the date
on which they are acquired. The indebtedness of $467 million and $16
million was settled from the proceeds of this issue and the remaining
balance of $126 million was recorded as an adjustment to the net
assets acquired in respect of the new AerFi transferring aircraft
(included within the
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<PAGE> 101
total adjustment of $148 million). The goodwill of $17 million
representing the difference between the fair value of the net assets
acquired and the consideration paid to acquire the stock of the aircraft
owning companies has been capitalized in the unaudited pro forma
combined balance sheet.
(vi) The calculation of goodwill arising on the acquisition by AerCo and
the new AerFi transferring aircraft for the purposes of the pro forma
financial information under U.K. GAAP is as follows:
<TABLE>
<CAPTION>
$M
------------
<S> <C>
SHAREHOLDER'S NET EQUITY......................... 153
Adjustment in respect of AerFi indebtedness
arising on AerCo's acquisition of the aircraft
owning companies from AerFi................... (148)
Aircraft acquired by AerFi during April 2000... 46
Accounts receivable ($1.0 million), accrued
expenses and other liabilities ($5.0 million)
and security deposits ($1.0 million) not
assumed by AerCo.............................. 5
FAIR VALUE ADJUSTMENTS
Difference between appraisal value and the U.K.
GAAP carrying value of the aircraft........... 25
-----
FAIR VALUE OF NET ASSETS ACQUIRED................ 81
Net purchase consideration for the acquisition
of aircraft owning companies.................. (98)
-----
GOODWILL ON ACQUISITION.......................... (17)
=====
</TABLE>
RECONCILIATION OF PRO FORMA COMBINED FINANCIAL INFORMATION AS STATED IN
ACCORDANCE WITH U.K. GAAP TO PRO FORMA COMBINED FINANCIAL INFORMATION IN
ACCORDANCE WITH U.S. GAAP
The unaudited pro forma combined financial information is prepared in
accordance with U.K. GAAP which differs in certain significant respects from
U.S. GAAP. The principal differences are set out below:
AERCO GROUP
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH
31, 2000
<TABLE>
<CAPTION>
HISTORICAL
U.K. GAAP AERCO OTHER U.S. GAAP
PRO FORMA U.S. GAAP U.S. GAAP NOTE 2 PRO FORMA
COMBINED ADJUSTMENT(1) ADJUSTMENT(2) REFERENCE COMBINED
--------- ------------- ------------- --------- ---------
$M $M $M $M
<S> <C> <C> <C> <C> <C>
Revenues
Aircraft leasing............ 188 188
Expenses
Depreciation................ (76) 9 (1) (i) (68)
Impairment provision........ (13) 7 (6)
Net interest expense........ (155) (155)
Other expenses.............. (18) (18)
Goodwill.................... (3) 2 1 (iii) --
---- --- --- ----
Total expenses................ (265) 18 -- (247)
---- --- --- ----
Net loss before tax........... (77) 18 (59)
Loss of sale of aircraft.... (1) (1)
Benefit for taxes........... -- --
---- --- --- ----
Net loss for the year......... (78) 18 -- (60)
==== === === ====
</TABLE>
100
<PAGE> 102
UNAUDITED PRO FORMA COMBINED BALANCE SHEET AT MARCH 31, 2000
<TABLE>
<CAPTION>
HISTORICAL
U.K. GAAP AERCO OTHER U.S. GAAP
PRO FORMA U.S. GAAP U.S. GAAP NOTE 2 PRO FORMA
COMBINED ADJUSTMENT(1) ADJUSTMENT(2) REFERENCE COMBINED
--------- ------------- ------------- --------- ---------
$M $M $M $M
<S> <C> <C> <C> <C> <C>
Current assets
Cash......................... 93 93
Accounts receivable.......... 6 6
Deferred financing costs..... -- 4 10 (ii) 14
---- ----- -----
Total current assets........... 99 4....... 10 113
----- ---- ----- -----
Intangible assets
Goodwill..................... 66 (43) (17) (iii) 6
Fixed assets
Aircraft..................... 1,553 (121) (25) (i) 1,407
----- ---- ----- -----
Total assets................... 1,718 (160) (32) 1,526
===== ==== ===== =====
Liabilities
Accrued expenses and other
liabilities............... 63 63
Indebtedness................. 1,319 4 10 (ii) 1,333
Indebtedness to AerFi........ 321 321
Provision for maintenance.... 56 56
Security deposits............ 23 23
----- ---- ----- -----
Total liabilities.............. 1,782 4 10 1,796
Shareholders' deficit
Ordinary shares.............. -- -- --
Accumulated deficit.......... (64) (164) (42) (iv) (270)
----- ---- ----- -----
1,718 (160) (32) 1,526
===== ==== ===== =====
</TABLE>
---------------
(1) Please refer to the audited AerCo consolidated financial statements for a
reconciliation of AerCo's net loss under U.K. GAAP to U.S. GAAP for the year
ended March 31, 2000 (notes 26 and 27).
(2) The U.S. GAAP pro forma combined statement of operations gives pro forma
effect to the transaction as if it had occurred on April 1, 1999. The U.S.
GAAP pro forma combined balance sheet gives pro forma effect to the
transaction as if it had occurred on March 31, 2000. The other U.S. GAAP
adjustments reflect adjustments to the fair value of the net assets of the
new AerFi transferring aircraft in order to reflect the assets and
liabilities of this entity at its predecessor cost under U.S. GAAP and
relate primarily to the accounting treatment of the following:
(i) Under U.K. GAAP, the new AerFi transferring aircraft are included at
their fair value at April 1, 2000 and depreciated from that date. For
U.S. GAAP purposes, transfer of assets and liabilities between AerCo
and AerFi have been accounted for on a predecessor cost basis because
all such transfers of assets and liabilities are among entities
required for U.S. GAAP purposes to be treated as entities within a
single consolidated group. The U.S. GAAP adjustment of $25.0 million
to aircraft relates to the difference between the fair value of the
aircraft and their predecessor cost.
(ii) Under U.K. GAAP, the capitalized funding costs of $10.3 million for
completing the offering are disclosed as a reduction against the
class A-C note indebtedness. Under U.S. GAAP the capitalized funding
costs are disclosed separately as deferred financing costs.
(iii) Under U.K. GAAP, the difference between the fair value of the net
assets of the new AerFi transferring aircraft, the additional net
indebtedness to AerFi which arose on completion of
101
<PAGE> 103
AerCo's acquisition of the new AerFi transferring aircraft and the
purchase consideration paid by AerCo to acquire these entities in July
2000 gives rise to goodwill of $17.0 million which is capitalised on the
unaudited pro forma combined balance sheet.
No goodwill arises under U.S. GAAP on the acquisition by AerCo of the new
AerFi transferring aircraft in July 2000 from the AerFi Group, as this
acquisition is accounted for on a predecessor cost basis, as this
transaction is between entities which are required for purposes of U.S.
GAAP to be treated as entities under common control.
(iv) The U.S. GAAP adjustment to the shareholders' accumulated deficit of
$42.0 million represents:
(a) the difference between the fair value of the aircraft acquired and
their predecessor cost of $25.0 million, and
(b) the difference of $17.0 million, between the purchase consideration
for the acquisition of the aircraft owning companies of $98.0
million and the fair value of the net assets of those entities of
$81.0 million.
SELECTED RATIOS(1)(2)
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,2000
--------------
(UNAUDITED)
<S> <C>
U.K. GAAP
Pro forma combined ratio of earnings to fixed
charges(3)............................................. 0.497
U.S. GAAP
Pro forma combined ratio of earnings to fixed
charges(3)............................................. 0.613
</TABLE>
---------------
(1) For a discussion of the differences between U.S. GAAP and U.K. GAAP in
respect of the unaudited pro forma combined financial information, see
reconciliation of income as stated in accordance with U.K. GAAP to income in
accordance with U.S. GAAP set forth above.
(2) Earnings include pretax income from continuing operations plus fixed
charges. Fixed charges are the total of (a) interest, whether expensed or
capitalized, (b) amortization of debt expense and discount or premium
relating to any indebtedness, whether expensed or capitalized and (c) such
portion of rental expense as can be demonstrated to be representative of the
interest factor in the particular expense.
(3) A ratio of less than one indicates that earnings are inadequate to cover
fixed charges. The amount by which fixed charges exceeded earnings for the
year ended March 31, 2000 was $78.0 million under U.K. GAAP and $60.0
million under U.S. GAAP.
102
<PAGE> 104
DESCRIPTION OF THE NOTES
The following description is a summary of the provisions of the notes, the
indenture, the security trust agreement, the cash management agreement and other
agreements. It does not restate these agreements in their entirety. You should
read the indenture and the security trust agreement because these agreements
define your rights as holders of the notes. The following discussion uses terms
that have specific definitions in the indenture and other transaction
agreements. You should refer to Appendix 12 to this prospectus for an index that
includes the definitions of these terms as they appear in this prospectus.
GENERAL
On July 15, 1998, we issued six subclasses of notes in connection with our
acquisition of the original 35 aircraft from the AerFi Group: subclass A-1,
subclass A-2, subclass B-1, subclass C-1, subclass D-1 and subclass E-1. AerFi
subscribed for the subclass D-1 and subclass E-1 notes. On July 17, 2000, we
issued a further six subclasses of notes: subclass A-3, subclass A-4, subclass
B-2, subclass C-2, subclass D-2 and subclass E-2. We used the proceeds from this
issuance to refinance the subclass A-1 notes and the subclass D-1 notes and to
acquire 30 additional aircraft (of which 24 had been delivered as of November 2,
2000). AerFi currently holds the subclass D-2, subclass E-1 and subclass E-2
notes.
Each of the four subclasses of new notes that we will issue in this
exchange offer will rank equally in right of payment of principal and interest
with the corresponding subclasses of outstanding old notes issued on July 17,
2000. We will issue the new notes under the indenture, which has been qualified
under the Trust Indenture Act of 1939, as amended. Bankers Trust Company is the
trustee under the indenture. The terms of the new notes will be identical to the
old notes, except for transfer restrictions, registration rights and increased
interest rate provisions that appear only in the old notes.
The notes constitute direct obligations of AerCo and do not represent
obligations of any lessee, AerFi, the trustee, the servicer or any of their
affiliates. The notes are not secured by any of the aircraft. The notes of each
class rank equally among themselves.
RATINGS
Each subclass of the new notes is rated as of the date of this prospectus
as follows:
<TABLE>
<CAPTION>
RATING AGENCIES
-------------------------------------
SUBCLASS OF NOTES MOODY'S STANDARD & POOR'S FITCH
----------------- ------- ----------------- -----
<S> <C> <C> <C>
Subclass A-3............................................. Aa2 AA AA
Subclass A-4............................................. Aa2 AA AA
Subclass B-2............................................. A2 A A
Subclass C-2............................................. Baa2 BBB BBB
</TABLE>
The ratings of the notes address the likelihood of the timely payment of
interest and the ultimate payment of principal and premium, if any, on the
notes. The rating agencies have not rated our ability to pay step-up interest or
principal in full on any subclass of the notes on the expected final payment
date or on any other date prior to the final maturity date. The ratings assigned
to the notes do not address the imposition of any withholding tax on any
payments under the leases, the notes or otherwise.
A rating is not a recommendation to buy, sell or hold notes because the
ratings do not comment as to market price or suitability for a particular
investor and may be subject to revision or withdrawal at any time by the
assigning rating agency. If the rating initially assigned to any subclass of the
notes is subsequently lowered, suspended or withdrawn for any reason, no person
or entity is obliged to support AerCo's obligations under the notes in any way.
103
<PAGE> 105
FORM
GLOBAL NOTES
The new notes will be represented by global notes, each of which will be
issued in bearer form only. The global notes will be deposited with the
book-entry depositary. The book-entry depositary will issue to DTC or its
nominee certificateless depositary interests for each subclass of the new notes,
representing the principal amount of the global note for the subclass. Interests
in the new notes will therefore be shown only on, and transfers of book-entry
interests will be effected only through, records maintained in book-entry form
by DTC or its nominee and its participants (including Euroclear and Clearstream,
Luxembourg). You should refer to "Book-Entry Registration, Global Clearance and
Settlement" for a description of how book-entry interests in the new notes may
be held and transferred and new payments on them will be distributed.
DEFINITIVE NOTES
You will receive definitive notes in registered form without interest
coupons in exchange for your book-entry interests only if:
- DTC notifies the book-entry depositary that it is not willing or able to
act as depositary for the book-entry interests and the book-entry
depositary does not appoint a successor at AerCo's request within 90
days of DTC's notice;
- AerCo notifies the trustee that the book-entry depositary is no longer
willing or able to act as book-entry depositary and AerCo and the
trustee do not appoint a qualified successor within 90 days of AerCo's
notice; or
- after an event of default has occurred with respect to any class of
notes, holders representing 51% or more of the outstanding principal
balance of any subclass within that class notify AerCo, the trustee, the
book-entry depositary and DTC that continuing a book-entry system
through DTC is no longer in their interest.
If any of these events occurs, the trustee will notify the relevant holders
and will arrange for definitive notes to be issued in exchange for the holders'
book-entry interests.
You should be aware that, under current Irish tax law, the holder of a
definitive note may become subject to Irish income tax, currently amounting to
22%, which will be withheld on any payments of interest on the definitive notes
as set forth under "Tax Considerations -- Irish Tax Considerations". If
definitive notes are issued, AerCo will have no obligation to pay to any holder
any additional amounts for any Irish or other tax.
The trustee or a paying agent will make distributions of interest,
principal and any premium on any definitive notes directly to holders of
definitive notes in whose names the definitive notes were registered at the
close of business on the record date. Such distributions will be made by check
mailed to the address of such holder as it appears on the register maintained by
the trustee. A noteholder holding definitive notes representing at least
$1,000,000 of the principal balance of any subclass may apply to have
distributions paid by wire transfer to its account at a financial institution in
New York, New York. The final payment on any such definitive notes, however,
will be made only upon presentation and surrender of such definitive notes at
the office of any paying agent and other office or agency specified in the
notice of final distribution to noteholders.
Definitive notes will be freely transferable and exchangeable for
definitive notes of the same subclass at the office of the trustee or the
offices of the co-transfer agent and the co-registrar in Luxembourg upon
compliance with the procedures set forth in the indenture. No service charge
will be imposed for any registration of transfer or exchange, but payment of a
sum sufficient to cover any tax or other governmental charge may be required.
Upon the issue of definitive notes, holders will be able to transfer definitive
notes at the office of the registrar. In the case of a transfer of only a part
of a definitive note, a
104
<PAGE> 106
new definitive note in respect of the balance of the principal amount of the
definitive note not transferred will be delivered at the office of the registrar
or sent by mail to the transferor.
You may exchange or replace a note that is mutilated, destroyed, lost or
stolen, at the offices of the trustee or of the co-transfer agent and the
co-registrar in Luxembourg upon presentation of the note or satisfactory
evidence of destruction, loss or theft. An indemnity satisfactory to the trustee
or the co-transfer agent and co-registrar may be required at the expense of the
noteholder before a replacement note will be issued. The noteholder will have to
pay any tax or other governmental charge imposed in connection with such
exchange or replacement and any other related expenses, including the fees and
expenses of the trustee and the co-transfer agent and co-registrar.
PAYMENTS AND DISTRIBUTIONS
On each payment date, the trustee will pay (or will instruct a paying agent
appointed in Luxembourg to pay) to the noteholders all payments of interest,
principal and any premium on the notes of each subclass, so long as the trustee
or paying agent confirms that it has received the payment by 1:00 p.m. (New York
time) on the payment date. If the trustee or the paying agent confirms receipt
of the payment after that time on the payment date, then it will make the
payment to the noteholders on the next business day after the business day it
received the payment. With respect to any payment date other than the final
payment date relating to any subclass of notes, the trustee or paying agent will
make relevant payments to the noteholders of record as of the record date
immediately preceding such payment date. The final distribution with respect to
any note, however, will be made only upon presentation and surrender of such
note by the noteholder or its agent (including any holder in street name) at the
office or agency of the trustee or paying agent. So long as the notes are listed
on the Luxembourg Stock Exchange, AerCo must appoint and maintain a paying agent
in Luxembourg.
The following table sets forth the expected weighted average life, the
expected final payment date and the final maturity date for each subclass of new
notes.
EXPECTED WEIGHTED AVERAGE LIFE, EXPECTED FINAL PAYMENT DATES
AND FINAL MATURITY DATES OF THE NOTES
<TABLE>
<CAPTION>
EXPECTED
WEIGHTED
AVERAGE LIFE EXPECTED FINAL
SUBCLASS OF NOTES IN YEARS PAYMENT DATE FINAL MATURITY DATE
----------------- ------------ -------------- -------------------
<S> <C> <C> <C>
Subclass A-3................................. 1.9 June 15, 2002 July 15, 2025
Subclass A-4................................. 4.8 May 15, 2011 July 15, 2025
Subclass B-2................................. 6.8 June 15, 2008 July 15, 2025
Subclass C-2................................. 6.8 June 15, 2008 July 15, 2025
</TABLE>
The "expected final payment date" for each subclass of notes means the date
on which the final payment of principal of and interest on such subclass of
notes is expected to be made based on the assumptions we describe below under
"-- AerCo's Performance Assumptions". The "final maturity date" for each
subclass of 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.
AERCO'S PERFORMANCE ASSUMPTIONS
As an illustration of certain payment characteristics of the notes, we
describe below our assumptions about AerCo's performance in future years. We
refer to the scenario in which all of these assumptions prove to be correct as
our "Base Case". The assumptions that relate specifically to line items that
will be
105
<PAGE> 107
contained in future monthly cash reports to noteholders are separately
identified and numbered for your ease of reference.
The assumptions and tables set forth below represent possible revenue
scenarios designed to illustrate the payment characteristics of the notes and
are not intended to be projections, estimates, forecasts or forward-looking
statements. We developed the tables by fixing certain of the assumptions and by
varying other assumptions and certain other factors which affect AerCo's
revenues and costs and expenses. The assumptions do not represent a complete
list of factors which may affect the revenues and costs and expenses of AerCo,
but rather indicate those factors which are likely to significantly affect
AerCo's performance in future years. In addition, the range of possible outcomes
with respect to each assumption and the combinations of assumptions do not
indicate a comprehensive set of possible results for AerCo. More severe stresses
than we have included in the table may lead to payments of principal of the
notes being delayed or decreased or, in certain cases, an event of default.
Accordingly, you should understand that the following tables are only an
illustration of some of the payment sensitivities of the notes to certain market
and economic stresses. We prepared these tables for inclusion in the offering
memorandum for the old notes based on information as of June 15, 2000. We have
not updated or revised the information presented to reflect changes occurring
after June 15, 2000. We are not aware of events or circumstances as of the date
of this prospectus that would cause the assumptions to be unreliable. It is
highly likely that actual experience in the future will vary from the
assumptions and the possible revenue scenarios reflected in the tables. The
principal factors that could cause the AerCo Group's actual revenues to differ
materially from such scenarios are the stresses we describe below and the risks
we describe under "Risk Factors".
SUMMARY OF THE BASE CASE
The table below shows our Base Case by reference to the line items to be
contained in the "Summary Performance to Date" section of our future monthly
cash reports to noteholders. In this table Base Case items are shown as a
percentage of lease rentals on the basis of the existing aircraft and the 30
additional aircraft to be acquired.
<TABLE>
<CAPTION>
BASE CASE RELATED ASSUMPTION
--------- ------------------
(SEE BELOW)
------------------
<S> <C> <C>
Lease rentals............................................... 100.0 (1)
Net stress-related costs.................................... (6.0) (2)
-----
Net lease rentals........................................... 94.0
Interest earned............................................. 2.0 (3)
Net maintenance............................................. 0.0 (4)
-----
Total cash collections...................................... 96.0
Aircraft operating expenses................................. (2.0) (5)
SG&A........................................................ (5.0) (6)
-----
Total cash expenses......................................... (7.0)
-----
Net cash collections........................................ 89.0
=====
</TABLE>
Net cash collections represent the amount available to pay interest and
principal on the notes.
You should refer to Appendix 4 to this prospectus for the month-by-month
roll-out of our assumed lease rentals, from July 17, 2000 through the final
maturity date of the notes, under the Base Case.
PRIMARY REVENUE ASSUMPTIONS
We make the following assumptions about each of our main revenue line
items.
106
<PAGE> 108
LEASE RENTALS
"Lease rentals" represents all rental payments received under the leases
and the net proceeds of any aircraft sales.
We assume that: (1)
- we re-lease aircraft coming off lease at a monthly rental rate that is a
function of the age of the aircraft and the contracted monthly rental
rate as of June 15, 2000, with lease rates being assumed to decline by
2% per annum in years 1-5 of an aircraft's expected useful life, 1% per
annum in years 6-15, 3% per annum in years 16-20 and 5% in years 21-25;
and
- we sell each aircraft only at the end of its expected useful life for a
scrap value price that is equal to 12% of its assumed value when new,
except that the B747-200B (MSN 22496) is assumed to be sold for its
scrap value in December 2000. No revenues are assumed to be received on
this aircraft from July 17, 2000 to its assumed disposal in December
2000.
NET STRESS-RELATED COSTS
"Net stress-related costs" represents the net total of lost revenue due to
the combination of the following five inter-related items:
-- lost rental revenue due to aircraft downtime following the termination
or expiration of a lease; and
-- bad debts realized and/or provided for; and
-- aircraft repossession costs
offset by
-- security deposits drawn after an event of default; and
-- other leasing income, which includes lease termination payments and
default interest.
- We assume that net stress-related costs are 6% per annum of lease
rentals. (2)
INTEREST EARNED
"Interest earned" represents interest earned by funds on deposit in the
collection account and any other cash balances, including the cash portion of
the liquidity reserve amount, including rental payments received, security
deposits and accrued maintenance expenses.
- We assume that the interest rate at which the cash balances described
above earn interest is one month LIBOR minus 20 basis points. (3)
NET MAINTENANCE
"Net maintenance" represents maintenance payments received from lessees
under the terms of the applicable leases, less maintenance costs that we make or
expect to incur under the leases and any modification payments that we make.
- We assume that net maintenance is zero. (4)
OTHER REVENUE-RELATED ASSUMPTIONS
In addition to the revenue assumptions above, we make the following
revenue-related assumptions.
- We assume that future lease terms are five years.
- We assume that we grant no purchase options to lessees and that no
existing purchase options are exercised.
107
<PAGE> 109
- We assume that we grant no new lease termination or extension options to
lessees and that existing termination or extension options are exercised
only when to do so would result in a rental rate at the time that is
lower than the rental rate that we would otherwise assume under the
assumptions.
- We assume that the 30 additional aircraft are delivered to us on July
17, 2000.
- We assume that each aircraft has an expected useful life of 25 years,
except that each of the two DC8-71F aircraft is expected to have an
expected useful life of 15 years from date of its conversion to
freighter service.
- We assume that aircraft values decline over time in accordance with the
depreciation curve described under "-- Payment of Principal and Interest
-- Principal Amortization".
- We assume that we acquire no future additional aircraft, other than the
30 additional aircraft identified in this prospectus.
EXPENSE-RELATED ASSUMPTIONS
We make the following assumptions about each of our main expense line
items.
AIRCRAFT OPERATING EXPENSES
"Aircraft operating expenses" represents certain operating costs incurred
in the ordinary course of the operating lease business, including insurance
expenses and leasing transaction expenses.
- We assume that aircraft operating expenses are 2.0% per annum of lease
rentals. (5)
SG&A
"SG&A" represents the sum of the following expense items:
-- fees paid to AerFi as servicer of the aircraft;
-- fees paid to the administrative agent and other service providers,
including the financial advisor;
-- legal fees, underwriting fees, printing and other expenses of the
issuance and sale of any refinancing notes and any notes issued in the
exchange offer for the notes, as described under "The Exchange
Offer -- Fees and Expenses"; and
-- other selling, general and administrative expenses.
We assume that: (6)
- we pay fees to AerFi as servicer as described under "Management of the
AerCo Group -- The Servicer";
- we pay fees to the administrative agent and other service providers as
described under "Management of the AerCo Group -- Corporate Management";
- we pay customary legal fees, underwriting fees, printing and other
expenses of the issuance and sale of any refinancing notes and any notes
issued in the exchange offer; and
- other selling, general and administrative expenses are 1% per annum of
lease rentals.
We assume that SG&A expenses are 5% per annum of lease rentals.
FINANCING-RELATED ASSUMPTIONS
We make the following financing-related assumptions:
- We assume that one month LIBOR remains constant at 6.6% per annum.
108
<PAGE> 110
- We assume that AerCo makes and receives swap payments in accordance with
the contracted terms of the swaps that we had in place on July 17, 2000.
- We assume that we issue notes that rank equally in right of payment and
interest with each corresponding class of the notes that were issued on
July 15, 1998 in amounts and with coupons as set forth in the following
table and that we make payments in accordance with the order of
priorities set forth under "-- Payment of Principal and Interest --
Priority of Payments".
<TABLE>
<CAPTION>
SUBCLASS OF NOTES AMOUNT MONTHLY COUPON
----------------- ----------- ----------------------
($MILLIONS)
<S> <C> <C>
Subclass A-3................................... 565 1 Month LIBOR + 0.46%
Subclass A-4................................... 235 1 Month LIBOR + 0.52%
Subclass B-2................................... 80 1 Month LIBOR + 1.05%
Subclass C-2................................... 80 1 Month LIBOR + 2.05%
---
960
===
</TABLE>
- We assume that we issue and sell refinancing notes on the expected final
payment dates of each of the subclass A-3, subclass B-2 and subclass C-2
notes, and on each subsequent expected final payment date of any such
refinancing notes, on the same terms with respect to priority,
intra-class priority, redemption and coupon as the notes being
refinanced and with maturities and amortization schedules paid with the
application of the Minimum, Scheduled and Supplemental Principal Payment
Amounts.
PRINCIPAL REPAYMENTS UNDER THE ASSUMED CASE
The table below shows, for each payment date presented, the percentage of
the initial outstanding principal balance of the subclass A-3, subclass A-4,
subclass B-2 and subclass C-2 notes expected to be outstanding on the payment
date based on the assumptions. It is highly unlikely that the assumptions will
correspond to actual experience. Therefore, principal payments on the notes may
occur earlier or later than set forth in the table. AerCo may fail to pay
principal of any subclass of its notes prior to the expected final payment date
of such subclass because it does not have the funds to make the payment
according to the priorities described under "-- Priority of Payments". Such a
failure will not, by itself, be an event of default.
109
<PAGE> 111
PERCENT OF INITIAL OUTSTANDING PRINCIPAL BALANCE OF THE
NOTES BASED ON THE BASE CASE
<TABLE>
<CAPTION>
PAYMENT DATE OCCURRING IN JULY A-3 A-4 B-2 C-2
------------------------------ ------- ------ ------ -------
<S> <C> <C> <C> <C>
2000 (July 17)........................................ 100% 100% 100% 100%
2001.................................................. 100% 82% 94% 99%
2002.................................................. 0% 70% 90% 97%
2003.................................................. 0% 63% 88% 93%
2004.................................................. 0% 55% 86% 88%
2005.................................................. 0% 46% 84% 82%
2006.................................................. 0% 38% 81% 75%
2007.................................................. 0% 29% 79% 67%
2008.................................................. 0% 22% 0% 0%
2009.................................................. 0% 14% 0% 0%
2010.................................................. 0% 6% 0% 0%
2011.................................................. 0% 0% 0% 0%
2012.................................................. 0% 0% 0% 0%
2013.................................................. 0% 0% 0% 0%
2014.................................................. 0% 0% 0% 0%
2015.................................................. 0% 0% 0% 0%
2016.................................................. 0% 0% 0% 0%
2017.................................................. 0% 0% 0% 0%
Weighted Average Life (years)......................... 1.9 4.8 6.8 6.8
</TABLE>
---------------
The weighted average life of a note equals:
P/I, where
P = the sum of the following amounts calculated for each payment date: (A)
X (Y), where
A = principal amount that is assumed to be paid on the payment date
Y = number of years from the date the note was issued to the payment
date calculated on the basis of a 360-day year of twelve 30-day
months
I = the initial principal balance of the note.
In each of the following tables, "expected maturity" means the period
(expressed in years) from July 17, 2000 through the expected final payment date
of the relevant notes.
110
<PAGE> 112
DECLINING BALANCES OF THE NOTES UNDER THE BASE CASE
[CHART]
GRAPH SHOWING DECLINING VALUES OF THE NOTES UNDER THE BASE CASE, BROKEN DOWN BY
SUBCLASS, CLOSING - JULY 15, 2025
EFFECT OF INABILITY TO REFINANCE SUBCLASS A-3, SUBCLASS B-2 AND SUBCLASS
C-2 NOTES
The table below is based on the assumptions, except that we have assumed
that no refinancing notes are issued. If no refinancings occur, the expected
maturities (Exp) and weighted average lives (Avg) of the notes would be as set
forth below.
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF NOTES
<TABLE>
<CAPTION>
EXPECTED MATURITY/
WEIGHTED AVERAGE LIFE
------------------------------------
BASE CASE NO REFINANCINGS
-------------- ----------------
EXP AVG EXP AVG
---- ---- ----- -----
<S> <C> <C> <C> <C>
Subclass A-3.......................................... 1.9 1.9 15.9 11.7
Subclass A-4.......................................... 10.8 4.8 10.8 4.9
Subclass B-2.......................................... 7.9 6.8 15.8 10.4
Subclass C-2.......................................... 7.9 6.8 12.7 8.2
</TABLE>
MINIMUM REVENUE PERCENTAGE REQUIRED TO REPAY NOTES
The table below shows the minimum percentage of lease rentals that will be
necessary to repay all interest and principal on each subclass of notes by their
respective final maturity dates. If the AerCo Group received actual revenues
below the percentages of lease rentals indicated below and all of the other
assumptions occurred, AerCo would be unable to make the required payments on the
notes, which would constitute an event of default.
111
<PAGE> 113
PERCENTAGE OF LEASE RENTALS NECESSARY TO REPAY THE
NOTES BY THE APPLICABLE FINAL MATURITY DATE ASSUMING ACTUAL
EXPERIENCE CORRESPONDS TO THE BASE CASE UNTIL THE BEGINNING OF THE YEAR STATED
<TABLE>
<CAPTION>
CLOSING DATE YEAR 3 YEAR 6 YEAR 10
------------ ------ ------ -------
<S> <C> <C> <C> <C>
Subclasses A-3 and A-4............................... 61.4% 60.6% 58.9% 54.4%
Subclass B-2......................................... 70.6% 69.4% 67.3% 61.3%
Subclass C-2......................................... 81.7% 80.5% 76.7% 67.9%
</TABLE>
EFFECT OF A PERMANENT CHANGE IN LEASE RENTALS
We have prepared the tables below based on the assumptions, except that we
have varied the revenue received by the AerCo Group from lease rentals by the
indicated percentages, beginning in years 3 and 6. If the AerCo Group received
actual lease rentals as indicated below and all of the other assumptions
occurred, then the expected maturities and weighted average lives of the
relevant subclasses of notes would be as set forth below.
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF NOTES
ASSUMING A PERMANENT CHANGE IN LEASE RENTALS, BEGINNING IN YEAR 3
<TABLE>
<CAPTION>
PERMANENT CHANGE IN LEASE RENTALS
AS A PERCENTAGE OF LEASE RENTALS
------------------------------------------------------------------------------------
BASE CASE +10% BASE CASE +5% BASE CASE BASE CASE -5% BASE CASE -10%
-------------- -------------- ------------ -------------- --------------
EXP AVG EXP AVG EXP AVG EXP AVG EXP AVG
----- ----- ----- ----- ---- ---- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subclass A-3......... 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9
Subclass A-4......... 10.8 4.7 10.8 4.8 10.8 4.8 10.8 4.8 10.8 5.0
Subclass B-2......... 7.9 6.7 7.9 6.8 7.9 6.8 7.9 6.8 7.9 6.8
Subclass C-2......... 7.9 6.8 7.9 6.8 7.9 6.8 7.9 6.8 7.9 6.9
</TABLE>
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF NOTES
ASSUMING A PERMANENT CHANGE IN LEASE RENTALS, BEGINNING IN YEAR 6
<TABLE>
<CAPTION>
PERMANENT CHANGE IN LEASE RENTALS
AS A PERCENTAGE OF LEASE RENTALS
------------------------------------------------------------------------------------
BASE CASE +10% BASE CASE +5% BASE CASE BASE CASE -5% BASE CASE -10%
-------------- -------------- ------------ -------------- --------------
EXP AVG EXP AVG EXP AVG EXP AVG EXP AVG
----- ----- ----- ----- ---- ---- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subclass A-3......... 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9
Subclass A-4......... 10.8 4.8 10.8 4.8 10.8 4.8 10.8 4.8 10.8 4.8
Subclass B-2......... 7.9 6.8 7.9 6.8 7.9 6.8 7.9 6.8 7.9 6.8
Subclass C-2......... 7.9 6.8 7.9 6.8 7.9 6.8 7.9 6.8 7.9 6.8
</TABLE>
EFFECT OF PERMANENT DECLINE IN PORTFOLIO VALUE
If the value of the portfolio, as adjusted for our appraisals, becomes
significantly less than the value of the portfolio based on the assumptions, the
Scheduled Principal Payment Amount payable to holders of the class A notes may
be increased. You should refer to "Payment of Principal and Interest --
Principal Amortization" for a description of how these amounts are determined.
Payment of this increased amount may shorten the weighted average lives of the
class A notes and lengthen the weighted average lives of the subclasses of notes
that rank behind the class A notes in priority of payment. The following tables
show the expected maturity and weighted average life of each subclass of notes
if the adjusted portfolio value permanently declined to a given percentage of
the assumed portfolio value, beginning in years 1 and 5.
112
<PAGE> 114
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF NOTES
ASSUMING A PERMANENT CHANGE IN PORTFOLIO VALUE, BEGINNING IN YEAR 1
<TABLE>
<CAPTION>
ADJUSTED PORTFOLIO VALUE AS A PERCENTAGE OF
ASSUMED PORTFOLIO VALUE BEGINNING IN YEAR 1
-----------------------------------------------------
100%* 90% 80% 70%
----------- ----------- ----------- -----------
EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subclass A-3.................................... 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9
Subclass A-4.................................... 10.8 4.8 10.8 4.7 10.8 4.1 10.8 4.0
Subclass B-2.................................... 7.9 6.8 7.9 6.9 7.9 6.9 7.9 6.9
Subclass C-2.................................... 7.9 6.8 7.9 6.8 7.9 7.2 7.9 7.6
</TABLE>
---------------
* Base Case
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF NOTES
ASSUMING A PERMANENT CHANGE IN PORTFOLIO VALUE, BEGINNING IN YEAR 5
<TABLE>
<CAPTION>
ADJUSTED PORTFOLIO VALUE AS A PERCENTAGE OF
ASSUMED PORTFOLIO VALUE BEGINNING IN YEAR 5
-----------------------------------------------------
100%* 90% 80% 70%
----------- ----------- ----------- -----------
EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subclass A-3.................................... 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.9
Subclass A-4.................................... 10.8 4.8 10.8 4.8 10.8 4.6 10.8 4.6
Subclass B-2.................................... 7.9 6.8 7.9 6.8 7.9 6.9 7.9 6.9
Subclass C-2.................................... 7.9 6.8 7.9 6.8 7.9 7.1 7.9 7.3
</TABLE>
---------------
* Base Case
EFFECT OF CYCLICAL VARIATIONS IN LEASE RENTALS AND PORTFOLIO VALUE --
"RECESSION SCENARIOS"
Historically, the aviation industry has experienced cyclical swings in the
supply and demand for aircraft. Operating lease companies, such as members of
the AerCo Group, would be negatively affected by a decline in the demand for
aircraft. We have assumed that such a decline in demand or "recession" (as used
in this discussion) will result in a decline in aircraft values and an increase
in defaults and downtime, and a decline in operating lease rates. In that case,
lease rentals would decline.
We have prepared the following tables to show the effect on assumed
maturities and weighted average lives of the subclass B-2 and subclass C-2 notes
if recessions of different lengths were to occur in the future. In preparing the
following tables, we have assumed that a recession would have the following
effect on the operations of the AerCo Group:
- Aircraft values would fall on the first day of the recession to a given
percentage of the assumed portfolio value. This decrease would trigger an
increase in scheduled principal payment amounts being paid if amounts are
available.
- After a period of two years following the first day of the recession,
lease rentals fall by a given percentage as aircraft are re-leased or
lessees default. This would result in less cash flow being available to
make payments of interest and principal on the notes.
- The recession lasts a given period of time. Afterwards, the adjusted
portfolio value returns to the assumed portfolio value on the first day
after the recession. Two years following the end of the recession, lease
rentals return to the assumed case.
- Actual experience will likely differ from the assumptions we have used in
preparing the following tables. Specifically, we can give no assurance
that periods of weak traffic growth and lower demand for aircraft will be
followed by periods of strong growth and high demand for aircraft nor can
it be
113
<PAGE> 115
assured that following a recession aircraft values and lease rentals will
return to assumed case levels. Because actual experience will likely
differ from these assumptions, the actual maturities and weighted average
lives of the notes will likely differ from what is shown in the tables
below.
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF SUBCLASS B-2
NOTES ASSUMING A RECESSION LASTING THREE YEARS
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
DECLINE IN LEASE RENTALS AS A PERCENTAGE
OF LEASE RENTALS...................... BASE CASE BASE CASE - 5% BASE CASE - 10%
ADJUSTED PORTFOLIO VALUE AS A PERCENTAGE
OF ASSUMED PORTFOLIO VALUE............ 100% 90% 80%
</TABLE>
<TABLE>
<CAPTION>
EXP AVG EXP AVG EXP AVG
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Recession begins at start of Year....... 1 7.9 6.8 7.9 6.9 7.9 6.9
3 7.9 6.8 7.9 6.9 7.9 6.9
5 7.9 6.8 7.9 6.8 7.9 6.9
10 7.9 6.8 7.9 6.8 7.9 6.8
</TABLE>
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF SUBCLASS B-2
NOTES ASSUMING A RECESSION LASTING FIVE YEARS
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
DECLINE IN LEASE RENTALS AS A PERCENTAGE
OF LEASE RENTALS...................... BASE CASE BASE CASE - 5% BASE CASE - 10%
ADJUSTED PORTFOLIO VALUE AS A PERCENTAGE
OF ASSUMED PORTFOLIO VALUE............ 100% 90% 80%
</TABLE>
<TABLE>
<CAPTION>
EXP AVG EXP AVG EXP AVG
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Recession begins at start of Year....... 1 7.9 6.8 7.9 6.9 7.9 6.9
3 7.9 6.8 7.9 6.9 7.9 6.9
5 7.9 6.8 7.9 6.8 7.9 6.9
10 7.9 6.8 7.9 6.8 7.9 6.8
</TABLE>
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF SUBCLASS C-2
NOTES ASSUMING A RECESSION LASTING THREE YEARS
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
DECLINE IN LEASE RENTALS AS A PERCENTAGE
OF LEASE RENTALS...................... BASE CASE BASE BASE
CASE - 5% CASE - 10%
ADJUSTED PORTFOLIO VALUE AS A PERCENTAGE
OF ASSUMED VALUE...................... 100% 90% 80%
</TABLE>
<TABLE>
<CAPTION>
EXP AVG EXP AVG EXP AVG
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Recession begins at start of Year....... 1 7.9 6.8 7.9 6.8 7.9 6.8
3 7.9 6.8 7.9 6.8 7.9 7.0
5 7.9 6.8 7.9 6.8 7.9 7.1
10 7.9 6.8 7.9 6.8 7.9 6.8
</TABLE>
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF SUBCLASS C-2
NOTES ASSUMING A RECESSION LASTING FIVE YEARS
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
DECLINE IN LEASE RENTALS AS A PERCENTAGE
OF LEASE RENTALS...................... BASE CASE BASE BASE
CASE - 5% CASE - 10%
ADJUSTED PORTFOLIO VALUE AS A PERCENTAGE
OF ASSUMED VALUE...................... 100% 90% 80%
</TABLE>
114
<PAGE> 116
<TABLE>
<CAPTION>
EXP AVG EXP AVG EXP AVG
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Recession begins at start of Year....... 1 7.9 6.8 7.9 6.9 7.9 7.0
3 7.9 6.8 7.9 6.8 7.9 7.4
5 7.9 6.8 7.9 6.8 7.9 7.3
10 7.9 6.8 7.9 6.8 7.9 6.8
</TABLE>
EFFECT OF PRINCIPAL ALLOCATION ACCORDING TO THE EXTENDED POOL FACTOR ONLY
If available collections on a payment date are not sufficient to pay the
principal amount that is to be paid on a class of notes on that payment date
according to the order of priorities, then the available collections will be
allocated to the subclasses in that class of notes as we describe under "--
Principal Amortization -- Allocation of Principal Among Subclasses of Notes".
We have prepared this table to show the effect of this allocation on the
expected maturities and the weighted average lives of subclass A-4 notes if:
- we issue additional notes to finance the acquisition of additional
aircraft in the future but
- the AerCo Group's lease rentals are sufficient only to pay down the
principal of these subclasses according to paragraph (1) under "Payment
of Principal and Interest -- Allocation of Principal Among Subclasses of
Notes".
<TABLE>
<CAPTION>
EXTENDED POOL
BASE CASE FACTOR
-------------- --------------
EXP AVG EXP AVG
---- ---- ---- ----
<S> <C> <C> <C> <C>
Subclass A-4.......................................... 10.8 4.8 11.8 5.9
</TABLE>
EFFECTS OF NON-DELIVERY OF ADDITIONAL AIRCRAFT
The following table shows the effect that the non-delivery of remaining
aircraft (expressed as a percentage of the Initial Appraised Value) would have
on the expected maturities and weighted average lives of the notes.
EXPECTED MATURITIES AND WEIGHTED AVERAGE LIVES OF NOTES
ASSUMING NON DELIVERY OF REMAINING AIRCRAFT BY STATED PERCENTAGE AT YEAR ONE
<TABLE>
<CAPTION>
BASE CASE BASE CASE +10% BASE CASE +20% BASE CASE +50%
-------------- -------------- -------------- --------------
EXP AVG EXP AVG EXP AVG EXP AVG
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subclass A-3......... 1.9 1.9 1.9 1.9 1.9 1.9 1.9 1.8
Subclass A-4......... 10.8 4.8 9.7 3.5 7.8 2.4 1.0 0.9
Subclass B-2......... 7.9 6.8 7.9 6.4 7.9 5.8 7.9 4.1
Subclass C-2......... 7.9 6.8 7.9 6.2 7.9 5.6 7.9 3.9
</TABLE>
PAYMENT OF PRINCIPAL AND INTEREST
GENERAL
The notes are direct obligations of AerCo and are not secured by the
aircraft. Our only sources of payment for the notes and our other obligations
are:
- the payments made by the lessees under the leases;
- proceeds from any sales or other dispositions of our assets;
- net payments to us received under our swap agreements (and any other
hedging instruments we may enter into);
- interest earned on the investment of cash balances; and
115
<PAGE> 117
- net cash proceeds received from the sale of refinancing notes.
- payments received with respect to any remaining aircraft under the
purchase agreement, as we describe under "The Parties -- The Refinancing
and Additional Aircraft Acquisition".
The notes are subordinated to expenses and other obligations we have
according to the order of priorities we describe under "-- Priority of
Payments". Each class and subclass of the notes has the priority given to it
according to the priority of payments in the indenture. AerCo may make no
payment of principal, interest or any premium on any class of notes unless it
has made the required payments on the relevant payment date on each class of
notes that ranks prior to that class. The subordination provisions of the
indenture may not be amended or modified without the agreement of each swap
provider, each provider of a credit facility, each holder of a class of notes
that is affected by the amendment or modification and each holder of any class
of notes that ranks senior to an affected class. The priority of the expenses
and payments under swap agreements may not be amended or modified under any
circumstances.
If an event of default occurs, then the holders of a class of notes, except
the class A notes, may not give a default notice or exercise any other remedy
until all amounts owed by us under the more senior classes of notes have been
paid.
Under the leases, the lessee must make rental and other payments and
related collateral payments directly to the rental account held in the name of
the security trustee. This amount will then be transferred, within one business
day of receipt, to the collection account, except for certain limited amounts
that must be left on deposit for local legal reasons. Any amounts received by us
which are required to be segregated will be transferred to the lessee funded
account. Unsegregated amounts received by us will be transferred directly to the
collection account. On the basis of the assumptions, we expect these amounts
will be sufficient to pay the principal, interest and any premium, on the notes
and all other amounts payable by us to the trustee, the swap providers, the
service providers and the holders of the class D and class E notes, in each case
when and as due.
INTEREST
Each note bears interest on the outstanding principal balance payable
monthly in arrears on each payment date. An interest accrual period is the
period from and including a payment date and to but excluding the next payment
date. The final interest accrual period for each subclass of notes will end on
but exclude the final maturity date or the date upon which all principal,
interest and any premium on such subclass of notes is paid in full. Each
subclass of notes will bear interest for each interest accrual period at the
rate per annum set forth in "Summary -- Summary Description of the Notes".
Interest on any subclass of notes is calculated on the basis of a 360-day
year and the actual number of days elapsed in an interest accrual period.
If we do not repay the subclass A-3, subclass B-2 and subclass C-2 notes in
full on or before their expected final payment date, additional interest will
accrue on the subclass A-3, subclass B-2 and subclass C-2 notes at the rate of
0.50%, 1.50% and 2.50% per annum, respectively. We refer to this additional
interest as "step-up interest." We may also issue additional notes or
refinancing notes that will accrue step-up interest after their expected final
payment date. Step-up interest will be subordinated to other amounts payable on
the class A, class B, class C and class D notes, including accrued and unpaid
interest, the Minimum Principal Payment Amount and the Scheduled Principal
Payment Amount. The rating agencies will not rate our ability to pay step-up
interest. So long as the notes are listed on the Luxembourg Stock Exchange, we
will publish the amount of interest and step-up interest that is payable in the
manner required by the indenture and the rules of Luxembourg Stock Exchange.
REFERENCE AGENCY AGREEMENT
For the purpose of calculating the rate of interest payable on its floating
rate notes, we have entered into a reference agency agreement with the trustee,
Bankers Trust Company, as reference agent, and the cash manager. The reference
agent determines LIBOR for each interest accrual period following the initial
116
<PAGE> 118
interest accrual period, on a reference date (the date that is two business days
before the payment date on which the interest accrual period begins).
Under the reference agency agreement, the reference agent determines LIBOR
as follows:
On each reference date, the reference agent will determine LIBOR as the per
annum offered rate for deposits in U.S. dollars for a period of one month that
appears on the display designated as page "3750" on the Telerate Monitor (or
such other page or service as may replace it for the purpose of displaying LIBOR
of major banks for U.S. dollar deposits) at approximately 11:00 a.m. (London
time).
If this offered rate is replaced by the corresponding rates of more than
one bank, then the determination of LIBOR shall be made on the basis of the
average of the rates (being at least two) that appear. If these rates do not
appear or the Telerate page is unavailable, the reference agent will request
that each of the banks or a substitute reference bank in London provide the
reference agent with its offered quotation to prime banks for dollar deposits in
London for the next interest accrual period as at 11:00 a.m. (London time) on
the reference date. In this case, the floating rate of interest for each
subclass of notes will be the average of the quotations received (at least two)
plus the applicable interest spread over LIBOR (and step-up interest, if
payable).
If one or no reference bank provides a quotation, the reference agent will
select New York City banks who provide quotations for their U.S. dollar lending
rate to leading European banks on the reference date for the next interest
accrual period. In this case, the interest for the next interest accrual period
will be the average of these quotations plus the applicable interest spread over
LIBOR (and step-up interest, if payable). If the banks selected do not provide
these quotations, the interest rate will be the rate that applied to the last
interest accrual period.
Once it determines the interest rate, the reference agent will calculate
the interest amount for the interest accrual period as:
I X P X N/360
where:
<TABLE>
<S> <C>
I = interest rate for the interest accrual period
P = outstanding principal balance of the subclass at the
beginning of the interest accrual period, as estimated by
the reference agent and
N = actual number of days in the interest accrual period.
</TABLE>
The reference agent's determination of LIBOR, the interest rate and the
interest amount for each such subclass of notes (in the absence of negligence,
wilful default, bad faith or manifest error) will be conclusive and binding upon
all parties.
The reference agent will give notice of applicable LIBOR, the payment date,
the interest rate for each subclass of notes for the relevant interest accrual
period, any step-up interest payable and the amount of interest on each subclass
of notes to AerCo, the listing agent for the Luxembourg Stock Exchange and the
cash manager. Noteholders may obtain such information at the offices of the
listing agent or paying agent in Luxembourg or otherwise in the cash reports
provided to noteholders by the trustee on the second business day before each
payment date and any other date for distribution of any payments with respect to
the notes.
If the reference agent does not or is unable to determine the interest rate
and amount for an interest accrual period as described above, the cash manager
will determine such rate of interest or calculate such interest amount in
accordance with the provisions described above.
AerCo reserves the right to terminate the appointment of the reference
agent at any time on 30 days' notice and to appoint a replacement reference
agent in its place. Notice of any such termination will be given to the holders
of the notes. The reference agent may not be removed or resign its duties unless
a successor has been appointed.
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<PAGE> 119
PRINCIPAL AMORTIZATION
For each class of notes, only to the extent that there are sufficient funds
in the collection account, principal will be distributed on each payment date
equal to the sum of the following amounts:
- the Minimum Principal Payment Amount;
- the Scheduled Principal Payment Amount;
- the Supplemental Principal Payment Amount (only applicable to the class
A and class B notes); and
- redeemed principal as described below in paragraphs (21) through (24)
under "-- Priority of Payments".
If we issue any additional notes or refinancing notes, each issuance will
be a new subclass of the relevant class of notes.
As described above under "The Parties -- The Refinancing and Additional
Aircraft Acquisition", a non delivery event under the purchase agreement will
cause the portion of the cash held in the aircraft purchase account attributable
to the associated non delivered aircraft to be added to available collections
for the applicable calculation date. To allocate these funds to the holders of
the subclass A-3, subclass A-4, subclass B-2, subclass C-2 and subclass D-2
notes, an adjustment will be applied to certain payment schedules associated
with the notes. This Non Delivery Adjustment Factor will be calculated as
follows:
<TABLE>
<S> <C> <C> <C> <C>
NDAF = the sum of the IAVs of all non delivered aircraft )
1 - ( -------------------------------------------------
the sum of the IAVs of all additional aircraft
</TABLE>
where:
IAV = the "Initial Appraised Value" of each aircraft.
For each aircraft, "Initial Appraised Value" means the average of the
appraised base values of the aircraft obtained from the appraisers at March 1,
1998 in the case of the 33 existing aircraft and April 30, 2000 in the case of
the 30 additional aircraft.
For each payment date, the "Assumed Portfolio Value" for the aircraft will
equal the sum of the Assumed Values of all the aircraft in the portfolio on the
calculation date preceding the payment date, including the additional aircraft,
until such time as any such aircraft becomes a non delivered aircraft. On that
calculation date, the "Assumed Value" of an aircraft will be calculated as
follows:
<TABLE>
<S> <C> <C>
DF(t)
Assumed Value = IAV X ---
DF(C)
</TABLE>
where:
<TABLE>
<S> <C> <C>
IAV = the "Initial Appraised Value" of that aircraft
DF(t) = the depreciation factor for that aircraft on the relevant
calculation date and
DF(C) = the depreciation factor for that aircraft on July 15, 1998
in the case of the 33 existing aircraft and July 17, 2000 in
the case of the 30 additional aircraft.
</TABLE>
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<PAGE> 120
For each aircraft, the depreciation factor at time t will be calculated as
follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
DF(t)= ( 1 - t ))
( ---- X 1.02(t)
EUL
</TABLE>
where:
<TABLE>
<S> <C>
t = the age of the aircraft in years and
EUL= the expected useful life of the aircraft in years;
</TABLE>
provided that the depreciation factor shall not be less than zero at any time.
The depreciation factors produce a "depreciation curve" that assumes that
the value of an aircraft will decline at an accelerating rate as the aircraft
ages. We have used the depreciation factors described above solely for the
purpose of determining repayments of principal of the notes. They are not
intended to predict or conform to actual declines in aircraft values over any
period. Furthermore, variables used to calculate the depreciation factor will
change as the composition of the portfolio changes through acquisitions and
sales of aircraft. Finally, we may in the future apply different depreciation
factors or alternative methodologies to express the assumed decline in values of
additional aircraft that we may acquire in the future. In addition, the Minimum
Class Percentages, the Scheduled Class Percentages and the Supplemental Class
Percentages for the class A and class B notes and Minimum Target Principal
Balances and Scheduled Target Principal Balances for the class C and class D
notes will change as additional aircraft are acquired in the future. The Pool
Factors and the Extended Pool Factors for each subclass that are described below
will not change as the composition of the portfolio changes.
For each payment date, the "Adjusted Portfolio Value" will equal the sum of
the Adjusted Base Values for all aircraft in the portfolio on the calculation
date preceding such payment date, including the additional aircraft, until such
time as any such aircraft becomes a non delivered aircraft. On that calculation
date, the "Adjusted Base Value" of an aircraft will be calculated as follows:
<TABLE>
<S> <C>
DF(t)
Adjusted Base Value = AAV X ---
DF(A)
</TABLE>
where:
<TABLE>
<S> <C> <C>
AAV = the "Average Appraised Value" of that aircraft
DF(t) = the depreciation factor for that aircraft on the relevant
calculation date and
DF(A) = the depreciation factor for that aircraft on the date of the
most recent appraisal.
</TABLE>
For each aircraft, "Average Appraised Value" means the average of the
appraised base values for that aircraft obtained from the appraisers as of the
date of the most recent appraisal.
Minimum Principal Payment Amount. For each class of notes, on each payment
date, the "Minimum Principal Payment Amount" will be determined as:
Minimum Principal Payment Amount = OPB - MTPB
where:
<TABLE>
<S> <C> <C>
OPB = the outstanding principal balance of that class and
MTPB = the "Minimum Target Principal Balance" for that class;
</TABLE>
provided that the Minimum Principal Payment Amount may not be less than zero on
any payment date.
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<PAGE> 121
The "Minimum Target Principal Balance" for the class A and class B notes
will be determined as:
Minimum Target Principal Balance = MCP X APV
where:
<TABLE>
<S> <C> <C>
MCP = the "Minimum Class Percentage" as set forth in Appendices 6
and 7 to this prospectus and
APV = the "Assumed Portfolio Value" for the payment date as
described above.
</TABLE>
In the case of the class A notes only, if, on any payment date, the
outstanding principal balance of the class A notes (including any additional
notes and refinancing notes) is greater than the Adjusted Portfolio Value for
that payment date (as described above), then the Minimum Target Principal
Balance of the class A notes will be equal to the Scheduled Target Principal
Balance of the class A notes (as described below).
The "Minimum Target Principal Balance" for the class C notes will be
determined as:
<TABLE>
<S> <C>
Minimum Target Principal Balance = MCP X (ENCB + (NDAF X NNCB))
</TABLE>
where:
<TABLE>
<S> <C> <C>
MCP = the "Minimum Class Percentage" as set forth in Appendix 8 to
this prospectus
ENCB = the outstanding balance of the subclass C-1 notes on July
17, 2000
NNCB = the outstanding balance of the subclass C-2 notes on July
17, 2000 and
NDAF = the Non Delivery Adjustment Factor for that payment date.
</TABLE>
The "Minimum Target Principal Balance" for the class D notes will be determined
as:
Minimum Target Principal Balance =
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
the sum of the IAVs of all delivered additional aircraft
MCP X ( $80 million + ( -------------------------------------------------------- X $20 million ))
the sum of the IAVs of all additional aircraft
</TABLE>
where:
<TABLE>
<S> <C> <C>
MCP = the "Minimum Class Percentage" as set forth in Appendix 9 to
this prospectus.
</TABLE>
Scheduled Principal Payment Amount. For each class of notes, on each
payment date, the "Scheduled Principal Payment Amount" will be calculated as
follows:
Scheduled Principal Payment Amount = OPB - STPB
where:
<TABLE>
<S> <C> <C>
OPB = the outstanding principal balance of that class (after
giving effect to any payment of the Minimum Principal
Payment Amount for that class) and
STPB = the "Scheduled Target Principal Balance" for that class as
described below;
</TABLE>
provided that the Scheduled Principal Payment Amount may not be less than zero
on any payment date.
On each payment date, the "Scheduled Target Principal Balance" for the
class A notes will equal:
Scheduled Target Principal Balance = SCP X AAPV
where:
<TABLE>
<S> <C> <C>
SCP = the "Scheduled Class Percentage" on the payment date, as set
forth in Appendix 6 to this prospectus and
AAPV = for that payment date, the lesser of (A) the Assumed
Portfolio Value and (B) 105% of the Adjusted Portfolio
Value.
</TABLE>
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<PAGE> 122
On each payment date, the "Scheduled Target Principal Balance" for the
class B notes will equal:
Scheduled Target Principal Balance = SCP X APV
where:
<TABLE>
<S> <C> <C>
SCP = the "Scheduled Class Percentage" on the payment date as set
forth in Appendix 7 to this prospectus and
APV = the Assumed Portfolio Value on that payment date.
</TABLE>
The "Scheduled Target Principal Balance" for the class C notes will be
determined as:
<TABLE>
<S> <C> <C>
Scheduled Target Principal Balance = SCP X (ENCB + (NDAF X NNCB))
</TABLE>
where:
<TABLE>
<S> <C> <C>
SCP = the "Scheduled Class Percentage" as set forth in Appendix 8
to this prospectus
ENCB = the outstanding balance of the subclass C-1 notes on July
17, 2000
NNCB = the outstanding balance of the subclass C-2 notes on July
17, 2000 and
NDAF = the Non Delivery Adjustment Factor for that payment date.
</TABLE>
The "Scheduled Target Principal Balance" for the class D notes will be
determined as:
Scheduled Target Principal Balance =
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
the sum of the IAVs of all delivered additional aircraft
SCP X ( $80 million + ( -------------------------------------------------------- X $20 million ))
the sum of the IAVs of all additional aircraft
</TABLE>
where:
<TABLE>
<S> <C> <C>
SCP = the "Scheduled Class Percentage" as set forth in Appendix 9
to this prospectus.
</TABLE>
Supplemental Principal Payment Amount. For the class A and class B notes,
on each payment date, the "Supplemental Principal Payment Amount" will be
calculated as:
Supplemental Principal Payment Amount = OPB - SupTPB
where:
<TABLE>
<S> <C> <C>
OPB = the outstanding principal balance of that class (after
giving effect to any payment of the Minimum Principal
Payment Amount and the Scheduled Principal Payment Amount
for that class) and
SupTPB = the "Supplemental Target Principal Balance" for that class
as described below;
</TABLE>
provided that the Supplemental Principal Payment Amount may not be less than
zero on any payment date.
On each payment date, the "Supplemental Target Principal Balance" for the
class A and class B notes will equal:
Supplemental Target Principal Balance = SupCP X APV,
where:
<TABLE>
<S> <C> <C>
SupCP = the "Supplemental Class Percentage" on that date, as set
forth in Appendices 6 and 7 to this prospectus and
APV = the "Assumed Portfolio Value" on that date.
</TABLE>
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<PAGE> 123
We intend to refinance 100% of the outstanding principal balance of the
subclass A-3, subclass B-2 and subclass C-2 notes on their expected final
payment dates by issuing refinancing notes and selling the refinancing notes in
the capital markets. Failure to repay the subclass A-3, subclass B-2 and
subclass C-2 notes in full at their expected final payment dates will not result
in an event of default. If the subclass A-3, subclass B-2 and subclass C-2 notes
are not repaid in full on their expected final payment dates, then they will be
entitled to receive the remaining principal balance in accordance with the
intra-class order of priorities described below.
We may also refinance any other subclass of notes, at any time, at the
redemption price that would be payable if we were to have redeemed those notes
instead. See "-- Refinancing" and "-- Indenture Covenants -- Limitation on
Indebtedness" for a description of the redemption price.
The terms of the subclass A-4 notes require amortization of their
outstanding principal balance before their expected final payment date, if there
are funds available in accordance with the order of priorities set forth under
"-- Priority of Payments".
ALLOCATION OF PRINCIPAL AMONG SUBCLASSES OF NOTES
If, on a payment date, we must pay a principal amount on a class of notes
according to the order of priorities, then the available amount will be
allocated between relevant subclasses in the following order of priority. In the
following order of priorities, the "remaining principal balance" of any subclass
is the outstanding principal balance of that subclass on the applicable payment
date after giving effect to any higher ranking amounts allocated to that
subclass in either this order of priorities or the inter-class order of
priorities described in "-- Priority of Payments".
The "remaining allocation" is the amount of available collections being
currently allocated between subclasses, having given effect to any higher
ranking allocations in this order of priorities.
For the purpose of the following order of priorities, the Pool Factor and
the Extended Pool Factor for any subclass of offered notes on any payment date
will equal the Base Pool Factor and the Base Extended Pool Factor for that
subclass and payment date set forth in Appendix 10 and Appendix 11,
respectively, to this prospectus multiplied by the following adjustments:
In the case of the subclass B-2 and subclass C-2 notes: the NDAF for that
payment date
where:
<TABLE>
<S> <C> <C>
NDAF = the Non Delivery Adjustment Factor;
</TABLE>
In the case of the subclass A-3 notes, the lesser of:
<TABLE>
<C> <C> <S>
(i) 1 and
(ii) NDAF X (NNA-3B + NNA-4B)
NNA-3B
</TABLE>
where:
<TABLE>
<S> <C> <C>
NDAF = the Non Delivery Adjustment Factor
NNA-3B = the outstanding balance of the subclass A-3 notes on July
17, 2000 and
NNA-4B = the outstanding balance of the subclass A-4 notes on July
17, 2000;
</TABLE>
In the case of the subclass A-4 notes, the greater of:
<TABLE>
<C> <C> <S>
(i) zero and
(ii) (NDAF X (NNA-3B + NNA-4B)) - NNA-3B
NNA-4B
</TABLE>
122
<PAGE> 124
where:
<TABLE>
<S> <C> <C>
NDAF = the Non Delivery Adjustment Factor
NNA-3B = the outstanding balance of the subclass A-3 notes on July
17, 2000 and
NNA-4B = the outstanding balance of the subclass A-4 notes on July
17, 2000.
</TABLE>
The order of priorities for allocation of principal among subclasses of
notes is as follows:
(1) First, to each subclass in order of the subclass that was issued
first, an amount equal to the Extension Amount, calculated as:
Extension Amount = RPB - (EPF X IPB)
where:
<TABLE>
<S> <C> <C>
RPB = the remaining principal balance of the subclass
EPF = the Extended Pool Factor for the subclass and
IPB = the initial principal balance for the subclass at the time
it was issued;
</TABLE>
provided that the Extension Amount may not be less than zero on any payment
date.
If two or more subclasses were issued on the same date, available
collections will be applied to each of those subclasses proportionately
according to, but not to exceed, the Extension Amount.
(2) Second, to each subclass, any remaining allocation proportionately
according to the amount of but not more than the Pool Factor Amount
for that subclass calculated as:
Pool Factor Amount = RPB - (PF X IPB)
where:
<TABLE>
<S> <C> <C>
RPB = the remaining principal balance of the subclass
PF = the Pool Factor for the subclass and
IPB = the initial principal balance of the subclass at the time it
was issued;
</TABLE>
provided that the Pool Factor Amount may not be less than zero on any payment
date.
(3) Third, to each subclass with an expected final payment date on or
before the payment date, in order of the earliest issued subclass, any
remaining allocation. If there are two or more subclasses that were
issued on the same date, the remaining allocation will be applied to
them in order of the subclass with the earliest expected final payment
date. If two or more of those subclasses have the same expected final
payment date, then the remaining allocation will be applied
proportionately according to the remaining principal balance.
(4) Fourth, to each subclass with an Excess Amortization Date (as set
forth below) on or before such payment date, any remaining allocation
proportionately according to the remaining principal balance.
(5) Fifth, to each subclass in order of the earliest expected final
payment date, any remaining allocation. If two or more subclasses have
the same expected final payment date, then available collections will
be applied proportionately to those subclasses according to the
remaining principal balance.
The "Excess Amortization Date" for each subclass of the notes is set out
below:
<TABLE>
<CAPTION>
SUBCLASS OF NOTES EXCESS AMORTIZATION DATE
----------------- ------------------------
<S> <C>
Subclass A-3................................................ February 15, 2006
Subclass A-4................................................ August 15, 2000
Subclass B-2................................................ August 15, 2000
Subclass C-2................................................ August 15, 2000
</TABLE>
123
<PAGE> 125
REFINANCING
We may repay any subclass of the notes, in whole but not in part, on any
date with the proceeds of the issuance of any refinancing notes issued in
accordance with the "Limitation on Indebtedness" covenant under the indenture.
The amount we will repay in connection with the refinancing of any subclass of
notes will be equal to the redemption price for such subclass on the refinancing
date plus accrued and unpaid interest.
At least five days but not more than 30 days before the proposed
refinancing date, we will give notice of the refinancing to each holder of such
subclass of notes in accordance with the notice provisions contained in the
indenture. In connection with any refinancing, we will deposit in the
refinancing account an amount equal to the redemption price, plus an amount
sufficient to pay or provide for all accrued and unpaid interest as of the
refinancing date. Each notice of refinancing will state:
- the applicable refinancing date;
- the redemption price of the notes to be repaid and the amount of accrued
but unpaid interest payable;
- that notes of the subclass to be repaid must be surrendered; and
- that, unless we default in the payment of the redemption price and any
accrued and unpaid interest, interest on the subclass of notes to be
refinanced will cease to accrue on and after the refinancing date. Once
a notice of refinancing is published, each subclass of notes to which it
applies will become due and payable on the refinancing date at their
redemption price, together with accrued and unpaid interest.
REDEMPTION
We may redeem any subclass of the notes out of amounts, if any, other than
available collections on any payment date, in whole or in part, at the
redemption price plus accrued but unpaid interest. In addition, we must on each
payment date redeem notes to the extent of any available collections in the
manner described in "-- Principal Amortization" above and "-- Priority of
Payments" below at the redemption price plus accrued but unpaid interest. Within
each class or subclass of notes being redeemed in part, the amount of the
outstanding principal balance being prepaid will be applied in each case
proportionately among all notes of such subclass.
The redemption price on the subclass A-3, subclass A-4, subclass B-2 and
subclass C-2 notes will be:
- if the redemption is made with proceeds from refinancing notes or from
third parties or other than from available collections (including
proceeds from refinancing notes or from third parties), the outstanding
principal balance of the subclass being redeemed multiplied by the
redemption premium set out in the table below.
- if the redemption is made with available collections, the outstanding
principal balance of the subclass being redeemed.
124
<PAGE> 126
<TABLE>
<CAPTION>
REDEMPTION PREMIUM
-------------------------------------------------------------
SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
REDEMPTION DATE A-3 NOTES A-4 NOTES B-2 NOTES C-2 NOTES D-2 NOTES
--------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
After July 17, 2000................... 101.00% 101.50% 101.75% 103.50% --
On or after June 15, 2001............. 100.50% 101.00% 101.50% 103.00% --
On or after June 15, 2002............. 100.00% 100.75% 101.25% 102.50% --
On or after June 15, 2003............. -- 100.50% 101.00% 102.00% --
On or after June 15, 2004............. -- 100.25% 100.75% 101.50% --
On or after June 15, 2005............. -- 100.00% 100.50% 101.00% 105.25%
On or after June 15, 2006............. -- -- 100.25% 100.50% 104.50%
On or after June 15, 2007............. -- -- 100.25% 100.25% 103.75%
On or after June 15, 2008............. -- -- 100.00% 100.00% 103.00%
On or after June 15, 2009............. -- -- -- -- 102.25%
On or after June 15, 2010............. -- -- -- -- 101.50%
On or after June 15, 2011............. -- -- -- -- 100.75%
On or after June 15, 2012............. -- -- -- -- 100.00%
</TABLE>
The redemption price of the subclass D-2 notes will equal EITHER:
If AerCo redeems the subclass D-2 notes (to the extent the redemption is
funded with proceeds from refinancing notes or from third parties or other than
from available collections) before June 15, 2005, the redemption price will be
THE HIGHER OF:
- the discounted present value of the Scheduled Principal Payments and
interest from the redemption date to June 15, 2005 PLUS the following
amount:
(RP) X (OPB)
where:
<TABLE>
<S> <C>
RP = the applicable redemption premium set forth in the table
above and
OPB = the assumed outstanding principal balance for June 15,
2005, discounted to the redemption date at the applicable
Treasury yield plus 1.00%
</TABLE>
OR
- the outstanding principal balance on the redemption date.
If AerCo redeems the subclass D-2 notes on or after June 15, 2005, the
redemption price will be the applicable redemption premium multiplied by the
outstanding principal balance on the redemption date.
To the extent that the redemption of the subclass D-2 notes is funded from
available collections, the redemption price will equal the outstanding principal
balance on the portion of the notes being redeemed, without redemption premium.
"Treasury yield" for the subclass D-2 notes means a per annum rate
(expressed as a monthly equivalent yield) determined to be the per annum rate
equal to the semiannual yield to maturity of the 6 1/2% United States Treasury
Note maturing on August 15, 2005, in each case, as published in the most recent
H.15 (519).
H.15 (519) means the weekly statistical release with that number or any
successor publication, published by the Board of Governors of the Federal
Reserve System.
Redemption for Taxation Purposes. All payments of principal, interest and
premium, if any, that we make in respect of the notes or any intercompany
payments supporting the obligations under the notes will be made without
withholding or deduction for or on account of any present or future taxes or
duties of
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whatever nature unless required by law. Should any withholding or deduction be
required by law, we will not be obliged to pay any additional amounts in respect
of that withholding or deduction.
If at any time:
(a) we are, or on the next payment date will be, required to make any
withholding or deduction under the laws or regulations of any
applicable tax authority with respect to any payment in respect of any
subclass of notes; or
(b) we are or will be subject to any circumstance (whether by reason of
any law, regulation, regulatory requirement or double-taxation
convention, or the interpretation or application of them, or
otherwise) leading to the imposition of a tax (whether by direct
assessment or by withholding at source) or other similar imposition by
any jurisdiction which would:
(1) materially increase the cost to us of making payments in respect of
any subclass of notes or of complying with its obligations under or
in connection with the notes;
(2) materially increase our operating or administrative expenses or the
charitable trust which holds the majority of our ordinary share
capital; or
(3) otherwise obligate us or any of our subsidiaries to make any
material payment on, or calculated by reference to, the amount of
any sum received or receivable by us, or by the cash manager on our
behalf as contemplated by the cash management agreement;
then we will inform the trustee at that time of that requirement or imposition
and shall use our best efforts to avoid its effects. We shall take no action to
avoid those effects unless each rating agency has confirmed that that action
will not result in the lowering or withdrawal by it of its current rating of any
subclass of our notes then outstanding.
If, after using our best efforts to avoid the adverse effect described
above, we or any of our subsidiaries has not avoided those effects, then we may,
at our election, redeem the notes of any or all subclasses to which that
withholding or deduction applies in whole with accrued and unpaid interest but
without premium on any payment date. However, those redemptions may not occur
more than 30 days prior to the time that the requirement or imposition described
in (a) or (b) above is to become effective.
METHOD OF REDEMPTION. If we propose to redeem any subclass of notes with
funds other than available collections, the trustee will give notice of
redemption to each holder of the subclass at least 20 days but not more than 60
days before the redemption date. If we redeem any subclass of notes in part,
notes of the subclass to be redeemed will be repaid principal proportionately,
to the extent funds are available. If we redeem any subclass of notes in whole,
other than a redemption resulting from taxation reasons, we will deposit in the
defeasance/redemption account the redemption price, together with an amount
sufficient to pay or provide for all of the accrued and unpaid interest as of
the redemption date. If we redeem all or any part of a subclass of notes with
available collections as required by the priority of payments, we will send no
notice of redemption.
Each notice of redemption will state:
- the applicable redemption date,
- the trustee's arrangements for making payments due,
- the redemption price of the notes to be redeemed,
- in the case of redemptions in whole, that notes of the subclass to be
redeemed must be surrendered (which action may be taken by any holder of
the notes or its authorized agent) to the trustee to collect the
redemption price and accrued and unpaid interest on those notes, and
- in the case of redemptions in whole, that, unless we default in the
payment of the redemption price and any accrued and unpaid interest,
interest on the subclass of notes called for redemption will cease to
accrue on and after the redemption date.
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Once a notice of redemption for a redemption in whole is mailed, each
subclass of notes to which it applies will become due and payable on the
redemption date at their redemption price, together with accrued and unpaid
interest.
DEFEASANCE
We may at any time terminate all of our obligations under the notes and the
indenture. This is known as "legal defeasance". Legal defeasance will not apply
to (1) our obligations relating to the defeasance trust and (2) our obligations
to register the transfer or exchange of the notes, to replace mutilated,
destroyed, lost or stolen notes and to maintain a register for the notes.
Also, we may at any time terminate our obligations under the covenants
described under "-- Indenture Covenants" and "-- Operating Covenants" and the
events of default described under "-- Events of Default and Remedies", other
than clauses (1), (2), (3), (6) and (7) (solely with respect to us) set forth
under "-- Events of Default and Remedies". This is known as "covenant
defeasance".
We may exercise our legal defeasance option even if we have already
exercised the covenant defeasance option. If we exercise our legal defeasance
option, payment of the notes may not be accelerated because of an event of
default. If we exercise our covenant defeasance options, payment of the notes
may not be accelerated because of the events of default described under "--
Events of Default and Remedies", other than clauses (1),(2),(3),(6)(solely with
respect to us) and (7) (solely with respect to us) set forth under "-- Events of
Default and Remedies".
In order to exercise either defeasance option, we must irrevocably deposit
in trust with the trustee any combination of cash or obligations of the U.S.
government as will be sufficient for the payment of principal, premium (if any),
and interest on the notes to redemption or maturity. We must also comply with
other conditions, including delivering to the trustee an opinion of counsel to
the effect that holders of the notes (1) will not recognize income, gain or loss
for United States federal income tax purposes as a result of the deposit and
defeasance and (2) will be subject to United States federal income tax on the
same amount and in the same manner and at the same times as would have been the
case if the deposit and defeasance had not occurred. In the case of legal
defeasance only, the opinion of counsel must be based on a ruling of the
Internal Revenue Service or a change in applicable United States federal income
tax law.
PRIORITY OF PAYMENTS
On each payment date, the cash manager will withdraw all amounts on deposit
in the collection account and will distribute them according to the order of
priority set forth below. Any amount below will be paid only if all amounts
ranking senior to that amount are paid in full on the payment date.
(1) First, to the expense account or directly to the relevant expense
payees, an amount equal to the required expense amount;
(2) Second, the following amounts proportionately:
(A) to the holders of each subclass of class A notes, all accrued and
unpaid interest excluding step-up interest, if applicable, on that
subclass of class A notes proportionately according to the amount
of accrued and unpaid interest on that subclass of class A notes;
and
(B) proportionately, to any swap provider, an amount equal to any
payment, other than subordinated swap payments, due from AerCo
under any swap agreement;
(3) Third, (1) first, to any persons providing primary eligible credit
facilities, any amounts then payable to those persons under the terms
of their respective eligible credit facilities, and then, (2) retain
in the collection account an amount, if positive, equal to (A) the
minimum liquidity reserve amount, less (B) amounts available for
drawing under any primary eligible credit facilities;
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(4) Fourth, to the holders of class A notes, in the order of priority by
subclass set forth under "-- Allocation of Principal Among Subclasses
of Notes", an amount equal to the Minimum Principal Payment Amount
with respect to the class A notes;
(5) Fifth, to the holders of each subclass of class B notes, all accrued
and unpaid interest, excluding step-up interest, if applicable, on
that subclass of class B notes proportionately according to the
amount of accrued and unpaid interest on that subclass of class B
notes;
(6) Sixth, to the holders of class B notes, in the order of priority by
subclass set forth under "-- Allocation of Principal Among Subclasses
of Notes", an amount equal to the Minimum Principal Payment Amount
with respect to the class B notes;
(7) Seventh, to the holders of each subclass of class C notes, all
accrued and unpaid interest, excluding step-up interest, if
applicable, on that subclass of class C notes proportionately
according to the amount of accrued and unpaid interest on that
subclass of class C notes;
(8) Eighth, to the holders of class C notes, in the order of priority by
subclass set forth under "-- Allocation of Principal Among Subclasses
of Notes", an amount equal to the Minimum Principal Payment Amount
with respect to the class C notes;
(9) Ninth, to the holders of each subclass of class D notes, all accrued
and unpaid interest, excluding step-up interest, if applicable, on
that subclass of class D notes proportionately according to the
amount of accrued and unpaid interest on that subclass of class D
notes;
(10) Tenth, to the holders of class D notes, in the order of priority by
subclass set forth under "-- Allocation of Principal Among Subclasses
of Notes", an amount equal to the Minimum Principal Payment Amount
with respect to the class D notes;
(11) Eleventh, (1) first, to any persons providing any credit facilities
that are not primary eligible credit facilities, any amounts then
payable under the terms of their credit facilities and then, (2)
retain in the collection account an amount, if positive, equal to (A)
the liquidity reserve amount less (B) the sum of the amount of cash
reserved under (3) above plus the amounts available for drawing under
any eligible credit facilities;
(12) Twelfth, to the holders of class A notes, in the order of priority by
subclass set forth under "-- Allocation of Principal Among Subclasses
of Notes", an amount equal to the Scheduled Principal Payment Amount
with respect to the class A notes;
(13) Thirteenth, to the holders of class B notes, in the order of priority
by subclass set forth under "-- Allocation of Principal Among
Subclasses of Notes", an amount equal to the Scheduled Principal
Payment Amount with respect to the class B notes;
(14) Fourteenth, to the holders of class C notes, in the order of priority
by subclass set forth under "-- Allocation of Principal Among
Subclasses of Notes", an amount equal to the Scheduled Principal
Payment Amount with respect to the class C notes;
(15) Fifteenth, to the holders of class D notes, in the order of priority
by subclass set forth under "-- Allocation of Principal Among
Subclasses of Notes", an amount equal to the Scheduled Principal
Payment Amount with respect to the class D notes;
(16) Sixteenth, to the permitted accruals balance in the expense account,
an amount equal to permitted accruals in respect of any modification
payments;
(17) Seventeenth, to the holders of each subclass of notes entitled
thereto, an amount equal to all accrued and unpaid step-up interest
on that subclass, if any, proportionately according to the amount of
accrued and unpaid step-up interest;
(18) Eighteenth, to the holders of class A notes, in the order of priority
by subclass set forth under "-- Allocation of Principal Among
Subclasses of Notes", an amount equal to the Supplemental Principal
Payment Amount with respect to the class A notes;
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(19) Nineteenth, to the holders of each subclass of the class E notes, the
class E note primary interest amount, proportionately according to
the amount due on each subclass of the class E notes;
(20) Twentieth, to the holders of class B notes, in the order of priority
by subclass set forth under "-- Allocation of Principal Among
Subclasses of Notes", an amount equal to the Supplemental Principal
Payment Amount with respect to the class B notes;
(21) Twenty-first, to the holders of class A notes, in the order of
priority by subclass set forth under "-- Allocation of Principal
Among Subclasses of Notes" an amount equal to the redemption price of
the outstanding principal balance, if any, of the class A notes;
(22) Twenty-second, to the holders of class B notes, in the order of
priority by subclass set forth under "-- Allocation of Principal
Among Subclasses of Notes" an amount equal to the redemption price of
the outstanding principal balance, if any, of the class B notes;
(23) Twenty-third, to the holders of class C notes, in the order of
priority by subclass set forth under "-- Allocation of Principal
Among Subclasses of Notes" an amount equal to the redemption price of
the outstanding principal balance, if any, of the class C notes;
(24) Twenty-fourth, to the holders of class D notes, in the order of
priority by subclass set forth under "-- Allocation of Principal
Among Subclasses of Notes" an amount equal to the redemption price of
the outstanding principal balance, if any, of the class D notes;
(25) Twenty-fifth, pro rata, to swap providers in an amount equal to any
amounts then payable under the relevant swap agreements which are
subordinated in accordance with their terms;
(26) Twenty-sixth, to investors or other persons for obligations incurred
in connection with permitted tax-related dispositions, if any, that
are subordinated in accordance with the terms of the relevant
permitted tax-related dispositions an amount equal to the amount of
those subordinated tax-related disposition payments then payable;
(27) Twenty-seventh, to the holders of the class E notes, an amount equal
to all accrued and unpaid interest on the class E notes and an amount
equal to the cash portion of the Liquidity Reserve Amount then on
deposit in the collection account, proportionately according to the
amount due on each subclass of the class E notes;
(28) Twenty-eighth, to the holders of the class E notes, in the order of
priority by subclass set forth under "-- Allocation of Principal
Among Subclasses of Notes", an amount equal to the redemption price
of the outstanding principal balance of the class E notes; and
(29) Twenty-ninth, to the charitable trust trustee, all remaining amounts.
PRIORITY OF PAYMENTS FOLLOWING A DEFAULT NOTICE
If a default notice is delivered to AerCo or the cash manager or an event
of default described in clause (6) or (7) under "-- Events of Default and
Remedies" occurs and continues, the priority of payments described above will
not apply. Instead, amounts on deposit in the collection account and the expense
account will be applied in the following order of priority.
(1) First, to the expense account or directly to the relevant expense
payees, an amount equal to the required expense amount;
(2) Second, proportionately, to the providers of any primary eligible
credit facilities, such amounts as are required to make any payments
due to those providers under their primary eligible credit
facilities;
(3) Third, the following amounts: (A) proportionately to the holders of
each subclass of class A notes, all accrued and unpaid interest
(including step-up interest, if any) on, and all outstanding
principal of, that subclass and (B) proportionately to any swap
provider, such
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amounts as are required to make any payments (other than subordinated
swap payments) due to that swap provider under any swap agreement;
(4) Fourth, proportionately to the holders of each subclass of class B
notes, all accrued and unpaid interest (including step-up interest,
if any) on and all outstanding principal of that subclass of class B
notes;
(5) Fifth, proportionately to the holders of each subclass of class C
notes, all accrued and unpaid interest (including step-up interest,
if any) on and all outstanding principal of that subclass of class C
notes;
(6) Sixth, proportionately to the holders of each subclass of class D
notes, all accrued and unpaid interest (including step-up interest,
if any) on and all outstanding principal of that subclass of class D
notes;
(7) Seventh, proportionately to the providers of any credit or liquidity
enhancement facilities in favor of AerCo other than primary eligible
credit facilities, those amounts as are required to make any payment
due under their facilities;
(8) Eighth, proportionately to any swap provider, those amounts as are
required to make any subordinated swap payments due to that swap
provider under any swap agreement;
(9) Ninth, proportionately to any investor or other person in respect of
any obligation incurred in connection with any permitted tax-related
disposition, those amounts as are required to make any subordinated
tax-related disposition payments due;
(10) Tenth, proportionately to the holders of each subclass of the class E
notes all accrued and unpaid interest on and all outstanding
principal of that subclass of class E notes; and
(11) Eleventh, to the charitable trust trustee, all remaining amounts.
INDENTURE COVENANTS
GENERAL COVENANTS
NO RELEASE OF OBLIGATIONS. AerCo will not take, or knowingly permit any
subsidiary to take, any action which would amend, terminate, other than any
termination in connection with the replacement of that agreement with an
agreement on terms substantially no less favorable to AerCo and its subsidiaries
than the agreement being terminated, or discharge or prejudice the validity or
effectiveness of the indenture, other than as permitted therein, the security
trust agreement, the intercompany loans, the cash management agreement, the
administrative agency agreement, the deposit agreement or any servicing
agreement or permit any party to any of those documents to be released from its
obligations, except, in each case, as permitted or contemplated by the terms of
those documents, except:
AerCo may take or permit these actions and may permit these releases if it
shall have first obtained an authorizing resolution of the directors of AerCo
determining that that action, permitted action or release does not materially
adversely affect the interests of the noteholders and having given notice to the
rating agencies.
Despite the preceding paragraph, in any case:
(1) AerCo will not take any action which would result in any amendment or
modification to the conflicts standard or duty of care in those
agreements; and
(2) there must be at all times an administrative agent, a cash manager
and, unless a servicer resigns prior to the appointment of a
replacement servicer as a result of any failure to pay amounts due and
owing to it and notice of resignation is given to the rating agencies,
one or more servicers with respect to all aircraft in the portfolio.
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LIMITATION ON ENCUMBRANCES. AerCo will not, and will not permit any
subsidiary to, create, incur, assume or suffer to exist any mortgage, pledge,
lien, encumbrance, charge or security interest, including, without limitation,
any conditional sale, or any sale with recourse against the seller or any
affiliate of the seller or any agreement to give any security interest over or
with respect to any of AerCo's or any subsidiary's assets, excluding segregated
funds, including, without limitation, all shares of capital stock, all
beneficial interests in trusts, all ordinary shares and preferred shares, any
options, warrants and other rights to acquire shares or interests and any
indebtedness of any subsidiary held by AerCo or a subsidiary.
However, AerCo may create, incur, assume or suffer to exist:
(1) any permitted encumbrance (as described below);
(2) any security interest created or required to be created under the
security trust agreement;
(3) encumbrances over rights in or derived from leases, upon confirmation
from the rating agencies in advance that that action or event will not
result in the lowering or withdrawal of any rating assigned by any
rating agency to any of the notes then outstanding, so long as any
transaction or series of transactions resulting in that encumbrance,
taken as a whole, does not materially adversely affect the amount of
collections that would have been received by AerCo from any lease had
that encumbrance not been created;
(4) encumbrances over any aircraft, leases or funds on deposit in the tax
defeasance account or investments held in that account created in
connection with any permitted tax-related disposition; or
(5) any other encumbrance the validity or applicability of which is being
contested in good faith in appropriate proceedings by AerCo or any of
its subsidiaries.
"Affiliate" means, with respect to any person, any other person that,
directly or indirectly, controls, is controlled by or is under common control
with, that person or is a director or officer of that person.
"Control" of a person means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of that
person, whether through the ownership of voting stock, by contract or otherwise.
"Permitted encumbrance" means:
(1) any lien for taxes, assessments and governmental charges or levies not
yet due and payable or which are being contested in good faith by
appropriate proceedings;
(2) in respect of any aircraft, any liens of a repairer, carrier or hanger
keeper arising in the ordinary course of business by operation of law
or any engine or parts-pooling arrangements or other similar lien;
(3) any permitted lien or encumbrance on any aircraft, engines or parts as
defined under any lease (other than liens or encumbrances created by
the relevant lessor);
(4) any liens created by or through or arising from debt or liabilities or
any act or omission of any lessee in each case either in contravention
of the relevant lease (whether or not that lease has been terminated)
or without the consent of the relevant lessor (so long as that lessor
becomes aware of those liens, that lessor shall use commercially
reasonable efforts to have those liens lifted);
(5) any head lease, lease, conditional sale agreement or purchase option
existing on July 15, 1998, with respect to the aircraft acquired by us
on July 15, 1998, or, in the case of any additional aircraft, on the
date that aircraft is acquired, or any aircraft agreement meeting the
requirements of clause (c), (e) or (f) of the second paragraph under
the "Limitation on Aircraft Sales" covenant;
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(6) any lien for air navigation authority, airport tending, gate or
handling (or similar) charges or levies;
(7) any lien created in favor of AerCo, or any of its subsidiaries or the
security trustee; and
(8) any lien not referred to in (1) through (7) above which would not
adversely affect the owner's rights and does not exceed the greater of
1% of the aggregate initial appraised value of the portfolio and
$250,000 per aircraft.
LIMITATION ON RESTRICTED PAYMENTS. AerCo will not, and will not permit any
of its subsidiaries, to:
(1) declare or pay any dividend or make any distribution on its stock held
by persons other than AerCo or any of its subsidiaries;
(2) purchase, redeem, retire or otherwise acquire for value any shares of
stock of AerCo or any of its subsidiaries held by and on behalf of
persons other than AerCo, any of its subsidiaries or other persons
permitted under the requirements of (2)(b) under the "Limitation on
the Issuance, Delivery and Sale of Stock" covenant;
(3) make any interest, principal or premium payment, if any, on the notes
or make any voluntary or optional repurchase, defeasance or other
acquisition or retirement for value of indebtedness of AerCo or any of
its subsidiaries that is not owed to AerCo or any of its subsidiaries
other than in accordance with, "-- Payment of Principal and Interest";
or
(4) make any investments other than permitted account investments,
investments permitted under the "Limitation on Engaging in Business
Activities" covenant, allowed restructurings and investments in any
subsidiaries that own or lease aircraft so long as written
notification of the organization or acquisition of that subsidiary
shall have been given to each rating agency.
The term "investment" for purposes of the above covenant means any loan or
advance to a person or entity, any purchase or other acquisition of any capital
stock, warrants, rights, options, obligations or other securities of that person
or entity, any capital contribution to that person or entity or any other
investment in that person or entity. The term "investment" shall not include any
obligation of a purchaser of an aircraft to make deferred or installment
payments pursuant to any aircraft agreement specified in clauses (c), (e) or (f)
of the second paragraph under "Limitations on Aircraft Sales" below so long as
the AerCo Group retains a security interest in the relevant aircraft until that
obligation is discharged.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS. AerCo will not,
and will not permit any of its subsidiaries to, create or otherwise suffer to
exist any consensual encumbrance or restriction of any kind on the ability of
any subsidiary to:
(1) declare or pay dividends or make any other distributions permitted by
applicable law, or purchase, redeem or otherwise acquire for value,
the stock of AerCo or a subsidiary, as the case may be;
(2) pay any indebtedness owed to AerCo or a subsidiary;
(3) make loans or advances to AerCo or a subsidiary; or
(4) transfer any of its property or assets to AerCo or any other
subsidiary thereof.
The foregoing restrictions shall not apply to any consensual encumbrances
or other restrictions:
(1) existing on July 15, 1998, in the case of the aircraft acquired by us
on July 15, 1998, or, in the case of any additional aircraft, on the
date that aircraft is acquired, under any related document, including
any amendments, extensions, refinancings, renewals or replacements of
those documents, so long as the consensual encumbrances and
restrictions in those amendments, extensions, refinancings, renewals
or replacements are no less favorable in any material respect to the
holders of the notes than those previously in effect; or
(2) in the case of clause (4) above:
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(a) that restrict in a customary manner the subletting, assignment or
transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset; or
(b) existing by virtue of any transfer of, agreement to transfer,
option or right with respect to, or consensual encumbrance on, any
property or assets of AerCo or any subsidiary not otherwise
prohibited by the indenture. This covenant shall not prevent AerCo
or any subsidiary from creating, incurring, assuming or suffering
to exist any encumbrances that are not otherwise prohibited under
the indenture.
LIMITATION ON ENGAGING IN BUSINESS ACTIVITIES. AerCo will not, and will
not permit any subsidiary to, engage in any business or activity other than:
(1) purchasing or otherwise acquiring aircraft assets both directly and
indirectly through the acquisition of aircraft owning entities
(subject to the limitations set forth in the "Limitation on Aircraft
Acquisitions" covenant);
(2) owning (including, subject to the limitations set forth in the
"Limitation on Aircraft Acquisitions" covenant, acquiring additional
aircraft), holding, converting, maintaining, modifying, managing,
operating, leasing, re-leasing and, subject to the limitations set
forth in the "Limitations on Aircraft Sales" covenant, selling or
otherwise disposing of the aircraft (including permitted tax-related
dispositions);
(3) entering into all contracts and engaging in all related activities
incidental thereto, including from time to time accepting, exchanging,
holding or permitting any of its subsidiaries to accept, exchange or
hold promissory notes, contingent payment obligations or equity
interests, of lessees or their affiliates issued in connection with
the bankruptcy, reorganization or other similar process, or in
settlement of delinquent obligations or obligations anticipated to be
delinquent, of those lessees or their respective affiliates in the
ordinary course of business;
(4) providing loans to, and guaranteeing or otherwise supporting the
obligations and liabilities of, any AerCo Group member or any future
AerCo entity, in each case on such terms and in such manner as the
directors see fit and (whether or not AerCo, any member of the AerCo
Group or any future AerCo entity derives a benefit therefrom) so long
as those loans, guarantees or other supports are provided in
connection with the purposes set forth in clauses (1) through (3) of
this covenant;
(5) financing or refinancing the business activities described in clauses
(1) through (3) of this covenant through the offer, sale and issuance
of any securities of AerCo, upon those terms and conditions as the
directors see fit, for cash or in payment or in partial payment for
any property purchased or otherwise acquired by the AerCo Group or any
future AerCo entity;
(6) engaging in currency and interest rate exchange transactions for the
purposes of avoiding, reducing, minimizing, hedging against or
otherwise managing the risk of any loss, cost, expense or liability
arising, or which may arise, directly or indirectly, from any change
or changes in any interest rate or currency exchange rate or in the
price or value of any of the property or assets of AerCo or any of its
subsidiaries within limits determined by the directors from time to
time and submitted to the rating agencies (including but not limited
to dealings, whether involving purchases, sales or otherwise, in
foreign currency, spot and forward interest rate exchange contracts,
forward interest rate agreements, caps, floors and collars, futures,
options, swaps, and any other currency, interest rate and other
similar hedging arrangements and other similar instruments).
However, AerCo shall not and shall not permit any of its subsidiaries to,
enter into any hedging arrangements or other instruments:
(a) that are primarily entered into for speculative purposes; or
(b) that are not U.S. dollar-denominated interest rate swaps,
swaptions, caps or floors;
without confirmation by the rating agencies that they will not lower or withdraw
any rating assigned by them to any notes outstanding;
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(7) establishing, promoting and aiding in promoting, constituting, forming
or organizing companies, syndicates or partnerships of all kinds in
any part of the world for the purposes set forth in clauses (1)
through (3) above; so long as written notification shall have been
given to each rating agency that that company, trust, syndicate or
partnership was set up in compliance with the indenture;
(8) acquiring, holding and disposing of shares, securities and other
interests in that company, syndicate or partnership;
(9) disposing of shares, securities and other interests in, or causing the
dissolution of, any existing subsidiary so long as any disposition
which results in the disposition of an Aircraft meets the requirements
set forth under the "Limitation on Aircraft Sales" covenant; and
(10) taking out, acquiring, surrendering and assigning policies of
insurance and assurances with any insurance company or companies which
AerCo or any of its subsidiaries may think fit and paying the premiums
thereon.
LIMITATION ON INDEBTEDNESS. AerCo will not, and will not permit any of its
subsidiaries to, incur, create, issue, assume, guarantee or otherwise become
liable for or with respect to, or become responsible for, the payment of,
contingently or otherwise, whether present or future, indebtedness, except as
described below.
For the purposes of the indenture, "indebtedness" means, with respect to
any person at any date of determination without duplication:
(1) all indebtedness of that person for borrowed money;
(2) all obligations of that person evidenced by bonds, debentures, notes
or other similar instruments;
(3) all obligations of that person in respect of letters of credit or
other similar instruments including reimbursement obligations with
respect to them;
(4) all obligations of that person to pay the deferred and unpaid purchase
price of property or services, which purchase price is due more than
six months after the date of purchasing that property or service or
taking delivery and title to it or the completion of those services,
and payment deferrals arranged primarily as a method of raising
finance or financing the acquisition of that property or service;
(5) all obligations of that person under a lease of or other agreement
conveying the right to use any property, whether real, personal or
mixed, that is required to be classified and accounted for as a
capital lease obligation under U.S. GAAP;
(6) all indebtedness as defined in clauses (1) through (5) of this
paragraph of any other person secured by a lien on any asset of that
person, whether or not that indebtedness is assumed by that person;
and
(7) all indebtedness as defined in clauses (1) through (5) of this
paragraph of other persons guaranteed by that person.
However, the above restriction does not apply to:
(1) indebtedness under the notes, the subclass D-1 and subclass D-2 notes
and subclass E-1 and subclass E-2 notes;
(2) indebtedness under any refinancing notes or other indebtedness issued
in connection with the repurchase, acquisition, defeasance or
retirement for value of notes other than the class E notes so long as:
(a) the refinancing notes or other indebtedness receive ratings from
the rating agencies at the close of that refinancing or issuance
equal to or higher than those of the subclass being
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<PAGE> 136
refinanced or repurchased, acquired, defeased or retired
(determined at the date of incurrence);
(b) taking into account that refinancing or repurchase, acquisition,
defeasance or retirement for value, AerCo receives prior
confirmation from the rating agencies that that transaction will
not result in the lowering or withdrawal of any rating assigned by
any rating agency to any notes outstanding at that time; and
(c) the net proceeds of any refinancing or issuance shall be used only
to repay the outstanding principal balance of the subclass of the
notes being so refinanced or repurchased, acquired, defeased or
retired plus any redemption premium and transaction expenses
relating to them;
(3) indebtedness under guarantees by AerCo or any subsidiary of any other
member of the AerCo Group, other than guarantees described in clause
(5), so long as no such indebtedness in respect of any member of the
AerCo Group, other than AerCo or any subsidiary of AerCo, may be
incurred if it would materially adversely affect the AerCo
noteholders;
(4) indebtedness in respect of any additional notes incurred in connection
with a permitted additional aircraft acquisition so long as:
(a) taking into account the incurrence of that indebtedness, AerCo
receives prior confirmation from the rating agencies that the
incurrence of that indebtedness will not result in the lowering or
withdrawal of any rating assigned by any rating agency to any
subclass of the notes outstanding at that time;
(b) the net proceeds of that indebtedness shall be used only to finance
the permitted additional aircraft acquisition; and
(c) those additional notes will be cross-collateralized with all notes
outstanding by the collateral under the security trust agreement;
(5) indebtedness in respect of guarantees by AerCo or any subsidiary of
indebtedness incurred by any future AerCo entity other than a
subsidiary of AerCo in connection with a permitted additional aircraft
acquisition so long as:
(a) the future AerCo entity shall have guaranteed the notes;
(b) the indebtedness being guaranteed would be permitted pursuant to
clause (2) or (4) above if the indebtedness were incurred directly
by AerCo or any subsidiary in connection with a permitted
additional aircraft acquisition; and
(c) the indebtedness being guaranteed was issued by a future AerCo
entity under an indenture, the terms of which, including the
covenants and other obligations of the future AerCo entity, are
substantially similar to those of the indenture;
(6) indebtedness to aircraft sellers under aircraft acquisition or similar
agreements;
(7) indebtedness under intercompany loans or any agreement between AerCo
or any of its subsidiaries and any other members of the AerCo Group.
Any indebtedness owed by any member of the AerCo Group to AerCo must
be evidenced by promissory notes that are pledged to the security
trustee and written notification must be given to each rating agency
of the incurrence of the indebtedness;
(8) indebtedness of the AerCo Group under any credit or liquidity
enhancement facility provided in favor of the AerCo Group. Before
entering into a primary eligible credit facility, AerCo must receive
confirmation from the rating agencies that they will not lower or
withdraw any rating assigned by them to any subclass of notes
outstanding; and
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<PAGE> 137
(9) obligations to each investor or other person in respect of the cash
proceeds in the tax defeasance account and any subordinated
tax-related disposition payments under the related permitted tax-
related disposition and any related assignment and assumption
agreements and documents related to them.
As used in this prospectus, "guarantee" means any obligation, contingent or
otherwise, of any person directly or indirectly guaranteeing any indebtedness or
other obligation of any other person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of that
person:
(1) to purchase or pay or advance or supply funds for the purchase or
payment of any indebtedness or other obligation of the other person;
or
(2) entered into for purposes of assuring in any other manner the obligee
of any indebtedness or other obligation of the payment thereof or to
protect the obligee against loss in respect of them in whole or in
part.
The term "guarantee" does not include endorsements for collection or
deposit in the ordinary course of business. The term "guarantee" when used as a
verb has a corresponding meaning.
LIMITATION ON AIRCRAFT SALES. AerCo will not, and will not permit any of
its subsidiaries to, sell, transfer or otherwise dispose of any aircraft or any
interest therein, except as described below.
However, AerCo and any of its subsidiaries will be permitted to sell,
transfer or otherwise dispose of, directly or indirectly:
(1) any engines owned on the date an aircraft is acquired, or any
replacements or parts installed in or attached to any aircraft other
than engines; or
(2) one or more aircraft or an interest in aircraft:
(a) under a purchase option or other similar agreements existing on the
date an aircraft is acquired;
(b) within or among AerCo and its subsidiaries without limitation, and
among AerCo or any of its subsidiaries and any other member of the
AerCo Group if a sale, transfer or disposition, as the case may be,
would not materially adversely affect the AerCo noteholders, so
long as written notification shall have been given to each rating
agency of the sale, transfer or disposition;
(c) under any aircraft agreement as long as the sale does not result in
a concentration default, and the net present value of the cash net
sale proceeds is not less than the note target price (as described
below);
(d) in order to receive insurance proceeds in connection with an event
of loss;
(e) under an aircraft agreement that is designed to allow a person
unrelated to AerCo or any other member of the AerCo Group to
realize tax benefits associated with the aircraft or other assets
being sold; a permitted tax-related disposition will be permissible
so long as AerCo receives confirmation prior to entering into the
agreement that the performance of the agreement will not result in
the lowering or withdrawal of any rating assigned by any rating
agency to each subclass of notes outstanding at the time and all
obligations of AerCo or any other member of the AerCo Group other
than the obligation to pay the tax defeasance amount under the
agreement or to any person providing credit support for obligations
are payable only under subordinated tax-related disposition
payments as set forth under "-- Priority of Payments"; or
(f) pursuant to an aircraft agreement and, in any one calendar year,
not exceeding 10% of the adjusted portfolio value, so long as:
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(1) the directors unanimously confirm that each sale does not
materially adversely affect AerCo and the AerCo noteholders;
and
(2) each sale does not result in a concentration default.
For the purpose of this covenant, the net present value of the cash net
sale proceeds of any sale, transfer or other disposition of any aircraft shall
mean the present value of all payments received or to be received by the AerCo
Group in respect of the aircraft from the date of execution or option granting
date, as the case may be, of the relevant aircraft agreement through and
including the date of transfer of title to the aircraft, discounted back to the
date of execution or option granting date, as the case may be, of the agreement
at the weighted average cost of funds of the AerCo Group based on the cost of
funds on the preceding payment date (excluding for this purpose any interest
paid or accrued on the class E notes but taking into account any swap
agreements).
The "note target price" of an aircraft means 103% of the aggregate
outstanding principal balance of class A, class B, class C and class D notes,
together with any accrued but unpaid interest and any related swap breakage
costs, allocable to the aircraft on the date of the sale agreement or purchase
option date, as the case may be. On any date, the outstanding principal balance
of class A, class B, class C and class D notes allocable to an aircraft will
equal:
<TABLE>
<S> <C> <C>
ABV
OPB X ---
APV
</TABLE>
where:
<TABLE>
<S> <C>
ABV = the Adjusted Base Value of the aircraft
APV = the Adjusted Portfolio Value and
OPB = the outstanding principal balance of the class A, class B,
class C and class D notes on the most recent payment date.
</TABLE>
"Aircraft agreement" means any lease, sub-lease, conditional sale
agreement, finance lease, hire purchase agreement or other agreement (other than
an agreement relating to maintenance, modification or repairs) or any purchase
option granted to a person other than AerCo or its subsidiaries or any other
member of the AerCo Group to purchase an aircraft under a purchase option
agreement, in each case where a person acquires or is entitled to acquire legal
title, or the economic benefits of ownership of, an aircraft.
"Net sales proceeds" means the aggregate amount of cash received or to be
received from time to time (whether as initial or deferred consideration) by or
on behalf of the seller in connection with the transaction after deducting:
(1) reasonable and customary brokers' commissions and other similar fees
and commissions including fees received by the servicer under the
servicing agreement; and
(2) the amount of taxes payable in connection with or as a result of a
transaction, in each case to the extent, but only to the extent, that
the amounts so deducted are, at the time of receipt of cash, actually
paid to a person that is not an affiliate of the seller and are
properly attributable to the transaction or to the asset that is the
subject of it.
"Concentration default" means an event of default under "-- Operating
Covenants -- Concentration Limits", as that covenant may be adjusted from time
to time upon approval of the rating agencies, which would arise if effect were
given to any sale, transfer or other disposition or any purchase or other
acquisition as of the date of the binding sale or purchase agreement (even if
the sale, transfer or other disposition or purchase or other acquisition is
scheduled or expected to occur after the date of the binding agreement).
LIMITATION ON AIRCRAFT ACQUISITIONS. AerCo will not, and will not permit
any of its subsidiaries, to purchase or otherwise acquire any aircraft other
than the initial aircraft or any interest therein except as described below.
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<PAGE> 139
AerCo and any of its subsidiaries will be permitted to:
(1) purchase or otherwise acquire, directly or indirectly, additional
aircraft so long as:
(a) no event of default shall have occurred and be continuing;
(b) all Scheduled Principal Payment Amounts on the notes have been
paid;
(c) the acquisition does not result in a concentration default; and
(d) after giving effect to the acquisition:
- no more than 90% of the portfolio by appraised base value
consists of Stage 3 narrowbody aircraft and regional jets,
- no more than 50% of the portfolio consists of Stage 3 widebody
aircraft, and
- no more than 15% of the portfolio consists of Stage 2 aircraft
and turboprop aircraft,
unless the directors of AerCo obtain advance confirmation that the
action will not result in the lowering or withdrawal of any rating
assigned by any rating agency to any of the notes outstanding; or
(2) act as sponsor of a future AerCo entity other than a subsidiary of
AerCo that would fund an acquisition of aircraft assets with
indebtedness guaranteed by AerCo pursuant to the "Limitation on
Indebtedness" covenant as described above; so long as, if the
acquisition of aircraft assets had been consummated directly by AerCo,
the acquisition would have been permitted pursuant to the foregoing
clause (1).
A "permitted additional aircraft acquisition" means a transaction described
in clause (1) or (2) above.
LIMITATION ON MODIFICATION PAYMENTS AND CAPITAL EXPENDITURES. AerCo will
not, and will not permit any of its subsidiaries to, make any capital
expenditures for the purpose of effecting any optional improvement or
modification of any aircraft, or for the optional conversion of any aircraft
from a passenger aircraft to a freighter or mixed-use aircraft, for the purpose
of purchasing or otherwise acquiring any engines or parts outside of the
ordinary course of business except as described below.
AerCo may, and may permit any of its subsidiaries to, make modification
payments if:
(1) each modification payment, together with all other modification
payments made after July 15, 1998 to any single aircraft, do not
exceed the aggregate amount of funds that would be necessary to
perform one incidence of heavy maintenance as described in the
applicable servicing agreement on the aircraft, including the airframe
and the engines;
(2) the modification payment is included in the annual operating budget of
the AerCo Group and approved by the directors;
(3) the amount of funds necessary to make the modification payment shall
have been accrued in advance as a permitted accrual in the expense
account through transfers into the expense account according to the
indenture or is otherwise allowed to be paid as permitted
indebtedness; and
(4) the aggregate amount of all modification payments made by members of
the AerCo Group, taken as a whole, pursuant to this covenant after
July 15, 1998, including the modification payment in question, shall
not exceed 5% of the aggregate initial appraised value of all aircraft
acquired by the AerCo Group.
LIMITATION ON CONSOLIDATION, MERGER AND TRANSFER OF ASSETS. AerCo will
not, and will not permit any subsidiary to, consolidate with, merge with or
into, or sell, convey, transfer, lease or otherwise dispose of its property and
assets (as an entirety or substantially an entirety in one transaction or in a
series of
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<PAGE> 140
related transactions) to, any other person, or permit any other person to merge
with or into AerCo or any subsidiary, unless:
(1) the resulting entity is a special purpose corporation, the charter of
which is substantially similar to the memorandum and articles of
association of AerCo or the equivalent charter document of the
subsidiary, as the case may be, and, after the consolidation, merger,
sale, conveyance, transfer, lease or other disposition, payments from
the resulting entity to the holders of the notes do not give rise to
any withholding tax payments less favorable to the holders of the
notes than the amount of any withholding tax payments which would have
been required had the event not occurred;
(2) in the case of consolidation, merger or transfer by AerCo, the
surviving successor or transferee entity shall expressly assume all of
the obligations of AerCo in the indenture, the notes and each other
related document;
(3) the directors shall have obtained confirmation in advance that the
action or event will not result in the lowering or withdrawal of any
rating assigned by any rating agency to any of the notes;
(4) immediately after giving effect to the transaction, no event of
default shall have occurred and be continuing; and
(5) AerCo delivers to the trustee an officers' certificate and an opinion
of counsel, in each case stating that the consolidation, merger or
transfer and the supplemental indenture comply with the above criteria
and, if applicable, the "Limitation on Aircraft Sales" covenant and
that all conditions precedent provided for in the indenture relating
to the transaction have been complied with.
This covenant shall not apply to any consolidation, merger, sale,
conveyance, transfer, lease or disposition:
(1) within and among AerCo and any of its subsidiaries and among the AerCo
Group if the consolidation, merger, sale, conveyance, transfer, lease
or disposition, as the case may be, would not materially adversely
affect the holders of the notes;
(2) complying with the terms of the "Limitation on Aircraft Sales"
covenant; or
(3) effected as part of a single transaction providing for the redemption
or defeasance of the notes in accordance with the terms of the notes
as described under "-- Redemption" or "-- Defeasance", respectively.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. AerCo will not, and will not
permit any subsidiary to, directly or indirectly, enter into, renew or extend
any transaction (including, without limitation, the purchase, sale, lease or
exchange of property or assets, or the rendering of any service) with AerFi or
any affiliate of AerCo or any subsidiary, except upon fair and reasonable terms
no less favorable to AerCo or the subsidiary than could be obtained, at the time
of the transaction or at the time of the execution of the relevant agreement, in
a comparable arm's-length transaction with a person that is not an affiliate.
The foregoing limitation shall not apply to:
(1) any transaction pursuant to the terms of the related documents;
(2) any transaction within and among AerCo or any of its subsidiaries and
any other member of the AerCo Group, except that no transaction of
this kind, other than between AerCo and any of its subsidiaries, shall
be consummated if it would materially adversely affect the holders of
the notes;
(3) the payment of reasonable and customary regular fees to, and the
provision of reasonable and customary liability insurance in respect
of, directors;
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<PAGE> 141
(4) any permitted additional aircraft acquisition or any transaction
complying with the "Limitation on Aircraft Sales" covenant;
(5) any payments of the types referred to in clauses (1) or (2) of the
"Limitation on Restricted Payments" covenant and not prohibited
thereunder; and
(6) entering into any transaction effected as part of a single transaction
providing for the redemption or defeasance of the notes according to
their terms as described under "-- Redemption" or "-- Defeasance",
respectively.
LIMITATION ON THE ISSUANCE, DELIVERY AND SALE OF STOCK. AerCo will not:
(1) issue, deliver or sell any shares, interests, participations or other
equivalents (however designated, whether voting or non-voting, other
than the shares, interests, participations or other equivalents
existing on July 15, 1998) in equity, including without limitation,
all ordinary shares of AerCo; or
(2) sell, or permit any subsidiary, directly or indirectly, to issue,
deliver or sell, any shares, interests, participations or other
equivalents (however designated, whether voting or non-voting, other
than the shares, interests, participations or other equivalents
existing on July 15, 1998) in equity except:
(a) to the charitable trust trustee (or its nominees);
(b) issuances or sales of shares of stock of foreign subsidiaries of
AerCo to nationals in the jurisdiction of incorporation or
organization of a subsidiary, as the case may be, to the extent
required by applicable law or necessary in the determination of the
directors to avoid an adverse tax consequence in any jurisdiction;
(c) the pledge of shares in AerCo's subsidiaries pursuant to the
security trust agreement;
(d) the sale, delivery or transfer of any stock of any member of the
AerCo Group in connection with the redemption or defeasance of the
notes, in accordance with the terms set forth under "-- Redemption"
or "-- Defeasance", respectively;
(e) the sale of any stock in connection with any sale of aircraft in
compliance with the terms of the "Limitation on Aircraft Sales"
covenant; and
(f) the sale, delivery, transfer or pledge of any stock of any AerCo
Group member to or for the benefit of any other AerCo Group member,
so long as notification is given to the rating agencies.
In addition, under the terms of the shareholders undertaking, the
charitable trust trustee and AerFi have agreed that while the notes are
outstanding they will not, without prior written approval of the trustee and all
of the directors, take any action in their capacity as shareholders of AerCo to
alter the share capital or issue any additional shares of AerCo.
BANKRUPTCY AND INSOLVENCY. AerCo:
(1) will promptly provide the trustee and the rating agencies with notice
of the institution of any proceeding by or against AerCo or any of its
subsidiaries, as the case may be, seeking to adjudicate any of them a
bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or
composition of their debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking entry of
an order for relief or the appointment of a receiver, trustee or other
similar official for either or for any substantial part of their
property; and
(2) will not, without an affirmative unanimous written resolution of the
directors, take any action to waive, repeal, amend, vary, supplement
or otherwise modify its charter documents.
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<PAGE> 142
In addition, under the terms of the shareholders undertaking, the
charitable trust trustee and AerFi have agreed that while the notes are
outstanding they will not, without prior written approval of the trustee and all
of the directors, take any action in their capacity as shareholders of AerCo:
(1) to cause AerCo to institute any proceeding seeking liquidation or
insolvency or similar proceeding;
(2) in the case of any liquidation, insolvency or similar proceeding
instituted against AerCo, to authorize or consent to those
proceedings;
(3) to terminate AerCo's corporate existence;
(4) to waive or amend the memorandum and articles of association of AerCo;
or
(5) to transfer any part of the capital stock of AerCo or any interest
therein, unless the transferee:
(a) in the case of the capital stock held by the nominees for the
charitable trust trustee, is a trustee of a trust formed for
charitable purposes substantially identical to those for which the
charitable trust is established; and
(b) enters into an agreement substantially identical to the
shareholders undertaking in favor of the trustee.
OPERATING COVENANTS
CONCENTRATION LIMITS. Unless the directors obtain prior written
confirmation from each of the rating agencies that no lowering or withdrawal of
the then current rating of any subclass of notes will result, AerCo will not
permit any of its subsidiaries to lease or re-lease any aircraft if entering
into such proposed lease would cause the portfolio to exceed any of the
concentration limits set forth below. In connection with the acquisition of the
additional aircraft and the offering of the notes, AerCo has requested rating
agency confirmation from each agency rating the notes that it will not lower or
withdraw its current rating of the existing notes as a result of (i) an increase
in the concentration of U.K. or U.S. lessees from, in the case of the U.K., 20%
and, in the case of the U.S., 25% or (ii) variations from the concentration
limits due to the number of additional aircraft that are ultimately delivered or
the order in which the additional aircraft are delivered.
For purposes of this restriction, the portfolio:
- excludes any aircraft that is to be disposed of within one year from the
effective date of the lease under a binding aircraft agreement (other
than any aircraft that AerCo has a binding agreement to acquire and that
the directors reasonably expect will be acquired within 180 days from
the effective date of the agreement);
- but includes any aircraft in which a member of the AerCo Group retains
an interest, including a right to lease rentals, finance lease payments,
installment purchase payments or other payments.
The indenture permits breaches of these concentration limits upon any
renewal, extension or restructuring of any lease.
<TABLE>
<CAPTION>
LESSEE CONCENTRATION LIMITS. PERCENTAGE OF
MOST RECENT APPRAISED
VALUE OF PORTFOLIO(2)
---------------------
<S> <C>
Single Lessees rated BBB/Baa2 (or the equivalent) or
better................................................ 15%
Other Single Lessees................................... 10%
Five largest Lessees................................... 35%
</TABLE>
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<PAGE> 143
<TABLE>
<CAPTION>
COUNTRY CONCENTRATION LIMITS. PERCENTAGE OF
MOST RECENT APPRAISED
VALUE OF PORTFOLIO(2)
---------------------
<S> <C>
United States.......................................... 30%
United Kingdom......................................... 30%
Countries rated BBB/Baa2 (or the equivalent) or
better(1)............................................. 20%
Other.................................................. 15%
</TABLE>
<TABLE>
<CAPTION>
REGION CONCENTRATION LIMITS. PERCENTAGE OF
MOST RECENT APPRAISED
VALUE OF PORTFOLIO(2)
---------------------
<S> <C>
Any Developed Market Region(3)......................... 50%
Any Emerging Market Region(3).......................... 25%
Other(3)............................................... 20%(4)
Asia/Pacific(3)........................................ 55%
</TABLE>
--------------------
(1) Based on the sovereign foreign currency debt rating assigned by the
rating agencies to the country in which a lessee is habitually based at
the time the relevant lease is executed.
(2) Percentage to be obtained by dividing the aggregate most recent
appraised values of all aircraft operating or to be operated by lessees
habitually based in the applicable country or region by the aggregate
most recent appraised values of all aircraft then owned by the AerCo
Group.
(3) The designations of Emerging Markets and Developed Markets are as
determined and published by Morgan Stanley Capital International from
time to time based on, among other things, gross domestic product
levels, regulation of foreign ownership of assets, applicable
regulatory environment, exchange controls and perceived investment
risk. The current designations are as set out below:
<TABLE>
<CAPTION>
REGION COUNTRY
------ -------
<S> <C>
Developed Markets
Europe.......................... EU (except Greece and Luxembourg), Norway and
Switzerland
North America................... Canada and United States
Pacific......................... Australia, Hong Kong, Japan, New Zealand and Singapore
Emerging Markets
Asia............................ China, India, Indonesia, South Korea, Malaysia,
Pakistan, Philippines, Sri Lanka, Taiwan and Thailand
Europe and Middle East.......... Czech Republic, Greece, Hungary, Israel, Jordan, Poland,
Russia and Turkey
Latin America................... Argentina, Brazil, Chile, Colombia, Mexico, Peru and
Venezuela
Other............................. All other countries (generally those that have small or
underdeveloped capital markets)
</TABLE>
(4) In addition, within the "Other" designation, no more than 10% of the
most recent appraised value of the portfolio shall be leased to lessees
habitually based in "Other" countries rated below BBB/Baa2 (or the
equivalent) and no more than 5% of the most recent appraised value of
the portfolio shall be leased to lessees habitually based in "Other"
countries in Africa.
In addition, the indenture does not permit AerCo or any subsidiary to lease
aircraft operated or to be operated by lessees domiciled in certain countries
without procuring political risk insurance. The list of prohibited countries and
countries for which political risk insurance is required may be modified from
time to time upon the approval of the rating agencies.
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<PAGE> 144
The indenture contains no limitations on the country or region where any
sublessees of aircraft operated or to be operated are domiciled if:
(1) a sublease is permitted under the relevant lease (including by reason
of consent or waiver, if applicable) or renewed lease (including by
reason of consent or waiver, if applicable); and
(2) the relevant lessee is either a signatory to a lease or a renewed
lease.
COMPLIANCE WITH LAW, MAINTENANCE OF PERMITS. AerCo will:
(1) comply, and cause each of its subsidiaries to comply, in all material
respects with all applicable laws;
(2) obtain, and cause each of its subsidiaries to obtain, all material
governmental (including regulatory) registrations, certificates,
licenses, permits and authorizations required for the person's use and
operation of the aircraft, including, without limitation, a current
certificate of airworthiness for each aircraft (issued by the
applicable aviation authority and in the appropriate category for the
nature of operations of the aircraft), except that:
(a) no certificate of airworthiness shall be required for any aircraft:
- during any period when the aircraft is undergoing maintenance,
modification or repair;
- following the withdrawal or suspension by the applicable
aviation authority of certificates of airworthiness in respect
of all aircraft of the same model or period of manufacture as
the aircraft; in that case, AerCo shall comply, and cause each
of its subsidiaries to comply, with all directions of the
applicable aviation authority in connection with the withdrawal
or suspension;
(b) no registration, certificates, licenses, permits or authorizations
required for the use or operation of any aircraft need be obtained
with respect to any period when the aircraft is not being operated;
and
(c) no registrations, certificates, licenses, permits or authorizations
shall be required to be maintained for any aircraft that is not the
subject of a lease, except to the extent required under applicable
laws;
(3) not cause or knowingly permit, directly or indirectly, through any of
its subsidiaries, any lessee to operate any aircraft under any lease
in any material respect contrary to any applicable law; and
(4) not knowingly permit, directly or indirectly, through any of its
subsidiaries, any lessee not to obtain all material governmental
(including regulatory) registrations, certificates, licenses, permits
and authorizations required for the lessee's use and operation of any
aircraft under any operating lease except in the cases provided in
clauses (2)(a) and (2)(b) above.
This covenant shall not be breached by virtue of any act or omission of a
lessee or sub-lessee, or of any person which has possession of the aircraft or
any engine for the purpose of repairs, maintenance, notification or storage, or
by virtue of any requisition, seizure, or confiscation of the aircraft, other
than seizure or confiscation arising from a breach by AerCo or a subsidiary of
this covenant; so long as:
(1) no member of the AerCo Group consents or has consented to any third
party event; and
(2) the member of the AerCo Group which is the lessor or owner of the
aircraft promptly and diligently takes commercially reasonable actions
as a leading international aircraft operating lessor or owner would
reasonably take in respect of the third party event, including (taking
into account, among other things, the laws of the jurisdictions in
which the Aircraft are located) seeking to compel the lessee or other
relevant person to remedy the third party event or seeking to
repossess the relevant aircraft or engine.
APPRAISAL OF PORTFOLIO. AerCo will, no earlier than 90 nor later than 30
days prior to March 31 of each year, deliver to the trustee and each rating
agency appraisals of the base value of each of the aircraft from at least three
independent appraisers that are members of the International Society of
Transport
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Aircraft Trading or any similar organization. Each appraisal shall be dated
within 30 days prior to its delivery to the trustee.
MAINTENANCE OF ASSETS. AerCo will:
(1) in the case of each aircraft and engine that is subject to a lease,
cause directly or indirectly, through any of its subsidiaries, that
aircraft and engine to be maintained in a state of repair and
condition consistent with the requirements of reasonable commercial
practice of leading international aircraft operating lessors with
respect to similar aircraft under lease, taking into consideration,
among other things, the identity of the relevant lessee, including its
credit standing and operating experience, the age and condition of the
aircraft and the jurisdiction in which that aircraft will be operated
or registered under that lease; and
(2) in the case of each aircraft that is not subject to a lease, maintain,
and cause each of its subsidiaries to maintain, that aircraft in a
state of repair and condition consistent with the reasonable
commercial practice of leading international aircraft operating
lessors with respect to aircraft not under lease.
A third party event will not cause a breach of this covenant so long as:
(1) no member of the AerCo Group consents or has consented to the third
party event; and
(2) the member of the AerCo Group which is the lessor or owner of that
aircraft promptly and diligently takes those commercially reasonable
actions that a leading international aircraft operating lessor would
reasonably take in respect of the third party event, including seeking
to compel that lessee or other relevant person to remedy the third
party event or seeking to repossess the relevant aircraft or engine.
NOTIFICATION OF TRUSTEE, CASH MANAGER AND ADMINISTRATIVE AGENT. AerCo will
notify the trustee, cash manager and administrative agent as soon as AerCo or
any of its subsidiaries becomes aware of any loss, theft, damage or destruction
to any aircraft or engine if the potential cost of repair or replacement of that
asset, without regard to any insurance claim related thereto, may exceed
$2,000,000 and AerCo will notify the trustee of any breach of the share purchase
agreement by AerFi.
LEASES. AerCo shall adopt and will agree to cause the servicer to use, and
will adopt and will agree to cause any additional servicer, including any
servicer appointed for any additional aircraft or to replace the servicer of the
initial aircraft, to use the pro forma lease agreement or agreements then used
by the servicer or the additional servicer, as the case may be, in connection
with its aircraft operating leasing services business generally, as the pro
forma lease agreement or agreements may be revised from time to time by the
servicer or the additional servicer as a starting point in the negotiation of
future leases with persons who are not members of the AerCo Group.
In the case of any future lease entered into in connection with:
(1) the renewal or extension of a lease;
(2) the leasing of an aircraft to a person that is or was a lessee under a
pre-existing lease; or
(3) the leasing of an aircraft to a person that is or was a lessee under
an operating lease of an aircraft that is being managed or serviced by
the servicer or such additional servicer, as the case may be,
a form of lease substantially similar to the pre-existing lease or operating
lease, may, in lieu of the servicer's pro forma lease, be used by the servicer
or the additional servicer, as a starting point in the negotiation of a future
lease with persons who are not members of the AerCo Group or a future AerCo
entity.
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The following provisions apply to changes to the servicer's pro forma
lease:
- If the directors determine, in an annual review of the servicer's pro
forma lease that any revision to the servicer's pro forma lease made
from time to time since the preceding review by the directors is
substantially inconsistent with the core lease provisions set forth in
the indenture so as to have a material adverse effect on the
noteholders, then the directors shall direct the servicer not to include
that revision in the servicer's pro forma lease.
- In making this determination, the directors may take into account the
revision and the risk that the aircraft might not be able to be leased
on the basis of the servicer's pro forma lease.
- If the directors determine that that revision to the servicer's pro
forma lease will not have a material adverse effect on the noteholders,
then the directors shall amend the core lease provisions.
- In that event, the directors will then notify the rating agencies of any
future lease entered into that has terms that are materially less
favorable from the point of view of the lessor than any of the leases
(including any amended core lease provisions) to lessees with similar
credit ratings then in effect.
AerCo shall not enter into, and shall not permit any AerCo Group member to
enter into, any future lease the rental payments under which are denominated in
a currency other than U.S. dollars without obtaining confirmation by the rating
agencies that they will not lower or withdraw any rating assigned by them to any
class of notes outstanding.
OPINIONS. AerCo will not enter into, and will not permit any of its
subsidiaries to enter into, any future lease with any person that is not a
member of the AerCo Group or change the jurisdiction of registration of any
aircraft that is subject to a lease, unless, upon entering into that future
lease or changing the jurisdiction of registration of that aircraft, or within a
commercially reasonable period thereafter, the servicer or additional servicer,
obtains those legal opinions, if any, with regard to compliance with the
registration requirements of the relevant jurisdiction, enforceability of the
future lease and such other matters customary for transactions of that type, if
receiving those legal opinions is consistent with the reasonable commercial
practice of leading international aircraft operating lessors.
INSURANCE. AerCo will maintain or cause, directly or indirectly through
its subsidiaries, to be maintained with reputable and responsible insurers or
with insurers that maintain relevant reinsurance with reputable and responsible
reinsurers:
(1) airline hull insurance for each aircraft in an amount at least equal
to the note target price for that aircraft, or its equivalent, from
time to time if such insurance is denominated in a currency other than
U.S. dollars;
(2) airline liability insurance for each aircraft and occurrence in an
amount at least equal to the relevant amounts set forth in the
indenture for each model of aircraft, as amended from time to time
with the approval of the rating agencies; and
(3) airline political risk insurance for each aircraft subject to a lease
and habitually based in a jurisdiction determined in accordance with
the political risk insurance guidelines, as set forth in the indenture
and as amended from time to time by the directors with the approval of
the rating agencies in an amount at least equal to the note target
price, or the equivalent thereof from time to time if that insurance
is denominated in a currency other than U.S. dollars, for such
aircraft.
Insurance may be subject to commercially reasonable deductibles and
self-insurance arrangements (taking into account, among other things, the
creditworthiness and experience of the lessee, if any, the type of aircraft and
market practices in the aircraft insurance industry generally). The coverage and
terms (including endorsements) of any insurance maintained for any aircraft not
subject to a lease shall be substantially consistent with the commercial
practices of leading international aircraft operating lessors regarding similar
aircraft.
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In determining the amount of insurance required to be maintained, AerCo may
take into account any indemnification from, or insurance provided by, any
governmental, supranational or inter-governmental authority or agency other
than, with respect to political risk insurance, any governmental authority or
agency of any jurisdiction for which political risk insurance must be obtained,
the sovereign foreign currency debt rating of which is rated AA or the
equivalent, by at least one of the rating agencies, against any risk with
respect to an aircraft. The amount of that indemnification or insurance when
added to the amount of insurance against that risk maintained by AerCo, or which
AerCo has caused to be maintained, shall be at least equal to the amount of
insurance against that risk otherwise required by the covenant taking into
account self-insurance permitted by the covenant. Any indemnification or
insurance provided by any government shall provide substantially similar
protection as the insurance required by the covenant. AerCo will not be required
to maintain, or to cause to be maintained, any insurance otherwise required
under the indenture to the extent that that insurance is not generally available
in the relevant insurance market from time to time.
INDEMNITY. AerCo will, and will cause each of its subsidiaries, to include
in each lease between a member of the AerCo Group and a person who is not a
member of the AerCo Group an indemnity in respect of the lease in respect of any
losses or liabilities arising from the use or operation of the aircraft during
the term of that lease, subject to such exceptions, limitations and
qualifications as are consistent with the reasonable commercial practices of
leading international aircraft operating lessors.
EVENTS OF DEFAULT AND REMEDIES
Each of the following events will be an event of default with respect to
any class of notes, except as specified below:
(1) failure to pay interest on the notes of that class or any subclass of
that class other than step-up interest, in each case when that amount
becomes due, and that default continues for a period of five or more
business days;
(2) failure to pay principal on any notes of that class or any subclass of
that class either on or prior to the applicable final maturity date;
(3) failure to pay any amount other than interest when due and payable in
connection with any note of that class or any subclass of that class,
to the extent that there are at that time available collections for
them, and that default continues for a period of five or more business
days;
(4) failure by AerCo to comply with any of the covenants, obligations,
conditions or provisions binding on it under the indenture or the
notes (other than a payment default for which provision is made in
clause (1), (2) or (3) above) if that failure or that breach
materially adversely affects the holders of that class of notes and
continues for a period of 30 days or more after written notice has
been given to AerCo by the cash manager, the administrative agent, the
servicer or additional servicer or by holders of at least 25% of the
aggregate outstanding principal balance of the notes of the senior
class of notes outstanding;
(5) an "Event of Default" under and as defined in any guarantor indenture;
(6) a court having jurisdiction in the premises enters a decree or order
for:
(a) relief in respect of AerCo, or any subsidiary which owns or leases
aircraft having an aggregate base value of more than 2% of the
adjusted portfolio value at that time, under any applicable law
relating to bankruptcy, insolvency, receivership, winding-up,
liquidation, reorganization, examination, relief of debtors or
other similar law now or hereafter in effect;
(b) appointment of a receiver, liquidator, examiner, assignee,
custodian, trustee, sequestrator or similar official of AerCo, or
any subsidiary that is significant as described in paragraph (a)
above; or
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(c) the winding up or liquidation of the affairs of AerCo, or any
significant subsidiary and, in each case, that decree or order
shall remain unstayed or that writ or other process shall not have
been stayed or dismissed within 90 days of its entry;
(7) AerCo or any significant subsidiary:
(a) commences a voluntary case under any applicable law relating to
bankruptcy, insolvency, receivership, winding-up, liquidation,
reorganization, examination, relief of debtors or other similar law
now or hereafter in effect, or consents to the entry of an order
for relief in any voluntary case under that law;
(b) consents to the appointment of or taking possession by a receiver,
liquidator, examiner, assignee, custodian, trustee, sequestrator or
similar official of AerCo, or any significant subsidiary or for all
or substantially all of the property and assets of AerCo, or any
significant subsidiary; or
(c) effects any general assignment for the benefit of creditors;
(8) any judgment or order for the payment of money in excess of 5% of the
aggregate adjusted portfolio value shall be rendered against AerCo or
any subsidiary or any other member of the AerCo Group and either:
(a) enforcement proceedings shall have been commenced by any creditor
upon that judgment or order; or
(b) there shall be any period of 10 consecutive days during which a
stay of enforcement of that judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect. However, that
judgment or order shall not be an event of default under the
indenture; if and for so long as:
- the amount of that judgment or order is covered by a valid and
binding policy of insurance between the defendant and the insurer
covering its payment; and
- that insurer, which shall be rated at least A by A.M. Best
Company or any similar successor entity, has been notified of,
and has not disputed the claim made for payment of, the amount of
the judgment or order;
(9) the constitutional documents of AerCo cease to be in full force and
effect without replacement documents having the same terms being in
full force and effect.
If an event of default other than an event of default under (6) or (7)
above with respect to the senior class of notes then outstanding shall have
occurred and be continuing, the trustee for the senior class may, and, when
instructed by the holders of 25% of the aggregate outstanding principal balance
of the senior class of notes, shall, give a default notice to AerCo and the cash
manager declaring the outstanding principal balance of the notes and all accrued
and unpaid interest on the notes to be due and payable.
At any time after the senior trustee has declared the outstanding principal
balance of the notes to be due and payable and before the exercise of any other
remedies under the indenture, holders of a majority of the outstanding principal
balance of the senior class of notes, by written notice to AerCo, the senior
trustee and the cash manager, may rescind and annul the declaration referred to
above if:
(1) there has been paid to or deposited with the senior trustee an amount
sufficient to pay all overdue installments of interest on the notes,
and the principal of and premium, if any, on the notes that would have
become due otherwise than by such declaration of acceleration;
(2) the rescission would not conflict with any judgment or decree; and
(3) all other defaults and events of default, other than nonpayment of
interest and principal on the notes that have become due solely
because of such acceleration, have been cured or waived.
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If an event of default under clause (6) or (7) above occurs, the
outstanding principal balance of the notes and all accrued and unpaid interest
on the notes shall automatically become due and payable without any further
action by any party.
After the occurrence and during the continuation of an event of default:
(1) the class B noteholders will not be permitted to give or direct the
giving of a default notice or to exercise any remedy in respect of
that event of default until all interest and principal on the class A
notes have been paid in full;
(2) the class C noteholders will not be permitted to give or direct the
giving of a default notice or to exercise any remedy in respect of
that event of default until all interest and principal on the class A
notes and the class B notes have been paid in full;
(3) the class D noteholders will not be permitted to give or direct the
giving of a default notice or to exercise any remedy in respect of
that event of default until all interest and principal on the class A
notes, the class B notes and the class C notes have been paid in full;
and
(4) the class E noteholders will not be permitted to give or direct the
giving of a default notice or to exercise any remedy in respect of
that event of default until all interest and principal on the class A
notes, the class B notes, the class C notes and the class D notes have
been paid in full.
The trustee shall provide each rating agency with a copy of any default
notice it receives.
The indenture contains a provision entitling the trustee, subject to its
duty during a default to act with the required standard of care, to be
indemnified by the holders of any class of the notes before proceeding to
exercise any right or power under the indenture or the cash management agreement
at the request or direction of those holders. Except in limited circumstances,
no holder of the notes will have the right, other than through the senior
trustee acting in accordance with the indenture, to sue for recovery or take any
other actions to enforce the obligations of AerCo to pay any and all amounts due
and payable under the notes, and no holder of the notes will have the right to
take any steps to cause the filing for bankruptcy of AerCo. The senior trustee
is entitled to exercise any and all remedies available under the indenture.
The term "default" means the occurrence of any event which is, or after
notice or lapse of time, or both, would constitute an event of default.
INTERCREDITOR RIGHTS
The senior trustee will have sole discretion as to whether to direct the
cash manager to exercise and enforce any and all remedies with respect to the
notes. The senior trustee may take various actions in respect of the notes,
without regard to the interests of any other creditors.
MODIFICATION AND WAIVER
If the trustee receives a request for its consent to an amendment,
modification or waiver under the indenture, the notes or any related document
relating to the notes, the trustee shall mail a notice of that proposed
amendment, modification or waiver to each noteholder requesting direction from
the noteholders as to whether or not to consent to that amendment, modification
or waiver.
The indenture provides that, with the consent of the holders of a majority
of the outstanding principal balance of the notes (acting as a single class),
modifications may be made to the notes or the indenture except that any
modification of the provisions:
- setting forth the frequency or the currency of payment of, the maturity
of, or the method of calculation of the amount of any interest,
principal and premium, if any, payable in respect of any subclass of
notes, or
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- reducing the percentage of the aggregate outstanding principal balance
of any subclass of notes required to approve any amendment or waiver, or
- altering the manner or priority of payment of that subclass of notes,
is not permitted without the consent of any swap provider and the holder of each
outstanding note affected. The senior trustee may also waive any event of
default. Any modification approved by the required holders of any subclass of
notes will be binding on the holders of the relevant subclass of notes and each
party to the indenture. This provision shall not prevent AerCo or any subsidiary
from amending any lease if such amendment is otherwise permitted by the
indenture.
The subordination provisions contained in the indenture may not be amended
or modified without the consent of each swap provider, each holder of the class
of notes affected and each holder of any class of notes ranking senior to those
notes.
Without the consent of each noteholder, no amendment or modification of the
indenture or the cash management agreement may, among other things:
(1) modify the provisions of the indenture or the cash management
agreement with respect to account payment instructions and the payment
thereunder by the cash manager, or
(2) result in the sale of AerCo's assets other than pursuant to the
indenture covenants.
In no event shall the provisions relating to the priority of the expenses,
swap payments or swap breakage costs in the indenture be amended or modified.
NOTICES TO NOTEHOLDERS
Except as provided below, any notice to the noteholders (in the case of
definitive notes or global notes) will be valid if given:
(1) by publication in the Luxemburger Wort or, if that newspaper shall
cease to be published in such English language newspaper or newspapers
as the trustee shall approve having a general circulation in
Luxembourg,
(2) by either of (a) the information contained in that notice appearing on
the relevant page of the Reuters screen or such other medium for the
electronic display of data as may be approved by the trustee and
notified to noteholders or (b) publication in the Financial Times and
The Wall Street Journal (National Edition) or, if either newspaper
shall cease to be published or timely publication is not practicable,
in the English language newspaper or newspapers that the trustee shall
approve having a general circulation in Europe and the United States,
and
(3) until such time as any definitive notes are issued and, so long as
book-entry interests are held by Euroclear and/or Clearstream,
delivery of the relevant notice to DTC, Euroclear and/or Clearstream
for communication by them to noteholders.
The trustee may approve some other method of giving notice to the
noteholders if, in its opinion:
(1) the method is reasonable, having regard to the number and identity of
the noteholders and/or to market practice then prevailing,
(2) is in the best interests of the noteholders, and
(3) will comply with the rules of the Luxembourg Stock Exchange or any
other stock exchange on which the notes are then listed.
Notice shall be deemed to have been given on the date that the trustee may
approve so long as notice of the method is given to the noteholders in the
manner that the trustee shall require.
Notice specifying the interest rate and the amount of any repayment of
principal on any notes pursuant to any optional redemption shall, for so long as
the notes are listed on the Luxembourg Stock Exchange and so long as the rules
of the Luxembourg Stock Exchange so require, be given to the
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Luxembourg Stock Exchange and published in a newspaper in Luxembourg. Notice
shall be deemed to have been given on the first day on which requirements for
notification shall have been met.
GOVERNING LAW AND JURISDICTION
The indenture and the cash management agreement are governed by and
construed in accordance with the laws of the State of New York. In the indenture
and the cash management agreement, AerCo has submitted to the jurisdiction of
the United States federal and New York state courts located in The City of New
York for all purposes in connection with the notes and cash management agreement
and has designated a person in The City of New York to accept service of any
process on its behalf.
THE SUBCLASS D-2 NOTES
The subclass D-2 notes have been issued in part to refinance the subclass
D-1 notes. The subclass D-2 notes are direct obligations of AerCo under the
indenture, issued in an aggregate principal amount of $100 million (assuming
delivery of all 30 additional aircraft) in fully certificated form. The subclass
D-2 notes will accrue interest for each interest accrual period at a rate of
8.5% per annum, payable monthly in arrears on each payment date. The subclass
D-2 notes have been rated BB or the equivalent by Fitch, Moody's and Standard &
Poor's.
All of the subclass D-2 notes were initially issued to AerFi in a
transaction exempt from the registration requirements of the Securities Act.
AerCo has granted to AerFi registration rights with respect to the subclass D-2
notes taken or to be taken up by AerFi. Under the registration rights agreement,
AerFi has the right to require AerCo to file a registration statement with the
Commission to register the resale of the subclass D-2 notes under the Securities
Act. If AerCo issues any additional notes in the future, AerCo also expects to
issue at the same time one or more additional subclasses of class D notes, which
may be initially issued to AerFi or its subsidiaries on the basis described
above or to other purchasers in transactions that are either registered under
the Securities Act or exempt from the registration requirements under the
Securities Act.
Holders of the class D notes will not be permitted to give a default notice
or to exercise any remedy if an event of default occurs until all amounts owing
under each other class of the notes have been paid in full.
THE SUBCLASS E-1 AND E-2 NOTES
The subclass E-1 and subclass E-2 notes are direct obligations of AerCo
under the indenture, issued in an aggregate principal amount of approximately
$112 million and approximately $109.1 million (assuming delivery of all 30
additional aircraft), respectively. The subclass E-1 and subclass E-2 notes were
initially issued to AerFi in a transaction exempt from the registration
requirements of the Securities Act. If AerCo issues any additional notes in the
future, AerCo also expects to issue at the same time one or more additional
subclasses of class E notes.
Under the subordination provisions of the indenture and the subclass E-1
and subclass E-2 notes, payments on the subclass E-1 and subclass E-2 notes,
other than the class E note primary interest amount, are subordinated to all
payments of interest and principal on the notes and the class D notes (as set
forth in "-- Payment of Principal and Interest -- Priority of Payments").
Holders of the subclass E-1 and subclass E-2 notes will not be permitted to give
a default notice or to exercise any remedy if an event of default occurs until
all amounts owing under each class of the notes have been paid in full.
The subclass E-1 and subclass E-2 notes will accrue interest for each
interest accrual period at a rate of 20% per annum, payable monthly in arrears
on each payment date. The stated interest rate on the subclass E-1 and subclass
E-2 notes is adjusted by reference to the U.S. Consumer Price Index. Except for
the class E note primary interest amount as described below, no interest is
payable on the subclass E-1 and subclass E-2 notes until all of the interest,
principal and premium, if any, on the notes have been repaid in full.
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The class E note primary interest amount will be paid at the rate of 15%
per annum on the initial principal balance of the subclass E-1 and subclass E-2
notes. It will be paid on each payment date only to the extent that the AerCo
Group has available collections sufficient to make such payment after paying or
providing for each of the items ranking prior to such payment in the order of
priority described under "-- Payment of Principal and Interest -- Priority of
Payments". To the extent that available collections are insufficient to pay the
class E note primary interest amount on any payment date, the unpaid portion of
the class E note primary interest amount will not be payable as part of the
class E note primary interest amount on any later payment date. The class E note
accrued interest amount will accrue interest at the rate described above and
will be payable in the order of priority described under "-- Payment of
Principal and Interest -- Priority of Payments" at the twenty-seventh priority
level.
Principal of the subclass E-1 and subclass E-2 notes will not be payable
until the outstanding principal balance of the class A, class B, class C and
class D notes is reduced to zero.
The terms of the subclass E-1 and subclass E-2 notes require, among other
things, that the subclass E-1 and subclass E-2 noteholders pay over to the cash
manager any money (including principal or interest) paid to them in the event
that the cash manager, acting in good faith, determines subsequently that such
monies were not paid in accordance with the priority of payment obligations
described above under "-- Payment of Principal and Interest -- Priority of
Payments" or as a result of any other mistake of fact or law on the part of the
cash manager in making such payment.
Under AerCo's articles of association, the holder or holders of a majority
in aggregate principal amount of the class E notes have the right to appoint two
of AerCo's directors while the class E notes are outstanding. AerFi, as holder
of a majority of the aggregate principal amount of the class E notes, appointed
Edward Hansom and Rose Hynes as directors.
THE CASH MANAGEMENT AGREEMENT
The following is a summary description of the cash management agreement. It
is not complete and is subject to, and qualified in its entirety by reference
to, the provisions of the indenture and the cash management agreement.
Each payment of cash in respect of any subclass of notes and all other
payments to be received by AerCo or made by AerCo pursuant to the indenture will
be directed by the cash management agreement.
The cash management agreement appoints the cash manager (1) to establish
and administer the accounts described below (2) to prepare reports with respect
to performance and (3) to perform certain other specified administrative tasks
on behalf of AerCo. The cash manager shall ensure that the proceeds of the AerCo
assets are deposited in the collection account.
THE ACCOUNTS
The cash manager, acting on behalf of the security trustee, has established
the following accounts:
(1) the collection account;
(2) the lessee funded account;
(3) the initial rental accounts;
(4) the expense account;
(5) the aircraft purchase account;
(6) the refinancing account;
(7) the defeasance/redemption account; and
(8) the note account.
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Each of the collection account, the rental accounts, the expense account,
the lessee funded account, the aircraft purchase account, the note account and
the refinancing account has been established at a bank which has:
(1) a long-term unsecured debt rating of not less than A, or the
equivalent, by the rating agencies; or
(2) a certificate of deposit rating of A-1 by Standard & Poor's and P-1 by
Moody's and that is acceptable to the other rating agency.
Where required by the terms of the relevant leases, rental accounts may be
established at banks having ratings of less than A, or the equivalent, by the
rating agencies, or a certificate of deposit rating of less than A-1 by Standard
& Poor's and P-1 by Moody's. Except where local legal or regulatory reasons do
not permit, all of such accounts will be held in the name of the security
trustee, who will have sole dominion and control over the accounts, including,
among other things, the sole power to direct withdrawals from or transfers among
such accounts. Subject to limited conditions set forth in the cash management
agreement, the security trustee will delegate such authority over the accounts
to the cash manager. The security trustee will not be responsible for the acts
or omissions of the cash manager.
For as long as any notes remain outstanding, funds on deposit in the
accounts (other than the tax defeasance account) will be invested and reinvested
by the cash manager at AerCo's written direction (or, following delivery to
AerCo or the cash manager of a default notice or if any event of default
described in clause (6) or (7) under "-- Payment of Principal and Interest --
Events of Default and Remedies" shall have occurred and be continuing, at the
security trustee's written direction). These investments must be permitted
account investments maturing, in the case of the collection account and expense
account, such that sufficient funds shall be available to make required payments
on the first succeeding scheduled payment date after such permitted account
investments are made. Investment and reinvestment of funds in the lessee funded
account must be made in a manner and with maturities that conform to the
requirements of the related leases or aircraft agreements. Investment earnings
on funds deposited in any account, net of losses and investment expenses, will,
if permitted by the terms of the related leases or aircraft agreements in the
case of such funds in the lessee funded account, be deposited in the collection
account and treated as collections.
RENTAL ACCOUNTS
The lessees will make all payments under the leases directly into the
applicable rental accounts. The cash manager will transfer all funds deposited
into the rental accounts into the collection account as collections within one
business day of receipt thereof, other than certain limited amounts, if any,
required to be left on deposit for local legal or regulatory reasons.
THE COLLECTION ACCOUNT
Collections include all amounts received by the AerCo Group, including:
(1) rental payments;
(2) payments made by AerFi under the purchase agreement as described under
"The Parties -- The Refinancing and Additional Aircraft Acquisition";
(3) amounts released from the aircraft purchase account in respect of non
delivered aircraft;
(4) payments under any letter of credit, letter of comfort, letter of
guarantee or other assurance in respect of a lessee's obligations under
a lease;
(5) the liquidity reserve amount as described below;
(6) amounts received in respect of claims for damages or in respect of any
breach of contract for nonpayment of any of the foregoing, including
any amounts received from any AerCo subsidiary,
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whether by way of distribution, dividend, repayment of a loan or
otherwise and any proceeds received in connection with any allowed
restructuring;
(7) net proceeds of any aircraft sale or amounts received under any
aircraft agreement;
(8) proceeds of any insurance payments in respect of any aircraft or any
indemnification proceeds;
(9) certain amounts transferred from the lessee funded account to the
collection account;
(10) net payments to AerCo under any swap agreement;
(11) investment income, if any, on all amounts on deposit in the accounts
(in each case to the extent consistent with the terms of applicable
related leases);
(12) the portion of the purchase price or other net proceeds from any
permitted tax-related disposition that is not required to be retained
in the tax defeasance account; and
(13) any other amounts received by any member of the AerCo Group other than
segregated funds, certain funds to be applied in connection with a
redemption, certain funds received in connection with a refinancing
and other amounts required to be paid over to any third party pursuant
to any related document.
Collections on deposit in the collection account will be calculated by the
cash manager on the calculation date. The portion of the required expense amount
that has not been paid directly by the cash manager to expense payees will be
transferred into the expense account on each payment date and the cash manager
may, from time to time, transfer other amounts into the expense account in
respect of unanticipated expenses falling due and payable within such interest
accrual period. If funds are available on any payment date, the cash manager
will also transfer amounts in respect of expenses and costs that are not
regular, monthly recurring expenses anticipated to become due and payable in any
future interest accrual period. Amounts received for segregated security
deposits and maintenance reserves (as described below) will be transferred
directly into the lessee funded account.
LIQUIDITY RESERVE AMOUNT
All collections received by AerCo will either be transferred to another
account as described above and below, paid to the appropriate third party on
behalf of AerCo or held in the collection account as a part of the cash portion
of the liquidity reserve amount. The liquidity reserve amount is the minimum
balance AerCo must maintain in the collection account under the indenture. The
liquidity reserve amount is intended to provide liquidity for the AerCo Group to
meet its aircraft maintenance obligations and its lessee security deposit
repayment obligations and to provide for certain other contingencies that may
arise in the course of the AerCo Group's activities. The liquidity reserve
amount may be funded with cash in the collection account and with letters of
credit, guarantees or other credit support instruments provided by, or supported
with credit support instruments provided by, a person whose short-term unsecured
debt is rated P-1 by Moody's, A-1+ by Standard & Poor's and F-1+ by Fitch. There
are currently no eligible credit facilities in place.
The liquidity reserve amount on June 15, 2000 was equal to $40.0 million
plus the amount of security deposits AerCo and its subsidiaries held of
approximately $15.0 million on such date. The liquidity reserve amount may be
increased or decreased from time to time for any reason including upon
acquisitions of additional aircraft by an action of the board in light of
significant changes in the condition of the aircraft, the terms and conditions
of future leases, the financial condition of the lessees or prevailing industry
conditions. AerCo must obtain confirmation in advance in writing from the rating
agencies that any proposed reduction in the liquidity reserve amount will not
result in a lowering or withdrawal by the rating agencies of their respective
ratings of any subclass of notes. Upon the closing of the offering of the old
notes on July 17, 2000, the liquidity reserve amount was increased to
approximately $65.0 million. The increase in the liquidity reserve amount
consisted of cash and amounts available for drawing under one or more eligible
credit facilities. As each of the additional aircraft is delivered, AerFi
transferred or will transfer the relevant security deposits to AerCo. If all of
the 30 additional aircraft were delivered on
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July 17, 2000, the liquidity reserve amount would include total security
deposits of approximately $22.4 million.
If the balance of cash on deposit in the collection account, together with
the amount available for drawing under any eligible credit facilities, should
fall below the liquidity reserve amount at any time, AerCo may continue to make
all payments, and any credit or liquidity enhancement facilities may be drawn to
fund such payments, including required payments on the notes, which rank prior
to or equally with, payments of accrued and unpaid interest on the class D notes
under "-- Payment of Principal and Interest -- Priority of Payments" and any
permitted accruals other than those for modification payments so long as the
balance of funds in the collection account, together with the amount available
for drawing under any eligible credit facilities, does not fall below the
minimum liquidity reserve amount at its then current level. The balance of funds
in the collection account, together with the amount available for drawing under
any eligible credit facilities, may fall below the minimum liquidity reserve
amount at its then current level and AerCo may continue to make payments of all
accrued and unpaid interest on any subclass of the most senior class of notes
then outstanding to avoid an event of default, and, on the final maturity date
of any subclass, principal of such subclass of the most senior class of notes
then outstanding to avoid an event of default.
Amounts drawn under any eligible credit facility will either be repayable
at the third level in the priority of payments, as set forth in "-- Payment of
Principal and Interest -- Priority of Payments", or at the eleventh level in the
priority of payments, as set forth in "-- Payment of Principal and Interest --
Priority of Payments". We refer to the eligible credit facilities payable at the
third level in the order of priorities as "primary eligible credit facilities".
Those repayable at the eleventh level we refer to as "secondary eligible credit
facilities".
If at any time the aggregate outstanding principal balance of the notes is
less than or equal to the liquidity reserve amount, the balance of funds, if
any, in the collection account will be distributed in accordance with the
priority of payments.
THE LESSEE FUNDED ACCOUNT
Under the terms of the leases, certain lessee security deposits and
supplemental rent payments to provide for maintenance reserves may be required
to be segregated from other AerCo funds. Amounts we receive from lessees in
respect of security deposits and maintenance obligations will be held in the
lessee funded account. Amounts on deposit in the lessee funded account will be
accounted for, and, if required by any lease, segregated, on a per lease basis.
Funds on deposit in the lessee funded account will be used to make certain
maintenance and security deposit repayment related payments, other payments as
may be required or permitted under the terms of the relevant leases or may be
applied against maintenance-related payments otherwise required to be made by
the lessee during the term of the related lease. These funds will not be used to
make payments in respect of the notes at any time, including after the delivery
of a default notice. In circumstances where lessees relinquish their rights to
receive certain maintenance and security deposit payments upon the expiration of
a lease, surplus funds may be credited from the lessee funded account to the
collection account.
THE EXPENSE ACCOUNT
On each payment date, the cash manager will withdraw from the funds
deposited in the collection account, in the priority of payments established for
the notes, an amount equal to the required expense amount. We will then use this
amount to pay the expenses. If the required expense amount has not been paid
directly by the cash manager to expense payees, the required expense amount will
be deposited into the expense account. In addition, in the period between
payment dates, the cash manager may make further withdrawals of cash from the
collection account in order to satisfy expenses due and payable prior to the
next payment date that were not previously anticipated to become so due and
payable on the previous payment date. If funds on deposit in the collection
account are less than the required expense amount on any payment date, the AerCo
Group will be unable to pay the required expense amount in full
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on that payment date, which may lead to a default under one or more of the
related documents or AerCo's various service agreements. All available
collections remaining in the collection account will be used by the cash manager
to make payments on the notes, in accordance with the priority of payments
established therefor under "-- Payment of Principal and Interest -- Priority of
Payments".
THE TAX DEFEASANCE ACCOUNT
If AerCo enters into any permitted tax-related disposition, one or more tax
defeasance accounts may be established. The tax defeasance account will be
established at either:
(1) the bank where the collection account, the lessee funded account and
the expense account are held, or
(2) a bank whose credit rating is equal to or greater than the credit
rating of the most senior class of notes outstanding.
The purchase price for, or other proceeds from, any permitted tax-related
disposition will be deposited in the tax defeasance account. On each payment
date, the cash manager will withdraw from the funds deposited in the tax
defeasance account an amount equal to the excess, if any, of (1) the purchase
price or other proceeds over (2) the amount necessary to meet the obligations of
AerCo under the head lease or other relevant aircraft agreement so that the
ability of AerCo and the lessee of the aircraft to perform their respective
obligations and receive their respective benefits under the relevant lease is
not impaired. We will deposit this amount in the collection account.
AIRCRAFT PURCHASE ACCOUNT
The aircraft purchase account will be used for (1) holding a portion of the
proceeds of the issuance of the offered notes until the remaining aircraft or
substitute aircraft are delivered or the funds held therein are transferred to
the collection account and (2) holding proceeds of any additional issuance
pending application of proceeds for the acquisition of additional aircraft.
The security trustee will have sole dominion and control over the aircraft
purchase account and all investments made through or maintained in the aircraft
purchase account, including authority to direct withdrawals from or transfers
among the aircraft purchase account and each other account. Any amounts may be
withdrawn or transferred from the aircraft purchase account only in accordance
with the provisions of the indenture and the cash management agreement by
authorized officers or employees of the security trustee or agents authorized by
the security trustee in writing (including the cash manager and any authorized
agent thereof pursuant to the cash management agreement).
THE TRUSTEE
AerCo will pay the fees and expenses of the trustee. AerCo will also
indemnify and hold the trustee harmless against, any loss, liability or expenses
incurred by the trustee other than through its own wilful misconduct, bad faith
or negligence or by reason of a breach of any of the trustee's representations
or warranties in the indenture.
The trustee may resign for any subclass of notes at any time upon at least
90 days' prior written notice. If the trustee resigns, AerCo must appoint a
successor trustee for the subclass of notes. Noteholders of each subclass may
have divergent or conflicting interests from the noteholders of other
subclasses. Therefore, the trustee may be forced to resign if a conflict of
interest arises on the part of the trustee in respect of one or more subclasses
of notes.
If the trustee ceases to be eligible to continue as trustee with respect to
any subclass of notes, becomes incapable of acting as trustee or becomes
insolvent, AerCo may remove the trustee. In addition, in that case, any
noteholder of the applicable subclass who has been a noteholder in good faith
for at least six months may, on behalf of itself and all other noteholders of
the same subclass, petition any court of competent jurisdiction for the removal
of such trustee and the appointment of a successor trustee. Holders
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evidencing not less than a majority in aggregate outstanding principal balance
of any subclass of notes may also at any time remove the trustee with respect to
the subclass without cause by delivering written notice of removal in writing to
AerCo, the cash manager and the trustee. Any resignation or removal of the
trustee and appointment of a successor trustee will not become effective until
acceptance of the appointment by the successor trustee. As a result of these
provisions, it is possible that a different trustee could be appointed to act as
the successor trustee with respect to each subclass of notes. All references in
this prospectus to the trustee should be read to include the trustee and any
successor trustee appointed in the event of such a resignation or removal.
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REPORTS TO NOTEHOLDERS
On each payment date and any other date for distribution of any payments on
each subclass of outstanding notes the trustee will prepare a monthly report,
with the following information:
<TABLE>
<S> <C> <C>
(1) For each payment date:
(a) the balances on deposit on the calculation date
immediately preceding the prior payment date,
(b) the aggregate amounts of deposits and withdrawals
between such calculation date and the calculation date
immediately preceding the payment date, and
(c) the balances on deposit in the expense account,
collection account, the aircraft purchase account, and
lessee funded account on the calculation date
immediately preceding such payment date.
(2) Analysis of expense account activity:
(a) Balance on preceding calculation date,
(b) Net transfer to the expense account between the prior
calculation date and the current calculation date,
(c) Payments between prior calculation date and the current
calculation date:
- Payments on prior payment date
- Other payments,
(d) Balance on relevant calculation date.
(3) Analysis of collection account activity:
(a) Balance on preceding calculation date:
- Required expense amount, including on preceding payment
date
- Net transfer to lessee funded accounts during period
- Collections during period
- Transfer from the aircraft purchase account
- Transfer from the tax defeasance account
- Drawings under credit or liquidity enhancement facilities
- Aggregate note payments
- Swap payments/receipts
- Repayments of drawings under credit or liquidity
enhancement facilities,
(b) Balance on relevant calculation date separately stating
the components of the liquidity reserve amount,
(c) Analysis of current payment date distributions.
(4) Payments on the notes:
(a) Floating rate notes, by subclass:
- Applicable LIBOR for the current interest accrual period
- Applicable margin for the current interest accrual period
- Applicable interest rate for the current interest accrual
period
- Interest amount payable
- Step-up interest
- Opening outstanding principal balance
- Minimum Principal Payment Amount
- Scheduled Principal Payment Amount
- Supplemental Principal Payment Amount
- Redemption amount
-- amount allocable to principal
-- amount allocable to premium
- Closing outstanding principal balance,
</TABLE>
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<TABLE>
<S> <C> <C>
(b) Fixed rate notes, by class and, if applicable, subclass:
- Applicable interest rate
- Interest amount payable.
(5) Floating rate note information for next interest accrual
period, by subclass:
(a) Applicable LIBOR,
(b) Applicable margin,
(c) Applicable interest rate.
(6) Payments per $100,000 initial outstanding principal balance
of notes, by subclass:
(a) Opening outstanding principal balance,
(b) Total principal payments,
(c) Closing outstanding principal balance,
(d) Total interest,
(e) Total premium.
</TABLE>
We will furnish any monthly reports and quarterly reports to the Commission
in a report on Form 6-K. We expect to furnish the quarterly reports within 45
days of the last payment date in each of our fiscal quarters.
After the end of each calendar year, the trustee will furnish to each
person who was a holder of any subclass of notes during the year, a statement
containing the sum of the amounts determined under clause (6) above for the
subclass for the calendar year or the applicable portion of the calendar year.
The trustee will also include any additional information that you may request as
being necessary for the preparation of your U.S. federal income tax returns, if
the information is available to the trustee. So long as the notes of any class
or subclass are registered in the name of DTC or its nominee, the report and any
other items will be prepared on the basis of information supplied to the trustee
by DTC and the DTC participants, and will be delivered by the trustee to the DTC
participants to be available for forwarding by the DTC participants to you as
described above.
The trustee will publish following each payment date and other date
specified above in a daily newspaper in Luxembourg a notice that the monthly and
quarterly reports and the other information described above will be available
for review at the main office of the listing agent for the notes in Luxembourg,
Banque Internationale a Luxembourg S.A., 69 route d'Esch, L-1470 Luxembourg. The
daily newspaper is expected to be the Luxemburger Wort. The Luxembourg Stock
Exchange will receive notice promptly following each payment date. In addition,
the trustee will provide the information to Bloomberg Financial Markets promptly
following each payment date for publication on the BLOOMBERG(R) Service.
If the notes are ever issued as definitive notes, the trustee will prepare
and deliver the information described above to each holder of record of a
definitive note.
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AVAILABLE INFORMATION
AerCo has filed with the Commission a registration statement on Form F-4
including all amendments, exhibits and schedules, for the new notes. This
prospectus is part of the registration statement. AerCo is subject to the
information reporting requirements of the Exchange Act as applicable to "foreign
private issuers". As a foreign private issuer, AerCo is exempt from provisions
of the Exchange Act which prescribe the furnishing and content of proxy
statements to shareholders and which relate to short swing profits reporting and
liability. AerCo will also make certain monthly and quarterly reports available
to holders of the notes. You should refer to "Reports to Noteholders" for a
listing of what will be contained in the report. Any reports and other
information filed by AerCo with the Commission may be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be
available for inspection and copying at the regional offices of the Commission
located at 7 World Trade Center, New York, New York 10048 and at Northwestern
Atrium Center, 500 West Madison Street Suite 1400, Chicago, Illinois 60661 at
prescribed rates. The Commission maintains a Web site (http://www.sec.gov) that
contains reports and other information, including the registration statement
filed by AerCo.
This prospectus does not contain all the information in the registration
statement and the related exhibits and schedules, certain portions of which have
been omitted as permitted by the rules and regulations of the Commission. If you
need additional information with respect to AerCo and the securities offered by
this prospectus, please refer to the registration statement and the exhibits
filed or incorporated as a part of the registration statement, which are on file
at the offices of the Commission and may be obtained upon payment of the fee
prescribed by the Commission, or may be examined without charge at the offices
of the Commission. Statements contained in this prospectus as to the contents of
any documents referred to are not necessarily complete, and, in each such
instance, are qualified in all respects by reference to the applicable documents
filed with the Commission.
This prospectus contains forward-looking statements that involve risks and
uncertainties. The actual results of the AerCo Group could differ materially
from those discussed. Factors that could cause or contribute to such differences
include those discussed under "Risk Factors" and elsewhere in this prospectus.
The old notes were listed on the Luxembourg Stock Exchange on July 17,
2000, and the new notes will be listed upon issuance, subject only to notice of
issuance. The constitutive documents of AerCo and the legal notice relating to
the issuance of the notes have been deposited with the Registrar of the District
Court in Luxembourg where such documents will be available for inspection and
where such documents will be obtainable upon request. Copies of the prospectus,
the annual report of independent public accountants and the reports to
noteholders referred to under "Reports to Noteholders" are available at the
office of the listing agent in Luxembourg: Banque Internationale a Luxembourg,
69, route d'Esch, L-1470 Luxembourg. Financial information regarding AerCo is
included in AerCo's Quarterly Reports on Form 6-K and Annual Reports on Form
20-F and will be available at the office of the Listing Agent in Luxembourg
after the respective reports are filed with the Commission.
Unless otherwise stated, all monetary amounts are expressed herein in
United States dollars. Various percentages set out in this prospectus have been
rounded and accordingly may not total exactly.
Until July 17, 2001, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
No person has been authorized to give any information or to make any
representations other than as contained herein, and, if given or made, such
information or representation must not be relied upon as having been authorized
by AerCo. This prospectus does not constitute an offer to sell or a solicitation
of an offer to buy by any person in any jurisdiction in which it is unlawful for
such person to make such an offer or solicitation. Neither the delivery of this
prospectus nor any sale made hereunder shall under any
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circumstances create any implication that the information contained herein is
correct as of any time subsequent to its date.
The consent of the Jersey Financial Services Commission under the Control
of Borrowing (Jersey) Order 1958, as amended has been obtained to the issue of
the old notes and new notes by AerCo.
When this document is circulated there will have been delivered a copy
thereof to the Registrar of Companies in Jersey in accordance with Article 6 of
the Companies (General Provisions) (Jersey) Order 1992 and the consent of the
Registrar of Companies to its circulation will have been given and not
withdrawn. It must be distinctly understood that, in giving these consents,
neither the Registrar of Companies nor the Jersey Financial Services Commission
takes any responsibility for the financial soundness of AerCo or for the
correctness of any statements made, or opinions expressed, with regard to it.
AerCo has taken all reasonable care to confirm that the information
contained in this prospectus is true and accurate in all material respects and
that there are no material facts the omission of which would make misleading any
statement herein, whether of fact or opinion.
AerCo is aware that the foregoing paragraph has no effect on its
responsibilities and obligations under the Securities Act.
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BOOK-ENTRY REGISTRATION, GLOBAL CLEARANCE AND SETTLEMENT
BOOK-ENTRY REGISTRATION; DEPOSIT AGREEMENT
We will deposit the global notes with Bankers Trust Company, as book-entry
depositary under the deposit agreement. The book-entry depositary will issue
certificateless depositary interests for each subclass of new notes to DTC or
its nominee, representing the aggregate principal amount of the global note for
that subclass. Until book-entry interests are exchanged for definitive notes,
the certificateless depositary interests held by DTC may not be transferred
except as a whole by DTC to its nominee or by a nominee of DTC to DTC or another
of its nominees or by DTC or any such nominee to a successor of DTC or a nominee
of such successor.
Book-entry interests will be shown only on, and transfers of book-entry
interests will be effected only through, records maintained in book-entry form
by DTC or its nominee and its participants, including Euroclear and Clearstream,
Luxembourg.
So long as the book-entry depositary is the holder of the global notes, the
book-entry depositary will be considered the sole holder of the global notes for
all purposes under the indenture. Unless and until book-entry interests are
exchanged for definitive notes, all references herein to actions by noteholders
will refer to actions taken by the book-entry depositary upon instructions of
DTC or its nominee, acting in accordance with the procedures of DTC, and all
references herein to distributions, notices, reports and statements to
noteholders will refer to distributions, notices, reports and statements to the
book-entry depositary for further distribution to DTC and DTC participants,
including Euroclear and Clearstream, Luxembourg, in accordance with the Deposit
Agreement and the procedures of DTC and DTC participants. Holders of book-entry
interests will be entitled to receive definitive notes in exchange for
book-entry interests only in the limited circumstances described in "Description
of the Notes -- Form -- Definitive Notes". Accordingly, each person owning a
book-entry interest must rely on the procedures of the book-entry depositary and
DTC and, if the person is not a participant in DTC, on the procedures of the
participant through which such person owns its interest, to exercise any rights
and obligations of a holder under the indenture.
ACTION BY OWNERS OF BOOK-ENTRY INTERESTS
Not later than 10 days after receipt by the book-entry depositary of notice
of any solicitation of consents or request for a waiver or other action by the
book-entry depositary as noteholder, the book-entry depositary will mail to DTC
a notice containing:
- the information as is contained in the notice,
- a statement that at the close of business on a specified record date DTC
will be entitled to instruct the book-entry depositary as to the
consent, waiver or other action, if any, pertaining to the
certificateless depositary interests or the global notes, and
- a statement as to the manner in which instructions may be given.
Upon the written request of DTC, which shall have solicited instructions
from the registered owners of book-entry interests in accordance with its rules
and procedures, the book-entry depositary shall take action regarding the
requested consent, waiver or other action on the global notes in accordance with
any instruction set forth in the request. The book-entry depositary will not
exercise any discretion in the granting of consents or waivers or the taking of
any other action on the certificateless depositary interests or the global
notes.
REPORTS
The book-entry depositary will immediately, and no later than 10 days from
receipt, send to DTC a copy of any notices, reports and other communications
received relating to AerCo or the notes.
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ACTION BY BOOK-ENTRY DEPOSITARY
Subject to specified limitations, upon the occurrence of a default with
respect to the notes, or in connection with any other right of a holder of notes
under the indenture or the deposit agreement, if requested in writing by DTC,
the book-entry depositary will take any action as shall be requested in the
notice.
CHARGES OF BOOK-ENTRY DEPOSITARY
AerCo has agreed to pay all charges of the book-entry depositary under the
deposit agreement. AerCo has also agreed to indemnify the book-entry depositary
against specified liabilities incurred by it under the deposit agreement.
AMENDMENT AND TERMINATION
The deposit agreement may be amended by agreement between AerCo and the
book-entry depositary. The consent of DTC will not be required for any amendment
to the deposit agreement:
- to cure any inconsistency, omission, defect or ambiguity in the
agreement;
- to add to the covenants and agreements of the book-entry depositary or
AerCo;
- to evidence succession of another person to AerCo in accordance with the
indenture;
- to effectuate the assignment of the book-entry depositary's rights and
duties to a qualified successor;
- to comply with the Securities Act, the Exchange Act, the U.S. Investment
Company Act of 1940, as amended, or the Trust Indenture Act of 1939, as
amended; or
- to modify, alter, amend or supplement the deposit agreement in any other
manner that is not adverse to DTC or the owners of book-entry interests.
Except as listed above, no amendment that adversely affects DTC or the
owners of book-entry interests may be made to the deposit agreement or the
book-entry interests without the consent of DTC or the owners of book-entry
interests corresponding to a majority in principal amount at maturity of the
notes.
Upon the issuance of definitive notes in exchange for all of the global
notes and satisfaction of other specified conditions, the deposit agreement will
terminate. The provisions of the deposit agreement may be terminated upon the
resignation of the book-entry depositary if no successor has been appointed
within 90 days as described under "-- Resignation or Removal of Book-Entry
Depositary" below.
RESIGNATION OR REMOVAL OF BOOK-ENTRY DEPOSITARY
The book-entry depositary may at any time resign by written notice to AerCo
and the Trustee, any resignation to take effect upon the appointment by AerCo of
a successor book-entry depositary and the appointed successor's acceptance of
the appointment. If at the end of 90 days after delivery of notice, no successor
depositary has been appointed and has accepted the appointment, the book-entry
depositary may terminate the deposit agreement.
OBLIGATIONS OF BOOK-ENTRY DEPOSITARY
The book-entry depositary will assume no obligation or liability under the
deposit agreement other than to use good faith and reasonable care in the
performance of its duties.
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GLOBAL CLEARANCE AND SETTLEMENT
DTC
Transfers of book-entry interests between DTC participants will occur in
accordance with DTC rules. Transfers between participating organizations whose
securities are held by Clearstream, Luxembourg and participants in Euroclear
will occur in accordance with the applicable rules and operating procedures of
Clearstream, Luxembourg and Euroclear.
Clearstream, Luxembourg and Euroclear will hold omnibus positions of
book-entry interests on behalf of their participants through customers'
securities accounts in Clearstream, Luxembourg's and Morgan Guaranty Trust
Company of New York's names on the books of their depositaries which, in turn,
will hold these positions in customers' securities accounts in the depositaries'
names on the books of DTC. Citibank, N.A. will act as depositary for
Clearstream, Luxembourg and Morgan Guaranty will act as depositary for
Euroclear.
Cross-market transfers between persons holding through DTC participants and
through Clearstream, Luxembourg participants will be effected by DTC in
accordance with DTC rules on behalf of Clearstream, Luxembourg or Euroclear by
its depositary. Cross-market transactions between persons holding through DTC
participants and Euroclear participants will be effected in accordance with DTC
rules on behalf of Euroclear by its depositary. However, any cross-market
transactions will require delivery of instructions to Clearstream, Luxembourg or
Euroclear by the counterparty in accordance with its rules and procedures and
within its established deadlines. If the transaction meets its settlement
requirements, Clearstream, Luxembourg or Euroclear will deliver instructions to
its depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same-day funds settlement applicable to
DTC. Clearstream, Luxembourg participants and Euroclear participants may not
deliver instructions directly to the depositaries.
Because of time-zone differences, credits of book-entry interests received
in Clearstream, Luxembourg or Euroclear as a result of a transaction with a DTC
participant will be made during the securities settlement processing day dated
the business day following the DTC settlement date. Such credits or any
transactions in such book-entry interests settled during such processing will be
reported to the relevant Clearstream, Luxembourg participant or Euroclear
participant on such business day. Cash received in Clearstream, Luxembourg or
Euroclear as a result of sales of book-entry interests by or through a
Clearstream, Luxembourg participant or Euroclear participant to a DTC
participant will be received with value on the DTC settlement date but will be
available in the relevant Clearstream, Luxembourg or Euroclear cash account only
as of the business day following settlement in DTC.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered under the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities for DTC participants and to facilitate
the clearance and settlement of securities transactions between DTC participants
through electronic book-entry changes in accounts of DTC participants,
eliminating the need for physical movement of certificates. DTC participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and may in the future include other organizations. Indirect access
to the DTC system also is available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a DTC participant either directly or indirectly. Owners of book-entry interests
who are not DTC participants but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, the book-entry interests may do so only
through DTC participants. Indirect participants are required to effect transfers
through a DTC participant.
Payments on the book-entry interests will be made to DTC and are the
responsibility of AerCo. Owners of book-entry interests will receive all
distributions on the book-entry interests from the trustee or other paying agent
through DTC participants and indirect participants. Disbursement of any payments
to DTC participants will be the responsibility of DTC and disbursement of any
payments to the owners of
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book-entry interests will be the responsibility of DTC participants and indirect
participants. DTC's practice is to credit DTC participants' accounts on the
payment date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payment on such
payment date. Payments by DTC participants to owners of book-entry interests
will be governed by standing instructions and customary practices, as is the
case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of those DTC
participants. Unless definitive notes are exchanged for book-entry interests,
owners of book-entry interests will be permitted to exercise the rights of
holders under the indenture only indirectly through DTC and DTC participants.
Under the rules, regulations and procedures governing DTC and its
operations, DTC is required to make book-entry transfers of book-entry interests
among the DTC participants on whose behalf it acts with respect to book-entry
interests and to receive and transmit distributions on the book-entry interests.
DTC participants and indirect participants with which holders have accounts for
the book-entry interests similarly are required to make book-entry transfers and
receive and transmit any payments on behalf of their book-entry interests. The
DTC rules provide a mechanism by which holders will receive payments and will be
able to transfer their interests.
DTC has advised AerCo that it will take any action permitted to be taken by
a holder of each subclass of book-entry interests under the indenture only at
the direction of one or more DTC participants to whose accounts that subclass of
book-entry interests is credited. Additionally, DTC has advised AerCo that it
will take action with respect to any percentage of the outstanding principal
amount of any subclass of book-entry interests only at the direction of and on
behalf of the DTC participants whose holders own outstanding principal amount.
DTC may take conflicting actions with respect to different classes or subclasses
of notes to the extent that these actions are taken on behalf of DTC
participants whose holdings include different subclasses of book-entry
interests.
CLEARSTREAM, LUXEMBOURG
Distributions on book-entry interests held through Clearstream, Luxembourg
will be credited to cash accounts of Clearstream, Luxembourg participants in
accordance with Clearstream, Luxembourg's rules and procedures, to the extent
received by its depositary. Clearstream, Luxembourg will take any other action
permitted to be taken by a noteholder under the indenture on behalf of a
Clearstream, Luxembourg participant only in accordance with its rules and
procedures and subject to its depositary's ability to effect that action on its
behalf through DTC.
EUROCLEAR
Securities clearance accounts and cash accounts with the Euroclear operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law.
The Euroclear terms and conditions govern transfers of securities and cash
within Euroclear, withdrawals of securities and cash from Euroclear and receipts
of payments with respect to securities in Euroclear. All securities of a
particular class or subclass in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear operator acts under the Euroclear terms and conditions only on
behalf of Euroclear participants, and has no record of or relationship with
persons holding through Euroclear participants.
Distributions on book-entry interests held through Euroclear will be
credited to the cash accounts of Euroclear participants in accordance with the
Euroclear terms and conditions, to the extent received by its depositary. The
Euroclear Operator will take any other action permitted to be taken by a
noteholder under the indenture on behalf of a Euroclear participant only in
accordance with the Euroclear terms and conditions and subject to its
depositary's ability to effect such actions on its behalf through DTC.
Although DTC, Clearstream, Luxembourg and Euroclear have agreed to the
procedures described above in order to facilitate transfers of book-entry
interests among participants of DTC, Clearstream,
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Luxembourg and Euroclear, they are under no obligation to perform or continue to
perform those procedures and may be discontinue them at any time.
CUSIP, ISIN AND COMMON CODE NUMBERS
The book-entry interests in the new notes have been accepted for clearance
through Euroclear and Clearstream, Luxembourg. The CUSIP numbers, International
Securities Identification Numbers (ISIN) and the Common Code Numbers (CCN) of
the new notes are set forth in the table below.
<TABLE>
<CAPTION>
SUBCLASS OF NOTES CUSIP ISIN CCN
----------------- ------------------------- ------------------------- -------------------------
<S> <C> <C> <C>
Subclass A-3 00764P AU 4 00764PAU49 012125470
Subclass A-4 00764P AV 2 00764PAV22 012125518
Subclass B-2 00764P AW 0 00764PAW05 012125542
Subclass C-2 00764P AX 8 00764PAX87 012125577
</TABLE>
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TAX CONSIDERATIONS
IRISH TAX CONSIDERATIONS
The following summary is based on an opinion of KPMG on principles of Irish
taxation law. These principles depend on interpretation of current law,
regulations, rulings and decisions and Irish Revenue practice, and reliance on
Irish Revenue confirmations obtained prior to the issue of and in connection
with the old notes, all of which are subject to change. Any such change may be
applied retroactively and may adversely affect the principles of Irish tax on
which the opinion is based. This summary does not address all Irish tax
principles that may apply to all categories of noteholders, some of which may be
subject to special rules.
IRISH INCOME AND WITHHOLDING TAXES ON PAYMENTS ON THE NOTES
In the opinion of KPMG, there will be no withholding or deduction for Irish
taxes on principal and interest paid by AerCo on the global notes or any payment
of the principal and interest on the book-entry interests. The foregoing
opinion, insofar as it relates to interest, is based on certain assumptions,
including that the notes, including the global notes, are listed on the
Luxembourg Stock Exchange or on another stock exchange which is recognized for
relevant purposes of Irish law and that interest on the global and book-entry
notes is paid by a paying agent outside of Ireland.
The issuance of definitive notes may cause interest payments to be subject
to Irish withholding tax at the standard income tax rate which is currently 22%
until April 5, 2001, changing to 20% from April 6, 2001. If any Irish
withholding tax is imposed, noteholders and holders of book-entry interests
should note that AerCo will not make any additional payments for any withholding
tax. In this regard, Ireland has tax treaties with a number of jurisdictions
which, under certain circumstances, reduce the rate of Irish withholding tax on
payments of interest to persons resident in those jurisdictions. A holder of a
definitive note who is entitled to the benefit of Article 11 of the income tax
treaty between the United States and Ireland (the "Treaty") (such a holder a
"U.S. Holder") will normally be eligible to recover in full any Irish tax
withheld from payments of interest to which such U.S. Holder is beneficially
entitled by making a claim under the Treaty on the appropriate form.
Alternatively, a claim may be made by a U.S. Holder in advance of a payment of
interest. If the claim is accepted by the Irish Revenue, it will normally
authorize subsequent payments to that U.S. Holder to be made without withholding
for Irish tax.
Noteholders who are not ordinarily resident in Ireland will not be subject
to Irish income tax on interest paid by AerCo on the notes so long as the
interest payments are made by AerCo in the course of carrying on relevant
trading operations under its Shannon certificate. For additional information on
these Shannon certified operations and their termination in 2005 and factors
which might lead to their earlier termination, see "-- Irish Taxation of the
AerCo Group" below. After December 2005 or on earlier termination of AerCo's
Shannon certified operations, the exemption from Irish tax described above
currently enjoyed by noteholders who are not ordinarily resident in Ireland will
terminate, absent a change in law in the intervening period.
Interest payments made by AerCo have an Irish source and whether or not
paid gross are, under existing Irish tax law, chargeable to Irish income tax by
self-assessment, subject, however, to such relief as may be afforded by the
provisions of any applicable double tax treaty. However, as a matter of
practice, the Irish tax authorities do not pursue collection of any such
liability for Irish tax for persons who are not resident in Ireland except where
such persons:
- receive payments of interest through a person (including a trustee) or
in the name of an agent or branch in Ireland having the management and
control of the interest; or
- seek to claim relief and/or repayment of tax deducted at source in
respect of taxed income from Irish sources; or
- are chargeable to Irish corporation tax on the income of an Irish branch
or agency or to income tax on the profits of a trade carried on in
Ireland to which the interest is attributable.
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The termination of the legislative provisions dealing with Shannon
certified operations on December 31, 2005 will not affect the exemption from
Irish withholding tax described above.
TAXATION OF CAPITAL GAINS
Capital gains tax is chargeable at the rate of 20% on taxable capital gains
with allowance being made for inflation-adjusted acquisition costs and
enhancement expenditure. The notes are chargeable assets for Irish capital gains
tax purposes. However, non-resident holders are only liable for capital gains
tax on the disposal of the notes where the notes are held as part of the assets
of a business carried on through an Irish branch or agency.
IRISH CAPITAL ACQUISITIONS TAX (CAT)
CAT applies to gifts and inheritances where the donor/deceased or the
beneficiary is resident or ordinarily resident in Ireland at the date of the
gift or inheritance or to the extent that the property of which the gift or
inheritance consists is situated in Ireland at that date. Special rules with
regard to residence apply where an individual is not domiciled in Ireland. The
beneficiary is primarily liable to pay CAT. Persons who are secondarily liable
include the donor, in the case of a gift, or the personal representatives, in
the case of an inheritance. Certain tax-free group thresholds apply which vary
with the degree of relationship between the donor/deceased and the beneficiary.
The current tax-free group thresholds are:
- IRL300,000 for gifts and inheritances taken by a child or a foster
child,
- IRL30,000 for gifts and inheritances taken by a parent, grandparent,
grandchild, brother, sister, nephew or niece, and
- IRL15,000 for gifts and inheritances taken by other persons.
All taxable gifts and inheritances within the same group threshold received
by an individual since December 1, 1988 are aggregated and only the excess over
the tax-free threshold is taxed. CAT is charged at a flat rate of 20%. Gifts and
inheritances between spouses are exempt from CAT.
The notes may constitute property situated in Ireland for CAT purposes.
Although there is no gift and inheritance tax convention between the United
States and Ireland, an estate tax convention between the two countries was
ratified in 1951 and it is understood that the relevant authorities regard that
convention as now applying to Irish inheritance tax and U.S. federal estate tax
arising on death but not to tax on gifts.
IRISH STAMP DUTY
No stamp duty, stamp duty reserve tax or issue, documentary, registration
or other similar tax imposed by any government department or other taxing
authority of or in Ireland (collectively "Irish stamp duty") will be payable by
noteholders on the creation, initial issue or delivery of notes.
Since the global notes are bearer securities, they will not be charged with
Irish stamp duty, if transferred by delivery. The global notes will be exempt
from Irish stamp duty under section 85 of the Stamp Duties Consolidation Act,
1999 if the issue price is not less than 90% of their nominal value and if
transferred by a written instrument. If that exemption was not applicable and in
the absence of any other applicable exemption such instrument in writing would
be chargeable with Irish stamp duty if either the instrument was executed in
Ireland or, wherever executed, related to any property situated in Ireland
(which would include notes physically located in Ireland) or any matter or thing
done or to be done in Ireland. Transfers of book-entry interests in the notes
which are not effected by written instrument will not be chargeable with Irish
stamp duty. Any Irish stamp duty charged on such an instrument would be at the
rate of one per cent on the amount of the consideration for the transfer or, if
greater, the market value of the notes.
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IRISH TAXATION OF THE AERCO GROUP
The following discussion of the Irish taxation of the AerCo Group is based
on the advice of KPMG, AerCo's tax advisor.
AerCo and its Irish-resident subsidiary companies will be entitled to
certain corporate tax benefits for Shannon, Ireland certified companies
including a preferential corporate taxation rate of 10% through December 2005.
These companies may become subject to Irish corporation tax at the general Irish
statutory rate if:
- AerFi were to be liquidated or were to cease to hold its 5% shareholding
in AerCo;
- the AerFi Group were to reduce or relocate its operations for any reason
such that it failed to maintain, among other things, certain employment
levels at Shannon, Ireland; or
- AerFi Administrative Services Limited or AerFi Cash Manager II Limited
were to resign or be terminated as administrative agent or cash manager
of the AerCo Group.
The standard Irish corporation tax rate is currently 24%. Irish tax law
provides for that rate to fall to 20% for 2001, 16% for 2002 and 12.5% for 2003
and subsequent years.
Upon the scheduled termination of the Irish preferential 10% tax rate on
December 31, 2005, AerCo and the other Irish tax-resident members of the AerCo
Group will become subject to Irish corporate tax on their net trading income at
a 12.5% rate as provided for in the Irish Finance Act of 1999. This legislation
provides for non-trading income to be taxed at 25%. There can be no assurance
that these tax rates will not be changed in future.
A company will not be subject to Irish income tax provided that it is not
Irish tax resident, has no branch or agency in Ireland and has no Irish-source
income. The non-Irish resident subsidiary companies of AerCo have adopted
certain operational provisions in their organizational documents regarding the
management and operation of their businesses designed to minimize the likelihood
of Irish taxation of their income. In the opinion of KPMG, Irish tax advisor to
AerCo, the non-Irish resident subsidiary companies of AerCo will not be subject
to Irish income tax on their non-Irish source income. However, there can be no
assurance that these companies will not be subject to Irish tax on some or all
of their income.
IRISH VALUE-ADDED TAX
Ireland generally imposes Value-Added Tax (VAT) on the supply of goods and
services. Any Irish VAT that may become payable by an AerCo Group company in
connection with any management services performed by the servicer will be
eligible to be reclaimed by that company on the assumption that invoices
addressed to any AerCo Group company relate to costs attributable to a business
activity of that company which is considered to be a supply of goods or services
by that company.
Some or all of the services provided to the AerCo Group by the cash manager
may be exempt from Irish VAT. To the extent that any Irish VAT is payable on
services provided to an AerCo Group company by the cash manager or by the
administrative agent such VAT will be eligible to be reclaimed by that company
on the same assumption as set out in the preceding paragraph.
Payments by the lessees to AerCo and its Irish-resident subsidiary
companies will not be subject to Irish VAT in any case where the aircraft are
used or to be used by a transport undertaking operating for reward chiefly on
international routes.
CERTAIN JERSEY TAX CONSIDERATIONS
The following summary is based upon the opinion of Mourant du Feu & Jeune,
AerCo's Jersey tax counsel, on the tax treatment under Jersey law of AerCo and
ALPS 94-1 and the tax treatment under Jersey law for the purchase, ownership and
disposition of the notes. The discussion is based on an interpretation of laws,
regulations, rulings and decisions, including certain letters from the
Comptroller of
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Income Tax in Jersey and the Director of the Jersey Financial Services
Department, the functions of which were taken over by the Jersey Financial
Services Commission with effect from July 1, 1998, all of which are currently in
effect and are subject to change. Any such change may be applied retroactively
and may adversely affect the Jersey tax consequences described herein. Unless
otherwise noted, the term "note" refers to both the actual global notes and the
interest in the global notes held indirectly through DTC, Clearstream,
Luxembourg or Euroclear.
INCOME TAXES
AerCo will qualify as an "exempt company" under Article 123A of the Income
Tax (Jersey) Law 1961 as amended as long as it makes the returns of information
and pays the fees, currently L600 per annum as required by that Article and,
subject to the concession referred to below, as long as no Jersey resident has a
beneficial interest (for purposes of the 1961 Law) in AerCo. As an exempt
company, AerCo will be treated for purposes of the 1961 Law as not resident in
Jersey and will pay no Jersey income tax other than on income arising in Jersey
(but, by long standing concession, excluding bank deposit interest arising in
Jersey) and on profits of its trade (if any) carried on through an established
place of business in Jersey. For purposes of the 1961 Law the Comptroller of
Income Tax in Jersey, among other things, has:
- granted a concession that the holders of notes will not be regarded as
having a beneficial interest (for the purposes of Article 123A of the
1961 Law) in AerCo;
- confirmed that the holding of the shares in the capital of AerCo by or
on behalf of the charitable trust trustee and AerFi will not prejudice
the exempt company status of AerCo;
- confirmed that the income generated by the activities undertaken by
AerCo as described herein will not be treated as income arising in
Jersey; and
- confirmed that the administration in and from Jersey of the business
undertaken by AerCo as described herein will not constitute the carrying
on of a trade through an established place of business in Jersey.
Accordingly in the opinion of our Jersey tax counsel, AerCo will not be
subject to Jersey income tax.
WITHHOLDING TAXES
In general, Jersey imposes a withholding tax at the rate of 20% on interest
and other amounts paid to non-residents of Jersey with respect to a debt
obligation of a company resident in Jersey. However, no such withholding tax is
imposed with respect to an exempt company (as defined above). Accordingly, based
upon AerCo's qualification as an exempt company, in the opinion of our Jersey
tax counsel, no Jersey withholding tax will be deducted from interest and other
amounts paid on the notes on account of Jersey taxes.
In the event that any Jersey withholding tax is imposed, noteholders should
note that there is no income tax treaty between the United States and Jersey
that would apply to reduce or eliminate such withholding. Noteholders should
note further that AerCo will not be obligated under the terms of the notes to
make any additional payments in respect of any such withholding tax.
Accordingly, in the event that withholding were to be required on account of
Jersey taxes, distributions to noteholders may be less than those which would be
made on the notes in the absence of any such withholding tax.
OTHER TAXES
There is no taxation of capital gains (other than with respect to certain
tax avoidance transactions) in Jersey. As a result, the capital gains of AerCo
on its investments and the capital gains of noteholders on a sale or transfer of
their notes will not be subject to taxation in Jersey. There is no value added
tax or other relevant taxation in Jersey. No stamp duty, stamp duty reserve tax
or issue, documentary, registration or
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other similar tax imposed by any governmental department or other taxing
authority of or in Jersey is payable in connection with the creation, initial
issue, delivery or transfer inter vivos of the notes.
In the event that on the death of a sole individual holder of notes who is
a non-resident of Jersey, such notes are situated in Jersey (by virtue of their
being held on a register in Jersey or in bearer form and held in Jersey at the
date of death or otherwise deemed to be situated under applicable rules of
private international law), a grant of probate or letters of administration
would have to be obtained in Jersey and a duty of up to 1% of the value of the
assets of the deceased situated in Jersey would be payable.
ALPS 94-1
ALPS 94-1 will qualify as an exempt company under the 1961 Law as long as
AerCo also qualifies as an exempt company and as long as ALPS 94-1 makes the
returns of information and pays the fees as required by Article 123A of the 1961
Law (as described above). As an exempt company, ALPS 94-1 will be treated for
the purposes of the 1961 Law in the same way as AerCo. Accordingly, in the
opinion of our Jersey tax counsel, no Jersey withholding tax will be deducted
from any amounts paid by ALPS 94-1 to AerCo as described herein on account of
Jersey taxes.
UNITED STATES TAXATION
The following discussion is the opinion of Davis Polk & Wardwell. The
discussion sets forth the material U.S. federal income tax consequences of the
purchase, ownership and disposition of notes. This discussion deals only with
notes held as capital assets by United States Holders, as defined below, who
purchased the old notes in the offering at their "issue" price (which will be
the price at which a substantial amount of the notes was sold to persons other
than bond houses, brokers or similar persons acting in the capacity of
underwriters, placement agents or wholesalers), and not with special classes of
holders, including without limitation, dealers in securities or currencies,
banks, tax-exempt organizations, life insurance companies, financial
institutions, broker-dealers, persons that hold securities that are a hedge or
that are hedged against currency or interest rate risks or that are part of a
straddle or conversion transaction, certain U.S. expatriates, persons that are
not United States Holders or persons whose functional currency for U.S. federal
income tax purposes is not the U.S. dollar. United States Holders who purchased
notes at a price other than the issue price should consult their tax advisors as
to the possible applicability to them of the amortizable bond premium or market
discount rules. Further, this discussion does not address the effect of any U.S.
state or local tax laws on a United States Holder of notes. The discussion is
based on the Internal Revenue Code of 1986, as amended, its legislative history,
existing and proposed regulations thereunder, published rulings and court
decisions, all as currently in effect and all subject to change at any time,
possibly with retroactive effect.
Prospective purchasers of the notes should consult their own tax advisors
concerning the consequences, in their particular circumstances, under the U.S.
federal income tax laws and the laws of any relevant state, local or other
foreign taxing jurisdiction, of ownership of the notes.
For purposes of this discussion, a "United States Holder" means a
beneficial owner of notes that is for U.S. federal income tax purposes a citizen
or resident of the United States, a U.S. corporation, or an estate or trust the
income of which is subject to U.S. federal income tax regardless of its source.
PAYMENTS OF INTEREST
The gross amount of interest paid on a note will be includible in the gross
income of a United States Holder as ordinary interest income at the time it is
received or accrued, depending on the holder's method of accounting for U.S.
federal income tax purposes. Interest paid by AerCo on the notes will be income
from sources outside the United States, and, with certain exceptions, will be
treated separately, together with other items of "passive" income or, in certain
cases, "financial services" income, for purposes of computing the foreign tax
credit allowable under U.S. federal income tax laws.
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SALE, RETIREMENT AND OTHER DISPOSITION OF THE NOTES
Except as noted below, upon the sale, exchange or retirement of a note, a
United States Holder will generally recognize taxable gain or loss equal to the
difference between the amount realised (not including any amounts received that
are attributable to accrued and unpaid interest not taken into income, which
will be taxable as ordinary interest income in accordance with the United States
Holder's method of accounting as described above) and the United States Holder's
tax basis in the note. A United States Holder's tax basis in a note generally
will be its cost. Such gain or loss recognized on the sale or retirement of a
note will be capital gain or loss. Prospective investors should consult their
tax advisors regarding the treatment of capital gains (which may be taxed at
lower rates than ordinary income for certain taxpayers who are individuals) and
losses (the deductibility of which is subject to limitations).
EXCHANGE OF OLD NOTES FOR NEW NOTES
An exchange of old notes for new notes will not be treated as a taxable
exchange for U.S. federal income tax purposes. Accordingly, United States
Holders who exchange their old notes for new notes will not recognize income,
gain or loss for United States federal income tax purposes. A United States
Holder's tax basis in the new notes will be equal to its adjusted basis in the
old notes and its holding period will include the period during which it held
the old notes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Payments of principal and interest on the notes held by certain
non-corporate holders and the proceeds of a disposition of such notes may be
subject to U.S. information reporting requirements. Such payments also may be
subject to U.S. backup withholding at a rate of 31% if the holder does not
provide a taxpayer identification number or otherwise establish an exemption.
The holder may credit the amounts withheld against its U.S. federal income tax
liability and claim a refund for amounts withheld in excess of its tax
liability. Regulations which are applicable to payments made after December 31,
2000 will change the requirements for establishing an exemption from information
reporting and backup withholding.
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ERISA CONSIDERATIONS
Any employee benefit plan that proposes to purchase notes should consult
with its tax and/or legal advisors with respect to the potential consequences of
such investment under the fiduciary responsibility provisions of ERISA and the
prohibited transaction provisions of ERISA and the Code.
ERISA imposes certain requirements on employee benefit plans that are
subject to ERISA, including entities such as collective investment funds and
separate accounts whose underlying assets include the assets of such plans
(collectively, "ERISA plans") and on persons who are fiduciaries with respect to
such ERISA plans. A person who exercises discretionary authority or control with
respect to the management or assets of an ERISA plan will be considered a
fiduciary of the plan under ERISA. In accordance with ERISA's general fiduciary
standards, before investing in a note, an ERISA plan fiduciary should determine
whether such an investment is permitted under the governing plan instruments and
is appropriate for the plan in view of its overall investment policy and the
composition and diversification of its portfolio, taking into account the
limited liquidity of the notes.
The prudence of a particular investment must be determined by the
responsible fiduciary of an ERISA plan by taking into account the ERISA plan's
particular circumstances and all the facts and circumstances of the investment
including, but not limited to, the matters discussed above under "Risk Factors".
Section 406 of ERISA and Section 4975 of the Code prohibit certain
transactions involving assets of an ERISA plan (as well as those plans that are
not subject to ERISA but which are subject to Section 4975 of the Code such as
individual retirement accounts or Keogh plans (together with the ERISA plans,
collectively, the "benefit plans")) and certain persons (referred to as "parties
in interest" or "disqualified persons") having certain relationships to such
benefit plans, unless a statutory or administrative exemption is applicable to
the transaction. A party in interest or disqualified person who engages in a
prohibited transaction may be subject to excise taxes and other penalties and
liabilities under ERISA and the Code.
Certain exemptions from the prohibited transaction provisions of ERISA and
the Code may be applicable, however.
A transaction could be treated as exempt under Section 406 of ERISA and
Section 4975 of the Code if the notes were acquired pursuant to and in
accordance with one or more "class exemptions" issued by the DOL, such as
Prohibited Transaction Class Exemption ("PTCE") 84-14 (an exemption for certain
transactions determined by an independent qualified professional asset manager),
PTCE 91-38 (an exemption for certain transactions involving bank collective
investment funds), PTCE 90-1 (an exemption for certain transactions involving
insurance company pooled separate accounts), PTCE 95-60 (an exemption for
certain transactions involving insurance company general accounts) or PTCE 96-23
(an exemption for certain transactions determined by in-house asset managers).
ERISA also prohibits a fiduciary of an ERISA plan from maintaining the
indicia of ownership of any assets of the plan outside the jurisdiction of the
district courts of the United States except under certain circumstances. Before
investing in a note, a plan fiduciary should consider whether its acquisition
and holding of a note would satisfy such indicia of ownership rules.
A PLAN FIDUCIARY CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT ITS TAX
AND/OR LEGAL ADVISORS REGARDING THE AVAILABILITY, IF ANY, OF EXEMPTIVE RELIEF
FROM ANY POTENTIAL PROHIBITED TRANSACTION AND OTHER FIDUCIARY ISSUES AND THEIR
POTENTIAL CONSEQUENCES.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account under the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of the new notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in resales of new
notes received in exchange for old notes where the old notes were acquired as a
result of market-making activities or other trading activities. AerCo has agreed
that, starting on the expiration date and ending on the close of business on the
180th day following the expiration date, it will make this prospectus, as
amended or supplemented, available to any broker-dealer for use with any resale
of new notes.
AerCo will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account under
the exchange offer may be sold in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the new notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such new notes. Any broker-dealer that resells new notes that
were received by it for its own account pursuant to the exchange offer and any
broker or dealer that participates in a distribution of such new notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of new notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The letter of transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
For a period of 180 days after the expiration date, AerCo will promptly
send additional copies of this prospectus and any amendment or supplement to
this prospectus to any broker-dealer that requests such documents in the letter
of transmittal. AerCo has agreed to pay all expenses incident to the exchange
offer including the expenses of one counsel for the holders of the old notes,
other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the old notes including any broker-dealers against
certain liabilities, including liabilities under the Securities Act.
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<PAGE> 175
LEGAL MATTERS
Certain legal matters relating to the notes offered hereby will be passed
upon for AerCo by Davis Polk & Wardwell, New York, New York, special United
States counsel for AerCo, and by Mourant du Feu & Jeune, special Jersey counsel
to AerCo.
In accordance with the rules of the Luxembourg Stock Exchange, AerCo states
that there has been no material adverse change in the financial position of
AerCo since the date of its formation. AerCo is not a party to any material
legal proceedings.
Prospective investors should consider the applicability of statutes, rules,
regulations, orders, guidelines or agreements generally governing investments
made by a particular investor including, but not limited to, "prudent investor"
provisions and percentage-of-assets limitations. Investors should consult their
own legal advisors in determining whether and to what extent the notes
constitute legal investment for such investors.
The trustee and AerCo make no representation as to the proper
characterization of the notes for legal investment or financial institution
regulatory purposes, or as to the ability of particular investors to purchase
notes under applicable legal investment restrictions. The uncertainties
described above, and any unfavorable future determinations concerning legal
investment or financial institutions regulatory characteristics of the notes,
may adversely affect the liquidity of the notes.
ENFORCEMENT OF CIVIL LIABILITIES
AerCo is a public limited liability company incorporated and registered in
Jersey. All but two of the Directors of AerCo and some experts named in this
prospectus are non-residents of the United States. All or a substantial portion
of the assets of such non-resident persons and of AerCo are located outside the
United States. As a result, it may not be possible for investors to effect
service of process within the United States upon such persons or AerCo or to
enforce against them in United States courts judgements obtained in such courts
predicated upon the civil liability provisions of the federal securities laws of
the United States. AerCo has been advised that it is unlikely that the courts of
Jersey would adjudge civil liability in an original action predicated solely
upon the federal securities laws of the United States. There is no arrangement
in place between Jersey and the United States for the reciprocal enforcement of
judgements. There are no limitations on the right of non-residents of Jersey to
hold or vote the notes under Jersey law or under the Memorandum and Articles of
Association of AerCo.
174
<PAGE> 176
LISTING AND GENERAL INFORMATION
We have applied to list the new notes on the Luxembourg Stock Exchange. In
connection with the listing application, the indenture, the Memorandum and
Articles of Association of AerCo, and the legal notice relating to the issue of
the notes have been or will be deposited with the Chief Registrar of the
District Court in Luxembourg (Greffier en Chef du Tribunal d'Arrondissement de
et a Luxembourg) where copies thereof may be obtained upon request. Once the new
notes have been listed on the Luxembourg Stock Exchange, trading of the new
notes may be effected on the Luxembourg Stock Exchange. The old notes were
listed on the Luxembourg Stock Exchange on July 17, 2000.
Copies of this prospectus, the notes, the indenture, the security trust
agreement, the Memorandum and Articles of Association of AerCo, the share
purchase agreement, the cash management agreement, the servicing agreement, the
administrative agency agreement, the standby servicing, administrative agency
and cash management agreements, the reference agency agreement, any swap
agreement and swap guarantees, the appraisals of the aircraft by Aircraft
Information Services, Inc., BK Associates, Inc. and Airclaims Limited, the
annual report of independent public accountants and the reports to noteholders
referred to under "Reports to Noteholders" will be available free of charge at
the office of the listing agent whose address is Banque Internationale a
Luxembourg, 69, route d'Esch, L-1470 Luxembourg. Financial information regarding
AerCo is included in the AerCo annual report on Form 20-F for each fiscal year
and will be available at the office of the listing agent in Luxembourg after
such annual report on Form 20-F is filed with the Commission.
EXPERTS
The financial statements of AerCo, ALPS 94-1, the AerFi transferred
aircraft, the new AerFi transferring aircraft and the Indigo transferring
aircraft have been included in this prospectus in reliance upon the reports of
KPMG, Chartered Accountants, 5 George's Dock, IFSC, Dublin 1, Ireland, appearing
elsewhere herein and upon the authority of said firm as experts in accounting
and auditing.
With respect to certain matters, AerCo and AerFi are not represented by
separate counsel and are not expected to be unless it is agreed that separate
representation is required to satisfy the professional responsibilities of
counsel. Also, a number of professionals, appraisers and experts who perform
services for AerCo have performed services for the AerFi Group and AerFi and a
number of their respective affiliates in the past and may do so again in the
future.
Valuations of the aircraft have been made by three expert aircraft
appraisers: Aircraft Information Services, Inc., BK Associates, Inc. and
Airclaims Limited. These valuations are discussed in detail elsewhere in this
prospectus and are included herein in reliance upon the authority of such firms
as experts in giving such appraisals.
175
<PAGE> 177
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
A. HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS FOR AERCO
AND ALPS 94-1
Independent auditors' report........................... F-5
Consolidated balance sheets............................ F-6
Consolidated statements of operations.................. F-7
Consolidated statements of cash flows.................. F-8
Statements of changes in shareholders' deficit......... F-9
Statement of accounting policies....................... F-10
Notes to the consolidated financial statements......... F-14
B. HISTORICAL FINANCIAL STATEMENTS FOR AERFI TRANSFERRED
AIRCRAFT
Independent auditors' report........................... F-38
Statements of operations............................... F-39
Statements of cash flows............................... F-40
Statements of changes in net assets.................... F-41
Statement of accounting policies....................... F-42
Notes to the financial statements...................... F-44
C. HISTORICAL FINANCIAL STATEMENTS FOR NEW AERFI
TRANSFERRING AIRCRAFT
Independent auditors' report........................... F-52
Statements of net assets............................... F-53
Statements of operations............................... F-54
Statements of cash flows............................... F-55
Statements of changes in net assets.................... F-56
Statement of accounting policies....................... F-57
Notes to the financial statements...................... F-60
D. HISTORICAL FINANCIAL STATEMENTS FOR INDIGO TRANSFERRING
AIRCRAFT
Independent auditors' report........................... F-70
Statements of net assets............................... F-71
Statements of operations............................... F-72
Statements of cash flows............................... F-73
Statements of changes in net assets.................... F-74
Statement of accounting policies....................... F-75
Notes to the financial statements...................... F-78
</TABLE>
COMPANY DEFINITIONS
"AERCO LIMITED" AerCo Limited, a special purpose limited liability
company incorporated under the laws of Jersey with
its registered office located at 22 Grenville
Street, St. Helier, Jersey, JE4 8PX, Channel
Islands.
"AERCO" AerCo Limited and its consolidated subsidiaries.
"AERFI" AerFi Group plc and its subsidiary undertakings.
"ALPS 94-1 LIMITED" Aircraft Lease Portfolio Securitization 94-1
Limited, a special purpose limited liability
company incorporated under the laws of Jersey in
1994 to purchase 27 aircraft from AerFi.
"ALPS 94-1" ALPS 94-1 Limited and its consolidated
subsidiaries.
"INDIGO" Indigo Aviation AB, a Swedish company with its
registered office located at Sodra Forstadsgatan 4,
S-211 43, Malmo, Sweden.
F-1
<PAGE> 178
CONTENTS OF FINANCIAL STATEMENTS INCLUDED IN F PAGES
AerCo has included the following audited historical financial statements in
pages F-4 to F-84 of this prospectus.
A. U.K. GAAP AERCO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH
31, 2000 AND FOR THE PERIOD FROM JULY 15, 1998 TO MARCH 31, 1999 AND
COMPARATIVE ALPS 94-1 FINANCIAL INFORMATION FOR THE PERIOD FROM JULY 1, 1998
TO JULY 14, 1998 AND FOR THE YEAR ENDED JUNE 30, 1998.
The AerCo financial statements include the results of operations and
financial condition of the 25 aircraft and related leases acquired by AerCo
through the acquisition of all the outstanding capital stock of ALPS 94-1
Limited and the ten aircraft and related leases acquired by AerCo through
the acquisition of all the outstanding capital stock of certain aircraft
owning subsidiaries of AerFi in July 1998, and reflects the sale of one
F100 aircraft during the period from July 15, 1998 to March 31, 1999 and
the sale of one F100 aircraft during the year ended March 31, 2000.
Comparative financial information for ALPS 94-1 is presented as ALPS 94-1
is considered to be the predecessor business of AerCo. We believe this is
an appropriate presentation because:
- AerCo was formed mainly for the purpose of refinancing the aircraft
portfolio of ALPS 94-1.
- AerCo's initial portfolio of 35 aircraft included 26 of the 27 aircraft
that ALPS 94-1 originally acquired from AerFi.
- The original ALPS 94-1 aircraft represented 79% of AerCo's initial
portfolio by appraised value as at March 1, 1998.
- AerCo's ongoing aircraft leasing activities are largely the same as
those conducted by ALPS 94-1.
The financial statements of ALPS 94-1 include the results of operations and
financial condition of the 27 aircraft originally acquired by ALPS 94-1
from AerFi in August 1994, including:
- the Boeing 767-300ER aircraft that was purchased by AerFi from ALPS 94-1
immediately prior to the closing of the offering of the old notes and
which was not one of the aircraft acquired on July 15, 1998.
- the A300-B4-200 aircraft up to April 28, 1998 when AerFi acquired this
aircraft from ALPS 94-1. AerFi subsequently sold this aircraft to AerCo.
B. U.K. GAAP AERFI TRANSFERRED AIRCRAFT FINANCIAL STATEMENTS FOR THE YEAR ENDED
JUNE 30, 1998 AND FOR THE PERIOD FROM JULY 1, 1998 TO JULY 14, 1998.
These financial statements include historical financial information on the
ten aircraft acquired by AerCo from AerFi in July 1998 and includes the
A300-B4-200 aircraft only from April 28, 1998, the date AerFi acquired it
from ALPS 94-1. These financial statements are prepared as if the AerFi
transferred aircraft were operated separately from AerFi for the periods
presented.
C. U.K. GAAP NEW AERFI TRANSFERRING AIRCRAFT FINANCIAL STATEMENTS FOR THE THREE
YEARS ENDED MARCH 31, 1998, 1999 AND 2000.
These financial statements include historical financial information on the
two AerFi F100 and one B737-300 aircraft transferring to AerCo under the
refinancing and additional aircraft acquisition in July 2000, for the three
years ended March 31, 2000 and on 26 of the Indigo transferring aircraft
for the period from December 16, 1999 (the date Indigo was acquired by
AerFi) to March 31, 2000. These financial statements are prepared as if the
New AerFi transferring aircraft were operated separately from AerFi for the
periods presented.
F-2
<PAGE> 179
D. U.S. GAAP INDIGO TRANSFERRING AIRCRAFT FINANCIAL STATEMENTS FOR THE YEAR
ENDED DECEMBER 31, 1998 AND FOR THE PERIOD FROM JANUARY 1, 1999 TO DECEMBER
15, 1999.
These financial statements include historical financial information on 26
Indigo aircraft transferring to AerCo under the refinancing and additional
aircraft acquisition in July 2000. This information is presented for the
year ended December 31, 1998 and for the period from January 1, 1999 to
December 15, 1999 before Indigo was acquired by AerFi. These financial
statements are prepared as if the Indigo transferring aircraft were
operated separately from Indigo for the periods presented.
F-3
<PAGE> 180
FINANCIAL STATEMENTS
AERCO
F-4
<PAGE> 181
AERCO
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF AERCO LIMITED
We have audited the accompanying consolidated balance sheets of AerCo as of
March 31, 2000 and March 31, 1999 and the related consolidated statements of
operations, cash flows and changes in shareholders' deficit for AerCo for the
year ended March 31, 2000 and the period from July 15, 1998 to March 31, 1999
and for ALPS 94-1 for the period from July 1, 1998 to July 14, 1998 and for the
year ended June 30, 1998.
We conducted our audits in accordance with generally accepted auditing
standards in the United Kingdom and the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by the directors as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AerCo as at
March 31, 2000 and March 31, 1999 and the results of operations and cash flows
of AerCo for the year ended March 31, 2000 and for the period from July 15, 1998
to March 31, 1999 and ALPS 94-1 for the period from July 1, 1998 to July 14,
1998 and the year ended June 30, 1998 in conformity with generally accepted
accounting principles in the United Kingdom.
As discussed in note 24 to the consolidated financial statements, AerCo has
adopted the provisions of Financial Reporting Standard 12, "Provisions,
Contingent Liabilities and Contingent Assets". As a result, ALPS 94-1 has
changed its accounting policy for maintenance to reflect the adoption of the
AerCo accounting policy.
Generally accepted accounting principles in the United Kingdom vary in
certain significant respects from generally accepted accounting principles in
the United States. Application of generally accepted accounting principles in
the United States would have affected results of operations of AerCo for the
year ended March 31, 2000 and the period from July 15, 1998 to March 31, 1999
and of ALPS 94-1 for the period from July 1, 1998 to July 14, 1998 and for the
year ended June 30, 1998 and the shareholders' deficit of AerCo as of March 31,
2000 and March 31, 1999 to the extent summarised in notes 26, 27 and 28 to the
consolidated financial statements.
KPMG
Chartered Accountants
Dublin, Ireland
June 14, 2000, except note 32 which is as of November 21, 2000.
F-5
<PAGE> 182
AERCO
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOTES MARCH 31, 2000 MARCH 31, 1999
----- -------------- --------------
U.S.$'000 U.S.$'000
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash.................................................. 1 26,413 25,618
Commercial paper...................................... 1 39,998 39,997
Accounts receivable, net.............................. 2 4,752 4,004
--------- ---------
TOTAL CURRENT ASSETS.................................. 71,163 69,619
INTANGIBLE ASSETS
Goodwill, net......................................... 3 43,100 45,456
FIXED ASSETS
Aircraft, net......................................... 5 829,194 904,253
--------- ---------
TOTAL ASSETS.......................................... 943,457 1,019,328
========= =========
LIABILITIES & SHAREHOLDERS' DEFICIT
LIABILITIES
Accrued expenses and other liabilities................ 7 89,902 70,436
Indebtedness.......................................... 9 901,198 949,217
Security deposits..................................... 10 16,304 14,783
--------- ---------
TOTAL LIABILITIES..................................... 1,007,404 1,034,436
SHAREHOLDERS' DEFICIT
Share capital......................................... 11 -- --
Accumulated deficit................................... (63,947) (15,108)
--------- ---------
TOTAL SHAREHOLDERS' DEFICIT........................... (63,947) (15,108)
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT........... 943,457 1,019,328
========= =========
</TABLE>
The accompanying notes, including the statement of accounting policies, on
pages F-10 to F-13, are an integral part of the consolidated financial
statements.
F-6
<PAGE> 183
AERCO
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
AERCO ALPS 94-1
-------------------------- --------------------------------------
(UNAUDITED) PERIOD FROM
PERIOD FROM NINE MONTHS JULY 1,
YEAR ENDED JULY 15, 1998 ENDED 1998 TO YEAR ENDED
MARCH TO MARCH 31, MARCH 31, JULY 14, JUNE 30,
NOTES 31, 2000 1999 1998 1998 1998
----- ---------- ------------- ----------- ----------- ----------
U.S.$'000 U.S.$'000 U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Aircraft leasing................... 12 109,146 82,826 76,098 3,635 100,682
EXPENSES
Depreciation....................... 5 (46,998) (33,821) (28,569) (1,519) (37,826)
Provision for impairment in
aircraft value................... 13 (13,079) -- (8,720) -- (8,720)
Amortization of goodwill........... 3 (2,356) (1,669) -- -- --
Net interest expense............... 14 (78,818) (54,108) (52,340) (2,757) (69,785)
Other expenses..................... 15 (15,742) (8,311) (4,278) (646) (6,599)
Exceptional item -- termination
fee........................... 13 -- -- -- -- (12,700)
--------- --------- --------- --------- ---------
Total expenses..................... (156,993) (97,909) (93,907) (4,922) (135,630)
--------- --------- --------- --------- ---------
NET LOSS FROM OPERATIONS........... (47,847) (15,083) (17,809) (1,287) (34,948)
(Loss)/profit on sale of
aircraft......................... 5 (941) 10 -- 10 2,426
--------- --------- --------- --------- ---------
NET LOSS BEFORE PROVISION FOR
TAXES............................ 16 (48,788) (15,073) (17,809) (1,277) (32,522)
Provision for taxes................ 17 (51) (35) (15) -- (33)
--------- --------- --------- --------- ---------
NET LOSS FOR THE PERIOD............ (48,839) (15,108) (17,824) (1,277) (32,555)
RETAINED LOSS BROUGHT FORWARD...... (15,108) -- (44,691) (77,246) (44,691)
--------- --------- --------- --------- ---------
RETAINED LOSS CARRIED FORWARD...... (63,947) (15,108) (62,515) (78,523) (77,246)
BASIC AND DILUTED LOSS PER ORDINARY
SHARE............................ 18 (2,442) (755.4) (1,782.4) (127.7) (3,255.5)
--------- --------- --------- --------- ---------
WEIGHTED AVERAGE NUMBER OF ORDINARY
SHARES OUTSTANDING............... 18 20 20 10 10 10
========= ========= ========= ========= =========
</TABLE>
All recognized gains and losses are included in the consolidated statements
of operations above.
There is no material difference between the net income for AerCo or ALPS
94-1 for any of the periods set out above, and the historical cost equivalent.
The results for all periods are derived from continuing operations.
The accompanying notes, including the statement of accounting policies on
pages F-10 to F-13, are an integral part of the consolidated financial
statements.
F-7
<PAGE> 184
AERCO
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
AERCO ALPS 94-1
--------------------------------- ----------------------------------------------------
PERIOD FROM (UNAUDITED) PERIOD FROM
YEAR ENDED JULY 15, 1998 TO NINE MONTHS ENDED JULY 1, 1998 YEAR ENDED
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998 TO JULY 14, 1998 JUNE 30, 1998
-------------- ---------------- ----------------- ---------------- -------------
U.S.$'000 U.S.$'000 U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period................ (48,839) (15,108) (17,824) (1,277) (32,555)
ADJUSTMENTS TO RECONCILE NET LOSS FROM
OPERATIONS TO CASH
PROVIDED/(UTILISED) BY OPERATING
ACTIVITIES
Depreciation........................... 46,998 33,821 28,569 1,519 37,826
Amortization of goodwill............... 2,356 1,669 -- -- --
Amortization of debt issue costs....... 898 673 -- -- --
Provision for impairment in aircraft
value................................ 13,079 -- 8,720 -- 8,720
Changes in operating assets and
liabilities
Accounts receivable.................. (748) (1,077) 651 (252) 1,651
Exceptional item -- termination
fee................................ -- -- -- -- 12,700
Accrued expenses and other
liabilities........................ 27,888 14,080 17,372 (3,005) 21,264
Net maintenance expenditure............ (7,481) (4,675) 269 (1,062) (1,938)
Net security deposits
received/(repaid).................... 1,521 (1,422) (1,648) -- (1,947)
---------- ---------- ---------- --------- ----------
NET CASH PROVIDED/(UTILISED) BY
OPERATING ACTIVITIES................. 35,672 27,961 36,109 (4,077) 45,721
---------- ---------- ---------- --------- ----------
CAPITAL EXPENDITURE
Purchase of aircraft................... (622) -- (1,132) -- (1,132)
Sale of aircraft....................... 14,663 14,500 -- 65,677 11,518
---------- ---------- ---------- --------- ----------
14,041 14,500 (1,132) 65,677 10,386
ACQUISITIONS
Purchase of subsidiary undertakings.... -- (1,071,565) -- -- --
Cash acquired with subsidiaries........ -- 146,175 -- -- --
---------- ---------- ---------- --------- ----------
-- (925,390) -- -- --
MANAGEMENT OF LIQUID RESOURCES
Net (purchase)/sale of commercial
paper................................ (1) (39,997) 1,739 36,686 3,135
---------- ---------- ---------- --------- ----------
FINANCING ACTIVITIES
Debt issued............................ -- 986,609 -- -- --
Indebtedness repaid.................... (48,917) (38,065) (35,690) (3,719) (59,108)
---------- ---------- ---------- --------- ----------
NET CASH (OUTFLOW)/INFLOW FROM
FINANCING ACTIVITIES................. (48,917) 948,544 (35,690) (3,719) (59,108)
---------- ---------- ---------- --------- ----------
NET INCREASE IN CASH................... 795 25,618 1,026 94,567 134
CASH AT BEGINNING OF PERIOD............ 25,618 -- 51,474 51,608 51,474
---------- ---------- ---------- --------- ----------
CASH AT END OF PERIOD.................. 26,413 25,618 52,500 146,175 51,608
========== ========== ========== ========= ==========
</TABLE>
Disclosure of cash flow information is set out in Note 22.
The accompanying notes, including the statement of accounting policies on
pages F-10 to F-13, are an integral part of the consolidated financial
statements.
F-8
<PAGE> 185
AERCO
STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
TOTAL
NUMBER RETAINED SHAREHOLDERS'
OF SHARES SHARE CAPITAL LOSS DEFICIT
--------- ------------- ---------- -------------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C> <C>
ALPS 94-1:
Balance at June 30, 1997....................... 10 -- (44,691) (44,691)
Net loss for the year.......................... -- -- (32,555) (32,555)
-- ------- -------- --------
Balance at June 30, 1998....................... 10 -- (77,246) (77,246)
Net loss for the period........................ -- -- (1,277) (1,277)
-- ------- -------- --------
BALANCE AT JULY 14, 1998....................... 10 -- (78,523) (78,523)
== ======= ======== ========
AERCO:
Balance at July 15, 1998....................... 20 -- -- --
Net loss for the period........................ -- -- (15,108) (15,108)
-- ------- -------- --------
Balance at March 31, 1999...................... 20 -- (15,108) (15,108)
Net loss for the year.......................... -- -- (48,839) (48,839)
-- ------- -------- --------
BALANCE AT MARCH 31, 2000...................... 20 -- (63,947) (63,947)
== ======= ======== ========
</TABLE>
The accompanying notes, including the statement of accounting policies on
pages F-10 to F-13, are an integral part of the consolidated financial
statements.
F-9
<PAGE> 186
AERCO
STATEMENT OF ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
AerCo Limited was incorporated in Jersey, Channel Islands on June 4, 1998
for the purpose of refinancing ALPS 94-1 and the acquisition of 10 aircraft from
AerFi. AerCo did not conduct any business prior to July 15, 1998.
This transaction, which occurred on July 15, 1998, involved the purchase by
AerCo Limited of 100% of the capital stock of ALPS 94-1 Limited and thereby a
portfolio of 25 aircraft and related leases and the purchase of 10 aircraft and
related leases from AerFi. The acquisition of the 10 aircraft from AerFi was
achieved through the purchase of the capital stock in a number of aircraft
owning subsidiaries of AerFi. AerCo Limited financed the acquisition of the
capital stock of ALPS 94-1 Limited and the 10 aircraft from AerFi through the
issue of five classes of notes. All of the three most senior classes of notes
(the "A to C notes") were sold in a U.S.$800 million underwritten global public
offering. AerFi subscribed for all of the fourth and fifth classes of notes (the
"D and E notes").
On the refinancing, AerCo Limited advanced ALPS 94-1 Limited a portion of
net cash proceeds from the offering which enabled ALPS 94-1 Limited to
immediately redeem or repay its existing financial indebtedness.
Comparative financial information for ALPS 94-1 is presented in these
financial statements as ALPS 94-1 is considered to be the predecessor business
of AerCo.
The activities of AerCo and ALPS 94-1 include the sale, procurement and
leasing of aircraft together with associated support services.
BASIS OF PREPARATION
The accounting policies followed in the preparation of the accompanying
consolidated financial statements conform with generally accepted accounting
principles in the United Kingdom and comply with Financial Reporting Standards
of the Accounting Standards Board in the United Kingdom as promulgated by The
Institute of Chartered Accountants in England and Wales. Generally accepted
accounting principles in the United Kingdom differ in certain significant
respects from generally accepted accounting principles in the United States. A
summary of these differences are set out in notes 25, 26, 27 and 28.
The consolidated financial statements are prepared on the going concern
basis and under the historic cost convention and are stated in U.S. dollars,
which is the principal operating currency of AerCo, ALPS 94-1 and of the
aviation industry.
The unaudited consolidated financial statements included herein have been
prepared by AerCo without audit and conform with generally accepted accounting
principles in the United Kingdom and comply with Financial Reporting Standards
of the Accounting Standards Board in the United Kingdom as promulgated by the
institute of Chartered Accountants in England and Wales. Generally accepted
accounting principles in the United Kingdom differ in certain significant
aspects from generally accepted accounting principles in the United States. A
summary of the differences are set out in notes 25 through 28.
In the opinion of AerCo's management, the accompanying unaudited
consolidated financial statements have been prepared on a basis substantially
consistent with the audited consolidated financial statements and contain
adjustments, all of which are of a normal recurring nature necessary to present
fairly its financial position as of March 31, 1998 and its results of operations
and cash flows for the nine months ended March 31, 1998. Interim results are not
necessarily indicative of results for the fiscal year.
F-10
<PAGE> 187
AERCO
STATEMENT OF ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the directors of AerCo Limited and ALPS
94-1 Limited to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amount of revenues and
expenses during the reporting period. While the directors of AerCo Limited and
ALPS 94-1 Limited believe that the estimates and related assumptions used in the
preparation of these financial statements are appropriate, actual results could
differ from those estimates. Estimates are made in the assessment of
collectibility of receivables, the recoverable amounts in respect of aircraft
and goodwill and the related estimated lives of such assets.
BASIS OF CONSOLIDATION
The consolidated financial statements include the results of AerCo Limited
and all its subsidiaries (including ALPS 94-1). All intercompany profits,
transactions and account balances have been eliminated.
GOODWILL
Purchased goodwill arising on the acquisition of a business represents the
excess of acquisition cost over the fair value of the identifiable net assets
when they were acquired. Purchased goodwill arising on acquisitions is
capitalized on the balance sheet and amortized on a straight line basis over the
estimated economic life of the goodwill.
In accordance with Financial Reporting Standard No. 10 "Goodwill and
Intangible Assets", goodwill is subject to a mandatory impairment test at the
end of the first full financial year following the acquisition. Thereafter
goodwill is reviewed for impairment in any other period where events or changes
in circumstances indicate that the carrying value may not be recoverable.
REVENUE RECOGNITION
Revenue from aircraft on operating leases is recognised as income on a
straight line basis over the period of the leases. Where rentals are adjusted to
reflect increases or decreases in prevailing interest rates such adjustments are
accounted for as they arise. This includes rental income earned on aircraft for
the period prior to delivery (see "-- Aircraft"). Lease rentals received in
advance are deferred and recognized over the period to which they relate.
INTEREST INCOME
Interest is credited to the statement of operations as it is earned.
MAINTENANCE
In most lease contracts the lessee has the obligation to pay for
maintenance costs on airframes and engines which arise during the term of the
lease and in many lease contracts the lessee makes a full or partial prepayment,
calculated at an hourly rate, into a maintenance reserve fund paid to AerCo and
ALPS 94-1 from which the lessee can draw in respect of maintenance expenditures
for major checks. Amounts held in respect of aircraft maintenance are recorded
as accrued expenses and other liabilities. Any surplus amounts held in the fund
on termination of a lease, to which the next lessee has no access, are recorded
as income at that time.
Maintenance costs borne directly by AerCo and ALPS 94-1 and which are not
paid for by lessees are expensed as incurred.
F-11
<PAGE> 188
AERCO
STATEMENT OF ACCOUNTING POLICIES (CONTINUED)
TAXATION
AerCo Limited has been granted exempt company status by the Jersey taxation
authorities. It pays an exempt company fee of STG L600 per annum. AerCo Limited
and its Irish subsidiaries are subject to Irish corporation tax on qualifying
trading operations at a rate of 10% until December 31, 2005. Thereafter the
corporate tax rate is due to revert to 12 1/2% to take account of the stated
government commitment on future tax rates. Taxation is provided on the profits
of the foreign subsidiaries at the current rates.
ALPS 94-1 Limited has been granted exempt company status by the Jersey
taxation authorities. It pays an exempt company fee of STG L600 per annum.
Taxation is provided on the profits of its subsidiaries at the current rates.
AIRCRAFT
In the period ended June 30, 1995 ALPS 94-1 agreed to purchase 27 aircraft
on operating leases from AerFi.
On July 15, 1998 AerCo completed a transaction resulting in a refinancing
and restructuring of ALPS 94-1 and the acquisition of an additional 10 aircraft
from AerFi. The refinancing involved the purchase of aircraft at an aggregate
appraised fair market value of U.S.$951.97 million.
Aircraft are stated at cost less accumulated depreciation and are
depreciated at rates calculated to write off the cost of the assets to their
estimated residual value on a straight line basis, over their estimated useful
economic lives. The current estimates of residual values and useful economic
lives are generally 15% of cost, and 25 years from date of manufacture,
respectively.
Additional charges are made to reduce the book value of specific assets to
the recoverable amount where an impairment in value is considered to have
occurred in accordance with Financial Reporting Standard No. 11 "Impairment of
Tangible Fixed Assets and Goodwill". An impairment review is carried out when
there has been an indication of impairment, usually on the basis of independent
market appraisals and indications of market demand. An impairment is measured by
comparing the carrying value of the aircraft and engines with the recoverable
amount. Recoverable amount is the higher of the net realisable value and the
value in use on an after tax basis. Value in use is based on the anticipated
future cash flows from the aircraft, discounted at a market rate of return.
CASH AND LIQUID RESOURCES
Substantially all of the cash and commercial paper balances are held for
specific purposes under the terms of the Trust Indenture. For the purposes of
the cash flow statements cash represents amounts available on demand and liquid
resources comprise other cash and commercial paper. While the cash balances are
held for specific purposes they may be applied for these purposes on demand and
are classified as cash in the cash flow statement.
INDEBTEDNESS
Repayment of the principal amount of the class E note in AerCo and accrued
interest thereon is dependent upon funds being available to meet such
liabilities as they fall due. Repayment of the principal amount of the class E
note in ALPS 94-1 and accrued interest thereon was dependent upon funds being
available to meet such liabilities as they fell due. Under the terms of the ALPS
94-1 class E note, the recognition by the directors of a permanent diminution in
the value of aircraft resulted in certain circumstances in a legal reduction in
the principal balance on the class E note.
F-12
<PAGE> 189
AERCO
STATEMENT OF ACCOUNTING POLICIES (CONTINUED)
DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
AerCo manages its interest rate exposure through the use of interest rate
swaps. Under these swap arrangements AerCo will pay fixed interest and receive
floating interest on a monthly basis. The objective of AerCo's interest rate
risk management policy is to correlate the contracted fixed and floating rental
payments in its portfolio to the floating interest payments on the A, B and C
notes, taking account of expected amortization on these notes. Net receipts and
payments arising in respect of these swaps are recognized as adjustments to
interest expense on an accruals basis.
AerCo is also exposed to losses in the event of non-performance by
counterparties on interest rate swaps or in the event of defaults by lessees
where income streams have been hedged. However, AerCo does not anticipate
non-performance by the counterparties and losses or gains related to hedging
instruments which result from lessee defaults are accounted for as they are
incurred.
ALPS 94-1 did not use any interest rate swaps to manage its interest rate
exposure for any period for which the financial statements are presented.
F-13
<PAGE> 190
AERCO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 CASH AND COMMERCIAL PAPER
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Cash...................................................... 26,413 25,618
Commercial paper.......................................... 39,998 39,997
------- -------
66,411 65,615
======= =======
</TABLE>
Substantially all of the cash and commercial paper balances of AerCo at
March 31, 2000 and March 31, 1999 are held for specific purposes under the terms
of the AerCo Trust Indenture.
2 ACCOUNTS RECEIVABLE, NET
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Trade receivables, net.................................... 4,508 3,174
Non-trade receivables..................................... 244 830
------- -------
4,752 4,004
======= =======
</TABLE>
Trade receivables comprise amounts in respect of rent and maintenance
payments due from lessees and are stated net of provisions for doubtful debt.
As at March 31, 2000 three lessees accounted for 36%, 32% and 20%
respectively of trade receivables of AerCo. Trade receivables at March 31, 2000
are shown net of a bad debt provision of U.S.$3.5m.
As at March 31, 1999 four lessees accounted for 60%, 16%, 14% and 10%
respectively of trade receivables of AerCo. Trade receivables at March 31, 1999
are shown net of a bad debt provision of U.S.$1.4m.
Activity in the allowance for doubtful accounts was as follows:
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Balance, beginning of period.............................. 1,366 819
Provision for doubtful accounts........................... 2,146 547
------- -------
Balance, end of period.................................... 3,512 1,366
======= =======
</TABLE>
Non-trade receivables comprise prepayments.
3 GOODWILL, NET
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
U.S.$'000 U.S.$'000
<S> <C> <C>
COST
At beginning and end of period............................ 47,125 47,125
------- -------
AMORTIZATION
Beginning of period....................................... (1,669) --
Amortization in period.................................... (2,356) (1,669)
------- -------
End of period............................................. (4,025) (1,669)
------- -------
NET BOOK VALUE
Beginning of period....................................... (45,456) --
======= =======
End of period............................................. 43,100 45,456
======= =======
</TABLE>
Goodwill of U.S.$47.125 million represents the difference between the fair
value of the net assets acquired and the consideration paid by AerCo Limited in
respect of its acquisition of ALPS 94-1 and the AerFi transferred aircraft.
Goodwill is amortized over a 20 year period which is the period over which the
directors of AerCo Limited estimate that the value of the underlying businesses
acquired is expected to
F-14
<PAGE> 191
AERCO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3 GOODWILL, NET (CONTINUED)
exceed the values of its identifiable net assets. Further information in
relation to the calculation of goodwill is set out in note 4.
4 ACQUISITION OF ALPS 94-1 AND THE AERFI TRANSFERRED AIRCRAFT
On July 15, 1998 AerCo Limited acquired 100% of the capital stock of ALPS
94-1 Limited and thereby a portfolio of 25 aircraft and the related leases and
purchased 10 aircraft and related leases from AerFi. The acquisition of the 10
aircraft from AerFi was achieved through the purchase of the capital stock in a
number of aircraft owning subsidiaries of AerFi. AerCo Limited financed the
acquisition of the capital stock of ALPS 94-1 Limited and the 10 aircraft from
AerFi through the issue of five classes of notes and also used the proceeds from
the issue of these notes to repay the third party indebtedness of ALPS 94-1 and
the intercompany indebtedness to AerFi of the aircraft owning companies in
respect of the 10 aircraft acquired from AerFi.
The fair value of the net assets acquired and the consideration given on
the acquisition of ALPS 94-1 and the AerFi transferred aircraft is summarized as
follows:
<TABLE>
<CAPTION>
FAIR VALUE ADJUSTMENTS
AERFI TRANSFERRED -------------------------
ALPS 94-1 AIRCRAFT VALUATION OTHER FAIR VALUE OF
BOOK VALUE BOOK VALUE ADJUSTMENTS ADJUSTMENTS ASSETS ACQUIRED
---------- ----------------- ----------- ----------- ---------------
U.S.$'000 U.S.$'000 U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C> <C> <C>
Current assets.................... 148,899 609 -- (406) 149,102
Fixed assets -- aircraft.......... 732,905 178,756 40,312 -- 951,973
Accrued liabilities & other
Liabilities..................... (72,057) (5,799) -- (11,603) (89,459)
Security deposits................. (13,255) (2,950) -- -- (16,205)
Indebtedness (A to D notes)....... (680,701) -- -- -- (680,701)
Indebtedness to AerFi............. (194,314) (48,435) -- (118,776) (361,525)
Deferred income tax............... -- (5,148) 5,148 -- --
--------- --------- --------- --------- ---------
NET ASSETS ACQUIRED............... (78,523) 117,033 45,460 (130,785) (46,815)
========= ========= ========= =========
Consideration paid............................................................................ (310)
---------
GOODWILL ON ACQUISITION....................................................................... (47,125)
=========
</TABLE>
The fair value adjustments in respect of the aircraft arise as a result of
a valuation of these assets to reflect the directors' estimate of their current
market value at the date of acquisition. This valuation of the ALPS 94-1
aircraft and the AerFi transferred aircraft exceeded the book values in these
entities by $6 million and $34 million respectively. The fair value adjustment
in respect of deferred taxation arises on the AerFi transferred aircraft as a
result of the change in the tax basis of these aircraft on their acquisition by
AerCo Limited.
The other adjustments in respect of current assets and accrued liabilities
and other expenses relate to current assets of the AerFi transferred aircraft
not acquired by AerCo Limited and the liability in respect of the makewhole
premium payable by ALPS 94-1 on the refinancing of its A to D note indebtedness.
The adjustment to indebtedness is comprised of (i) an amount of $37 million
in respect of indebtedness in the acquired entities which was forgiven as part
of the transaction whereby AerCo Limited acquired ALPS 94-1 and the AerFi
transferred aircraft and (ii) additional indebtedness to AerFi of U.S.$156
million representing the difference between the historic third party
indebtedness of AerFi in respect of the AerFi transferred aircraft and the
intercompany indebtedness to AerFi which arose on the
F-15
<PAGE> 192
AERCO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4 ACQUISITION OF ALPS 94-1 AND THE AERFI TRANSFERRED AIRCRAFT (CONTINUED)
acquisition of the aircraft owning companies which held these aircraft at the
date they were acquired by AerCo Limited.
The historical financial information for ALPS 94-1 is shown in the
consolidated statements of operations as comparatives. The summarized statement
of operations information for the AerFi transferred aircraft for the year ended
June 30, 1998 and for the 14 day period immediately prior to the acquisition by
AerCo Limited is set out below:
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1998 TO YEAR ENDED
JULY 14, 1998 JUNE 30, 1998
--------------- -------------
U.S.$'000 U.S.$'000
<S> <C> <C>
REVENUES
Aircraft leasing............................................ 983 21,109
EXPENSES
Depreciation................................................ (464) (10,215)
Net interest expense........................................ (1,392) (6,612)
Other expenses.............................................. 355 (4,804)
------- -------
(1,501) (21,631)
------- -------
NET LOSS FROM OPERATIONS BEFORE TAXES....................... (518) (522)
Benefit for taxes........................................... 5 501
------- -------
NET LOSS FOR THE PERIOD..................................... (513) (21)
======= =======
</TABLE>
5 AIRCRAFT, NET
<TABLE>
<CAPTION>
AERCO AERCO ALPS 94-1 ALPS 94-1
MARCH 31, 2000 MARCH 31, 1999 JULY 14, 1998 JUNE 30, 1998
-------------- -------------- ------------- -------------
U.S.$'000 U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C> <C>
COST
Beginning of period................ 937,766 -- 949,288 975,179
Additions.......................... 622 951,973 -- 1,132
Disposals.......................... (16,343) (14,207) (76,897) (27,023)
--------- --------- --------- ---------
End of period...................... 922,045 937,766 872,391 949,288
========= ========= ========= =========
DEPRECIATION
Beginning of period................ (33,513) -- (140,478) (108,583)
Charge for the period.............. (46,998) (33,821) (1,519) (37,826)
Disposal........................... 739 308 11,231 5,931
--------- --------- --------- ---------
End of period...................... (79,772) (33,513) (130,766) (140,478)
========= ========= ========= =========
IMPAIRMENT PROVISIONS
Beginning of period................ -- -- (8,720) (12,000)
Charge for the period.............. (13,079) -- -- (8,720)
Disposal........................... -- -- -- 12,000
--------- --------- --------- ---------
End of period...................... (13,079) -- (8,720) (8,720)
========= ========= ========= =========
NET BOOK VALUE
Beginning of period................ 904,253 -- 800,090 854,596
========= ========= ========= =========
End of period...................... 829,194 904,253 732,905 800,090
========= ========= ========= =========
</TABLE>
F-16
<PAGE> 193
AERCO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5 AIRCRAFT, NET (CONTINUED)
Cost for AerCo represents the fair value of aircraft acquired by AerCo as
part of the AerCo transaction at July 15, 1998 which was based on the
independent appraised values of the portfolio. Cost for ALPS 94-1 represents the
purchase price of aircraft acquired by ALPS 94-1 which was based on the
independent appraised values of the portfolio of aircraft at August 24, 1994.
In the year ended March 31, 2000, the directors of AerCo have made a
provision of U.S.$13.1m to reflect an impairment in the value of one B747
aircraft in its fleet. The directors arrived at such determination based on the
financial condition of the aircraft's current lessee, the physical condition of
the aircraft and the unfavorable market conditions for this aircraft type.
In the year ended June 30, 1998, the directors of ALPS 94-1 Limited made a
provision of U.S.$8.72 million to reflect an impairment in the value of the
three F100 aircraft then owned by ALPS 94-1 Limited. The directors arrived at
such determination based on the bankruptcy of Fokker N.V. and the
discontinuation of its aircraft manufacturing operations, resulting in
significant reductions of values and lease rates for Fokker aircraft.
In the year ended June 30, 1996, the directors of ALPS 94-1 Limited made a
provision of U.S.$12 million to reflect an impairment in the value of one A300
aircraft in its fleet. The directors arrived at such determination based upon
the then unfavorable market conditions for this aircraft type, which also caused
the appraisal firms to reduce their appraisal values for this aircraft type.
This aircraft was disposed of to AerFi during the year ended June 30, 1998 and
this provision was included in determining the profit on the disposal of this
aircraft of U.S.$2.4 million.
The aircraft and other assets held by ALPS 94-1 had charges attached to
them such that they represented security for the notes issued (see note 9(d)).
During the year ended March 31, 2000, AerCo disposed of one aircraft to a
third party to whom the aircraft had been on lease giving rise to a loss on
disposal of U.S.$941,000.
During the period from July 15, 1998 to March 31, 1999 AerCo disposed of
one aircraft to a third party to whom the aircraft had been on lease giving rise
to a profit on disposal of U.S.$10,000.
During the period from July 1, 1998 to July 14, 1998 ALPS 94-1 Limited
disposed of one aircraft to AerFi. This disposal resulted in a profit of
U.S.$10,000 in the period.
During the year ended June 30, 1998 ALPS 94-1 Limited disposed of one
aircraft to AerFi. This disposal resulted in a profit of U.S.$2,426,000 in the
year.
F-17
<PAGE> 194
AERCO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6 OPERATING LEASES
All of AerCo's aircraft are leased on operating leases to 25 lessees as at
March 31, 2000. Rentals on certain of the leases are variable in accordance with
prevailing interest rates.
The following is a schedule of contracted future rentals receivable, by
year, on operating leases as of March 31, 2000. The interest rates prevailing at
March 31, 2000 have been applied in determining rentals which are variable in
accordance with prevailing interest rates.
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31, U.S.$'000
--------------------- ----------
<S> <C>
2001........................................................ 93,691
2002........................................................ 74,820
2003........................................................ 61,742
2004........................................................ 38,230
2005........................................................ 16,951
Thereafter.................................................. 14,559
-------
299,993
=======
</TABLE>
There are no contingent rentals.
The leases have charges attached to them such that they represent security
for the notes issued.
7 ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
U.S.$'000 U.S.$'000
<S> <C> <C>
ACCRUED EXPENSES AND OTHER LIABILITIES COMPRISE:
Aircraft maintenance reserves............................... 32,216 39,697
Deferred income............................................. 3,014 4,670
Interest on A to D notes.................................... 2,270 2,260
Interest on E notes......................................... 38,000 14,101
Taxation.................................................... 46 53
Other accruals.............................................. 14,356 9,655
------- -------
89,902 70,436
======= =======
</TABLE>
All accrued expenses and other liabilities fall due within one year with
the exception of the entire amount of the accrued interest on the E notes and
aircraft maintenance reserves which are split as follows:
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
U.S.$'000 U.S.$'000
<S> <C> <C>
AIRCRAFT MAINTENANCE RESERVES:
Due within one year......................................... 6,342 13,876
Due after one year.......................................... 25,874 25,821
------- -------
32,216 39,697
======= =======
</TABLE>
8 DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
AerCo's financial instruments comprise its A through E note indebtedness,
cash and liquid resources and interest rate swaps. These financial instruments
are denominated in U.S. dollars and are used in connection with AerCo's leasing
operations. These financial instruments comprise a mixture of fixed and floating
items and AerCo has also contracted both fixed and floating rental streams with
its lessees.
F-18
<PAGE> 195
AERCO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8 DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (CONTINUED)
AerCo manages its interest rate exposure through the use of interest rate
swaps under which it will pay fixed and receive floating on a monthly basis. The
objective of AerCo's interest rate risk management policy is to correlate the
contracted fixed and floating rental payments on its aircraft to the interest
payments on the A, B and C notes taking into account the interest received on
its cash deposits. Thus, all of AerCo's interest rate swaps are for hedging
purposes.
AerCo seeks to manage its liquidity risk through maintaining a liquidity
reserve amount of U.S.$40 million and through the application of available
collections from lessees to meet its debt and other obligations in accordance
with a predetermined priority of payments as set out in the Trust Indenture.
(I) INTEREST RATE PROFILE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
The following table depicts the interest rate profile of AerCo's financial
assets and financial liabilities at March 31, 2000 after taking into account the
derivatives used by AerCo. In accordance with FRS 13 "DERIVATIVES AND OTHER
FINANCIAL INSTRUMENTS" the tables do not include interests in associate
undertakings and short term debtors and creditors.
Financial Assets
After taking account of the interest rate swaps entered into by AerCo, the
interest rate profile of AerCo's assets at March 31, 2000 was:
<TABLE>
<CAPTION>
FLOATING RATE FIXED RATE
TOTAL ASSETS ASSETS
---------- ------------- ----------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C>
Financial Assets
Cash................................................... 26,413 26,413 --
Commercial Paper....................................... 39,998 39,998 --
------- ------- -------
66,411 66,411 --
======= ======= =======
</TABLE>
The cash bears interest at rates based on daily U.S.$ LIBOR. The commercial
paper bears interest based on rates available for A1 +/P1 U.S. commercial paper.
Financial Liabilities
The interest rate profile of AerCo's financial liabilities at March 31,
2000 was:
<TABLE>
<CAPTION>
FLOATING RATE FIXED RATE
FINANCIAL FINANCIAL
TOTAL LIABILITIES LIABILITIES
---------- ------------- -----------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C>
Financial Liabilities
Indebtedness
A-1 notes.............................................. 340,000 340,000 --
A-2 notes.............................................. 212,281 212,281 --
B-1 notes.............................................. 76,293 76,293 --
C-1 notes.............................................. 84,444 84,444 --
D-1 notes.............................................. 80,000 -- 80,000
E-1 notes.............................................. 111,973 -- 111,973
Aircraft maintenance reserves due after one year....... 5,844 5,844 --
------- ------- -------
TOTAL.................................................. 910,835 718,862 191,973
======= ======= =======
</TABLE>
F-19
<PAGE> 196
AERCO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8 DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (CONTINUED)
A-1, A-2, B-1 and C-1 note indebtedness bear interest at rates based on one
month LIBOR plus a specified margin of 0.19%, 0.32%, 0.60% and 1.35%
respectively.
Aircraft maintenance reserves bear interest at six month U.S.$ LIBOR rates.
The interest rate on the D-1 and E-1 notes is 8.5% and 20% respectively.
The weighted average period for which the D-1 and E-1 notes are fixed is 11
years and 24 years respectively.
(II) MATURITY OF FINANCIAL LIABILITIES
Information relating to the maturity profile of indebtedness is set out in
Note 9. The estimated maturity profile of aircraft maintenance reserves which
are classified as financial liabilities is as follows:
<TABLE>
<CAPTION>
DUE: U.S.$'000
---- ---------
<S> <C>
In more than one year but not more than two years........... 2,534
In more than two years but not more than five years......... 3,310
In more than five years..................................... --
-------
5,844
=======
</TABLE>
(III) BORROWING FACILITIES
AerCo had no undrawn committed borrowing facilities at March 31, 2000.
(IV) FAIR VALUES OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
The book values and fair values of AerCo's financial assets and liabilities
as at March 31, 2000 by category are set out below:
<TABLE>
<CAPTION>
PRIMARY FINANCIAL INSTRUMENTS HELD OR ISSUED TO
FINANCE AERCO'S OPERATIONS BOOK VALUE FAIR VALUE
----------------------------------------------- ---------- ----------
U.S.$'000 U.S.$'000
<S> <C> <C>
Financial Assets
Cash........................................................ 26,413 26,413
Commercial paper............................................ 39,998 39,998
------- -------
Total....................................................... 66,411 66,411
======= =======
Financial Liabilities
Indebtedness
A-1 notes................................................... 340,000 339,841
A-2 notes................................................... 212,281 210,996
B-1 notes................................................... 76,293 74,591
C-1 notes................................................... 84,444 80,337
D-1 notes................................................... 80,000 67,200
E-1 notes................................................... 111,973 22,395
Aircraft maintenance reserves due after one year............ 5,844 5,844
------- -------
Total....................................................... 910,835 801,204
======= =======
Derivative financial instruments
Interest rate swaps (notional principal U.S.$565 million)... -- 11,673
======= =======
</TABLE>
F-20
<PAGE> 197
AERCO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8 DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (CONTINUED)
The fair values of notes outstanding have been determined by reference to
prices available from the markets in which these notes are traded. The fair
value of aircraft maintenance reserves which are subject to floating rates is
their par value. All the other fair values shown have been calculated by
discounting future estimated cash flows at prevailing interest rates.
In accordance with the objectives of AerCo's hedging policies the fair
value gain arising in respect of AerCo's interest rate swaps is offset to a
significant extent by fair value losses inherent in the contracted fixed rate
leases entered into by AerCo.
(V) GAINS AND LOSSES ON HEDGES
AerCo enters into interest rate swaps to manage its interest rate profile.
Changes in the fair value of instruments used as hedges are not recognized in
the financial statements. An analysis of these unrecognized gains and losses is
as follows:
<TABLE>
<CAPTION>
TOTAL NET
GAINS LOSSES GAINS
---------- ---------- ----------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C>
Unrecognized gains and (losses) on hedges at March 31,
1999.................................................... 776 (2,869) (2,093)
(Losses) at the start of the year in a gain position at
the end of year......................................... (2,635) 2,635 --
------- ------- -------
Unrecognized (losses) at March 31, 1999................... (1,859) (234) (2,093)
Gains and (losses) arising in previous periods that were
recognized in the year to March 31, 2000................ 1,389 (118) 1,271
------- ------- -------
(Losses) arising before March 31, 1999 that were not
recognized in the year ended March 31, 2000............. (470) (352) (822)
Gains arising in the current year that were not recognized
in the year ended March 31, 2000........................ 12,173 322 12,495
------- ------- -------
Unrecognized gains and (losses) on hedges at March 31,
2000.................................................... 11,703 (30) 11,673
======= ======= =======
Of which:
Gains expected to be recognized in 2001................... 4,154 132 4,286
Gains and (losses) expected to be recognized in 2002 or
later................................................... 7,549 (162) 7,387
</TABLE>
9 INDEBTEDNESS
A) PRINCIPAL
The purchase by AerCo Limited of 100% of the capital stock of ALPS 94-1
Limited and thereby a portfolio of 25 aircraft and related lessees, the purchase
of 10 aircraft and related lessees from AerFi and the refinancing of the ALPS
94-1 indebtedness was funded by the issue of notes by AerCo Limited.
The notes constitute direct obligations of AerCo Limited. None of the
Security Trustee (as defined below) or the noteholders have any security
interest, mortgage, charge or similar interest in any of the aircraft.
Pursuant to the Security Trust Agreement, Bankers Trust Company (the
"Security Trustee") has been granted an interest in the capital stock of certain
of the direct and indirect subsidiaries of AerCo Limited. The Security Trustee
has been granted a security interest, directly or indirectly, in the respective
interests of each AerCo Group member in the leases and leases within AerCo Group
relating to the aircraft, in any loans extended by AerCo Limited to its
subsidiaries and certain cash deposits.
F-21
<PAGE> 198
AERCO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9 INDEBTEDNESS (CONTINUED)
A) PRINCIPAL (CONTINUED)
<TABLE>
<CAPTION>
AERCO AERCO
MARCH 31, 2000 MARCH 31, 1999 AT ISSUE
-------------- -------------- ----------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C>
Subclass A-1 notes................................. 340,000 340,000 340,000
Subclass A-2 notes................................. 212,281 255,436 290,000
Subclass B-1 notes................................. 76,293 81,568 85,000
Subclass C-1 notes................................. 84,444 84,931 85,000
Subclass D-1 notes................................. 80,000 80,000 80,000
Subclass E-1 notes................................. 111,973 111,973 111,973
Deferred Financing Costs........................... (3,793) (4,691) (5,364)
------- ------- -------
901,198 949,217 986,609
======= ======= =======
</TABLE>
Repayments of principal on the A, B, C and D notes are made monthly and
commenced in August 1998. The repayment of principal on the A to D notes is
dependent upon the cash available at each monthly payment date and is governed
by the Priority of Payments set out in the Trust Indenture entered into by AerCo
Limited on July 15, 1998 (the "Closing Date").
The repayment of class E note principal is not due until the class A to D
notes have been fully repaid. Repayment of the principal amount of the class E
notes and accrued interest thereon are dependent upon funds being available to
meet such liabilities as they fall due.
B) INTEREST
Subclass A-1 notes bear interest at LIBOR plus 0.19%, payable monthly in
arrears.
Subclass A-2 notes bear interest at LIBOR plus 0.32%, payable monthly in
arrears.
Subclass B-1 notes bear interest at LIBOR plus 0.60%, payable monthly in
arrears.
Subclass C-1 notes bear interest at LIBOR plus 1.35%, payable monthly in
arrears.
The subclass D-1 notes bear interest at 8.50%. Interest is payable monthly
in arrears and commenced in August 1998, subject to available cash. Interest
accrued but not paid will be added to the principal outstanding and will accrue
interest until paid.
The subclass E-1 notes bear interest at 20% per annum accruing monthly in
arrears. Except for the class E Note Primary Interest Amount which will be paid
at a rate of 15.0% per annum multiplied by the Initial Outstanding Principal
Balance of the subclass E-1 notes on the Closing Date, no interest is payable on
subclass E-1 notes until all of the interest, principal and premium, if any, on
the other notes have been repaid in full. The class E note Primary Interest
Amount will be paid on each Payment Date only to the extent that AerCo has
available collections sufficient to make such payment after paying or providing
for each of the items ranking prior to such payment in order of priority under
the Trust Indenture.
F-22
<PAGE> 199
AERCO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9 INDEBTEDNESS (CONTINUED)
C) DEBT MATURITY
The repayment terms of the class A, B, C and D notes are such that certain
principal amounts are expected to be repaid on certain dates based on certain
assumptions (the "Expected Final Payment Dates") or refinanced through the issue
of new notes by specified Expected Final Payment Dates but in any event are
ultimately due for repayment on specified final maturity dates (the "Final
Maturity Dates"). In the event that the A, B and C notes are not repaid or
refinanced by the Expected Final Payment Dates the interest rates applicable to
those notes may increase. The Expected Final Payment Dates, Final Maturity
Dates, Principal Amount and interest rates applicable to each class of notes are
set out as below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT EXPECTED FINAL
CLASS OF NOTES INTEREST RATES MARCH 31, 2000 PAYMENT DATE FINAL MATURITY DATE
-------------- -------------- ---------------- ----------------- -------------------
U.S.$ MILLION
<S> <C> <C> <C> <C>
Class A-1............... LIBOR + 0.19% 340 July 17, 2000 July 15, 2023
Class A-2............... LIBOR + 0.32% 212 December 15, 2005 July 15, 2023
Class B-1............... LIBOR + 0.60% 76 July 15, 2013 July 15, 2023
Class C-1............... LIBOR + 1.35% 85 July 15, 2013 July 15, 2023
Class D................. 8.5% 80 March 15, 2014 July 15, 2023
Class E................. 20% 112 July 15, 2023 July 15, 2023
-----
905
=====
</TABLE>
The repayment dates and amounts of the notes shown in the table below are
not fixed contractual obligations but are the amounts AerCo will pay if cash
flows are in accordance with targets. To the extent that cash flows exceed, or
do not meet, the targets then these amounts will vary in accordance with the
Trust Indenture. The targets assume that the minimum future rentals as
summarised in Note 6 are received after making adjustments for the anticipated
performance of the lessees.
The target principal balances repayable analysed by year of repayment are
as follows (all amounts are in U.S.$'000):
<TABLE>
<CAPTION>
SUBCLASS
--------------------------------------------------------------
YEAR ENDING MARCH 31 A-1 A-2 B-1 C-1 D-1 TOTAL
-------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
2001......................... 340,000 32,322 4,323 1,074 -- 377,719
2002......................... -- 30,942 4,964 1,749 -- 37,655
2003......................... -- 22,532 5,460 2,490 -- 30,482
2004......................... -- 26,924 6,732 3,285 -- 36,941
2005......................... -- 25,302 7,540 4,126 -- 36,968
Thereafter................... -- 74,259 47,274 71,720 80,000 273,253
------- ------- ------- ------- ------- -------
Total........................ 340,000 212,281 76,293 84,444 80,000 793,018
======= ======= ======= ======= ======= =======
</TABLE>
The principal of the subclass E-1 notes is not payable until the
outstanding principal balance of the class A to D notes is reduced to zero.
10 SECURITY DEPOSITS
Security deposits of U.S.$16,304,000 in AerCo as at March 31, 2000
(U.S.$14,783,000 at March 31, 1999) are held as security for obligations in
accordance with the terms of certain leases. The deposits are held as cash and
commercial paper by AerCo (see Note 1).
F-23
<PAGE> 200
AERCO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11 SHARE CAPITAL
Called up share capital comprises:
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
U.S.$ U.S.$
<S> <C> <C>
AUTHORIZED
10,000 ordinary shares of U.S.$1 each..................... 10,000 10,000
======= =======
ISSUED AND FULLY PAID
20 ordinary shares of U.S.$1 each......................... 20 20
======= =======
</TABLE>
AerCo Limited issued 20 ordinary shares at U.S.$1 each on June 4, 1998.
12 REVENUES AND CONCENTRATION OF CREDIT RISK
A) DISTRIBUTION OF REVENUES BY GEOGRAPHIC AREA
<TABLE>
<CAPTION>
AERCO ALPS 94-1
AERCO PERIOD FROM PERIOD FROM ALPS 94-1
YEAR ENDED JULY 15, 1998 TO JULY 1, 1998 TO YEAR ENDED
MARCH 31, 2000 MARCH 31, 1999 JULY 14, 1998 JUNE 30, 1998
---------------- ---------------- ---------------- ----------------
U.S.$'000 % U.S.$'000 % U.S.$'000 % U.S.$'000 %
--------- ---- --------- ---- --------- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Europe..................... 52,956 48.5 40,456 48.8 1,508 41.5 45,624 45.3
North America.............. 9,186 8.4 7,009 8.5 144 4.0 4,328 4.3
South/Central America...... 21,366 19.6 14,318 17.3 716 19.7 21,375 21.2
Asia/Pacific............... 25,638 23.5 21,043 25.4 1,267 34.8 29,355 29.2
------- ---- ------ ---- ----- ---- --------- ----
109,146 100 82,826 100 3,635 100 100,682 100
======= ==== ====== ==== ===== ==== ========= ====
</TABLE>
All revenues are derived from aircraft leasing.
In the year ended March 31, 2000, 17% and 11% of AerCo's lease revenues was
derived from the United Kingdom and Spain respectively. No other country
accounted for greater than 10% of AerCo's lease revenues.
In the period from July 15, 1998 to March 31, 1999, 18% and 10% of AerCo's
lease revenues was derived from the United Kingdom and Spain respectively. No
other country accounted for greater than 10% of AerCo's lease revenues.
In the period from July 1, 1998 to July 14, 1998, 15%, 15%, 14% and 10% of
ALPS 94-1's lease revenues was derived from Chile, Hungary, Spain and the United
Kingdom respectively. No other country accounted for greater than 10% of ALPS
94-1's lease revenues.
In the year ended June 30, 1998, 15%, 14% and 12% of ALPS 94-1's lease
revenues was derived from the United Kingdom, Chile and Spain respectively. No
other country accounted for greater than 10% of ALPS 94-1's lease revenues.
B) CONCENTRATION OF CREDIT RISK
Credit risk with respect to trade accounts receivable is generally
mitigated due to the number of lessees and their dispersal across different
geographic areas.
AerCo and ALPS 94-1 manage their exposures to particular countries through
obtaining security from lessees by way of deposits, letters of credit and
guarantees. In addition AerCo and ALPS 94-1 had maintained Political Risk
Insurance in respect of certain lessees.
F-24
<PAGE> 201
AERCO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12 REVENUES AND CONCENTRATION OF CREDIT RISK (CONTINUED)
B) CONCENTRATION OF CREDIT RISK (CONTINUED)
AerCo and ALPS 94-1 continually evaluate the financial position of lessees
and, based on this evaluation, the amounts outstanding and the available
security, make an appropriate provision for doubtful debts.
As at March 31, 2000 one lessee accounted for 11% of AerCo's lease
revenues. No other lessee accounted for greater than 10% of AerCo's lease
revenues for the year ended March 31, 2000.
As at March 31, 1999, one lessee accounted for 10% of AerCo's lease
revenues. No other lessee accounted for greater than 10% of AerCo's lease
revenues for the period from July 15, 1998 to March 31, 1999.
At July 14, 1998 no lessee accounted for greater than 10% of ALPS 94-1's
lease revenues.
As at June 30, 1998, one lessee accounted for 14% of ALPS 94-1's lease
revenues and another accounted for 12% of ALPS 94-1's lease revenues. No other
lessee accounted for greater than 10% of ALPS 94-1's lease revenues for the year
ended June 30, 1998.
13 EXCEPTIONAL ITEMS
<TABLE>
<CAPTION>
AERCO ALPS 94-1
AERCO PERIOD FROM PERIOD FROM ALPS 94-1
YEAR END JULY 15, 1998 TO JULY 1, 1998 TO YEAR ENDED
MARCH 31, 2000 MARCH 31, 1999 JULY 14, 1998 JUNE 30, 1998
-------------- ---------------- --------------- -------------
U.S.$'000 U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C> <C>
Provision for impairment in
aircraft value (note 5)......... 13,079 -- -- 8,720
Termination fee (i)............... -- -- -- 12,700
------- ------- ------- -------
13,079 -- -- 21,420
======= ======= ======= =======
</TABLE>
---------------
(i) In the year ended June 30, 1998 the directors of ALPS 94-1 Limited approved
the transaction involving the sale of the capital stock of ALPS 94-1 Limited
to AerCo Limited. ALPS 94-1 Limited entered into a contract with its
servicer, GE Capital Aviation Services Limited ("GECAS") whereby it agreed
to terminate the GECAS servicing agreement in respect of the management of
ALPS 94-1's assets in consideration for a termination fee of $12.7 million.
This amount was charged in the year ended June 30, 1998.
14 NET INTEREST EXPENSE
<TABLE>
<CAPTION>
AERCO ALPS 94-1
AERCO PERIOD FROM PERIOD FROM ALPS 94-1
YEAR ENDED JULY 15, 1998 TO JULY 1, 1998 TO YEAR ENDED
MARCH 31, 2000 MARCH 31, 1999 JULY 14, 1998 JUNE 30, 1998
-------------- ---------------- --------------- -------------
U.S.$'000 U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C> <C>
Interest payable on notes......... 80,957 56,047 2,977 73,560
Net interest income............... (2,139) (1,939) (220) (3,775)
------- ------- ------- -------
78,818 54,108 2,757 69,785
======= ======= ======= =======
</TABLE>
F-25
<PAGE> 202
AERCO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15 OTHER EXPENSES
<TABLE>
<CAPTION>
AERCO ALPS 94-1
AERCO PERIOD FROM PERIOD FROM ALPS 94-1
YEAR ENDED JULY 15, 1998 TO JULY 1, 1998 TO YEAR ENDED
MARCH 31, 2000 MARCH 31, 1999 JULY 14, 1998 JUNE 30, 1998
-------------- ---------------- --------------- -------------
U.S.$'000 U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C> <C>
Servicer's fees................... 4,023 2,637 108 2,894
Political risk insurance.......... 292 247 54 425
Hull war risks insurance.......... 363 329 -- --
Administration fees............... 2,102 1,561 20 412
Cash managers' fees............... 251 177 -- 76
Technical & leasing costs......... 5,021 1,521 -- 1,914
Provision for doubtful costs...... 2,146 547 174 --
Legal & professional fees......... 736 657 260 440
Directors' & Officer's
insurance....................... 352 282 12 295
Directors' fees and expenses...... 344 278 18 100
Audit and tax fees................ 112 75 -- 43
------- ------- ------- -------
15,742 8,311 646 6,599
======= ======= ======= =======
</TABLE>
16 NET LOSS BEFORE PROVISION FOR TAXES
A) NET LOSS BEFORE PROVISION FOR TAXES IS STATED AFTER CHARGING:
<TABLE>
<CAPTION>
AERCO ALPS 94-1
AERCO PERIOD FROM PERIOD FROM ALPS 94-1
YEAR ENDED JULY 15, 1998 TO JULY 1, 1998 TO YEAR ENDED
MARCH 31, 2000 MARCH 31, 1999 JULY 14, 1998 JUNE 30, 1998
-------------- ---------------- --------------- -------------
U.S.$'000 U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C> <C>
Directors' remuneration...... 344 278 18 100
======= ======= ======= ===
</TABLE>
B) DIRECTORS AND OFFICERS' INSURANCE
Directors' and Officers' Insurance has been implemented for AerCo and ALPS
94-1. Directors of AerCo Limited and ALPS 94-1 Limited also have the protection
of an unsecured indemnity from AerCo Limited and ALPS 94-1 Limited in respect of
claims relating to them in their capacity as directors.
17 PROVISION FOR TAXES
<TABLE>
<CAPTION>
AERCO ALPS 94-1
AERCO PERIOD FROM PERIOD FROM ALPS 94-1
YEAR ENDED JULY 15, 1998 TO JULY 1, 1998 TO YEAR ENDED
MARCH 31, 2000 MARCH 31, 1999 JULY 14, 1998 JUNE 30, 1998
-------------- ---------------- --------------- -------------
U.S.$'000 U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C> <C>
Corporation tax provision.... (51) (35) -- (33)
======== ======= ======= =======
</TABLE>
Taxation provisions for AerCo and ALPS 94-1 relate to taxes levied in local
jurisdictions in respect of the activities of subsidiaries.
AerCo's income from approved activities in Ireland is taxable at a rate of
10% until December 31, 2005.
F-26
<PAGE> 203
AERCO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18 BASIC AND DILUTED LOSS PER ORDINARY SHARE
The calculation of basic and diluted loss per ordinary share for AerCo
Limited for the year ended March 31, 2000 and the period from July 15, 1998 to
March 31, 1999 has been computed by dividing the losses of U.S.$48,839,000 and
U.S.$15,108,000 respectively by the weighted average number of ordinary shares
outstanding during these periods of 20 shares.
The calculation of basic and diluted loss per ordinary share for ALPS 94-1
Limited from July 1, 1998 to July 14, 1998 and for the year ended June 30, 1998
has been computed by dividing the losses of U.S.$1,277,000 and U.S.$32,555,000
respectively by the weighted average number of ordinary shares outstanding
during these periods of 10 shares.
No adjustments have been made to the basic or diluted loss per ordinary
share for ALPS 94-1 Limited for the period from July 1, 1998 to July 15, 1998
and for the year ended June 30, 1998 as a result of the change in capital
structure and the fair value adjustments arising out of the refinancing and
acquisition of ALPS 94-1 and the AerFi transferred aircraft and therefore, the
earnings per share figures for AerCo Limited and ALPS 94-1 Limited are not
directly comparable.
19 STAFF COSTS AND NUMBERS
AerCo and ALPS 94-1 have no employees.
20 SUBSIDIARY COMPANIES
AerCo Limited has the following subsidiary companies as at March 31, 2000:
<TABLE>
<CAPTION>
NAME COUNTRY OF INCORPORATION BUSINESS % OF SHARES HELD
---- ------------------------ -------------------- ----------------
<S> <C> <C> <C>
AerCo Ireland Limited............. Ireland Aircraft leasing and 100%
sub-leasing
AerCo Ireland II Limited.......... Ireland Aircraft leasing and 100%
sub-leasing
AerCo USA Inc..................... USA Aircraft leasing and 100%
sub-leasing
ALPS 94-1 Limited................. Jersey Aircraft leasing and 100%
sub-leasing
Pergola Limited................... Ireland Aircraft leasing and 100%
sub-leasing
ALPS 94-1(Belgium) N.V............ Belgium Aircraft leasing and 100%
sub-leasing
AerFi (Belgium) N.V............... Belgium Aircraft leasing and 100%
sub-leasing
ALPS 94-1 (France) S.A.R.L........ France Dormant 100%
</TABLE>
As at July 14, 1998 and all previous periods, ALPS 94-1 was comprised of
ALPS 94-1 Limited and its 100% owned subsidiaries, Pergola Limited, ALPS 94-1
(Belgium) N.V. and ALPS 94-1 (France) S.A.R.L.
21 DIVIDENDS
Under the Articles of Association, the shareholders of ALPS 94-1 Limited
were entitled to receive a fixed cumulative preferential dividend of U.S.$1,500
per annum out of the profits. This dividend was not declared in the year ended
June 30, 1998.
F-27
<PAGE> 204
AERCO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
22 CASH FLOW STATEMENT
A) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
ALPS 94-1
AERCO AERCO PERIOD FROM ALPS 94-1
YEAR ENDED PERIOD ENDED JULY 1, 1998 TO YEAR ENDED
MARCH 31, 2000 MARCH 31, 1999 JULY 14, 1998 JUNE 30, 1998
-------------- -------------- --------------- -------------
U.S.$'000 U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C> <C>
Cash paid in respect of:
Interest -- A - C notes........... 43,585 30,694 3,872 49,191
Interest -- D - E notes........... 10,999 7,332 -- 5,624
Interest rate swaps............... 1,566 987 -- --
------- ------- ------- -------
56,150 39,013 3,872 54,815
======= ======= ======= =======
</TABLE>
B) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT -- AERCO
<TABLE>
<CAPTION>
U.S.$'000
---------
<S> <C>
Increase in cash in the year................................ 795
Cash outflow from decrease in debt.......................... 48,917
Increase in liquid resources in year........................ 1
---------
Change in net debt resulting from cash flows................ 49,713
Amortization of issue costs................................. (898)
---------
Movement in net debt in the year............................ 48,815
Net debt at March 31, 1999.................................. (883,602)
---------
Net debt at March 31, 2000.................................. (834,787)
=========
</TABLE>
C) ANALYSIS OF NET DEBT -- AERCO
<TABLE>
<CAPTION>
OTHER NON
MARCH 31, 1999 CASH FLOW CASH CHARGES MARCH 31, 2000
-------------- --------- ------------ --------------
U.S.$'000 U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C> <C>
Cash................................ 25,618 795 -- 26,413
Liquid resources.................... 39,997 1 -- 39,998
Indebtedness........................ (949,217) 48,917 (898) (901,198)
--------- --------- --------- ---------
(883,602) 49,713 (898) (834,787)
========= ========= ========= =========
</TABLE>
D) PURCHASE OF SUBSIDIARY UNDERTAKINGS
<TABLE>
<CAPTION>
U.S.$'000
----------
<S> <C>
NET ASSETS ACQUIRED
Aircraft.................................................... 951,973
Accounts receivable......................................... 2,927
Cash........................................................ 146,175
Accrued expenses and other liabilities...................... (60,430)
Security deposits........................................... (16,205)
---------
1,024,440
Goodwill.................................................... 47,125
---------
1,071,565
=========
Satisfied by cash........................................... 1,071,565
=========
</TABLE>
F-28
<PAGE> 205
AERCO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
23 COMMITMENTS
AerCo Limited and its consolidated subsidiaries have no long-term contracts
other than those with their service providers (see note 31) and lessees (see
note 6).
FOREIGN TAXATION
The international character of AerCo's operations give rise to some
uncertainties with regard to the impact of taxation in certain countries. The
position is kept under continuos review and AerCo provides for all known
liabilities.
24 NEW ACCOUNTING STANDARDS IMPLEMENTED
FRS 12 "Provisions, Contingent Liabilities and Contingent Assets" ("FRS
12") was effective for AerCo for its first trading accounting period ended March
31, 1999.
Under the accounting policy previously adopted by ALPS 94-1 all aircraft
maintenance reserves collected from lessees in respect of major aircraft and
engine overhauls were held as provisions. Under FRS 12 the pre-accrual of
maintenance costs is not permitted and accordingly ALPS 94-1 changed its
accounting policy in the period ended March 31, 1999 to reflect the adoption of
the AerCo accounting policy for maintenance. The effect of this change in
accounting policy is that maintenance reserves collected from lessees which
cannot be drawn down by current lessees are no longer provided. Such reserves
only arose prior to June 30, 1996 and the adjustment therefore has no effect on
reported results. The balance sheet effect of this change in accounting policy
was to reduce both maintenance provisions and the accumulated deficit of ALPS
94-1 by U.S.$1.973 million at each balance sheet date.
25 SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements are prepared in accordance with U.K.
GAAP which differ significantly in certain respects from U.S. GAAP. These
significant differences are described below:
(A) BASIS OF ACCOUNTING FOR TRANSACTIONS BETWEEN AERCO, ALPS 94-1 AND
AERFI.
Under U.K. GAAP the transaction whereby AerCo Limited acquired ALPS 94-1
Limited and the AerFi transferred aircraft is accounted for using acquisition
accounting. Under U.S. GAAP the transactions between AerCo, ALPS 94-1 and AerFi
are transactions between entities under common control as these entities are all
part of a single consolidated group. The U.S. GAAP historical financial
information is presented for ALPS 94-1 and has not been retroactively restated
using the "AS-IF-POOLING-OF INTEREST-METHOD" in respect of the AerFi transferred
aircraft because of the restricted nature of the vehicles.
(B) AIRCRAFT
Under U.K. GAAP the aircraft acquired by ALPS 94-1 from AerFi and those
acquired by AerCo as part of the transaction whereby AerCo acquired ALPS 94-1
and the AerFi transferred aircraft, are recorded at their fair value on the
acquisition date. Under U.S. GAAP transfers of assets between AerCo, ALPS 94-1
and AerFi are accounted for on a historical cost basis as transactions between
entities under the common control of AerFi.
Effective from July 1, 1996 the method of depreciation is the same for both
U.K. and U.S. GAAP. Prior to that date under U.K. GAAP, depreciation was
provided at 2% for the first 15 years and 7% thereafter whereas under U.S. GAAP
prior to July 1, 1996, the aircraft were depreciated on a straight-line
F-29
<PAGE> 206
AERCO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
25 SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
(B) AIRCRAFT (CONTINUED)
basis so as to write-off the cost of the assets over a period of 25 years. Under
U.K. GAAP, a provision for additional depreciation was made on July 1, 1996 to
reflect the impact of adopting the revised estimates of accumulated depreciation
in respect of prior periods. Under U.S. GAAP, no such additional depreciation
charge arises.
For U.S. GAAP purposes, ALPS 94-1 adopted FASB Statement No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be disposed of " as of July 1, 1996. AerCo has also adopted FASB Statement No.
121. FASB Statement No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the directors estimate the future cash flows expected to result
from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized. This
statement did not materially change the carrying value of ALPS 94-1's assets in
the period when it was first applied. Prior to the adoption of the FASB
Statement No. 121, ALPS 94-1 recorded additional charges to reduce the book
value of specific assets to fair value where a permanent diminution in value was
considered to have occurred.
The differences between income recorded for U.K. GAAP and U.S. GAAP
therefore relate to (i) the difference between the amortized cost of the
aircraft under U.S. GAAP and the initial appraised value under U.K. GAAP, (ii)
the difference in depreciation under U.S. GAAP and U.K. GAAP, (iii) the
difference in additional depreciation resulting from the change in depreciation
method under U.K. GAAP, (iv) the difference in the cost of aircraft disposed
under U.S. GAAP and U.K. GAAP, (v) different impairment provisions because of
the different cost base for the aircraft.
(C) CASH FLOWS
In accordance with U.K. GAAP AerCo and ALPS 94-1 comply with Financial
Reporting Standard No. 1 (Revised) -- "Cash Flow Statements" ("FRS 1"). Its
objective and principles are similar to those set out in SFAS No. 95 "Statement
of Cash Flows". The principal difference between the standards is in respect of
classification. Under FRS1, AerCo and ALPS 94-1 present their cash flows for:
(a) operating activities; (b) return on investments and servicing of finance;
(c) taxation; (d) capital expenditure and financial investment; (e) acquisitions
and disposals; (f) management of liquid resources and (g) financing activities.
SFAS No. 95 requires only three categories of cash flow activity; (a) operating;
(b) investing; and (c) financing.
Cash flows arising from taxation and returns on investments and servicing
of finance under FRS1 are included as operating activities under SFAS No. 95.
Cash flows arising from capital expenditure under FRS1 are included as investing
activities under SFAS No. 95.
For the purposes of cash flows under U.S. GAAP, AerCo and ALPS 94-1
consider all highly liquid deposits with a maturity of three months or less to
be cash equivalents. Under U.K. GAAP, cash represents amounts available on
demand and liquid resources comprise other cash and commercial paper.
Substantially all of the cash balances of AerCo at March 31, 2000 and March
31, 1999 are held for specific purposes under the terms of the AerCo Trust
Indenture.
F-30
<PAGE> 207
AERCO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
25 SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
(C) CASH FLOWS (CONTINUED)
Substantially all of the cash balances of ALPS 94-1 at June 30, 1998 and
July 14, 1998 were held for specific purposes under the terms of the ALPS 94-1
Deed of Charge.
(D) GOODWILL
Under U.K. GAAP the difference between the fair value of the net assets of
ALPS 94-1 and the AerFi transferred aircraft, and the purchase consideration
paid by AerCo Limited to acquire these entities gives rise to goodwill of $47
million which is capitalised and amortised over a period of 20 years. No
goodwill arises under U.S. GAAP as the transaction is accounted for on a
historical cost basis as a transaction between entities under common control.
(E) ISSUE COSTS
Under U.K. GAAP issue costs arising on the completion of the refinancing
transaction are disclosed as a reduction of the related indebtedness. Under U.S.
GAAP issue costs are disclosed separately as deferred financing costs.
(F) MAINTENANCE
AerCo's accounting policy for aircraft maintenance reflects its adoption of
FRS 12 as explained in Note 24. The historic U.K. GAAP financial information for
ALPS 94-1 has been restated to reflect the application of the AerCo accounting
policy for all periods. For U.S. GAAP the cumulative effect of this change in
accounting policy has been reflected in the results for the period ended March
31, 1999.
(G) GAIN ON EXTINGUISHMENT OF DEBT
Under U.K. GAAP the makewhole premium payable by ALPS 94-1 on the
settlement of its A to D note indebtedness and the indebtedness to AerFi which
was forgiven as part of the AerCo transaction are fair value adjustments to the
net assets of ALPS 94-1 and the AerFi transferred aircraft acquired by AerCo
(see Note 4). Under U.S. GAAP the makewhole premium and the indebtedness
forgiven by AerFi are accounted for as an extraordinary gain on the
extinguishment of indebtedness.
(H) FUTURE DEVELOPMENTS
SFAS No. 133 "Accounting for Derivative Instruments and for Hedging
Activities" was issued in June 1998. In June 1999, The Financial Accounting
Standards Board ("FASB") issued SFAS No. 137 "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133", which defers the effective date until fiscal years beginning
after 15 June 2000. Therefore, initial application for AerCo will be on 1 April
2001 and on that date, hedging relationships shall be designated anew. The SFAS
may not be retroactively applied to financial statements of prior periods. AerCo
is currently reviewing the likely impact of this Statement.
F-31
<PAGE> 208
AERCO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
26 RECONCILIATION OF NET INCOME AS STATED IN ACCORDANCE WITH U.K. GAAP TO NET
INCOME IN ACCORDANCE WITH U.S. GAAP
<TABLE>
<CAPTION>
ALPS 94-1
(UNAUDITED) ALPS 94-1
AERCO AERCO NINE MONTHS PERIOD FROM ALPS 94-1
YEAR ENDED PERIOD ENDED ENDED JULY 1, 1998 TO YEAR ENDED
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998 JULY 14, 1998 JUNE 30, 1998
-------------- -------------- -------------- --------------- -------------
U.S.$'000 U.S.$'000 U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C> <C> <C>
Retained loss in accordance with U.K
GAAP................................ (48,839) (15,108) (17,824) (1,277) (32,555)
Goodwill amortization................. 2,356 1,669 -- -- --
Exceptional item: additional
depreciation charge................. -- -- -- -- --
Difference in depreciation of
aircraft............................ 8,644 5,759 4,315 243 5,773
Difference in provision for impairment
of aircraft value................... 6,979 -- 8,200 -- 8,200
Difference in book value of aircraft
sold................................ -- -- -- 7,007 --
Difference in book value of aircraft
sold................................ (375) (319) -- -- (2,226)
--------- --------- --------- --------- ---------
NET (LOSS)/INCOME IN ACCORDANCE WITH
U.S. GAAP BEFORE EXTRAORDINARY
ITEM................................ (31,235) (7,999) (5,309) 5,973 (20,808)
--------- --------- --------- --------- ---------
Cumulative effect of change in
accounting policy for maintenance... -- 1,973 -- -- --
EXTRAORDINARY ITEM -- NET GAIN ON
EXTINGUISHMENT OF DEBT;
Gain on forgiveness of indebtedness
to AerFi arising as part of the
refinancing transaction........... -- 37,389 -- -- --
Makewhole premium arising on
refinancing....................... -- (11,603) -- -- --
--------- --------- --------- --------- ---------
-- 25,786 -- -- --
--------- --------- --------- --------- ---------
NET (LOSS)/INCOME IN ACCORDANCE WITH
U.S. GAAP........................... (31,235) 19,760 (5,309) 5,973 (20,808)
========= ========= ========= ========= =========
Weighted average number of ordinary
shares outstanding.................. 20 20 10 10 10
========= ========= ========= ========= =========
BASIC AND DILUTED (LOSS)/PROFIT PER
ORDINARY SHARE FOR THE PERIOD AS SO
ADJUSTED, BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING POLICY FOR
MAINTENANCE AND EXTRAORDINARY
ITEM................................ (1,561.7) (399.95) (530.9) 597.3 (2,080.8)
Cumulative effect of change in
accounting policy for maintenance... -- 98.65 -- -- --
Extraordinary item.................... -- 1,289.3 -- -- --
--------- --------- --------- --------- ---------
BASIC AND DILUTED PROFIT/(LOSS) PER
ORDINARY SHARE FOR THE PERIOD AS SO
ADJUSTED............................ (1,561.7) 988 (530.9) 597.3 (2,080.8)
========= ========= ========= ========= =========
</TABLE>
F-32
<PAGE> 209
AERCO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
27 RECONCILIATION OF SHAREHOLDERS' DEFICIT AS STATED IN ACCORDANCE WITH U.K.
GAAP TO SHAREHOLDERS' DEFICIT IN ACCORDANCE WITH U.S. GAAP
<TABLE>
<CAPTION>
AERCO AERCO
AS AT AS AT
MARCH 31, MARCH 31,
2000 1999
---------- ----------
U.S.$'000 U.S.$'000
<S> <C> <C>
SHAREHOLDERS' DEFICIT IN ACCORDANCE WITH U.K. GAAP.......... (63,947) (15,108)
ITEMS HAVING THE EFFECT OF AMENDING SHAREHOLDERS' DEFICIT
Difference between the fair value of the assets acquired by
AerCo and their predecessor cost.......................... (141,873) (141,873)
Goodwill arising on acquisition............................. (47,125) (47,125)
Amortization of goodwill.................................... 4,025 1,669
Effect of extraordinary item differences between U.K. GAAP
and U.S. GAAP (see note 26)............................... 25,786 25,786
Cumulative effect of change in accounting policy for
maintenance............................................... 1,973 1,973
Cumulative effect of other differences in net income between
U.K. GAAP and U.S. GAAP (see note 26)..................... 20,688 5,440
--------- ---------
SHAREHOLDERS' DEFICIT IN ACCORDANCE WITH U.S. GAAP.......... (200,473) (169,238)
========= =========
</TABLE>
F-33
<PAGE> 210
AERCO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
28 RECONCILIATION OF AIRCRAFT AS STATED IN ACCORDANCE WITH U.K. GAAP TO
AIRCRAFT AS STATED IN ACCORDANCE WITH U.S. GAAP
<TABLE>
<CAPTION>
U.K. GAAP U.S. GAAP
---------------------- ----------------------
AERCO AERCO AERCO AERCO
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999 2000 1999
--------- --------- --------- ---------
U.S.$'000 U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C> <C>
COST
Cost........................................ 937,766 951,973 937,766 951,973
Step up cost................................ -- -- (142,185) (141,873)
--------- --------- --------- ---------
Beginning of period......................... 937,776 -- 795,581 --
Additions................................... 622 951,973 622 810,100
Disposals................................... (16,343) (14,207) (16,686) (14,519)
--------- --------- --------- ---------
End of period............................... 922,045 937,766 779,517 795,581
========= ========= ========= =========
DEPRECIATION
Beginning of period......................... (33,513) -- (27,761) --
Charge for the period....................... (46,998) (33,821) (38,354) (28,062)
Disposal.................................... 739 308 707 301
--------- --------- --------- ---------
End of period............................... (79,772) (33,513) (65,408) (27,761)
========= ========= ========= =========
PROVISION FOR PERMANENT DIMINUTION IN VALUE
Beginning of period......................... -- -- -- --
Charge for the period....................... (13,079) -- (6,100) --
Disposal.................................... -- -- -- --
--------- --------- --------- ---------
End of period............................... (13,079) -- (6,100) --
========= ========= ========= =========
NET BOOK VALUE
Beginning of period......................... 904,253 -- 767,820 --
========= ========= ========= =========
End of period............................... 829,194 904,253 708,009 767,820
========= ========= ========= =========
</TABLE>
29 FAIR VALUE OF FINANCIAL INSTRUMENTS
AerCo Limited estimates that the fair value of its cash and cash
equivalents and other receivables and payables at March 31, 2000 and March 31,
1999 approximate to the amounts at which these items are reflected in AerCo's
balance sheet. This is due to the relatively short-term nature of the
instruments and the frequency at which they reprice.
30 FOREIGN CURRENCY TRANSACTIONS
AerCo's and ALPS 94-1's foreign currency transactions are not significant
as all revenues and most costs are denominated in U.S. dollars.
31 RELATED PARTY TRANSACTIONS
(A) AERFI ACTS AS CASH MANAGER AND ADMINISTRATIVE AGENT TO AERCO FROM JULY
15, 1998
AerFi received a fee as cash manager and administrative agent to AerCo for
the year ended March 31, 2000 of U.S.$2,353,000 and for the period from July 15,
1998 to March 31, 1999 of U.S.$1,738,000.
F-34
<PAGE> 211
AERCO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
31 RELATED PARTY TRANSACTIONS (CONTINUED)
(A) AERFI ACTS AS CASH MANAGER AND ADMINISTRATIVE AGENT TO AERCO FROM JULY
15, 1998 (CONTINUED)
On July 15, 1998 AerCo Limited acquired a portfolio of 10 aircraft and
related leases from AerFi and the capital stock of ALPS 94-1 Limited, a vehicle
in which AerFi was the E note holder, as explained in "Statement of Accounting
Policies -- Description of Business".
(B) BABCOCK & BROWN LIMITED ("BABCOCK")
Babcock acted as lease manager to AerCo from July 15, 1998 to July 17,
2000. In addition to managing AerCo's aircraft, Babcock also managed aircraft
owned by its affiliates and other third parties. Babcock may from time to time
have had conflicts of interest in performing its obligations to AerCo and other
entities to which it provides management, marketing and other services.
Babcock received a fee as lease manager which amounted to U.S.$4,023,000
for the year ended March 31, 2000 and U.S.$2,637,000 for the period from July
15, 1998 to March 31, 1999.
(C) GE CAPITAL AVIATION SERVICES LIMITED ("GECAS")
GECAS acted as lease manager to ALPS 94-1 until July 14, 1998. In addition
to managing the ALPS 94-1 aircraft GECAS also managed aircraft owned by GE
Capital and its affiliates and other third parties, including AerFi from whom
ALPS 94-1's aircraft were purchased. GECAS may from time to time have had
conflicts of interest in performing its obligations to ALPS 94-1 and other
entities to which it provides management, marketing and other services.
GECAS received a fee as lease manager which amounted to U.S.$108,000 for
the period from July 1, 1998 to July 14, 1998 (year to June 30, 1998 --
U.S.$2,894,000).
GECAS is an affiliate of GE Capital which held the Class D note of ALPS
94-1 and had the right to appoint a representative to the board of ALPS 94-1.
During the year ended June 30, 1998 the GECAS servicing agreement was terminated
and a termination fee of U.S.$12,700,000 was paid to GECAS (Note 13).
(D) MR. E. J. HANSOM (DIRECTOR)
Mr. E. J. Hansom is the Chief Financial Officer and a director of AerFi and
is a representative on the board of AerCo Limited appointed by AerFi, as holder
of the Class E note of AerCo Limited. Mr. E. J. Hansom is also a director of
ALPS 94-1 Limited. ALPS 94-1 Limited purchased its aircraft from AerFi and AerCo
Limited purchased the AerFi transferred aircraft from AerFi.
(E) MS. R. HYNES (DIRECTOR)
Ms. R. Hynes is General Counsel of AerFi and is a representative on the
board of AerCo Limited appointed by AerFi as holder of the Class E note of AerCo
Limited. Ms. R. Hynes was also a director of ALPS 94-1 Limited until January 19,
2000. ALPS 94-1 Limited purchased its aircraft from AerFi and AerCo Limited
purchased the AerFi transferred aircraft from AerFi.
(F) MR. G. A. ROBINSON (DIRECTOR)
Mr. G. A. Robinson performs consulting services from time to time for Air
2000 one of the lessees of AerCo and ALPS 94-1. Included in aircraft leasing
revenue is an amount of U.S.$5,168,000 for the year ended March 31, 2000 (March
31, 1999: U.S.$3,588,000, July 14, 1998: U.S.$202,000, June 1998:
U.S.$5,202,000) in respect of Air 2000.
F-35
<PAGE> 212
AERCO
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
32 POST BALANCE SHEET EVENTS
AERCO TRANSACTION
On July 17, 2000 AerCo Limited completed a transaction involving:
- the refinancing of AerCo's subclass A-1 notes in the amount of $340
million and subclass D-1 notes in the amount of $80 million;
- contracting to purchase directly and indirectly 30 additional aircraft
(the "Additional Aircraft") and related leases from AerFi at their
appraised value of $724 million; and
- the replacement of the previous servicer with AerFi.
As part of the transaction AerCo issued new notes amounting to $960
million.
The transaction to acquire the Additional Aircraft from AerFi is such that
not all of the Additional Aircraft transferred on July 17, 2000. On the closing
date, AerCo purchased six of the Additional Aircraft, on August 3, 2000 it
purchased a further eight of the Additional Aircraft, on October 5, 2000 it
purchased a further six of the Additional Aircraft, on November 2, 2000 it
purchased a further four of the Additional Aircraft and on November 15, 2000 it
purchased a further one of the Additional Aircraft. AerCo expects to complete
the purchase of the remaining five Additional Aircraft in the period to July 10,
2001.
AERFI SHAREHOLDER OFFER
On September 21, 2000 AerFi Group plc entered into an agreement, on the
terms of a recommended cash offer, with, amongst others, debis AirFinance B.V.,
under which debis AirFinance B.V. (either itself or through a subsidiary) agreed
on certain terms and conditions to make a cash offer to acquire all of the
outstanding ordinary share capital of AerFi. This transaction was completed on
November 16, 2000 and debis AirFinance B.V. currently holds 98.2% of the
outstanding capital stock of AerFi. debis AirFinance B.V. is an aircraft leasing
and finance company with a portfolio of more than 100 aircraft worth over $2.5
billion. debis AirFinance B.V. was founded in November 1995 and its shareholders
are Daimler Chrysler companies and major German banks.
33 YEAR 2000
AerCo is dependent on AerFi and Babcock for its information systems. AerFi
and Babcock instigated a review of the problems and issues likely to impact
AerCo in respect of the Year 2000 computing issue. This review included
surveying AerCo's suppliers, financial institutions and lessees to avoid any
adverse impact which they may have had on AerCo.
The directors of AerCo are not aware of any adverse affects or significant
issues in respect of their systems or operations arising from the Year 2000
computing issue. The directors will continue to monitor and address Year 2000
exposures but do not expect any adverse issues to arise.
F-36
<PAGE> 213
FINANCIAL STATEMENTS
AERFI TRANSFERRED AIRCRAFT
F-37
<PAGE> 214
AERFI TRANSFERRED AIRCRAFT
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF AERCO LIMITED
We have audited the accompanying statements of operations, cash flows and
changes in net assets for the period from July 1, 1998 to July 14, 1998 and the
year ended June 30, 1998. These financial statements are the responsibility of
the directors of AerCo Limited. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United Kingdom which do not differ in any material respects
from auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the directors as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of the AerFi
transferred aircraft for the period from July 1, 1998 to July 14, 1998 and for
the year ended June 30, 1998 in conformity with generally accepted accounting
principles in the United Kingdom.
As discussed in note 15 to the financial statements, AerCo has adopted the
provisions of Financial Reporting Standard 12, "Provisions, Contingent
Liabilities and Contingent Assets". As a result, the accounting policy used to
record maintenance for the AerFi transferred aircraft has been amended to
reflect the adoption of the AerCo accounting policy.
Generally accepted accounting principles in the United Kingdom vary in
certain significant respects from generally accepted accounting principles in
the United States. Application of generally accepted accounting principles in
the United States would have affected results of operations of the AerFi
transferred aircraft for the period from July 1, 1998 to July 14, 1998 and for
the year ended June 30, 1998 to the extent summarised in note 12 to the
financial statements.
KPMG
Chartered Accountants
Dublin, Ireland
August 9, 1999
F-38
<PAGE> 215
AERFI TRANSFERRED AIRCRAFT
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED) PERIOD FROM
NINE MONTHS ENDED JULY 1, 1998 TO YEAR ENDED
NOTES MARCH 31, 1998 JULY 14, 1998 JUNE 30, 1998
----- ----------------- --------------- -------------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C> <C>
REVENUES
Aircraft leasing.......................... 4 15,499 983 21,109
EXPENSES
Depreciation.............................. 2 (7,599) (464) (10,215)
Net interest expense...................... 5 (5,808) (1,392) (6,612)
Other expenses............................ 6 (3,766) 355 (4,804)
------- ------- -------
(17,173) (1,501) (21,631)
------- ------- -------
NET LOSS FROM OPERATIONS BEFORE PROVISION
FOR TAXES............................... (1,674) (518) (522)
Benefit for taxes......................... 7 560 5 501
------- ------- -------
NET LOSS FOR THE PERIOD................... (1,114) (513) (21)
======= ======= =======
</TABLE>
All recognized gains and losses are included in the statements of
operations above.
There is no material difference between the net loss for the period, and
its historical cost equivalent.
The results for the period are derived from continuing operations.
The accompanying notes, including the statement of accounting policies on
pages F-43 to F-44, are an integral part of the financial statements.
F-39
<PAGE> 216
AERFI TRANSFERRED AIRCRAFT
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED) PERIOD FROM
NINE MONTHS ENDED JULY 1, 1998 TO YEAR ENDED
MARCH 31, 1998 JULY 14, 1998 JUNE 30, 1998
----------------- --------------- -------------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period........................ (1,114) (513) (21)
ADJUSTMENTS TO RECONCILE NET LOSS FROM
OPERATIONS TO NET CASH PROVIDED BY OPERATING
ACTIVITIES
Depreciation charge for the period............. 7,599 464 10,215
Deferred income tax............................ (560) (5) (501)
Changes in operating assets and liabilities
Accounts receivable and due from AerFi....... (24) 24,539 2,960
Accrued expenses and other liabilities....... 4,894 (970) (3,366)
Net maintenance expenditure.................. (7,326) (448) (6,477)
Net security deposits received/(repaid)...... (516) 50 (30)
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES...... 2,953 23,117 2,780
------- ------- -------
CAPITAL EXPENDITURE
Purchase of aircraft........................... (65) -- (11,585)
------- ------- -------
FINANCING ACTIVITIES
Contributions from AerFi....................... 4,833 16,793 35,504
Indebtedness repaid............................ (7,721) (39,910) (26,699)
------- ------- -------
NET CASH (OUTFLOW)/INFLOW FROM FINANCING
ACTIVITIES................................... (2,888) (23,117) 8,805
------- ------- -------
NET INCREASE IN CASH........................... -- -- --
CASH AT BEGINNING OF PERIOD.................... -- -- --
------- ------- -------
CASH AT END OF PERIOD.......................... -- -- --
======= ======= =======
</TABLE>
Disclosure of cash flow information is set out in note 9.
The accompanying notes, including the statement of accounting policies on
pages F-43 to F-44, are an integral part of the financial statements.
F-40
<PAGE> 217
AERFI TRANSFERRED AIRCRAFT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
TOTAL
---------
U.S.$'000
<S> <C>
Balance at June 30, 1997.................................... 65,270
Net contribution from AerFi................................. 35,504
Net loss for the year....................................... (21)
---------
Balance at June 30, 1998.................................... 100,753
Net contribution from AerFi................................. 16,793
Net loss for the period..................................... (513)
---------
Balance at July 14, 1998.................................... 117,033
=========
</TABLE>
The accompanying notes, including the statement of accounting policies on
pages F-43 to F-44, are an integral part of the financial statements.
F-41
<PAGE> 218
AERFI TRANSFERRED AIRCRAFT
STATEMENT OF ACCOUNTING POLICIES
INTRODUCTION AND BASIS OF PREPARATION
These financial statements present the statements of operations and the
cash flows for the period from July 1, 1998 to July 14, 1998 and the year ended
June 30, 1998 and the statements of net assets at July 14, 1998 and June 30,
1998 of the aircraft (the "AERFI TRANSFERRED AIRCRAFT") acquired by AerCo
Limited from AerFi pursuant to a secured financing transaction on July 15, 1998.
Under the transaction AerCo Limited acquired all of the capital stock of
ALPS 94-1 Limited, a company which owned 25 aircraft and related leases, and
also acquired 10 aircraft and related leases from AerFi. The further details of
the transaction and of the basis of preparation of these financial statements
for the AerFi transferred aircraft are set out in Note 1.
The accounting policies followed in the preparation of the accompanying
financial statements conform with generally accepted accounting principles in
the United Kingdom and comply with financial reporting standards of the
Accounting Standards Board in the United Kingdom as promulgated by The Institute
of Chartered Accountants in England and Wales.
The financial statements are prepared on the going concern basis and under
the historic cost convention and are stated in U.S. dollars, which is the
principal operating currency of the entity and of the aviation industry.
The unaudited financial statements included herein have been prepared
without audit and conform with generally accepted accounting principles in the
United Kingdom and comply with Financial Reporting Standards of the Accounting
Standards Board in the United Kingdom as promulgated by the Institute of
Chartered Accountants in England and Wales.
In the opinion of AerCo's management, the accompanying unaudited financial
statements have been prepared on a basis consistent with the audited financial
statements and contain adjustments, all of which are of a recurring nature,
necessary to present fairly its financial position as of March 31, 1998 and its
results of operations and cash flows for the nine months ended March 31, 1998.
Interim results are not necessarily indicative of results for the fiscal year.
REVENUE RECOGNITION
Revenue from aircraft on operating leases is recognized as income on a
straight-line basis over the period of the leases. Where rentals are adjusted to
reflect increases or decreases in prevailing interest rates such adjustments are
accounted for as they arise. Lease rentals received in advance are deferred and
recognized over the period to which they relate.
INTEREST INCOME
Interest earned during the period has been credited to the statement of
operations.
MAINTENANCE
In most lease contracts the lessee has the obligation to pay for
maintenance costs on airframes and engines which arise during the term of the
lease and in many lease contracts the lessee makes a full or partial prepayment,
calculated at an hourly rate, into a maintenance reserve fund paid to the AerFi
transferred aircraft from which the lessee can draw in respect of maintenance
expenditures for major checks. Amounts held in respect of aircraft maintenance
are recorded as accrued expenses and other liabilities. Any surplus amounts held
in the fund on termination of a lease, to which the next lessee has no access,
are recorded as income at that time.
F-42
<PAGE> 219
AERFI TRANSFERRED AIRCRAFT
STATEMENT OF ACCOUNTING POLICIES -- (CONTINUED)
MAINTENANCE (CONTINUED)
Maintenance costs borne directly by the AerFi transferred aircraft and
which are not paid for by lessees are expensed as incurred.
TAXATION
Corporation tax is provided based on the results for the period. Deferred
income tax assets and liabilities recognize the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred income
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the year in which those temporary differences are
expected to be recovered or settled. The effect on deferred income tax assets
and liabilities of a change in tax rates is recognized in the period that
includes the enactment date.
AIRCRAFT
Aircraft are stated at cost less accumulated depreciation less impairments
in value. Cost comprises the net purchase price of the aircraft when originally
acquired by AerFi.
Cost comprises the invoiced cost net of manufacturer's discounts.
Depreciation is calculated on a straight-line basis. The estimates of useful
economic lives and residual values are reviewed periodically. The current
estimates for residual values are generally 15% of cost and for useful economic
lives are as follows:
<TABLE>
<CAPTION>
YEARS FROM
----- ----
<S> <C> <C>
Refurbished and upgraded aircraft -- converted to
freighters................................................ 20 Conversion Date
All other aircraft.......................................... 25 Manufacture Date
</TABLE>
Additional charges are made to reduce the book value of specific assets to
the recoverable amount where an impairment in value is considered to have
occurred in accordance with Financial Reporting Standard No. 11 "Impairment of
Tangible Fixed Assets and Goodwill". An impairment review is only required where
there has been an indication of impairment, usually on the basis of independent
market appraisals and indications of market demand. An impairment is measured by
comparing the carrying value of the aircraft and engines with the recoverable
amount. Recoverable amount is the higher of the net realisable value and the
value in use on an after tax basis. Value in use is based on the anticipated
future cash flows from the aircraft, discounted by a market rate of return.
AerFi adopted FASB Statement No. 121 "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be disposed of" as of July 1,
1996. FASB Statement No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the directors' estimated the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized. This
statement did not materially change the carrying value of the entity's assets in
the period when it was first applied or in previous periods.
F-43
<PAGE> 220
AERFI TRANSFERRED AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS
1 BASIS OF PREPARATION
Under a refinancing transaction of July 15, 1998, AerCo Limited acquired
100% of the capital stock of ALPS 94-1 Limited and thereby acquired 25 aircraft
and related leases and acquired directly or indirectly 10 aircraft and related
leases from AerFi. The transaction was effected by transferring ALPS 94-1
Limited and subsidiaries and the existing AerFi subsidiaries that own the AerFi
transferred aircraft to AerCo Limited.
Simultaneously with such transfers, AerCo Limited issued approximately
U.S.$800 million in aggregate principal amount of notes in four subclasses:
subclass A-1, subclass A-2, subclass B-1 and subclass C-1 ("NOTES"). AerCo
Limited also issued two additional subclasses of notes, the subclass D-1 notes
and the subclass E-1 notes, which are initially held by AerFi. In addition, as
part of the transaction a subsidiary of AerFi surrendered its holding of its
existing Class E Note of ALPS 94-1 Limited. AerCo Limited used the proceeds of
the issuance of the notes, the subclass D-1 notes and subclass E-1 notes to
finance the repayment of all of ALPS 94-1's existing financial indebtedness and
to acquire or to finance the acquisition of the AerFi transferred aircraft from
AerFi.
These financial statements present, on the bases and assumptions set out
below, the results of operations, assets and liabilities relating to the
aircraft transferred to AerCo from AerFi, reflecting the nine aircraft owned by
AerFi during the year ended June 30, 1998 and the acquisition in April 1998 of
an A300-B4-200 aircraft by AerFi from ALPS 94-1 Limited. The financial
statements have been prepared by AerFi Administrative Services Limited on behalf
of the directors of AerCo Limited.
(i) The financial statements are presented on a historical cost basis as if
the AerFi transferred aircraft had been organized as single economic entity for
the period from July 1, 1998 to July 14, 1998, and for the year ended June 30,
1998.
(ii) The transaction was approved as planned and was completed such that
AerCo was a going concern with adequate capital and finance in place.
(iii) For the purposes of these financial statements, an allocation of
certain costs such as selling, general and administrative expenses of AerFi to
the AerFi transferred aircraft has been made. The most significant element of
these costs relate to aircraft management fees, substantially all of which are
asset based fees calculated as an annual percentage of a reference net book
value of aircraft under management. The balance of such costs have been
calculated based on AerFi's estimate of the other overhead costs incurred in
managing the fleet of aircraft for the year. Management believes that the basis
for these allocations are reasonable.
(iv) During the period from July 1, 1998 to July 14, 1998 two of the
aircraft were financed by finance leases to AerFi and one aircraft was financed
by notes issued by AerFi. For these aircraft the financial lease obligations,
the liabilities under the notes and related cash flows and interest costs are
reflected in these financial statements.
During the period from July 1, 1998 to July 14, 1998 the financial lease
obligations and the liabilities under the notes were repaid.
In the case of the remaining aircraft, no separate identifiable financing
was in place. These aircraft are assumed to have been financed by intercompany
indebtedness to AerFi at levels based on the ratio of AerFi's overall net debt
to aircraft net book value of 51.87% at June 30, 1997, 42.06% at June 30, 1998
and 42.06% at July 14, 1998 and repayments to AerFi are assumed to have been
made accordingly during the period.
(v) The interest charged on the assumed indebtedness to AerFi is based on
AerFi's average cost of debt of 9.59% for the period from July 1, 1998 to July
14, 1998 and for the year ended June 30, 1998.
F-44
<PAGE> 221
AERFI TRANSFERRED AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
1 BASIS OF PREPARATION (CONTINUED)
(vi) Cash generated from or absorbed by the activities of the entity during
the period is reflected through the intercompany account as distributions to or
transfers from AerFi. This includes restricted cash held by AerFi with respect
to the entity. No separate cash balances existed for the entity.
(vii) The tax provisions and deferred income tax assets and liabilities of
the entity have been determined as if the aircraft had been owned by taxable
entities separate from AerFi.
2 AIRCRAFT
<TABLE>
<CAPTION>
JULY 14, 1998 JUNE 30, 1998
------------- -------------
U.S.$'000 U.S.$'000
<S> <C> <C>
COST
Beginning of period......................................... 283,713 272,128
Additions during the period................................. -- 11,585
--------- ---------
End of period............................................... 283,713 283,713
========= =========
DEPRECIATION
Beginning of period......................................... (100,493) (90,278)
Charge for the period....................................... (464) (10,215)
--------- ---------
End of period............................................... (100,957) (100,493)
========= =========
Impairment provision........................................ (4,000) (4,000)
========= =========
NET BOOK VALUE
Beginning of period......................................... 179,220 177,850
========= =========
End of period............................................... 178,756 179,220
========= =========
</TABLE>
Cost represents the net purchase price of the aircraft when originally
acquired by AerFi.
The directors of AerCo Limited determine on an annual basis whether an
impairment in value of the AerFi transferred aircraft has occurred. Where an
impairment in value is considered to have occurred provision is made based upon
market appraisals of the individual aircraft prepared by three professional
appraisal firms, together with other factors such as maintenance reserves held
by the entity, the creditworthiness of particular lessees, current rental values
compared to open market and the length of remaining lease term.
3 OPERATING LEASES
All the aircraft are held for operating lease. Rentals on certain of the
leases are variable in accordance with prevailing interest rates.
F-45
<PAGE> 222
AERFI TRANSFERRED AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
3 OPERATING LEASES (CONTINUED)
The following is a schedule of contracted future rentals, by years, on
operating leases as of July 14, 1998. The interest rates prevailing at July 14,
1998 have been applied in determining rentals that are variable in accordance
with prevailing interest rates.
<TABLE>
<CAPTION>
U.S.$'000
---------
<S> <C>
Period July 15, 1998 to June 30, 1999....................... 22,595
Year ended June 30, 2000.................................... 26,153
Year ended June 30, 2001.................................... 17,439
Year ended June 30, 2002.................................... 13,191
Year ended June 30, 2003.................................... 15,181
Thereafter.................................................. 9,458
-------
104,017
=======
</TABLE>
4 REVENUES AND CONCENTRATION OF CREDIT RISK
A) DISTRIBUTION OF REVENUES BY GEOGRAPHIC AREA
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1998 TO YEAR ENDED
JULY 14, 1998 JUNE 30, 1998
------------------- -------------------
U.S.$'000 % U.S.$'000 %
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Europe............................................. 543 55.3 12,950 61.36
North America...................................... 231 23.5 4,195 19.87
South/Central America.............................. 137 13.9 3,727 17.65
Asia/Pacific....................................... 72 7.3 237 1.12
--- ------ ------ ------
983 100.00 21,109 100.00
=== ====== ====== ======
</TABLE>
All revenues are derived from aircraft leasing.
In the period from July 1, 1998 to July 14, 1998, 27%, 24%, 15%, 14% and
14% of the entity's lease revenues was derived from Turkey, the United States,
the United Kingdom, Brazil and France respectively.
In the year ended June 30, 1998, 30%, 20%, 18%, 16% and 15% of the entity's
lease revenues was derived from Turkey, the United States, Brazil, the United
Kingdom and France respectively.
B) CONCENTRATION OF CREDIT RISK
Credit risk with respect to trade accounts receivable is generally
mitigated due to the number of lessees and their dispersal across different
geographic areas.
The entity manages its exposure to particular countries in part through
obtaining security from lessees by way of deposits, letters of credit and
guarantees. In addition the entity maintains Political Risk Insurance in respect
of certain lessees.
The entity continually evaluates the financial position of lessees and,
based on this evaluation, the amounts outstanding and the available security,
makes an appropriate provision for doubtful debts.
F-46
<PAGE> 223
AERFI TRANSFERRED AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
4 REVENUES AND CONCENTRATION OF CREDIT RISK (CONTINUED)
B) CONCENTRATION OF CREDIT RISK (CONTINUED)
As at July 14, 1998, five lessees accounted for 15%, 15%, 14%, 14% and 13%
of the entity's lease revenues. No other lessee accounted for greater than 10%
of the entity's lease revenues for the period from July 1, 1998 to July 14,
1998.
As at June 30, 1998, five lessees accounted for 18%, 16%, 15%, 15% and 14%
of the entity's lease revenues. No other lessee accounted for greater than 10%
of the entity's lease revenues for the year ended June 30, 1998.
5 NET INTEREST EXPENSE
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1998 TO YEAR ENDED
JULY 14, 1998 JUNE 30, 1998
--------------- -------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Interest payable on finance lease obligations............... 1,125 2,076
Interest payable on AerFi notes............................. 55 1,596
Interest payable on indebtedness due to AerFi............... 212 4,902
Net interest income on amounts due from AerFi............... -- (1,962)
------- -------
1,392 6,612
======= =======
</TABLE>
6 OTHER EXPENSES
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1998 TO YEAR ENDED
JULY 14, 1998 JUNE 30, 1998
--------------- -------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Servicer's fees............................................. 52 1,201
Aircraft leasing costs...................................... (424) 3,348
Political risk insurance.................................... -- (145)
Administration fees......................................... 2 40
Legal and professional fees................................. 4 100
Deferred expenditure........................................ -- --
Cash manager's fees......................................... 9 210
Audit and tax fees.......................................... 2 50
------- -------
(355) 4,804
======= =======
</TABLE>
Aircraft leasing costs include costs relating to the repair and return to
releasable condition of aircraft following return from lessees. Such costs
amounted to U.S.$1.5 million in 1998.
7 BENEFIT FOR TAXES
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1998 TO YEAR ENDED
JULY 14, 1998 JUNE 30, 1998
--------------- -------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Tax benefit of the AerFi transferred aircraft consists of
the following:
Deferred income tax benefit................................. 5 501
------- -------
5 501
======= =======
</TABLE>
F-47
<PAGE> 224
AERFI TRANSFERRED AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
7 BENEFIT FOR TAXES (CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1998 TO YEAR ENDED
JULY 14, 1998 JUNE 30, 1998
--------------- -------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Deferred tax assets and liabilities of the AerFi transferred
aircraft:
Deferred tax assets relating to losses...................... (5,515) (5,415)
Deferred tax liability relating to aircraft................. 10,663 10,568
------- -------
5,148 5,153
======= =======
</TABLE>
The entity's income from approved activities in Ireland is taxable at a
rate of 10% until December 31, 2005. U.S. Federal and State tax is provided at a
rate of 35%.
Two aircraft, for tax purposes, are treated as being leased from third
parties under U.S. "SAFE HARBOUR LEASE" tax rules. Under existing laws, certain
events could reverse the cumulative effect of this tax treatment, in which case
the entity would be required to make payments to third parties under the tax
indemnification clauses included in the lease agreements. As of July 14, 1998
the maximum potential exposure under this provision is U.S.$0.9 million (June
30, 1998: U.S.$0.9 million). The directors of AerCo Limited believe that no
events have taken place which would cause such payments to become due.
8 STAFF COSTS AND NUMBERS
The entity has no employees.
9 CASH FLOW STATEMENT
(A) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1998 TO YEAR ENDED
JULY 14, 1998 JUNE 30, 1998
--------------- -------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Cash paid in respect of:
Interest -- Individual financings........................... 212 4,902
Interest -- AerFi notes..................................... 55 1,600
Interest -- Indebtedness to AerFi........................... 1,175 2,076
------- -------
1,442 8,578
======= =======
</TABLE>
(B) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
<TABLE>
<CAPTION>
U.S.$'000
----------
<S> <C>
Increase in cash in the period.............................. --
Cashflow from increase in debt.............................. (39,910)
Increase in liquid resources in period...................... --
-------
Change in net debt resulting from cashflows................. (39,910)
-------
Movement in net debt in the period.......................... (39,910)
Net debt at June 30, 1998................................... 88,345
-------
Net debt at July 14, 1998................................... 48,435
=======
</TABLE>
F-48
<PAGE> 225
AERFI TRANSFERRED AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
9 CASH FLOW STATEMENT (CONTINUED)
C) ANALYSIS OF NET DEBT
<TABLE>
<CAPTION>
JUNE 30, 1998 CASHFLOW JULY 14, 1998
------------- --------- -------------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C>
Cash.................................................. -- -- --
Liquid resources...................................... -- -- --
Indebtedness.......................................... 88,345 (39,910) 48,435
------- ------- -------
88,345 (39,910) 48,435
======= ======= =======
</TABLE>
10 COMMITMENTS
The entity has no long-term contracts other than those with its service
providers (see Note 14).
11 NEW ACCOUNTING STANDARDS IMPLEMENTED
FRS 12 "Provisions, Contingent Liabilities and Contingent Assets" was
effective for AerCo for its first trading accounting period ended March 31,
1999.
Under the accounting policy previously adopted by the entity all aircraft
maintenance reserves collected from lessees in respect of major aircraft and
engine overhauls were held as provisions. Under FRS 12 the pre-accrual of
maintenance costs is not permitted and accordingly the entity has changed its
accounting policy to reflect the adoption of the AerCo accounting policy for
maintenance. The effect of this change in accounting policy is that maintenance
reserves collected from lessees which cannot be drawn down by current lessees
are no longer provided. Such reserves only arose prior to June 30, 1996 and the
adjustment therefore has no effect on reported results. The balance sheet effect
of this change in accounting policy is to reduce maintenance provisions and to
increase net assets of the entity by U.S.$2.923 million at each balance sheet
date.
12 SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
The financial statements are prepared in accordance with generally accepted
accounting principles applicable in the United Kingdom ("U.K. GAAP") which
differ significantly in certain respects from those generally accepted in the
United States ("U.S. GAAP").
AerCo's accounting policy for aircraft maintenance reflects its adoption of
FRS 12 as explained in note 11. The historic U.K. GAAP financial information for
the AerFi transferred aircraft has been restated to reflect the application of
the AerCo accounting policy for all periods. For U.S. GAAP the cumulative effect
of this change in accounting policy has been reflected in the results for the
period ended July 14, 1998.
F-49
<PAGE> 226
AERFI TRANSFERRED AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
12 SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
RECONCILIATION OF NET LOSS AS STATED IN ACCORDANCE WITH U.K. GAAP TO NET LOSS IN
ACCORDANCE WITH U.S. GAAP.
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1998 TO YEAR ENDED
JULY 14, 1998 JUNE 30, 1998
---------------- --------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Net loss in accordance with U.K. GAAP....................... (513) (21)
Cumulative effect of change in accounting policy for
maintenance............................................... 2,923 --
------- -------
NET INCOME/(LOSS) IN ACCORDANCE WITH U.S. GAAP.............. 2,410 (21)
======= =======
</TABLE>
RECONCILIATION OF NET ASSETS AS STATED IN ACCORDANCE WITH U.K. GAAP TO NET
ASSETS IN ACCORDANCE WITH U.S. GAAP.
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1998 TO YEAR ENDED
JULY 14, 1998 JUNE 30, 1998
---------------- -------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Net assets in accordance with U.K. GAAP..................... 117,033 100,753
Cumulative effect of change in accounting policy for
maintenance............................................... -- (2,923)
------- -------
NET ASSETS IN ACCORDANCE WITH U.S. GAAP..................... 117,033 97,830
======= =======
</TABLE>
There were no other significant differences between U.K. GAAP and U.S. GAAP
arising in respect of the entity for the period from July 1, 1998 to July 14,
1998 and the year ended June 30, 1998.
13 FOREIGN CURRENCY TRANSACTIONS
The entity's foreign currency transactions are not significant as all
revenues and most costs are denominated in U.S. dollars.
14 RELATED PARTY TRANSACTIONS
GE CAPITAL AVIATION SERVICES LIMITED ("GECAS")
During the period from July 1, 1998 to July 14, 1998 GECAS acted as lease
manager for the entity. In addition to managing the entity's aircraft GECAS also
manages aircraft owned by GE Capital and its affiliates and other third parties,
including AerFi. GECAS may from time to time have had conflicts of interest in
performing its obligations to the entity and other entities to which it provides
management, marketing and other services.
GECAS receives an annual fee from AerFi as lease manager of certain of its
aircraft -- U.S.$52,075 (June 30, 1998: U.S.$1,201,000) of this fee is
attributed to the entity for the period from July 1, 1998 to July 14, 1998.
F-50
<PAGE> 227
FINANCIAL STATEMENTS
NEW AERFI TRANSFERRING AIRCRAFT
F-51
<PAGE> 228
NEW AERFI TRANSFERRING AIRCRAFT
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF AERCO LIMITED
We have audited the accompanying statements of net assets of the New AerFi
transferring aircraft as of March 31, 2000, March 31, 1999 and March 31, 1998
and the statements of operations, cash flows and changes in net assets for the
years ended March 31, 2000, 1999 and 1998. These financial statements are the
responsibility of the directors of AerCo Limited. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United Kingdom which do not differ in any material respects
from auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the directors as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the statements of net assets of the New AerFi
transferring aircraft as of March 31, 2000, March 31, 1999 and March 31, 1998
and the statements of income, cash flows and changes in net assets for the years
ended March 31, 2000, 1999 and 1998 in conformity with generally accepted
accounting principles in the United Kingdom.
Generally accepted accounting principles in the United Kingdom vary in
certain significant respects from generally accepted accounting principles in
the United States. Application of generally accepted accounting principles in
the United States would have no significant effect on the results of operations
for the years ended March 31, 2000, 1999 and 1998 and the statements of net
assets as of March 31, 2000, March 31, 1999 and March 31, 1998.
KPMG
Chartered Accountants
Dublin, Ireland
June 14, 2000
F-52
<PAGE> 229
NEW AERFI TRANSFERRING AIRCRAFT
STATEMENTS OF NET ASSETS
<TABLE>
<CAPTION>
NOTES MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998
----- -------------- -------------- --------------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash, restricted......................... 16,784 -- --
Accounts receivable, net................. 2 2,349 786 1
------- ------- -------
TOTAL CURRENT ASSETS..................... 19,133 786 1
INTANGIBLE ASSETS
Goodwill, net............................ 3 6,011 -- --
FIXED ASSETS
Aircraft................................. 5 653,336 30,196 31,556
------- ------- -------
TOTAL ASSETS............................. 678,480 30,982 31,557
======= ======= =======
LIABILITIES
Accrued expenses and other liabilities... 7 32,888 692 521
Indebtedness............................. 8 483,302 20,527 23,399
Security deposits........................ 9 7,531 834 834
Deferred income tax...................... 13 899 855 866
------- ------- -------
TOTAL LIABILITIES........................ 524,620 22,908 25,620
NET ASSETS............................... 153,860 8,074 5,937
======= ======= =======
</TABLE>
The accompanying notes, including the statement of accounting policies on
pages F-58 to F-60, are an integral part of the financial statements.
F-53
<PAGE> 230
NEW AERFI TRANSFERRING AIRCRAFT
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
NOTES MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998
----- -------------- -------------- --------------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C> <C>
REVENUES
Aircraft leasing......................... 10 26,258 3,292 3,712
EXPENSES
Depreciation............................. 5 (10,086) (1,360) (1,360)
Amortization of goodwill................. 3 (89) -- --
Net interest expense..................... 11 (11,593) (1,578) (2,049)
Other expenses........................... 12 (2,578) (463) (542)
------- ------- -------
(24,346) (3,401) (3,951)
------- ------- -------
NET PROFIT/(LOSS) FROM OPERATIONS BEFORE
TAXES.................................. 1,912 (109) (239)
(Provision)/Benefit for taxes............ 13 (44) 11 24
------- ------- -------
NET PROFIT/(LOSS) FOR THE YEAR........... 1,868 (98) (215)
======= ======= =======
</TABLE>
All recognized gains and losses are included in the statements of
operations above.
There is no material difference between the net profit/(loss) for the year,
and its historical cost equivalent.
The results for the year are derived from continuing operations.
The accompanying notes, including the statement of accounting policies on
pages F-58 to F-60, are an integral part of the financial statements.
F-54
<PAGE> 231
NEW AERFI TRANSFERRING AIRCRAFT
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998
-------------- -------------- --------------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit/(loss) for the year................. 1,868 (98) (215)
ADJUSTMENTS TO RECONCILE NET PROFIT/(LOSS) FROM
OPERATIONS TO NET CASH PROVIDED/(UTILISED) BY
OPERATING ACTIVITIES
Depreciation charge for the year............... 10,086 1,360 1,360
Amortization of goodwill....................... 89 -- --
Deferred income tax............................ 44 (11) (24)
Changes in operating assets and liabilities
Accounts receivable.......................... 718 (785) --
Accrued expenses and other liabilities....... (220) 171 (87)
Net maintenance expenditure.................. 3,158 -- (1,663)
Net security deposits received/(repaid)...... 144 -- (606)
--------- --------- ---------
NET CASH PROVIDED/(UTILISED) BY OPERATING
ACTIVITIES................................... 15,887 637 (1,235)
--------- --------- ---------
CAPITAL EXPENDITURE
Purchase of aircraft........................... (21,191) -- --
--------- --------- ---------
ACQUISITION
Purchase of Indigo transferring aircraft....... (102,529) -- --
Cash acquired with Indigo transferring
aircraft..................................... 14,424 -- --
--------- --------- ---------
(88,105) -- --
FINANCING ACTIVITIES
Contributions from AerFi....................... 143,918 2,235 5,710
Net indebtedness repaid........................ (33,725) (2,872) (4,475)
--------- --------- ---------
NET CASH INFLOW/(OUTFLOW) FROM FINANCING
ACTIVITIES................................... 110,193 (637) 1,235
--------- --------- ---------
NET INCREASE IN CASH........................... 16,784 -- --
CASH AT BEGINNING OF YEAR...................... -- -- --
--------- --------- ---------
CASH AT END OF YEAR............................ 16,784 -- --
========= ========= =========
</TABLE>
Supplemental disclosure of cash flow information is set out in note 15.
The accompanying notes, including the statement of accounting policies on
pages F-58 to F-60, are an integral part of the financial statements.
F-55
<PAGE> 232
NEW AERFI TRANSFERRING AIRCRAFT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
TOTAL
---------
U.S.$'000
<S> <C>
Balance at March 31, 1997................................... 442
Net contributions from AerFi................................ 5,710
NET LOSS FOR THE YEAR....................................... (215)
-------
Balance at March 31, 1998................................... 5,937
Net contribution from AerFi................................. 2,235
NET LOSS FOR THE YEAR....................................... (98)
-------
Balance at March 31, 1999................................... 8,074
Net contribution from AerFi................................. 143,918
NET PROFIT FOR THE YEAR..................................... 1,868
-------
Balance at March 31, 2000................................... 153,860
=======
</TABLE>
The accompanying notes, including the statement of accounting policies on
pages F-58 to F-60, are an integral part of the financial statements.
F-56
<PAGE> 233
NEW AERFI TRANSFERRING AIRCRAFT
STATEMENT OF ACCOUNTING POLICIES
INTRODUCTION AND BASIS OF PREPARATION
Under the refinancing transaction entered into on July 17, 2000, AerCo
Limited acquired or will acquire 30 aircraft (including one aircraft purchased
by AerFi in April 2000) and related leases from AerFi. On December 16, 1999
AerFi tendered for 100% of the share capital of Indigo who at that date owned 26
of the 30 aircraft to be purchased from AerFi by AerCo Limited (the "INDIGO
TRANSFERRING AIRCRAFT"). At December 16, 1999 AerFi owned three of the aircraft
to be transferred to AerCo as part of the refinancing transaction in July 2000.
The further details of the transaction and of the basis of preparation of these
financial statements for the entity are set out in note 1.
These financial statements present the statements of operations and the
cash flows for the years ended March 31, 2000, March 31, 1999 and March 31, 1998
and the statements of net assets at March 31, 2000, March 31, 1999 and March 31,
1998 of the three AerFi owned aircraft and the Indigo transferring aircraft from
December 16, 1999 -- (date of acquisition of Indigo by AerFi) to be acquired by
AerCo Limited from AerFi pursuant to a securitisation and refinancing
transaction (together the "NEW AERFI TRANSFERRING AIRCRAFT").
The accounting policies followed in the preparation of the accompanying
financial statements conform with generally accepted accounting principles in
the United Kingdom and comply with financial reporting standards of the
Accounting Standards Board in the Kingdom as promulgated by The Institute of
Chartered Accountants in England and Wales.
The financial statements are prepared on the going concern basis and under
the historic cost convention and are stated in U.S. dollars, which is the
principal operating currency of the entity and of the aviation industry.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the directors of AerCo Limited to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period. While the directors of AerCo Limited believe that the
estimates and related assumptions used in the preparation of these financial
statements are appropriate, actual results could differ from those estimates.
Estimates are made in the assessment of collectibility of receivables, the
recoverable amounts in respect of aircraft and the related estimated lives of
such assets.
REVENUE RECOGNITION
Revenue from aircraft on operating leases is recognized as income on a
straight-line basis over the period of the leases. Where rentals are adjusted to
reflect increases or decreases in prevailing interest rates such adjustments are
accounted for as they arise. Lease rentals received in advance are deferred and
recognized over the period to which they relate.
INTEREST INCOME
Interest earned during the year has been credited to the statement of
operations.
MAINTENANCE
In most lease contracts the lessee has the obligation to pay for
maintenance costs on airframes and engines which arise during the term of the
lease and in many lease contracts the lessee makes a full or partial prepayment,
calculated at an hourly rate, into a maintenance reserve fund paid to the entity
from
F-57
<PAGE> 234
NEW AERFI TRANSFERRING AIRCRAFT
STATEMENT OF ACCOUNTING POLICIES -- (CONTINUED)
MAINTENANCE (CONTINUED)
which the lessee can draw in respect of maintenance expenditures for major
checks. Amounts held in respect of aircraft maintenance are recorded as accrued
expenses and other liabilities. Any surplus amounts held in the fund on
termination of a lease, to which the next lessee has no access, are recorded as
income at that time.
Maintenance costs borne directly by the entity and which are not paid for
by lessees are expensed as incurred.
TAXATION
Corporation tax is provided based on the results for the year. Deferred
income tax assets and liabilities recognize the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred income
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the year in which those temporary differences are
expected to be recovered or settled. The effect on deferred income tax assets
and liabilities of a change in tax rates is recognized in the year that includes
the enactment date.
AIRCRAFT
On December 16, 1999, AerFi tendered for 100% of the share capital of
Indigo. These financial statements reflect the acquisition by the entity on
December 16, 1999 of the Indigo transferring aircraft (the "STARTING DATE OF
PERIOD OF COMMON CONTROL") transferring to AerCo as part of the refinancing in
July 2000. Aircraft are stated at cost less accumulated depreciation less
impairments in value and are depreciated at rates calculated to write off the
cost of the assets to their estimated residual value.
Depreciation is calculated on a straight-line basis over their estimated
useful economic lives. The estimates of useful economic lives and residual
values are reviewed periodically. The current estimates for residual values and
useful economic lives are generally 15% of cost and 25 years from date of
manufacture respectively.
Additional charges are made to reduce the book value of specific assets to
the recoverable amount where an impairment in value is considered to have
occurred in accordance with Financial Reporting Standard No. 11 "Impairment of
Tangible Fixed Assets and Goodwill". An impairment review is only required where
there has been an indication of impairment, usually on the basis of independent
market appraisals and indications of market demand. An impairment is measured by
comparing the carrying value of the aircraft and engines with the recoverable
amount. Recoverable amount is the higher of the net realisable value and the
value in use on an after tax basis. Value in use is based on the anticipated
future cash flows from the aircraft, discounted by a market rate of return.
AerFi adopted FASB Statement No. 121 "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be disposed of" as of July 1,
1996. FASB Statement No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by the entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the directors' estimated the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized. This
statement did not materially change the carrying value of the entity's assets in
the year when it was first applied or in previous years.
F-58
<PAGE> 235
NEW AERFI TRANSFERRING AIRCRAFT
STATEMENT OF ACCOUNTING POLICIES -- (CONTINUED)
CASH RESTRICTED
The cash held by the entity is restricted and is held in interest bearing
accounts by certain lenders to the entity. These cash balances are held in
respect of the entity's maintenance obligations under certain of its leases and
may be applied on demand to meet these obligations. Cash restricted is
classified as cash in the statement of cash flows.
DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
The entity manages its interest rate exposure through the use of interest
rate swaps. Under these swap arrangements the entity will pay fixed interest and
receive floating interest on monthly basis. The objective of the entity's
interest rate risk management policy is to correlate the contracted fixed rental
payments in its portfolio to the floating interest payments on the related debt
facility, taking account of expected amortization on the debt. Net receipts and
payments arising in respect of these swaps are recognized as adjustments to
interest expense on an accruals basis.
The entity is also exposed to losses in the event of non-performance by
counterparties on interest rate swaps or in the event of defaults by lessees
where income streams have been hedged. However, the entity does not anticipate
non-performance by the counterparties and losses or gains related to hedging
instruments which result from lessee defaults are accounted for as they are
incurred.
F-59
<PAGE> 236
NEW AERFI TRANSFERRING AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS
1 BASIS OF PREPARATION
Under the refinancing and securitization transaction entered into on July
17, 2000, AerCo Limited acquired or will acquire directly or indirectly an
additional 30 aircraft and related leases from AerFi.
On July 17, 2000, AerCo Limited issued approximately U.S.$960 million in
aggregate principal amount of notes in four subclasses: subclass A-3, subclass
A-4, subclass B-2 and subclass C-2. AerCo Limited also issued two additional
subclasses of notes, the subclass D-2 notes and the subclass E-2 notes, which
are held by AerFi. AerCo Limited used substantially all of the proceeds of the
issuance of the offered notes, the subclass D-2 notes and subclass E-2 notes to
refinance all of AerCo's subclass A-1 notes and subclass D-1 notes and to
finance the acquisition of 30 aircraft from AerFi.
Due to the uncertainties in relation to the timing of obtaining lessee
consents to the transfer of the 30 aircraft from AerFi to AerCo, AerFi has
structured the acquisition of the additional aircraft as a sale to AerCo of the
capital stock of approximately 18 AerFi wholly owned subsidiaries in a series of
transactions following the completion of the refinancing.
AerFi has pre-positioned or will pre-position the aircraft to be
transferred to AerCo into aircraft owning subsidiaries prior to the sale of the
companies to AerCo.
These financial statements present, on the bases and assumptions set out
below, the results of operations, assets and liabilities relating to the entity
to be transferred to AerCo from AerFi, comprising two aircraft owned by AerFi
during the three years ended March 31, 2000, one aircraft acquired by AerFi in
December 1999 and the 26 aircraft owned by Indigo which was acquired by AerFi on
December 16, 1999. The financial statements have been prepared by AerFi
Administrative Services Limited on behalf of the directors of AerCo Limited.
(i) The financial statements are presented on a historical cost basis as if
the entity had been organized as a single economic entity for the years ended
March 31, 2000, March 31, 1999 and March 31, 1998.
(ii) For the purposes of these financial statements, an allocation of
certain costs such as selling, general and administrative expenses of AerFi to
the entity has been made. These costs have been allocated to the entity based on
AerFi's estimate of the percentage of such costs incurred in managing the fleet
of aircraft for each year. Management believes that the basis for these
allocations are reasonable.
(iii) During the three years ended March 31, 2000 two of the aircraft were
financed by AerFi under a facility entered into between AerFi and KfW. The
liabilities under the KfW facility and related cash flows and interest costs are
reflected in these financial statements.
In the case of the one aircraft purchased in December 1999, no separate
identifiable financing was in place. This aircraft is assumed to have been
financed by intercompany indebtedness to AerFi based on the ratio of AerFi's
overall debt to aircraft net book value of 77% at March 31, 2000 and repayments
to AerFi are assumed to have been made accordingly during the period. The
interest charged on the assumed indebtedness to AerFi is based on AerFi's
average cost of debt of 7.2% for the period between December 1999 and March
2000.
(iv) During the period from acquisition to March 31, 2000 all of the Indigo
transferring aircraft were financed by debt secured on specific aircraft. For
these aircraft the specific debt obligations, related cash flows and interest
costs related to aircraft owned by the entity are reflected in these financial
statements.
(v) Cash generated from or absorbed by the activities of the entity during
the three years ended is reflected through the intercompany account as
distributions to or contributions from AerFi.
(vi) The tax provisions and deferred income tax assets and liabilities of
the entity have been determined as if the aircraft had been owned by taxable
entities separate from AerFi and Indigo.
F-60
<PAGE> 237
NEW AERFI TRANSFERRING AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
2 ACCOUNTS RECEIVABLE, NET
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998
-------------- -------------- --------------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C>
Trade receivables, net......................... 2,226 786 1
Prepayments.................................... 123 -- --
------- ------- -------
2,349 786 1
======= ======= =======
</TABLE>
Trade receivables are stated net of a bad debt provision of $0.3 million
(March 31, 1999: $ nil and March 31, 1998: $ nil) and comprise amounts in
respect of rent and maintenance payments due from lessees. As at March 31, 1999
and March 31, 1998 one lessee accounted for 100% of trade receivables. As at
March 31, 2000 four lessees accounted for 43%, 24%, 13% and 10% respectively of
trade receivables.
3 GOODWILL, NET
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998
-------------- -------------- --------------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C>
COST
Goodwill on acquisition........................ 6,100 -- --
------- ------- -------
AMORTISATION
Amortisation in year........................... (89) -- --
------- ------- -------
NET BOOK VALUE
End of year.................................... 6,011 -- --
======= ======= =======
</TABLE>
Goodwill of $6.1 million represents the difference between the fair value
of the net assets acquired and the consideration paid by the entity in respect
of its acquisition of the Indigo transferring aircraft. Goodwill is amortised
over a 20 year period which is the period over which the directors of AerFi
estimate that the value of the underlying business acquired is expected to
exceed the values of its identifiable net assets. Further information in
relation to the calculation of goodwill is set out in note 4 below.
4 ACQUISITION OF THE INDIGO TRANSFERRING AIRCRAFT
On December 16, 1999 AerFi tendered for 100% of the share capital of Indigo
whose registered office is Sodra Forstadsgatan 4, S-211 48 Malmo, Sweden. The
acquisition was achieved through a combination of a cash purchase and share
exchange agreement.
F-61
<PAGE> 238
NEW AERFI TRANSFERRING AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
4 ACQUISITION OF THE INDIGO TRANSFERRING AIRCRAFT (CONTINUED)
The fair value of the net assets acquired and the consideration given on
the acquisition of the Indigo transferring aircraft is summarized as follows:
<TABLE>
<CAPTION>
INDIGO FAIR VALUE ADJUSTMENTS
TRANSFERRING --------------------------
AIRCRAFT VALUATION OTHER FAIR VALUE OF
BOOK VALUE ADJUSTMENTS ADJUSTMENTS ASSETS ACQUIRED
------------------- ----------- ----------- ---------------
U.S.$'000 U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C> <C>
Cash, restricted................... 14,424 -- -- 14,424
Accounts receivable, net........... 2,281 -- -- 2,281
Fixed assets -- aircraft........... 587,631 24,404(i) -- 612,035
Accrued liabilities & other
liabilities...................... (29,258) -- -- (29,258)
Security deposits.................. (6,553) -- -- (6,553)
Indebtedness....................... (492,960) -- (3,040)(ii) (496,000)
Derivatives........................ -- -- (500)(iii) (500)
Deferred income tax................ (2,580) -- 2,580(iv) --
--------- --------- --------- ---------
NET ASSETS ACQUIRED................ 72,985 24,404 (960) 96,429
========= ========= =========
Consideration paid.................................................................... (102,529)
---------
GOODWILL ON ACQUISITION............................................................... (6,100)
=========
</TABLE>
---------------
(i) The fair value adjustments in respect of the aircraft arise as a result of a
valuation of these assets to reflect AerFi's estimate of their current
market value at the date of acquisition. This valuation of the Indigo
transferring aircraft exceeded their existing book value by U.S.$24.4
million.
(ii) The fair value the adjustment to Indebtedness is based on prevailing
interest rates at the acquisition date.
(iii) The fair value the adjustment to Derivatives is based on prevailing
interest rates at the acquisition date.
(iv) The fair value adjustment in respect of deferred taxation arises as a
result of the planned change in the tax basis of the Indigo aircraft
following the acquisition of Indigo by AerFi.
The summarized statement of operations information for the Indigo
transferring aircraft for the period from January 1, 1999 to December 15, 1999
is set out below.
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1999
DECEMBER 15, 1999
-----------------
U.S.$'000
<S> <C>
REVENUES
Aircraft leasing............................................ 65,602
EXPENSES
Depreciation................................................ (23,408)
Net interest expense........................................ (30,277)
Other expenses.............................................. (4,863)
-------
(58,548)
-------
NET PROFIT FROM OPERATIONS BEFORE PROVISION FOR TAXES....... 7,054
Provision for taxes......................................... (1,975)
-------
NET PROFIT FOR THE PERIOD................................... 5,079
=======
</TABLE>
F-62
<PAGE> 239
NEW AERFI TRANSFERRING AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
5 AIRCRAFT
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998
-------------- -------------- --------------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C>
COST
Beginning of year.............................. 46,418 46,418 46,418
Additions during the year...................... 633,226 -- --
------- ------- -------
End of year.................................... 679,644 46,418 46,418
======= ======= =======
DEPRECIATION
Beginning of year.............................. (16,222) (14,862) (13,502)
Charge for the year............................ (10,086) (1,360) (1,360)
------- ------- -------
End of year.................................... (26,308) (16,222) (14,862)
======= ======= =======
NET BOOK VALUE
Beginning of year.............................. 30,196 31,556 32,916
======= ======= =======
End of year.................................... 653,336 30,196 31,556
======= ======= =======
</TABLE>
6 OPERATING LEASES
All the aircraft are held for operating lease. Rentals on certain of the
leases are variable in accordance with prevailing interest rates.
The following is a schedule of contracted future rentals receivable, by
years, on operating leases as of March 31, 2000. The interest rates prevailing
at March 31, 2000 have been applied in determining rentals that are variable in
accordance with prevailing interest rates.
<TABLE>
<CAPTION>
U.S.$'000
---------
<S> <C>
Year ended March 31, 2001................................... 77,652
Year ended March 31, 2002................................... 74,630
Year ended March 31, 2003................................... 65,656
Year ended March 31, 2004................................... 58,958
Year ended March 31, 2005................................... 37,031
Thereafter.................................................. 96,765
-------
410,692
=======
</TABLE>
7 ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998
-------------- -------------- --------------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C>
Accrued expenses and other liabilities
comprise:
Aircraft maintenance reserves.................. 23,884 -- --
Deferred income................................ 5,422 249 261
Interest....................................... 2,434 -- --
Other accruals................................. 1,148 443 260
------- ------- -------
32,888 692 521
======= ======= =======
Aircraft maintenance reserves:
Due within one year............................ 1,992 -- --
Due after one year............................. 21,892 -- --
------- ------- -------
23,884 -- --
======= ======= =======
</TABLE>
F-63
<PAGE> 240
NEW AERFI TRANSFERRING AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
8 INDEBTEDNESS
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998
-------------- -------------- --------------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C>
AerFi KfW debt (i)............................. 17,655 20,527 23,399
AerFi notes (ii)............................... 16,082 -- --
Indigo debt obligations (iii).................. 449,565 -- --
------- ------- -------
483,302 20,527 23,399
======= ======= =======
</TABLE>
The basis and assumptions under which indebtedness has been reflected in
these financial statements is set out in note 1.
(i) The AerFi KfW debt is secured on the two aircraft which had a net book value
of U.S.$28.8 million at March 31, 2000 (1998: US$30.2 million). As part of
the completion of the proposed transaction these amounts will be repaid in
full.
(ii) As explained in note 1 it has been assumed that the aircraft purchased by
the entity in December 1999 had been financed with indebtedness due to
AerFi.
(iii) The entity's Indigo debt obligations are primarily collateralized by the
underlying aircraft and assignment of the attached leases. At March 31,
2000, all of the entity's Indigo debt outstanding was at fixed interest
rates with the exception of $16.9 million with rates of 30 days Libor plus
1.2% and $125.6 million with rates of commercial paper plus 1.255%. As
part of the completion of the proposed transaction these amounts will be
repaid in full.
(iv) Repayments of principal during the year ended March 31, 2000 on the Indigo
debt obligations and the AerFi KfW debt were in accordance with their
respective contractual terms. The repayment of principal on the aircraft
which is assumed to be financed by AerFi was assumed to be made in
accordance with changes in AerFi's aircraft net book value to debt ratio
during the year ended March 31, 2000.
The indebtedness may be analysed by year of repayment is as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31 U.S.$'000
-------------------- ---------
<S> <C>
2001........................................................ 77,212
2002........................................................ 59,630
2003........................................................ 46,256
2004........................................................ 60,632
2005........................................................ 70,180
Thereafter.................................................. 169,392
-------
Total....................................................... 483,302
=======
</TABLE>
9 SECURITY DEPOSITS
Security deposits received from lessees of U.S.$7.531 million (March 31,
1999 and March 31, 1998: U.S.$0.8 million) are held as security for obligations
in accordance with the terms of certain leases.
F-64
<PAGE> 241
NEW AERFI TRANSFERRING AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
10 REVENUES AND CONCENTRATION OF CREDIT RISK
A) DISTRIBUTION OF REVENUES BY GEOGRAPHIC AREA
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998
------------------- ------------------- -------------------
U.S.$'000 % U.S.$'000 % U.S.$'000 %
--------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Europe......................... 12,822 48.83 -- -- -- --
North America.................. 5,572 21.22 -- -- -- --
South/Central America.......... 4,390 16.72 3,292 100.00 3,712 100.00
Asia/Pacific................... 3,474 13.23 -- -- -- --
------ ------ ----- ------ ----- ------
26,258 100.00 3,292 100.00 3,712 100.00
====== ====== ===== ====== ===== ======
</TABLE>
All revenues are derived from aircraft leasing.
In the year ended March 31, 2000, 21%, 17% and 12% of the entity's lease
revenues was derived from the United States, Brazil and the United Kingdom
respectively. No other country accounted for greater than 10% of the entity's
lease revenues.
In the year ended March 31, 1999, 100% of the entity's lease revenues was
derived from Brazil.
In the year ended March 31, 1998, 100% of the entity's lease revenues was
derived from Brazil.
B) CONCENTRATION OF CREDIT RISK
Credit risk with respect to trade accounts receivable is generally
mitigated due to the number of lessees and their dispersal across different
geographic areas.
The entity aircraft manages its exposure to particular countries in part
through obtaining security from lessees by way of deposits, letters of credit
and guarantees.
The entity continually evaluates the financial position of lessees and,
based on this evaluation, the amounts outstanding and the available security,
makes an appropriate provision for doubtful debts.
As at March 31, 2000, two lessees accounted for 13% and 10% of the entity's
lease revenues. No other lessee accounted for greater than 10% of the entity's
lease revenues for the year ended March 31, 2000.
As at March 31, 1999, one lessee accounted for all of the entity's lease
revenues.
As at March 31, 1998, one lessee accounted for all of the entity's lease
revenues.
11 NET INTEREST EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998
-------------- -------------- --------------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C>
Interest payable on specific indebtedness...... 11,426 1,578 2,049
Interest payable on AerFi notes................ 340 -- --
Net interest income............................ (173) -- --
------- ------- -------
11,593 1,578 2,049
======= ======= =======
</TABLE>
F-65
<PAGE> 242
NEW AERFI TRANSFERRING AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
12 OTHER EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998
-------------- -------------- --------------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C>
Servicer's fees................................ 1,717 218 218
Aircraft leasing costs......................... 671 199 278
Administration expenses........................ 50 10 10
Legal and professional fees.................... 10 10 10
Cash manager's fees............................ 80 21 21
Audit and tax fees............................. 50 5 5
------- ------- -------
2,578 463 542
======= ======= =======
</TABLE>
13 (PROVISION)/BENEFIT FOR TAXES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998
-------------- -------------- --------------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C>
Tax (provision)/benefit of the New AerFi
transferring aircraft consists of the
following:
Deferred income tax (provision)/benefit........ (44) 11 24
------- ------- -------
(44) 11 24
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998
-------------- -------------- --------------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C>
Deferred tax assets and liabilities of the New
AerFi transferring aircraft:
Deferred tax assets relating to losses......... 912 649 331
Deferred tax liability relating to aircraft.... (1,811) (1,504) (1,197)
------- ------- -------
(899) (855) (866)
======= ======= =======
</TABLE>
The entity's income from approved activities in Ireland is taxable at a
rate of 10% until December 31, 2005. The tax rate applicable to the entity's
activities in Sweden following its acquisition of the Indigo transferring
aircraft in December 1999 is 28%.
The difference between the statutory tax rates and the tax provision for
the year ended March 31, 2000 arises as no deferred tax provision arises on
timing differences arising in Sweden in the period from December 16, 1999 to
March 31, 2000 due to the planned change in the tax basis of the Indigo
transferring aircraft as part of the transaction.
14 STAFF COSTS AND NUMBERS
The entity has no employees.
15 CASH FLOW STATEMENT
(A) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998
-------------- -------------- --------------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C>
Cash paid in respect of:
Interest....................................... 11,521 1,578 2,049
======= ======= =======
</TABLE>
F-66
<PAGE> 243
NEW AERFI TRANSFERRING AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
15 CASH FLOW STATEMENT (CONTINUED)
(B) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
<TABLE>
<CAPTION>
U.S.$'000
---------
<S> <C>
Increase in cash in the year................................ 16,784
Cash flow from increase in debt............................. (462,775)
--------
Change in net debt resulting from cash flows................ (445,991)
--------
Movement in net debt in the year............................ (445,991)
Net debt at March 31, 1999.................................. (20,527)
--------
Net debt at March 31, 2000.................................. (466,518)
========
</TABLE>
(C) ANALYSIS OF NET DEBT
<TABLE>
<CAPTION>
MARCH 31, 1999 CASH FLOW MARCH 31, 2000
-------------- --------- --------------
U.S.$'000 U.S.$'000 U.S.$'000
<S> <C> <C> <C>
Cash.............................................. -- 16,784 16,784
Indebtedness...................................... (20,527) (462,775) (483,302)
--------- --------- ---------
(20,527) (445,991) (466,518)
========= ========= =========
</TABLE>
16 COMMITMENTS
The entity has no long-term contracts other than those with its service
providers (see Note 20).
17 SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
The financial statements are prepared in accordance with generally accepted
accounting principles applicable in the United Kingdom ("U.K. GAAP") which
differ significantly in certain respects from those generally accepted in the
United States ("U.S. GAAP").
For U.K. GAAP purposes cash, restricted is classified as cash in the cash
flow statement. Under U.S. GAAP cash, restricted would not meet the definition
of cash equivalents. Other than the above, there were no significant differences
between U.K. GAAP and U.S. GAAP arising in respect of the entity for the years
ended March 31, 2000, March 31, 1999 and March 31, 1998.
18 FAIR VALUE OF FINANCIAL INSTRUMENTS
RECEIVABLES, PAYABLES AND CASH, RESTRICTED
The fair value of the entity's receivables, payables and cash, restricted
at March 31, 2000 approximates to the amounts at which these items are reflected
in the entity's statement of net assets due to the relatively short-term nature
of the instruments and the frequency at which they reprice.
INDEBTEDNESS
The fair value of the entity's indebtedness at March 31, 2000 was $486
million.
DERIVATIVES
The fair value of the entity's derivatives at March 31, 2000 was $1.4
million (notional amount: $77.6 million).
F-67
<PAGE> 244
NEW AERFI TRANSFERRING AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
19 FOREIGN CURRENCY TRANSACTIONS
The entity's foreign currency transactions are not significant as all
revenues and most costs are denominated in U.S. dollars.
20 RELATED PARTY TRANSACTIONS
GE CAPITAL AVIATION SERVICES LIMITED ("GECAS")
During the three years ended March 31, 2000, March 31, 1999 and March 31,
1998 GECAS acted as lease manager for the two F100 aircraft owned by the entity.
In addition to managing these two F100 aircraft GECAS also manages aircraft
owned by GE Capital and its affiliates and other third parties, including AerFi.
GECAS may from time to time have had conflicts of interest in performing its
obligations to the two F100 aircraft and other entities to which it provides
management, marketing and other services.
GECAS received an annual fee from AerFi as lease manager of the two F100
aircraft -- U.S.$ 221,131 for the year ended March 31, 2000 (March 31, 1999:
U.S.$ 217,681, March 31, 1998: U.S.$ 217,681).
F-68
<PAGE> 245
FINANCIAL STATEMENTS
INDIGO TRANSFERRING AIRCRAFT
F-69
<PAGE> 246
INDIGO TRANSFERRING AIRCRAFT
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF AERCO LIMITED
We have audited the accompanying statements of net assets of the Indigo
transferring aircraft as of December 15, 1999 and December 31, 1998 and the
related statements of operations, cash flows and changes in net assets for the
period from January 1, 1999 to December 15, 1999 and for the year ended December
31, 1998. These financial statements are the responsibility of the directors of
AerCo Limited. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by the directors, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Indigo transferring
aircraft at December 15, 1999 and December 31, 1998 and the results of its
operations and cash flows for the period from January 1, 1999 to December 15,
1999 and for the year ended December 31, 1998 in conformity with U.S. generally
accepted accounting principles.
KPMG
Chartered Accountants
Dublin, Ireland
June 14, 2000
F-70
<PAGE> 247
INDIGO TRANSFERRING AIRCRAFT
STATEMENTS OF NET ASSETS
<TABLE>
<CAPTION>
NOTES DECEMBER 15, 1999 DECEMBER 31, 1998
----- ------------------ ------------------
U.S.$'000 U.S.$'000
<S> <C> <C> <C>
ASSETS
Deferred financing costs............................ 3,540 2,447
CURRENT ASSETS
Cash, restricted.................................... 14,424 6,269
Deposits paid....................................... -- 2,750
Accounts receivable, net............................ 2 2,281 420
------- -------
Total current assets................................ 16,705 9,439
------- -------
FIXED ASSETS
Aircraft............................................ 3 587,631 373,831
------- -------
TOTAL ASSETS........................................ 607,876 385,717
======= =======
LIABILITIES
Accrued expenses and other liabilities.............. 5 29,258 15,169
Indebtedness........................................ 6 496,500 318,878
Security deposits................................... 7 6,553 5,581
Deferred income tax................................. 11 2,580 605
------- -------
TOTAL LIABILITIES................................... 534,891 340,233
NET ASSETS.......................................... 72,985 45,484
======= =======
</TABLE>
The accompanying notes, including the statement of accounting policies on
pages F-76 to F-78, are an integral part of the financial statements.
F-71
<PAGE> 248
INDIGO TRANSFERRING AIRCRAFT
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1999 TO YEAR ENDED
NOTES DECEMBER 15, 1999 DECEMBER 31, 1998
----- ------------------ -----------------
U.S.$'000 U.S.$'000
<S> <C> <C> <C>
REVENUES
Aircraft leasing..................................... 8 65,602 31,083
EXPENSES
Depreciation......................................... 3 (23,408) (10,615)
Net interest expense................................. 9 (30,277) (15,022)
Other expenses....................................... 10 (4,863) (3,285)
-------- --------
(58,548) (28,922)
-------- --------
NET PROFIT FROM OPERATIONS BEFORE PROVISION FOR
TAXES.............................................. 7,054 2,161
Provision for taxes.................................. 11 (1,975) (605)
-------- --------
NET PROFIT FOR THE PERIOD............................ 5,079 1,556
======== ========
</TABLE>
The accompanying notes, including the statement of accounting policies on
pages F-76 to F-78, are an integral part of the financial statements.
F-72
<PAGE> 249
INDIGO TRANSFERRING AIRCRAFT
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1999 TO YEAR ENDED
DECEMBER 15, 1999 DECEMBER 31, 1998
-------------------- --------------------
U.S.$'000 U.S.$'000
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit........................................... 5,079 1,556
ADJUSTMENTS TO RECONCILE NET PROFIT TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization........................ 24,506 11,308
Aircraft maintenance, net............................ 10,773 9,653
Deferred income tax.................................. 1,975 605
Changes in operating assets and liabilities
Cash, restricted................................... (8,155) (3,592)
Accounts receivable, net........................... (1,861) (359)
Accrued expenses and other liabilities............. 3,316 3,475
Other assets....................................... 559 (4,540)
Net security deposits received..................... 972 1,944
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES............ 37,164 20,050
--------- ---------
CASH FLOWS USED FOR INVESTING ACTIVITIES
Purchase of aircraft................................. (237,208) (244,448)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Contributions from Indigo............................ 22,422 26,268
Net indebtedness drawndown........................... 177,622 198,130
--------- ---------
NET CASH INFLOW FROM FINANCING ACTIVITIES............ 200,044 224,398
--------- ---------
NET INCREASE IN CASH................................. -- --
CASH AT BEGINNING OF PERIOD.......................... -- --
--------- ---------
CASH AT END OF PERIOD................................ -- --
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION;
Cash paid during period/year for:
Interest........................................... 28,065 13,044
Tax................................................ -- --
--------- ---------
</TABLE>
The accompanying notes, including the statement of accounting policies on
pages F-76 to F-78, are an integral part of the financial statements.
F-73
<PAGE> 250
INDIGO TRANSFERRING AIRCRAFT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
TOTAL
---------
U.S.$'000
<S> <C>
Balance at December 31, 1997................................ 17,660
Net contribution from Indigo................................ 26,268
NET PROFIT FOR THE YEAR..................................... 1,556
------
Balance at December 31, 1998................................ 45,484
Net contribution from Indigo................................ 22,422
NET PROFIT FOR THE PERIOD................................... 5,079
------
Balance at December 15, 1999................................ 72,985
======
</TABLE>
The accompanying notes, including the statement of accounting policies on
pages F-76 to F-78, are an integral part of the financial statements.
F-74
<PAGE> 251
INDIGO TRANSFERRING AIRCRAFT
STATEMENT OF ACCOUNTING POLICIES
INTRODUCTION AND BASIS OF PREPARATION
Under the refinancing transaction entered into on July 17, 2000, AerCo
Limited acquired or will acquire 30 aircraft and related leases from AerFi. On
December 16, 1999 AerFi tendered for 100% of the share capital of Indigo. At
that date, 26 of the 30 aircraft to be purchased from AerFi were owned by
Indigo. The further details of the transaction and of the basis of preparation
of these financial statements for the entity are set out in note 1.
These financial statements present the statements of operations and the
cash flows for the period from January 1, 1999 to December 15, 1999 and the year
ended December 31, 1998 and the statements of net assets at December 15, 1999
and December 31, 1998 of the 26 aircraft (the "INDIGO TRANSFERRING AIRCRAFT")
acquired or proposed to be acquired by AerCo Limited from AerFi pursuant to the
securitisation and refinancing transaction entered into on July 17, 2000,.
The accounting policies followed in the preparation of the accompanying
financial statements conform with generally accepted accounting principles in
the United States.
The financial statements are prepared on the going concern basis and under
the historic cost convention and are stated in U.S. dollars, which is the
principal operating currency of the entity and of the aviation industry.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the directors of AerCo Limited to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period. While the directors of AerCo Limited believe that the
estimates and related assumptions used in the preparation of these financial
statements are appropriate, actual results could differ from those estimates.
Estimates are made in the assessment of collectibility of receivables, the
recoverable amounts in respect of aircraft and the related estimated lives of
such assets.
REVENUE RECOGNITION
Revenue from aircraft on operating leases is recognized as income on a
straight-line basis over the period of the leases. Where rentals are adjusted to
reflect increases or decreases in prevailing interest rates such adjustments are
accounted for as they arise. Lease rentals received in advance are deferred and
recognized over the period to which they relate.
INTEREST INCOME
Interest earned during the period has been credited to the statement of
operations.
MAINTENANCE
In most lease contracts the lessee has the obligation to pay for
maintenance costs on airframes and engines which arise during the term of the
lease and in many lease contracts the lessee makes a full or partial prepayment,
calculated at an hourly rate, into a maintenance reserve fund paid to the entity
from which the lessee can draw in respect of maintenance expenditures for major
checks. Amounts held in respect of aircraft maintenance are recorded as accrued
expenses and other liabilities. Any surplus amounts held in the fund on
termination of a lease, to which the next lessee has no access, are recorded as
income at that time.
F-75
<PAGE> 252
INDIGO TRANSFERRING AIRCRAFT
STATEMENT OF ACCOUNTING POLICIES -- (CONTINUED)
MAINTENANCE (CONTINUED)
Maintenance costs borne directly by the entity and which are not paid for
by lessees are expensed as incurred.
TAXATION
Corporation tax is provided based on the results for the year. Deferred
income tax assets and liabilities recognize the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred income
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the year in which those temporary differences are
expected to be recovered or settled. The effect on deferred income tax assets
and liabilities of a change in tax rates is recognized in the year that includes
the enactment date.
AIRCRAFT
Aircraft are stated at cost less accumulated depreciation less impairments
in value. Cost comprises the net purchase price of the aircraft when originally
acquired by Indigo.
Cost comprises the invoiced cost net of manufacturer's discounts.
Depreciation is calculated on a straight-line basis. The estimates of useful
economic lives and residual values are reviewed periodically. The current
estimates for residual values are generally 15% of cost and for useful economic
life is 25 years from date of manufacture respectively.
Indigo adopted FASB Statement No. 121 "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be disposed of " during 1996.
FASB Statement No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In performing the review for recoverability, the
directors' estimated the future cash flows expected to result from the use of
the asset and its eventual disposition. If the sum of the expected future cash
flows (undiscounted and without interest charges) is less than the carrying
amount of the asset, an impairment loss is recognized. This statement did not
materially change the carrying value of the entity's assets in the year when it
was first applied or in previous years.
CASH RESTRICTED
The cash held by the entity is restricted and held in interest bearing
accounts by certain lenders to the entity. These cash balances are held in
respect of the entity's maintenance obligations under certain of its leases and
may be applied on demand to meet these obligations.
DEFERRED FINANCING COSTS
Significant deferred financing costs incurred are deferred and amortised to
interest expense over the life of the related debt using the effective interest
method of amortisation.
DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
The entity manages its interest rate exposure through the use of interest
rate swaps. Under these swap arrangements the entity will pay fixed interest and
receive floating interest on monthly basis. The objective of the entity's
interest rate risk management policy is to correlate the contracted fixed rental
payments in its portfolio to the floating interest payments on the related debt
facility, taking account of expected amortization on the debt. Net receipts and
payments arising in respect of these swaps are recognized as adjustments to
interest expense on an accruals basis.
F-76
<PAGE> 253
INDIGO TRANSFERRING AIRCRAFT
STATEMENT OF ACCOUNTING POLICIES -- (CONTINUED)
DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (CONTINUED)
The entity is also exposed to losses in the event of non-performance by
counterparties on interest rate swaps or in the event of defaults by lessees
where income streams have been hedged. However, the entity does not anticipate
non-performance by the counterparties and losses or gains related to hedging
instruments which result from lessee defaults are accounted for as they are
incurred.
F-77
<PAGE> 254
INDIGO TRANSFERRING AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS
1 BASIS OF PREPARATION
Under a refinancing and securitization transaction entered into as of July
17, 2000, AerCo Limited acquired or will acquire directly or indirectly an
additional 30 aircraft and related leases from AerFi.
On July 17, 2000, AerCo Limited issued approximately U.S. $960 million in
aggregate principal amount of notes in four subclasses: subclass A-3, subclass
A-4, subclass B-2 and subclass C-2. AerCo Limited also issued two additional
subclasses of notes, the subclass D-2 notes and the subclass E-2 notes, which
are held by AerFi. AerCo Limited used substantially all of the proceeds of the
issuance of the offered notes, the subclass D-2 notes and subclass E-2 notes to
refinance all of AerCo's subclass A-1 notes and subclass D-1 notes and to
finance the acquisition of 30 aircraft from AerFi.
Due to the uncertainties in relation to the timing of obtaining lessee
consents to the transfer of the 30 aircraft from AerFi to AerCo, AerFi has
structured the acquisition of the additional aircraft as a sale to AerCo of the
capital stock of approximately 18 AerFi wholly owned subsidiaries in a series of
transactions following the completion of the refinancing.
AerFi has pre-positioned or will pre-position the aircraft to be
transferred to AerCo in these aircraft owning subsidiaries prior to the sale of
the companies to AerCo.
These financial statements present, on the bases and assumptions set out
below, the results of operations, assets and liabilities relating to certain of
the aircraft to be transferred to AerCo from AerFi for the period from January
1, 1999 to December 15, 1999 and for the year ended December 31, 1998. The
financial statements have been prepared by AerFi Administrative Services Limited
on behalf of the directors of AerCo Limited.
(i) The financial statements are presented on a historical cost basis as if
the Indigo transferring aircraft had been organized as a single economic entity
for the period from January 1, 1999 to December 15, 1999 and the year ended
December 31, 1998.
(ii) For the purposes of these financial statements, an allocation of
certain costs such as selling, general and administrative expenses of Indigo to
the Indigo transferring aircraft has been made. These costs have been allocated
to the Indigo transferring aircraft based on AerFi's estimate of the percentage
of such costs incurred in managing the fleet of aircraft for each period.
Management believes that the basis for these allocations are reasonable.
(iii) During the period from January 1, 1999 to December 15, 1999 and the
year ended December 31, 1998 all of the Indigo transferring aircraft were
financed by debt secured on specific aircraft. The specific debt obligations,
deferred financing costs, related cash flows and interest costs related to
aircraft owned by the entity are reflected in these financial statements.
(iv) Cash generated from or absorbed by the activities of the Indigo
transferring aircraft during each period is reflected as distributions to, or
contributions from, Indigo.
(v) The tax provisions and deferred income tax assets and liabilities of
the Indigo transferring aircraft have been determined as if the aircraft had
been owned by taxable entities separate from Indigo.
2 ACCOUNTS RECEIVABLE, NET
<TABLE>
<CAPTION>
DECEMBER 15, 1999 DECEMBER 31, 1998
----------------- -----------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Trade receivables, net................................... 2,127 420
Prepayments.............................................. 154 --
------- -------
2,281 420
======= =======
</TABLE>
F-78
<PAGE> 255
INDIGO TRANSFERRING AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
2 ACCOUNTS RECEIVABLE, NET (CONTINUED)
Trade receivables are stated net of a bad debt provision of U.S.$0.3
million (December 31, 1998: U.S.$0.3 million) and comprise amounts in respect of
rent and maintenance payments due from lessees. As at December 15, 1999 and
December 31, 1998 one lessee accounted for 39% and 40% of trade receivables
respectively.
3 AIRCRAFT
<TABLE>
<CAPTION>
DECEMBER 15, 1999 DECEMBER 31, 1998
----------------- -----------------
U.S.$'000 U.S.$'000
<S> <C> <C>
COST
Beginning of period...................................... 389,635 145,187
Additions during the period.............................. 237,208 244,448
------- -------
End of period............................................ 626,843 389,635
======= =======
DEPRECIATION
Beginning of period...................................... (15,804) (5,189)
Charge for the period.................................... (23,408) (10,615)
------- -------
End of period............................................ (39,212) (15,804)
======= =======
NET BOOK VALUE
Beginning of period...................................... 373,831 139,998
======= =======
End of period............................................ 587,631 373,831
======= =======
</TABLE>
4 OPERATING LEASES
All the aircraft are held for operating lease. Rentals on certain of the
leases are variable in accordance with prevailing interest rates.
The following is a schedule of contracted future rentals receivable, by
years, on operating leases as of December 15, 1999. The interest rates
prevailing at December 15, 1999 have been applied in determining rentals that
are variable in accordance with prevailing interest rates.
<TABLE>
<CAPTION>
U.S.$'000
---------
<S> <C>
Year ended December 15, 2000................................ 72,841
Year ended December 15, 2001................................ 69,742
Year ended December 15, 2002................................ 61,445
Year ended December 15, 2003................................ 57,635
Year ended December 15, 2004................................ 39,930
Thereafter.................................................. 93,918
-------
395,511
=======
</TABLE>
F-79
<PAGE> 256
INDIGO TRANSFERRING AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
5 ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 15, 1999 DECEMBER 31, 1998
----------------- -----------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Accrued expenses and other liabilities comprise:
Aircraft maintenance reserves............................ 20,726 9,953
Deferred income.......................................... 4,513 2,774
Interest................................................. 2,189 1,957
Other accruals........................................... 1,830 485
------- -------
29,258 15,169
======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 15, 1999 DECEMBER 31, 1998
----------------- -----------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Aircraft maintenance reserves:
Due within one year...................................... 1,987 2,226
Due after one year....................................... 18,739 7,727
------- -------
20,726 9,953
======= =======
</TABLE>
6 INDEBTEDNESS
<TABLE>
<CAPTION>
DECEMBER 15, 1999 DECEMBER 31, 1998
----------------- -----------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Debt obligations......................................... 496,500 318,878
======= =======
</TABLE>
The basis and assumptions under which indebtedness has been reflected in
these financial statements is set out in note 1.
The entity's debt obligations are primarily collateralised by the
underlying aircraft and assignment of the attached leases. At December 15, 1999,
all of the entity's debt outstanding was at fixed interest rates with the
exception of $17.3 million with rates of 30 days Libor plus 1.2% and $127.1
million with rates of commercial paper plus 1.255%. As part of the completion of
the proposed transaction these amounts will be repaid in full.
Repayments of principal during each period on the debt obligations were in
accordance with their respective contractual terms.
The indebtedness may be analysed by year of repayment is as follows:
<TABLE>
<CAPTION>
U.S.$'000
<S> <C>
Year ending December 15
2000........................................................ 84,055
2001........................................................ 71,767
2002........................................................ 41,045
2003........................................................ 55,343
2004........................................................ 81,554
Thereafter.................................................. 162,736
-------
Total....................................................... 496,500
=======
</TABLE>
7 SECURITY DEPOSITS
Security deposits received from lessees of U.S.$6.553 million (December 31,
1998: U.S.$5.581 million) are held as security for obligations in accordance
with the terms of certain leases.
F-80
<PAGE> 257
INDIGO TRANSFERRING AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
8 REVENUES AND CONCENTRATION OF CREDIT RISK
(A) DISTRIBUTION OF REVENUES BY GEOGRAPHIC AREA
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1999 TO YEAR ENDED
DECEMBER 15, 1999 DECEMBER 31, 1998
------------------- -------------------
U.S.$'000 % U.S.$'000 %
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Europe............................................. 42,692 65.07 22,358 71.93
North America...................................... 11,006 16.77 446 1.44
South/Central America.............................. 385 0.58 -- --
Asia/Pacific....................................... 11,519 17.58 8,279 26.63
------ ------ ------ ------
65,602 100.00 31,083 100.00
====== ====== ====== ======
</TABLE>
All revenues are derived from aircraft leasing.
In the period from January 1, 1999 to December 15, 1999, 17%, 15%, 13% and
10% of the entity's lease revenues was derived from the United States, the
United Kingdom, China and Denmark respectively. No other country accounted for
greater than 10% of the entity's lease revenues.
In the year ended December 31, 1998, 22%, 19%, 16%, 10%, 10% and 10% of the
entity's lease revenues was derived from Denmark, Norway, China, Finland, South
Korea and France respectively. No other country accounted for greater than 10%
of the entity's lease revenues.
(B) CONCENTRATION OF CREDIT RISK
Credit risk with respect to trade accounts receivable is generally
mitigated due to the number of lessees and their dispersal across different
geographic areas.
The entity manages its exposure to particular countries in part through
obtaining security from lessees by way of deposits, letters of credit and
guarantees.
The entity continually evaluates the financial position of lessees and,
based on this evaluation, the amounts outstanding and the available security,
makes an appropriate provision for doubtful debts.
As at December 15, 1999, two lessees each accounted for 10% of the entity's
lease revenues. No other lessee accounted for greater than 10% of the entity's
lease revenues in the period from January 1, 1999 to December 15, 1999.
As at December 31, 1998, six lessees accounted for 22%, 19%, 12%, 10%, 10%
and 10% of the entity's lease revenues. No other lessee accounted for greater
than 10% of the entity's lease revenues for the year ended December 31, 1998.
9 NET INTEREST EXPENSE
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1999 TO YEAR ENDED
DECEMBER 15, 1999 DECEMBER 31, 1998
-------------------- --------------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Interest payable on finance lease obligations........ 29,722 14,579
Amortization of debt issue costs..................... 1,098 693
Net interest income on cash deposits................. (543) (250)
------- -------
30,277 15,022
======= =======
</TABLE>
F-81
<PAGE> 258
INDIGO TRANSFERRING AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
10 OTHER EXPENSES
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1999 TO YEAR ENDED
DECEMBER 15, 1999 DECEMBER 31, 1998
-------------------- --------------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Remuneration costs................................... 2,420 1,583
Aircraft leasing costs............................... 250 99
Insurance costs...................................... 227 133
Administration fees.................................. 1,084 819
Travel costs......................................... 668 547
Audit and tax fees................................... 214 104
------- -------
4,863 3,285
======= =======
</TABLE>
11 PROVISION FOR TAXES
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1999 TO YEAR ENDED
DECEMBER 15, 1999 DECEMBER 31, 1998
-------------------- --------------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Tax provision of the Indigo transferring aircraft
consists of the following:
Deferred income tax provision........................ 1,975 605
======= =======
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1999 TO YEAR ENDED
DECEMBER 15, 1999 DECEMBER 31, 1998
-------------------- --------------------
U.S.$'000 U.S.$'000
<S> <C> <C>
Deferred tax assets and liabilities of the Indigo
transferring aircraft:
Deferred tax liability relating to aircraft.......... 2,580 605
======= =======
</TABLE>
The entity's income from approved activities in Sweden is taxable at a rate
of 28%.
12 STAFF COSTS AND NUMBERS
The entity has no employees.
13 SUMMARY OF DIFFERENCES BETWEEN UNITED STATES AND UNITED KINGDOM GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
The financial statements are prepared in accordance with generally accepted
accounting principles applicable in the United States ("U.S. GAAP") which differ
significantly in certain respects from those generally accepted in the United
Kingdom ("U.K. GAAP").
Under U.K. GAAP deferred financing costs of $3.54 million and $2.447
million at December 15, 1999 and December 31, 1998 would be netted against
indebtedness on the balance sheet rather than disclosed separately on the
balance sheet.
For U.S. GAAP purposes, cash, restricted does not meet the definition of
cash equivalents and therefore is not classified as cash in the cash flow
statement. Under U.K. GAAP cash, restricted would meet the definition of cash
equivalents.
F-82
<PAGE> 259
INDIGO TRANSFERRING AIRCRAFT
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
13 SUMMARY OF DIFFERENCES BETWEEN UNITED STATES AND UNITED KINGDOM GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
Other than the above, there were no significant differences between U.S.
GAAP and U.K. GAAP arising in respect of the Indigo transferring aircraft in the
period from January 1, 1999 to December 15, 1999 and the year ended December 31,
1998.
14 FAIR VALUE OF FINANCIAL INSTRUMENTS
RECEIVABLES, PAYABLES AND CASH, RESTRICTED
The fair value of the entity's receivables, payables and cash, restricted
at December 15, 1999 are approximately the amounts at which these items are
reflected in the entity's statement of net assets due to the relatively
short-term nature of the instruments and the frequency at which they reprice.
INDEBTEDNESS
The fair value of the entity's indebtedness at December 15, 1999 was $496
million.
DERIVATIVES
The fair value of the entity's derivatives at December 15, 1999 was $0.5
million (notional amount: $79.2 million).
15 FOREIGN CURRENCY TRANSACTIONS
The entity's foreign currency transactions are not significant as all
revenues and most costs are denominated in U.S. dollars.
F-83
<PAGE> 260
APPENDIX 1
CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(1)
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;
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.
---------------
(1) This is an extract from a report on Form 6-K filed with the Securities and
Exchange Commission on June 21, 2000.
A-1-1
<PAGE> 261
CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD FROM
MARCH 15, 2000 TO JUNE 15, 2000 -- (CONTINUED)
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 with other lessors.
For the purposes of this report, the "THREE MONTH PERIOD", referred to on
page 9 "Comparison of Actual Cash Flows versus the Adjusted Base Case Cash Flows
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 include 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 cash flow 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 9).
[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.
[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.
A-1-2
<PAGE> 262
CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD FROM
MARCH 15, 2000 TO JUNE 15, 2000 -- (CONTINUED)
[5] CONTRACTED LEASE RENTALS
Contracted Lease Rentals represents the current contracted lease rental
rollout which equates to the 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 Adjusted Base Case. The difference is due to losses from
renegotiated leases, and rental resets as discussed above.
[6] 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
<TABLE>
<CAPTION>
% OF CURRENT CURRENT MOVEMENT
APPRAISED ARREARS ARREARS IN CURRENT
AIRCRAFT TYPE COUNTRY VALUE* 15/3/00 15/6/00 ARREARS
------------- ------------------- --------- -------- -------- ----------
$M $M $M
<S> <C> <C> <C> <C> <C> <C>
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)
===== ===== ===== =====
</TABLE>
---------------
* 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 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 Contracted
Lease Rentals) compared to $1.7 million outflow assumed in the Adjusted Base
Case, a variance of $3.3 million of 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.
A-1-3
<PAGE> 263
CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD FROM
MARCH 15, 2000 TO JUNE 15, 2000 -- (CONTINUED)
[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 for 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 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
A-1-4
<PAGE> 264
CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD FROM
MARCH 15, 2000 TO JUNE 15, 2000 -- (CONTINUED)
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.
[23] 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.
Aircraft Servicer Fees consist of:
<TABLE>
<CAPTION>
$MM
----
<S> <C>
Retainer Fee.............................................. 0.2
Rent Collected Fee........................................ 0.2
Incentive Fee 1998/99..................................... 0.1
----
TOTAL SERVICER FEE........................................ 0.5
====
</TABLE>
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.
A-1-5
<PAGE> 265
CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD FROM
MARCH 15, 2000 TO JUNE 15, 2000 -- (CONTINUED)
[31] INTEREST PAYMENTS AND [32] 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, default interest and cash in transit.
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.
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 in 1998 it sought bankruptcy protection. 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 $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.
A-1-6
<PAGE> 266
CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD FROM
MARCH 15, 2000 TO JUNE 15, 2000 -- (CONTINUED)
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.
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
A-1-7
<PAGE> 267
CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD FROM
MARCH 15, 2000 TO JUNE 15, 2000 -- (CONTINUED)
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, 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.
A-1-8
<PAGE> 268
CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD FROM
MARCH 15, 2000 TO JUNE 15, 2000 -- (CONTINUED)
COMPARISON OF ACTUAL CASH FLOWS VERSUS THE
ADJUSTED BASE CASE CASH FLOWS FOR THE THREE MONTH PERIOD
<TABLE>
<CAPTION>
% 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> <C>
CASH COLLECTIONS
Lease Rentals...............................
[1] 29.36 29.36 0.00 100.0% 100.0% 0.0%
-- Renegotiated Leases......................
[2] (0.30) 0.00 (0.30) (1.0%) 0.0% (1.0%)
-- Rental Resets............................
[3] (1.44) 0.00 (1.44) (4.9%) 0.0% (4.9%)
-- Aircraft Sales...........................
[4] (1.03) (1.03) 0.00 (3.5%) (3.5%) 0.0%
------ ------ ----- ------ ------ -----
CONTRACTED LEASE RENTALS....................
[5] E[1]...[5] 26.59 28.32 (1.74) 90.6% 96.5% (5.9%)
Movement in Current Arrears Balance.........
[6] (0.09) 0.00 (0.09) (0.3%) 0.0% (0.3%)
less Net Stress Related Costs
[7]
-- Bad Debts................................
[8] 0.00 (0.29) 0.29 0.0% (1.0%) 1.0%
-- Deferred Arrears Balances................
[9] 1.54 0.00 1.54 5.2% 0.0% 5.2%
-- Security Deposits drawn down.............
[10] 0.00 0.00 0.00 0.0% 0.0% 0.0%
-- AOG......................................
[11] 0.00 (1.23) 1.23 0.0% (4.2%) 4.2%
-- Other Leasing Income.....................
[12] 0.04 0.00 0.04 0.1% 0.0% 0.1%
-- Repossession.............................
[13] 0.00 (0.23) 0.23 0.0% (0.8%) 0.8%
------ ------ ----- ------ ------ -----
Sub-total...................................
[14] E[8]...[13] 1.58 (1.75) 3.33 5.4% (6.0%) 11.4%
NET LEASE RENTAL............................
[15] [5] + [6] + [14] 28.08 26.57 1.51 95.6% 90.5% 5.1%
Interest Earned.............................
[16] 0.84 0.56 0.28 2.9% 1.9% 1.0%
Aircraft Sales..............................
[17] 0.00 0.00 0.00 0.0% 0.0% 0.0%
Net Maintenance.............................
[18] 1.60 0.00 1.60 5.4% 0.0% 5.4%
------ ------ ----- ------ ------ -----
TOTAL CASH COLLECTIONS......................
[19] E[15]...[18] 30.52 27.13 3.38 103.9% 92.4% 11.5%
====== ====== ===== ====== ====== =====
CASH EXPENSES
Aircraft Operating Expenses
-- Insurance................................
[20] (0.18) 0.00 (0.18) (0.6%) 0.0% (0.6%)
-- Re-leasing and other overheads...........
[21] (1.63) (0.59) (1.04) (5.5%) (2.0%) (3.5%)
------ ------ ----- ------ ------ -----
Sub-total...................................
[22] [20] + [21] (1.81) (0.59) (1.22) (6.2%) (2.0%) (4.2%)
SG&A Expenses
Aircraft Servicer Fees
[23]
-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%
------ ------ ----- ------ ------ -----
Sub-total...................................
[24] [23] (0.54) (1.58) 1.04 (1.9%) (5.4%) 3.5%
Other Servicer Fees.........................
[25] (1.31) (1.36) 0.05 (4.5%) (4.6%) 0.2%
------ ------ ----- ------ ------ -----
Sub-total...................................
[26] [24] + [25] (1.86) (2.95) 1.09 (6.3%) (10.0%) 3.7%
====== ====== ===== ====== ====== =====
TOTAL CASH EXPENSES.........................
[27] [26] + [22] (3.66) (3.53) (0.13) (12.5%) (12.0%) (0.4%)
====== ====== ===== ====== ====== =====
NET CASH COLLECTIONS
Total Cash Collections......................
[28] [19] 30.52 27.13 3.38 103.9% 92.4% 11.5%
Total Cash Expenses.........................
[29] [26] (3.66) (3.53) (0.13) (12.5%) (12.0%) (0.4%)
Movement in Expense Account.................
[30] 0.40 0.00 0.40 1.4% 0.0% 1.4%
Interest Payments...........................
[31] (13.76) (13.93) 0.17 (46.9%) (47.4%) 0.6%
Swap Payments...............................
[32] 0.27 (0.24) 0.51 0.9% (0.8%) 1.7%
------ ------ ----- ------ ------ -----
TOTAL.......................................
[33] E[28]....[32] 13.77 9.43 4.34 49.9% 32.1% 14.8%
====== ====== ===== ====== ====== =====
PRINCIPAL PAYMENTS
[34]
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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CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD FROM
MARCH 15, 2000 TO JUNE 15, 2000 -- (CONTINUED)
<TABLE>
<CAPTION>
NOTE REPORT LINE NAME DESCRIPTION
---- ---------------- -----------
<S> <C> <C>
CASH COLLECTIONS
[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] E[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 payments charges
[13] -- Repossession.......................... Legal and technical costs incurred in repossessing
aircraft.
[14] E[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] E[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>
A-1-10
<PAGE> 270
APPENDIX 2
CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(1)
TWO MONTH PERIOD FROM
JULY 17, 2000 TO SEPTEMBER 15, 2000
I BACKGROUND AND GENERAL INFORMATION
The financial information contained in this report was not prepared in
accordance with generally accepted accounting principles of the United States or
the United Kingdom but was prepared in accordance with the Company's obligations
under the Indenture. This report should be read in conjunction with the
Company's most recent financial information prepared in accordance with
generally accepted accounting principles of the United Kingdom, including a
reconciliation of net loss, shareholders' deficit and aircraft assets to
estimated amounts under generally accepted principles of the United States. For
this you should refer to the Company's Form 20-F which is on file at the
Securities and Exchange Commission.
On July 15, 1998, 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 "1998 notes").
The Company also issued two additional subclasses of notes, the subclass D-1
notes and the subclass E-1 notes which were purchased by AerFi Group plc ("AERFI
GROUP"). The Company used the proceeds from the issuance of the 1998 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 1998
notes were exchanged for 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.
On July 17, 2000, AerCo issued a further $960 million of notes in four
subclasses, subclass A-3, subclass A-4, subclass B-2 and subclass C-2 (the "2000
NOTES"). The Company also issued two additional subclasses of notes, the D-2
notes and E-2 notes which were purchased by AerFi Group. The Company used the
proceeds from the issuance of the 2000 notes, the subclass D-2 notes and
subclass E-2 notes (i) to refinance the subclass A-1 notes, (ii) to refinance
the subclass D-1 notes and (iii) to acquire 30 additional aircraft (the
"additional aircraft") with an appraised value of $724.1 million, and associated
leases through the acquisition of certain aircraft owning subsidiaries, and one
associated conduit leasing company, of AerFi. Certain of the additional aircraft
transferred to AerCo on July 17, 2000. Consequently, the funds allocable to the
remaining undelivered aircraft were deposited into the aircraft purchase account
and are being used to purchase the remaining additional aircraft as they are
ready for delivery. As of October 16, 2000, 20 of the additional aircraft with
an appraised value of $467.3 million had been acquired by AerCo. Although not
all of the additional aircraft were acquired by AerCo on July 17, 2000, the
aircraft purchase agreement has been structured to provide for net payments from
AerFi to AerCo designed to put AerCo in substantially the position it would have
been if all 30 additional aircraft had been acquired by AerCo on July 17, 2000.
AerCo has undertaken to complete by April 12, 2001 either an exchange offer
for the 2000 notes under an effective registration statement or to register the
resale of the 2000 notes under the Securities Act. If AerCo does not fulfil
these obligations on or prior to April 12, 2001, then an additional incremental
interest amount will accrue on each subclass of the 2000 notes, at an annual
rate of 0.50%, until the
---------------
(1) This is an extract from a report on Form 6-K filed with the Securities and
Exchange Commission on October 31, 2000.
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<PAGE> 271
CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TWO MONTH PERIOD FROM
JULY 17, 2000 TO SEPTEMBER 15, 2000 -- (CONTINUED)
exchange offer is consummated or a shelf registration statement is declared
effective. The 1998 notes, the notes issued as a result of the exchange offer in
1999 and the 2000 notes are collectively referred to below as the "NOTES".
Applying the declining value assumptions contained in the Offering
Memorandum issued by AerCo on July 12, 2000 to the appraisal dated March 1, 1998
of the aircraft acquired by AerCo on July 15, 1998, adjusting for aircraft
sales, and to the April 30, 2000 appraisal of the additional aircraft, the total
appraised value of AerCo's portfolio was assumed to be $1,552.6 million at
September 15, 2000. The adjusted appraised value of AerCo's portfolio at
September 15, 2000 is $1,522.4 million.
Assuming AerCo takes delivery of all of the additional aircraft, AerCo will
own (directly and indirectly) 63 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 further 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 further aircraft with external funds, including
issuing further 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,
as amended on July 17, 2000, by and between AerCo and Bankers Trust Company, as
trustee of the notes (the "INDENTURE").
As of September 15, 2000, the 63 aircraft were on lease in 21 countries as
shown on pages 13 and 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;
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 with other lessors.
For the purposes of this report, the "TWO MONTH PERIOD", referred to on
page 10 "Comparison of Actual Cash Flows versus Base Case Cash Flows for the Two
Month Period", comprises information from the monthly cash reports dated August
15, 2000 and September 15, 2000. The financial data in these reports include
cash receipts from July 12, 2000 (first day of the Collection Period for the
August 2000 Report) up to September 11, 2000 (last day of the Collection Period
for the September 2000 Report).
II COMPARISON OF ACTUAL CASH FLOWS VERSUS THE 2000 BASE CASE FOR THE TWO MONTH
PERIOD
The July 12, 2000 Offering Memorandum (the "Offering Memorandum") issued by
AerCo contained assumptions in respect of AerCo Group's future cash flows and
expenses (the "2000 Base Case"). For the
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CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TWO MONTH PERIOD FROM
JULY 17, 2000 TO SEPTEMBER 15, 2000 -- (CONTINUED)
purpose of this report, "Net Cash Collections" is defined as Total Cash
Collections less Total Cash Expenses, Movements in the Expense Account, 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 10.
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 Two Month Period,
AerCo generated approximately $32.2 million in Total Cash Collections, $2.5
million greater than the 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 Two Month Period, there was no loss of revenue attributed to
Renegotiated Leases.
[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 Base Case, including lease rate
adjustments for changes in interest rates on floating rate leases. AerCo
currently has 50 fixed rate leases and 13 floating rate leases. There were no
rental resets during the Two Month Period.
[4] AIRCRAFT SALES
Aircraft Sales is a measure of the loss in rental revenue as a result of
aircraft sales. In the Two Month Period, there was no lost revenue attributed to
Aircraft Sales.
[5] CONTRACTED LEASE RENTALS
Contracted Lease Rentals represents the current contracted lease rental
rollout which equates to the 2000 Base Case Lease Rentals less adjustments for
Renegotiated Leases, Rental Resets and Aircraft Sales. For the Two Month Period,
Contracted Lease Rentals were $30.3 million.
[6] MOVEMENT IN CURRENT ARREARS BALANCE
Current Arrears is the total contracted lease rentals outstanding from
current lessees at a given date and excludes any amounts classified as Bad
Debts. The Current Arrears Balance at the start of the Two Month Period was $3.3
million versus $5.5 million at the end of the Two Month Period, which is a
negative movement of $2.2 million.
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<PAGE> 273
CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TWO MONTH PERIOD FROM
JULY 17, 2000 TO SEPTEMBER 15, 2000 -- (CONTINUED)
ANALYSIS OF CURRENT ARREARS BALANCES
<TABLE>
<CAPTION>
% OF CURRENT CURRENT MOVEMENT
APPRAISED ARREARS ARREARS IN CURRENT
AIRCRAFT TYPE COUNTRY VALUE* 7/15/00 9/15/00 ARREARS
------------- ------- --------- ------- ------- ----------
$M $M $M
<C> <S> <C> <C> <C> <C> <C>
1 B747-200......................... North America 0.5 3.0 3.3 (0.3)
2 A320-200......................... Canada 1.9 -- 0.3 (0.3)
3 B767-300ER....................... Canada 3.7 -- 0.4 (0.4)
4 B757-200......................... Colombia 2.5 -- 1.0 (1.0)
5 B737-400......................... Italy 1.7 0.3 0.3 --
6 A320-200......................... Italy 1.5 -- 0.2 (0.2)
---- --- --- ----
TOTAL............................ 13.2 3.3 5.5 2.2
==== === === ====
</TABLE>
--------------------
* Appraised Value as of April 30, 2000.
At July 17, 2000, two lessees were in arrears, owing $3.3 million, against
which AerCo Group held security deposits of $1.0 million.
As at September 15, 2000, 6 lessees were in arrears, owing $5.4 million,
against which AerCo Group held security deposits of $1.0 million. On February
29, 2000, one of the lessees (Tower Air) filed for Chapter 11 bankruptcy
protection in the U.S. in its attempts to restructure its operations. The
Offering Memorandum contains an assumption that no further lease revenue is
earned on the aircraft leased to Tower Air. 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 Base Case assumed Net Stress-Related Costs equal to 6% of the Base Case
Lease Rentals. For the Two Month Period, Net Stress-Related Costs led to a cash
inflow of $0.3 million compared to $1.2 million outflow assumed in the Base
Case, a positive variance of $1.5 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 drawdown of
security deposits held and amounts subsequently recovered from the defaulted
lessee. There were no bad debts or security deposit drawdowns during the Two
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 Two Month Period,
AerCo received payments totalling $0.3 million from two lessees in accordance
with schedules agreed with those lessees. One other lessee failed to make
payments on its deferred balance amounting to $0.4 million.
[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 Two Month Period.
A-2-4
<PAGE> 274
CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TWO MONTH PERIOD FROM
JULY 17, 2000 TO SEPTEMBER 15, 2000 -- (CONTINUED)
[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. There
were no cashflows from Other Leasing Income during the Two Month Period.
[13] REPOSSESSION COSTS
Repossession Costs cover legal and aircraft technical costs incurred as a
result of repossessing an aircraft. In the Two Month Period, AerCo has
experienced no 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 Two Month Period, Net Lease
Rentals amounted to $29.0 million, $0.2 million less than assumed in the 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 $65 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 Two Month Period, interest earned amounted
to $0.7 million, $0.1 million more than assumed in the Base Case.
[17] AIRCRAFT SALES
There were no aircraft sales during the Two Month Period.
[18] NET MAINTENANCE
Net Maintenance refers to maintenance reserve revenue received less any
maintenance reimbursements paid to lessees. In the Two Month Period, actual
maintenance reserve revenue received amounted to $3.2 million and maintenance
expenditure amounted to $0.7 million, generating positive net maintenance
revenue of $2.5 million. The 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 Two Month Period, Total
Cash Expenses were $3.0 million compared with an assumed amount of $2.1 million.
A number of offsetting factors discussed below have given rise to this variance
of $0.9 million.
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 Two Month Period, Aircraft Operating Expenses amounted to
$0.1 million compared to $0.6 million included in the Base Case, which assumed
these costs to be 2% of the Base Case Lease Rentals.
A-2-5
<PAGE> 275
CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TWO MONTH PERIOD FROM
JULY 17, 2000 TO SEPTEMBER 15, 2000 -- (CONTINUED)
[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 Two Month Period
these costs amounted to $0.1 million.
SG&A Expenses relate to fees paid to the Aircraft Servicer and to other
service providers.
[23] AIRCRAFT SERVICER FEES
The Aircraft Servicer Fees are defined as amounts paid to the Aircraft
Servicer. AerFi replaced Babcock & Brown as Servicer on July 17, 2000. Babcock &
Brown received $1.8 million in the Two Month Period which was due to them in
accordance with the terms of their Servicing Agreement. In the Two Month Period,
the total Aircraft Servicer's fees paid were $0.4 million, which is in line with
the assumed amount in the Base Case.
Aircraft Servicer Fees consist of:
<TABLE>
<CAPTION>
$MM
---
<S> <C>
Retainer Fee................................................ 0.2
Rent Collected Fee.......................................... 0.2
Previous Servicer Fees...................................... 1.8
---
Total Servicer Fee.......................................... 2.2
===
</TABLE>
The Retainer Fee is a fixed amount per month per aircraft and changes only
as aircraft are acquired or sold.
[25] OTHER SERVICER FEES
Other Servicer Fees relate to fees and expenses paid to other service
providers including the Administrative Agent, financial advisors, legal
advisors, accountants and the directors. In the Two Month Period, Other Servicer
Fees amounted to $0.5 million, $0.3 million less than the assumed fees of $0.8
million in the Base Case.
[31] INTEREST PAYMENTS AND [32] SWAP PAYMENTS
In the Two Month Period, interest payments to Noteholders amounted to $18.2
million. This is $0.2 million lower than the Base Case, which assumed Interest
Payments for the Two Month Period to be $18.4 million.
[34] PRINCIPAL PAYMENTS
In the Two Month Period, total principal payments to Noteholders amounted
to $14.3 million, $4.6 million more than assumed in the Base Case, reflecting
the application of the positive Net Cash Collections variance of $4.6 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.
A-2-6
<PAGE> 276
CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TWO MONTH PERIOD FROM
JULY 17, 2000 TO SEPTEMBER 15, 2000 -- (CONTINUED)
As of September 11, 2000, amounts outstanding for more than 30 days for
rental payments due under the leases equalled $4.1 million for two lessees who
had a total of two aircraft on lease representing 3.1% of AerCo's portfolio by
appraised value at April 30, 2000. The outstanding amounts are net of agreed
deferrals or other restructuring and default interest.
As of September 11, 2000, Tower Air, a North American lessee, representing
0.5% of the portfolio by appraised value at April 30, 2000, owed $3.6 million in
rent, $3.3 million of which was in arrears for more than 30 days. Tower Air has
filed for Chapter 11 bankruptcy protection. See "North American Concentration"
below.
PAL, an Asian lessee of two B737-300 aircraft representing 2.6% of the
portfolio by appraised value at April 30, 2000 was 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 September 11, 2000, these arrearages amounted to
$2.0 million. All amounts have been paid in accordance with the scheduled terms
as of September 11, 2000.
As of September 11, 2000, a Colombian lessee representing 2.5% of the
portfolio by appraised value at April 30, 2000, owed $1.0 million in rent, $0.5
million of which was in arrears for more than 30 days. In addition, the lessee
has a deferred amount of $0.7 million that was previously restructured. The
Servicer has agreed not to exercise its remedies in respect of events of default
currently existing under the lease in order to permit the Colombian lessee to
have a stable business environment in which to develop, negotiate and commence
implementing a long-term business plan. During this period, AerCo will receive
approximately 61% of amounts due under the lease in cash, with the remainder
provided by way of secured and unsecured notes issued by the Colombian lessee
which have a maturity date of January 31, 2001. The Colombian lessee's other
aircraft lessors and major creditors have agreed similar forbearance agreements.
There can be no guarantee that the Colombian lessee will be successful in
preparing a realistic long-term business plan by January 2001. In that event,
AerCo will need to consider all of its alternatives, including, potentially,
seeking the return of the aircraft.
AerCo expects to respond to the needs of lessees in financial difficulty by
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 September 11, 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> 277
CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TWO MONTH PERIOD FROM
JULY 17, 2000 TO SEPTEMBER 15, 2000 -- (CONTINUED)
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,
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 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 September 11, 2000, 18.3% 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 depend amongst other things 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.
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 U.S. 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 AerCo Group's other lessees.
Colombia has recently suffered as a result of the deterioration in the
value of the Colombian Peso and the resulting negative impact on the Colombian
economy. AerCo leases one aircraft to a Colombian lessee, representing 2.5% of
the portfolio by appraised value at April 30, 2000. Continued weakness in the
value of the Colombian Peso, as well as general deterioration in the Colombian
economy, will mean that this lessee may be unable to generate sufficient
revenues in the Colombian currency to pay the U.S. dollar denominated rental
repayments under the lease. As of September 11, 2000, this Colombian lessee owed
$1.9 million, $1.3 million of which was in arrears for more than 30 days. The
Servicer has agreed not to exercise its remedies in respect of events of default
currently existing under the lease in order to permit the Colombian lessee to
have a stable business environment in which to develop, negotiate and commence
implementing a long-term business plan. During this period, AerCo will receive
approximately 61% of amounts due under the lease in cash with the remainder
provided by way of secured and unsecured notes issued by the Colombian lessee
which have a maturity date of January 31, 2001. The Colombian lessee's other
aircraft lessors and major creditors have agreed similar forbearance
arrangements. There can be no guarantee that the Colombian lessee will be
successful in preparing a realistic long-term business plan by January 2001. In
that event, AerCo will need to consider all of its alternatives including,
potentially, seeking the return of the aircraft.
EUROPEAN CONCENTRATION. At September 11, 2000, 53.7% of the aircraft by
appraised value at April 30, 2000 were leased by operators based in Europe. Of
this amount, lessees of 42.8% of the aircraft were 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. As of September 11, 2000, 20.9% of the aircraft by appraised value at
April 30, 2000 were leased to lessees in the United Kingdom.
A-2-8
<PAGE> 278
CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TWO MONTH PERIOD FROM
JULY 17, 2000 TO SEPTEMBER 15, 2000 -- (CONTINUED)
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, fuel 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 September 11, 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, against the U.S. dollar, may affect the ability
of these airlines to pay US dollar denominated costs including lease rentals.
The recent sharp increase in jet fuel prices, together with the weakness of
the Euro against the U.S. dollar has led to significant increases in operating
costs for many airlines based in the Euro-zone. This may adversely impact the
ability of such airlines to perform their lease obligations to AerCo Group in
the future.
NORTH AMERICAN CONCENTRATION. At September 11, 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 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 0.5%
of the aircraft by appraised value at April 30, 2000, has filed for Chapter 11
bankruptcy protection. AerCo has petitioned the relevant U.S. bankruptcy court
to terminate the lease. When this aircraft is returned to AerCo, AerCo does not
believe that it has any immediate placement opportunities for lease of this
aircraft. The opportunities for lease or sale of this aircraft type are
currently extremely limited. In addition, the technical costs required to ensure
that it is in a suitable condition for re-leasing will be significant.
Accordingly, AerCo is examining all possibilities in respect of this aircraft,
including a worst case scenario which would involve realizing the scrap value.
As a consequence, this aircraft has been appraised by reference to its scrap
value.
A-2-9
<PAGE> 279
CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TWO MONTH PERIOD FROM
JULY 17, 2000 TO SEPTEMBER 15, 2000 -- (CONTINUED)
COMPARISON OF ACTUAL CASH FLOWS VERSUS BASE CASE CASH FLOWS
FOR THE TWO MONTH PERIOD
<TABLE>
<CAPTION>
% OF 2000 LEASE RENTALS
UNDER THE BASE CASE
-----------------------------
ACTUAL BASE CASE VARIANCE ACTUAL BASE CASE VARIANCE
------ --------- -------- ------ --------- --------
(ALL AMOUNTS IN US DOLLARS
UNLESS OTHERWISE STATED)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH COLLECTIONS
Lease Rentals...............................
[1] 30.88 30.27 0.61 101.0% 100.0% 1.0%
-- Renegotiated Leases......................
[2] 0.00 0.00 0.00 0.0% 0.0% 0.0%
-- Rental Resets............................
[3] 0.00 0.00 0.00 0.0% 0.0% 0.0%
-- Aircraft Sales...........................
[4] 0.00 0.00 0.00 0.0% 0.0% 0.0%
------ ------ ----- ------ ------ -----
CONTRACTED LEASE RENTALS....................
[5] E[1]...[5] 30.88 30.27 0.61 101.0% 100.0% 1.0%
Movement in Current Arrears Balance.........
[6] (2.20) 0.00 (2.20) (6.3%) 0.0% (6.3%)
less Net Stress Related Costs
[7]
-- Bad Debts................................
[8] 0.00 (0.31) 0.31 0.0% (1.0%) 1.0%
-- Deferred Arrears Balance.................
[9] 0.30 0.69 (0.39) 1.0% 2.3% (1.3%)
-- Security Deposits drawn down.............
[10] 0.00 0.00 0.00 0.0% 0.0% 0.0%
-- AOG......................................
[11] 0.00 (1.30) 1.30 0.0% (4.3%) 4.3%
-- Other Leasing Income.....................
[12] 0.00 0.00 0.00 0.0% 0.0% 0.0%
-- Repossession.............................
[13] 0.00 (0.25) 0.25 0.0% (0.8%) 0.8%
------ ------ ----- ------ ------ -----
Sub-total...................................
[14] E[8]...[13] 0.30 (1.17) 1.47 1.0% (3.9%) 4.9%
NET LEASE RENTAL............................
[15] [5]+[6]+[14] 28.96 29.10 (0.15) 95.6% 96.1% (0.5%)
Interest Earned.............................
[16] 0.71 0.61 0.10 2.3% 2.0% 0.3%
Aircraft Sales..............................
[17] 0.00 0.00 0.00 0.0% 0.0% 0.0%
Net Maintenance.............................
[18] 2.53 0.00 2.53 8.3% 0.0% 8.3%
------ ------ ----- ------ ------ -----
TOTAL CASH COLLECTIONS......................
[19] E[15]...[18] 32.19 29.71 2.48 105.3% 98.1% 7.1%
====== ====== ===== ====== ====== =====
CASH EXPENSES
Aircraft Operating Expenses
-- Insurance................................
[20] 0.00 0.00 0.00 0.0% 0.0% 0.0%
-- Re-leasing and other.....................
[21] (0.09) (0.62) 0.53 (0.3%) (2.0%) 1.7%
------ ------ ----- ------ ------ -----
[22] [20] + [21]
Sub-total................................... (0.09) (0.62) 0.53 (0.3%) (2.0%) 1.7%
SG&A Expenses
Aircraft Servicer Fees
[23]
-- Retainer Fee............................. (0.23) (0.26) 0.03 (0.8%) (0.9%) 0.1%
-- Rent Collected Fee....................... (0.26) (0.31) 0.06 (0.8%) (1.0%) 0.2%
-- Previous Servicer........................ (1.87) 0.00 (1.87) (6.2%) 0.0% (6.2%)
-- Sales Fee................................ 0.00 0.00 0.00 0.0% 0.0% 0.0%
------ ------ ----- ------ ------ -----
Sub-total...................................
[24] [23] (2.36) (0.58) (1.78) (7.8%) (1.9%) (5.9%)
Other Servicer Fees.........................
[25] (0.52) (0.89) 0.37 (1.7%) (2.9%) 1.2%
------ ------ ----- ------ ------ -----
Sub-total...................................
[26] [24] + [25] (2.87) (1.47) (1.41) (9.5%) (4.8%) (4.6%)
====== ====== ===== ====== ====== =====
TOTAL CASH EXPENSES.........................
[27] [26] + [22] (2.97) (2.08) (0.88) (9.8%) (6.9%) (2.9%)
====== ====== ===== ====== ====== =====
NET CASH COLLECTIONS
Total Cash Collections......................
[28] [19] 32.19 29.71 2.48 106.3% 98.1% 8.2%
Total Cash Expenses.........................
[29] [26] (2.97) (2.08) (0.88) (9.8%) (6.9%) (2.9%)
Movement in Expense Account.................
[30] 2.75 0.00 2.75 9.1% 0.0% 9.1%
Interest Payments...........................
[31] (18.21) (18.49) 0.27 (60.2%) (61.1%) 0.9%
Swap Payments...............................
[32] 0.50 0.49 0.01 1.6% 1.6% 0.0%
------ ------ ----- ------ ------ -----
TOTAL.......................................
[33] E[28]....[32] 14.27 9.63 4.64 47.1% 31.8% 15.3%
====== ====== ===== ====== ====== =====
PRINCIPAL PAYMENTS
[34]
Subclass A1................................. 14.18 9.56 4.62 46.8% 31.6% 15.3%
Subclass B.................................. 0.00 0.00 0.00 0.0% 0.0% 0.0%
Subclass C.................................. 0.08 0.07 0.02 0.3% 0.2% 0.1%
Subclass D.................................. 0.00 0.00 0.00 0.0% 0.0% 0.0%
------ ------ ----- ------ ------ -----
TOTAL....................................... 14.27 9.63 4.64 47.1% 31.8% 15.3%
====== ====== ===== ====== ====== =====
</TABLE>
A-2-10
<PAGE> 280
CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TWO MONTH PERIOD FROM
JULY 17, 2000 TO SEPTEMBER 15, 2000 -- (CONTINUED)
COVERAGE RATIOS
<TABLE>
<CAPTION>
ADJUSTED
CLOSING ACTUAL BASE CASE
------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Cash Collections................. 14.3 9.6
Add Back Interest and Swap
Payments............................ 17.7 18.0
Add Back Permitted Accruals
a Net Cash Collections (excl. interest
and swap payments................... 32.0 27.6
b Swaps................................ 0.8 0.5
c Class A Interest..................... 11.7 11.9
d Class A Minimum...................... -- --
e Class B Interest..................... 1.9 2.0
f Class B Minimum...................... -- --
g Class C Interest..................... 2.3 2.3
h Class C Minimum...................... -- --
i Class D Interest..................... 1.4 1.4
j Class D Minimum...................... -- --
k Class A Scheduled.................... -- --
l Class B Scheduled.................... -- --
m Class C Scheduled.................... 0.1 0.1
n Class D Scheduled.................... -- --
o Permitted Aircraft Modifications..... -- --
p Step-up Interest..................... -- --
q Class A Supplemental................. 14.2 9.6
r Class E Primary Interest............. 0.9 0.9
------------- -------------
Total 32.0 27.6
------------- -------------
(i) Interest Coverage Ratio
Class A.............................. 2.85 2.42 = a/(b+c)
Class B.............................. 2.43 2.06 = a/(b+c+d+e)
Class C.............................. 2.07 1.76 = a/(b+c+d+e+f+g)
Class D.............................. 1.90 1.61 = a/(b+c+d+e+f+g+h+i)
(ii) Debt Coverage Ratio
Class A.............................. 1.90 1.61 = a/(b+c+d+e+f+g+h+I+j+k)
Class B.............................. 1.90 1.61 = a/(b+c+d+e+f+g+h+I+j+k+l)
Class C.............................. 1.89 1.61 = a/(b+c+d+e+f+g+h+I+j+k+l+m)
Class D.............................. 1.89 1.61 = a/(b+c+d+e+f+g+h+I+j+k+l+m+n)
Loan to Value Ratios (in US Dollars)
(iii) Assumed Portfolio Value.............. 1,566,730,000 1,522,650,000
(iv) Adjusted Portfolio Value............. 1,522,415,496
Liquidity Reserve Amount
Of which
-- Cash.............................. 87,400,000 81,208,000 87,400,000
-- Accrued Expenses.................. 7,818,460
------------- ------------- -------------
Subtotal............................. 87,400,000 89,026,460 87,400,000
Less Lessee Security Deposits........ 22,400,000 16,208,000 22,400,000
------------- ------------- -------------
Subtotal............................. 65,000,000 72,818,460 65,000,000
(v) Total Asset Value.................... 1,631,730,000 1,595,233,956 1,587,650,000
Note Balances as at September 15,2000
Class A.............................. 998,386,457 984,203,597 988,823,457
Class B.............................. 154,787,636 154,787,636 154,787,636
Class C.............................. 164,156,262 164,074,190 164,091,262
Class D.............................. 100,000,000 100,000,000 100,000,000
------------- ------------- -------------
1,417,330,355 1,403,065,423 1,407,702,355
</TABLE>
---------------
(i) Interest Coverage Ratio is equal to Net Cash Collections (excluding 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.
(ii) 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.
(iii) 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 July 15, 1998 or
July 17, 2000.
A-2-11
<PAGE> 281
CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TWO MONTH PERIOD FROM
JULY 17, 2000 TO SEPTEMBER 15, 2000 -- (CONTINUED)
(iv) 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 or July 17, 2000.
(v) Total Asset Value is equal to Total Assumed Portfolio Value plus Liquidity
Reserve Amount minus Lessee Security Deposits.
<TABLE>
<CAPTION>
NOTE REPORT LINE NAME DESCRIPTION
---- ---------------- -----------
<S> <C> <C>
CASH COLLECTIONS
[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
Base Case
[4] -- Aircraft Sales........................ Revenue foregone as a result of aircraft sales
[5] E[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 payments charges
[13] -- Repossession.......................... Legal and technical costs incurred in repossessing
aircraft.
[14] E[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] E[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
-- Previous Servicer Fee................. Fee paid to previous Servicer for performance in
accordance with the Servicing Agreement
-- 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
</TABLE>
A-2-12
<PAGE> 282
CASH ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TWO MONTH PERIOD FROM
JULY 17, 2000 TO SEPTEMBER 15, 2000 -- (CONTINUED)
<TABLE>
<CAPTION>
NOTE REPORT LINE NAME DESCRIPTION
---- ---------------- -----------
<S> <C> <C>
[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>
A-2-13
<PAGE> 283
APPENDIX 3
AERCO CASH FLOW PERFORMANCE FOR THE PERIOD FROM JULY 15, 1998 TO JUNE 15, 2000
<TABLE>
<CAPTION>
% 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> <C>
CASH COLLECTIONS
Lease Rentals..............................
[1] 224.02 224.02 0.00 100.0% 100.0% 0.0%
-- Renegotiated Leases.....................
[2] (1.01) 0.00 (1.01) (0.5%) 0.0% (0.5%)
-- Rental Resets...........................
[3] (4.23) 0.00 (4.23) (1.9%) 0.0% (1.9%)
-- Aircraft Sales..........................
[4] (5.30) (5.30) 0.00 (2.4%) (2.4%) 0.0%
------- ------- ------ ------ ------ -----
CONTRACTED LEASE RENTALS...................
[5] E[1]....[5] 213.48 218.72 (5.24) 95.3% 97.6% (2.3%)
Movement in Current Arrears Balance........
[6] (2.70) 0.00 (2.70) (1.2%) 0.0% (1.2%)
less Net Stress Related Costs
[7]
-- Bad Debts...............................
[8] 0.00 (2.24) 2.24 0.0% (1.0%) 1.0%
-- Deferred Arrears Balance................
[9] (1.96) 0.00 (1.96) (0.9%) 0.0% (0.9%)
-- Security Deposits drawn down............
[10] 0.90 0.00 0.90 0.4% 0.0% 0.4%
-- AOG.....................................
[11] 0.00 (9.41) 9.41 0.0% (4.2%) 4.2%
-- Other Leasing Income....................
[12] 0.25 0.00 0.25 0.1% 0.0% 0.1%
-- Repossession............................
[13] 0.00 (1.75) 1.75 0.0% (0.8%) 0.8%
------- ------- ------ ------ ------ -----
Sub-total..................................
[14] E[8]....[13] (0.81) (13.40) 12.59 (0.4%) (6.0%) 5.6%
NET LEASE RENTAL...........................
[15] [5] + [6] + [14] 209.97 205.32 4.64 93.7% 91.7% 2.1%
Interest Earned............................
[16] 6.17 4.30 1.87 2.8% 1.9% 0.8%
Aircraft Sales.............................
[17] 28.51 28.51 0.00 12.7% 12.7% 0.0%
Net Maintenance............................
[18] (12.72) 0.00 (12.72) (5.7%) 0.0% (5.7%)
------- ------- ------ ------ ------ -----
TOTAL CASH COLLECTIONS.....................
[19] E[15]....[18] 231.92 238.13 (6.21) 103.5% 106.3% (2.8%)
======= ======= ====== ====== ====== =====
CASH EXPENSES
Aircraft Operating Expenses
-- Insurance...............................
[20] (1.01) 0.00 (1.01) (0.5%) 0.0% (0.5%)
-- Re-leasing and other overheads..........
[21] (6.93) (4.48) (2.45) (3.1%) (2.0%) (1.1%)
------- ------- ------ ------ ------ -----
Sub-total..................................
[22] [20] + [21] (7.95) (4.48) (3.47) (3.5%) (2.0%) (1.5%)
SG&A Expenses
Aircraft Servicer Fees
[23]
-- 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%
------- ------- ------ ------ ------ -----
Sub-total..................................
[24] [23] (5.46) (5.70) 0.24 (2.4%) (2.5%) 0.1%
Other Servicer Fees........................
[25] (9.86) (9.98) 0.12 (4.4%) (4.5%) 0.1%
------- ------- ------ ------ ------ -----
Sub-total..................................
[26] [24] + [25] (15.32) (15.67) 0.36 (6.8%) (7.0%) 0.2%
======= ======= ====== ====== ====== =====
-- -- -- -- -- --
TOTAL CASH EXPENSES........................
[27] [26] + [22] (23.26) (20.15) (3.11) (10.4%) (9.0%) (1.4%)
======= ======= ====== ====== ====== =====
NET CASH COLLECTIONS
Total Cash Collections.....................
[28] [19] 231.92 238.13 (6.21) 103.5% 106.3% (2.8%)
Total Cash Expenses........................
[29] [26] (23.26) (20.15) (3.11) (10.4%) (9.0%) (1.4%)
Movement on Expense Account................
[30] 0.40 0.00 0.40 0.2% 0.0% 0.2%
Interest Payments..........................
[31] (106.04) (108.96) 2.93 (47.3%) (48.6%) 1.3%
Swap Payments..............................
[32] (2.27) (1.84) (0.43) (1.0%) (0.8%) (0.2%)
------- ------- ------ ------ ------ -----
TOTAL......................................
[33] E[28]....[31] 100.75 107.18 (6.43) 45.0% 47.8% (2.9%)
======= ======= ====== ====== ====== =====
PRINCIPAL PAYMENTS
[34]
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>
A-3-1
<PAGE> 284
COVERAGE RATIOS
<TABLE>
<CAPTION>
ADJUSTED
CLOSING ACTUAL BASE CASE
----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET CASH COLLECTIONS...................... 100.7 107.2
Add Back Interest and
Swap Payments............................ 108.3 110.8
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)
(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 held................. -- -- --
----------- ----------- -----------
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 to aircraft sales.
A-3-2
<PAGE> 285
(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 on July 15, 1998.
(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.
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.
A-3-3
<PAGE> 286
PORTFOLIO DETAILS
All amounts in thousands of US dollars unless otherwise stated
<TABLE>
<CAPTION>
COUNTRY OF DATE OF
CURRENT AIRCRAFT ENGINE SERIAL MANUFACTURE/
REGION (1) LESSEE LESSEE TYPE CONFIGURATION NUMBER CONVERSION
---------- ----------- --------------- ---------- ------------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Asia -- Emerging China China Xinjiang B757-200 RB211-535E4 26153 Aug 92
2. China China Southern 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 A320-200 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 Pegasus 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. Canada Air Canada B767-300ER PW4060 24947 Mar 91
32. USA BAX Global DC8-71F CFM56-2C1 46064 Mar 92
33. USA Tower Air B747-200 JT9D-7Q 22496 Oct 81
Sub-total
Total.............................................................................................................
<CAPTION>
APPRAISED VALUE % OF % OF
AT FEBRUARY 18, 2000 TOTAL REGION
-------------------- ------ ------
<S> <C> <C> <C>
39,400 4.6%
24,103 2.8%
11,187 1.3%
20,233 2.4%
20,990 2.5%
25,353 3.0%
25,563 3.0%
21,867 2.6%
Sub-total 22.2%
25,427 3.0%
57,383 6.8%
19,393 2.3%
19,693 2.3%
40,547 4.8%
28,860 3.4%
29,170 3.4%
21,460 2.5%
30,523 3.6%
Sub-total 32.1%
22,943 2.7%
21,797 2.6%
24,807 2.9%
22,880 2.7%
25,583 3.0%
25,743 3.0%
Sub-total 16.9%
13,270 1.6%
13,393 1.6%
13,360 1.6%
21,217 2.5%
15,353 1.8%
38,527 4.5%
Sub-total 13.6%
29,907 3.5%
58,620 6.9%
13,927 1.6%
27,003 3.2%
Sub-total 15.2%
------- ------ ------
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
A-3-4
<PAGE> 287
APPENDIX 4
MONTHLY LEASE RENTALS UNDER THE BASE CASE
<TABLE>
<CAPTION>
BASE CASE
LEASE
MONTH RENTALS
--------------------- ----------
(US$)
<S> <C>
August 2000.......... 14,221,172
September 2000....... 16,738,741
October 2000......... 17,771,914
November 2000........ 14,928,967
December 2000........ 23,953,526
January 2001......... 15,957,613
February 2001........ 14,439,658
March 2001........... 16,805,547
April 2001........... 17,855,111
May 2001............. 14,170,397
June 2001............ 15,956,668
July 2001............ 16,235,145
August 2001.......... 14,197,447
September 2001....... 17,245,377
October 2001......... 17,124,716
November 2001........ 14,352,545
December 2001........ 15,792,521
January 2002......... 15,859,771
February 2002........ 14,621,301
March 2002........... 16,742,603
April 2002........... 17,268,347
May 2002............. 14,422,405
June 2002............ 15,910,885
July 2002............ 15,913,772
August 2002.......... 14,425,802
September 2002....... 17,171,180
October 2002......... 17,073,863
November 2002........ 14,478,327
December 2002........ 15,379,079
January 2003......... 15,708,818
February 2003........ 14,464,301
March 2003........... 16,625,118
April 2003........... 17,065,436
May 2003............. 14,254,847
June 2003............ 15,739,238
July 2003............ 15,535,766
August 2003.......... 14,532,421
September 2003....... 16,690,281
October 2003......... 16,740,861
November 2003........ 14,627,521
December 2003........ 15,269,161
January 2004......... 15,428,222
February 2004........ 14,616,002
March 2004........... 16,547,642
April 2004........... 16,793,426
May 2004............. 14,680,994
June 2004............ 15,575,015
July 2004............ 15,127,890
August 2004.......... 14,564,634
</TABLE>
<TABLE>
<CAPTION>
BASE CASE
LEASE
MONTH RENTALS
--------------------- ----------
(US$)
<S> <C>
September 2004....... 16,223,800
October 2004......... 16,809,860
November 2004........ 14,854,724
December 2004........ 14,854,724
January 2005......... 15,053,021
February 2005........ 15,036,485
March 2005........... 16,326,485
April 2005........... 16,268,543
May 2005............. 14,971,532
June 2005............ 15,148,361
July 2005............ 14,995,636
August 2005.......... 14,995,636
September 2005....... 16,228,619
October 2005......... 15,180,741
November 2005........ 15,132,162
December 2005........ 15,110,663
January 2006......... 15,110,663
February 2006........ 15,116,256
March 2006........... 18,281,580
April 2006........... 15,019,380
May 2006............. 14,987,941
June 2006............ 14,987,941
July 2006............ 14,987,941
August 2006.......... 14,987,941
September 2006....... 14,987,941
October 2006......... 14,987,941
November 2006........ 14,954,512
December 2006........ 14,939,652
January 2007......... 14,939,652
February 2007........ 14,939,652
March 2007........... 17,796,228
April 2007........... 14,735,569
May 2007............. 14,672,774
June 2007............ 14,616,330
July 2007............ 14,616,330
August 2007.......... 14,616,330
September 2007....... 14,590,002
October 2007......... 14,590,002
November 2007........ 14,562,961
December 2007........ 14,504,042
January 2008......... 14,504,042
February 2008........ 14,482,312
March 2008........... 14,482,312
April 2008........... 14,363,325
May 2008............. 17,276,068
June 2008............ 14,253,114
July 2008............ 14,253,114
August 2008.......... 14,253,114
September 2008....... 14,220,302
</TABLE>
<TABLE>
<CAPTION>
BASE CASE
LEASE
MONTH RENTALS
--------------------- ----------
(US$)
<S> <C>
October 2008......... 14,220,302
November 2008........ 14,182,340
December 2008........ 14,182,340
January 2009......... 14,141,752
February 2009........ 14,141,752
March 2009........... 14,141,752
April 2009........... 13,941,625
May 2009............. 13,883,321
June 2009............ 13,853,285
July 2009............ 13,834,442
August 2009.......... 13,793,063
September 2009....... 13,793,063
October 2009......... 13,752,888
November 2009........ 13,669,577
December 2009........ 13,669,577
January 2010......... 13,669,577
February 2010........ 13,638,783
March 2010........... 13,638,783
April 2010........... 13,471,366
May 2010............. 13,471,366
June 2010............ 13,404,068
July 2010............ 16,451,686
August 2010.......... 13,256,146
September 2010....... 13,256,146
October 2010......... 13,180,426
November 2010........ 13,078,218
December 2010........ 13,015,870
January 2011......... 13,015,870
February 2011........ 12,898,847
March 2011........... 12,747,369
April 2011........... 12,747,369
May 2011............. 12,683,408
June 2011............ 12,683,408
July 2011............ 12,683,408
August 2011.......... 12,683,408
September 2011....... 12,683,408
October 2011......... 12,683,408
November 2011........ 12,619,589
December 2011........ 12,581,449
January 2012......... 12,581,449
February 2012........ 12,581,449
March 2012........... 12,581,449
April 2012........... 12,542,797
May 2012............. 12,479,432
June 2012............ 12,344,617
July 2012............ 12,344,617
August 2012.......... 12,344,617
September 2012....... 12,267,333
October 2012......... 12,267,333
</TABLE>
A-4-1
<PAGE> 288
MONTHLY LEASE RENTALS UNDER THE BASE CASE (CONTINUED)
<TABLE>
<CAPTION>
BASE CASE
LEASE
MONTH RENTALS
--------------------- ----------
(US$)
<S> <C>
November 2012........ 12,177,222
December 2012........ 12,095,693
January 2013......... 12,095,693
February 2013........ 15,077,019
March 2013........... 11,907,972
April 2013........... 11,634,594
May 2013............. 11,634,594
June 2013............ 11,634,594
July 2013............ 11,634,594
August 2013.......... 11,634,594
September 2013....... 11,574,053
October 2013......... 15,316,041
November 2013........ 15,057,353
December 2013........ 11,232,471
January 2014......... 14,951,540
February 2014........ 10,985,519
March 2014........... 10,985,519
April 2014........... 13,891,170
May 2014............. 10,395,876
June 2014............ 17,910,766
July 2014............ 10,061,756
August 2014.......... 13,246,221
September 2014....... 9,805,551
October 2014......... 12,871,643
November 2014........ 9,457,372
December 2014........ 9,457,372
January 2015......... 9,457,372
February 2015........ 9,404,046
March 2015........... 13,331,103
April 2015........... 12,249,440
May 2015............. 19,527,791
June 2015............ 11,888,756
July 2015............ 8,227,248
August 2015.......... 11,688,004
September 2015....... 14,037,253
October 2015......... 10,733,934
November 2015........ 7,640,318
December 2015........ 7,534,970
January 2016......... 7,534,970
February 2016........ 19,920,902
March 2016........... 15,655,823
April 2016........... 16,842,875
May 2016............. 7,975,523
June 2016............ 5,966,586
July 2016............ 7,844,407
August 2016.......... 8,108,394
September 2016....... 8,022,357
October 2016......... 5,664,520
November 2016........ 5,664,520
December 2016........ 8,724,301
January 2017......... 5,440,407
</TABLE>
<TABLE>
<CAPTION>
BASE CASE
LEASE
MONTH RENTALS
--------------------- ----------
(US$)
<S> <C>
February 2017........ 5,440,407
March 2017........... 11,863,859
April 2017........... 14,763,295
May 2017............. 15,763,872
June 2017............ 14,028,658
July 2017............ 7,418,139
August 2017.......... 18,350,167
September 2017....... 2,724,425
October 2017......... 6,980,012
November 2017........ 2,543,002
December 2017........ 6,723,851
January 2018......... 2,350,649
February 2018........ 5,589,363
March 2018........... 14,973,827
April 2018........... 5,884,106
May 2018............. 1,425,404
June 2018............ 1,425,404
July 2018............ 1,425,404
August 2018.......... 1,425,404
September 2018....... 4,235,170
October 2018......... 1,297,259
November 2018........ 1,297,259
December 2018........ 5,435,992
January 2019......... 1,128,785
February 2019........ 1,128,785
March 2019........... 1,128,785
April 2019........... 1,128,785
May 2019............. 1,059,770
June 2019............ 1,059,770
July 2019............ 1,059,770
August 2019.......... 1,059,770
September 2019....... 1,059,770
October 2019......... 1,059,770
November 2019........ 1,059,770
December 2019........ 1,059,770
January 2020......... 1,059,770
February 2020........ 1,059,770
March 2020........... 1,059,770
April 2020........... 1,059,770
May 2020............. 1,059,770
June 2020............ 3,967,681
July 2020............ 924,740
August 2020.......... 924,740
September 2020....... 924,740
October 2020......... 924,740
November 2020........ 924,740
December 2020........ 924,740
January 2021......... 924,740
February 2021........ 862,577
March 2021........... 862,577
April 2021........... 862,577
</TABLE>
<TABLE>
<CAPTION>
BASE CASE
LEASE
MONTH RENTALS
--------------------- ----------
(US$)
<S> <C>
May 2021............. 862,577
June 2021............ 862,577
July 2021............ 862,577
August 2021.......... 862,577
September 2021....... 862,577
October 2021......... 862,577
November 2021........ 862,577
December 2021........ 862,577
January 2022......... 862,577
February 2022........ 862,577
March 2022........... 862,577
April 2022........... 862,577
May 2022............. 785,122
June 2022............ 669,187
July 2022............ 669,187
August 2022.......... 669,187
September 2022....... 669,187
October 2022......... 669,187
November 2022........ 669,187
December 2022........ 669,187
January 2023......... 669,187
February 2023........ 669,187
March 2023........... 669,187
April 2023........... 669,187
May 2023............. 669,187
June 2023............ 669,187
July 2023............ 669,187
August 2023.......... 669,187
September 2023....... 669,187
October 2023......... 669,187
November 2023........ 669,187
December 2023........ 669,187
January 2024......... 5,481,998
February 2024........ 492,159
March 2024........... 492,159
April 2024........... 492,159
May 2024............. 6,509,414
June 2024............ 220,580
July 2024............ 220,580
August 2024.......... 220,580
September 2024....... 220,580
October 2024......... 220,580
November 2024........ 220,580
December 2024........ 220,580
January 2025......... 220,580
February 2025........ 220,580
March 2025........... 220,580
April 2025........... 220,580
May 2025............. 6,254,155
June 2025............ 0
</TABLE>
A-4-2
<PAGE> 289
APPENDIX 5
ASSUMED PORTFOLIO VALUES
<TABLE>
<CAPTION>
ASSUMED
MONTH PORTFOLIO VALUE
--------------------- ---------------
(US$ MILLIONS)
<S> <C>
July 2000............ 1,566.73
August 2000.......... 1,559.95
September 2000....... 1,552.65
October 2000......... 1,545.33
November 2000........ 1,537.98
December 2000........ 1,514.22
January 2001......... 1,508.51
February 2001........ 1,502.77
March 2001........... 1,497.01
April 2001........... 1,491.23
May 2001............. 1,485.42
June 2001............ 1,479.59
July 2001............ 1,473.74
August 2001.......... 1,467.86
September 2001....... 1,461.96
October 2001......... 1,456.03
November 2001........ 1,450.09
December 2001........ 1,444.12
January 2002......... 1,438.12
February 2002........ 1,432.10
March 2002........... 1,426.06
April 2002........... 1,420.00
May 2002............. 1,413.91
June 2002............ 1,407.79
July 2002............ 1,401.65
August 2002.......... 1,395.49
September 2002....... 1,389.30
October 2002......... 1,383.09
November 2002........ 1,376.86
December 2002........ 1,370.60
January 2003......... 1,364.32
February 2003........ 1,358.01
March 2003........... 1,351.68
April 2003........... 1,345.32
May 2003............. 1,338.94
June 2003............ 1,332.53
July 2003............ 1,326.10
August 2003.......... 1,319.64
September 2003....... 1,313.16
October 2003......... 1,306.65
November 2003........ 1,300.12
December 2003........ 1,293.56
January 2004......... 1,286.98
February 2004........ 1,280.38
March 2004........... 1,273.74
April 2004........... 1,267.09
</TABLE>
<TABLE>
<CAPTION>
ASSUMED
MONTH PORTFOLIO VALUE
--------------------- ---------------
(US$ MILLIONS)
<S> <C>
May 2004............. 1,260.40
June 2004............ 1,253.69
July 2004............ 1,246.96
August 2004.......... 1,240.20
September 2004....... 1,233.41
October 2004......... 1,226.60
November 2004........ 1,219.76
December 2004........ 1,212.90
January 2005......... 1,206.01
February 2005........ 1,199.10
March 2005........... 1,192.15
April 2005........... 1,185.19
May 2005............. 1,178.19
June 2005............ 1,171.17
July 2005............ 1,164.12
August 2005.......... 1,157.05
September 2005....... 1,149.95
October 2005......... 1,142.82
November 2005........ 1,135.67
December 2005........ 1,128.49
January 2006......... 1,121.28
February 2006........ 1,114.05
March 2006........... 1,106.85
April 2006........... 1,099.76
May 2006............. 1,092.65
June 2006............ 1,085.51
July 2006............ 1,078.35
August 2006.......... 1,071.16
September 2006....... 1,063.94
October 2006......... 1,056.70
November 2006........ 1,049.43
December 2006........ 1,042.13
January 2007......... 1,034.81
February 2007........ 1,027.46
March 2007........... 1,020.14
April 2007........... 1,012.93
May 2007............. 1,005.69
June 2007............ 998.42
July 2007............ 991.12
August 2007.......... 983.80
September 2007....... 976.45
October 2007......... 969.08
November 2007........ 961.68
December 2007........ 954.25
January 2008......... 946.79
February 2008........ 939.30
</TABLE>
<TABLE>
<CAPTION>
ASSUMED
MONTH PORTFOLIO VALUE
--------------------- ---------------
(US$ MILLIONS)
<S> <C>
March 2008........... 931.79
April 2008........... 924.25
May 2008............. 916.75
June 2008............ 909.29
July 2008............ 901.81
August 2008.......... 894.30
September 2008....... 886.76
October 2008......... 879.20
November 2008........ 871.61
December 2008........ 863.99
January 2009......... 856.34
February 2009........ 848.66
March 2009........... 840.96
April 2009........... 833.23
May 2009............. 825.47
June 2009............ 817.69
July 2009............ 809.87
August 2009.......... 802.03
September 2009....... 794.16
October 2009......... 786.26
November 2009........ 778.34
December 2009........ 770.38
January 2010......... 762.40
February 2010........ 754.39
March 2010........... 746.35
April 2010........... 738.28
May 2010............. 730.18
June 2010............ 722.06
July 2010............ 713.97
August 2010.......... 705.94
September 2010....... 697.87
October 2010......... 689.78
November 2010........ 681.66
December 2010........ 673.51
January 2011......... 665.33
February 2011........ 657.12
March 2011........... 648.89
April 2011........... 640.62
May 2011............. 632.33
June 2011............ 624.00
July 2011............ 615.65
August 2011.......... 607.27
September 2011....... 598.86
October 2011......... 590.42
November 2011........ 581.95
December 2011........ 573.45
</TABLE>
A-5-1
<PAGE> 290
ASSUMED PORTFOLIO VALUES (CONTINUED)
<TABLE>
<CAPTION>
ASSUMED
MONTH PORTFOLIO VALUE
--------------------- ---------------
(US$ MILLIONS)
<S> <C>
January 2012......... 564.92
February 2012........ 556.36
March 2012........... 547.77
April 2012........... 539.15
May 2012............. 530.50
June 2012............ 521.82
July 2012............ 513.11
August 2012.......... 504.37
September 2012....... 495.60
October 2012......... 486.80
November 2012........ 477.97
December 2012........ 469.11
January 2013......... 460.22
February 2013........ 451.35
March 2013........... 442.54
April 2013........... 433.71
May 2013............. 424.84
June 2013............ 415.94
July 2013............ 407.01
August 2013.......... 398.06
September 2013....... 389.07
October 2013......... 380.07
November 2013........ 371.25
December 2013........ 362.52
January 2014......... 353.85
February 2014........ 345.25
March 2014........... 336.61
April 2014........... 328.02
May 2014............. 319.49
June 2014............ 311.06
July 2014............ 302.83
August 2014.......... 294.64
September 2014....... 286.51
October 2014......... 278.42
November 2014........ 270.38
December 2014........ 262.31
January 2015......... 254.21
February 2015........ 246.09
March 2015........... 238.09
April 2015........... 230.22
May 2015............. 222.63
June 2015............ 215.33
July 2015............ 208.09
August 2015.......... 200.90
September 2015....... 193.88
October 2015......... 187.09
November 2015........ 180.34
December 2015........ 173.57
</TABLE>
<TABLE>
<CAPTION>
ASSUMED
MONTH PORTFOLIO VALUE
--------------------- ---------------
(US$ MILLIONS)
<S> <C>
January 2016......... 166.77
February 2016........ 160.24
March 2016........... 154.20
April 2016........... 148.64
May 2016............. 143.36
June 2016............ 138.08
July 2016............ 132.83
August 2016.......... 127.65
September 2016....... 122.56
October 2016......... 117.51
November 2016........ 112.44
December 2016........ 107.43
January 2017......... 102.47
February 2017........ 97.51
March 2017........... 92.70
April 2017........... 88.10
May 2017............. 84.12
June 2017............ 80.47
July 2017............ 77.35
August 2017.......... 74.58
September 2017....... 72.19
October 2017......... 69.78
November 2017........ 67.57
December 2017........ 65.54
January 2018......... 63.51
February 2018........ 61.58
March 2018........... 60.10
April 2018........... 58.97
May 2018............. 57.90
June 2018............ 56.82
July 2018............ 55.73
August 2018.......... 54.65
September 2018....... 53.69
October 2018......... 52.73
November 2018........ 51.77
December 2018........ 50.81
January 2019......... 50.04
February 2019........ 49.27
March 2019........... 48.49
April 2019........... 47.71
May 2019............. 46.93
June 2019............ 46.14
July 2019............ 45.36
August 2019.......... 44.57
September 2019....... 43.77
October 2019......... 42.98
November 2019........ 42.18
December 2019........ 41.38
</TABLE>
<TABLE>
<CAPTION>
ASSUMED
MONTH PORTFOLIO VALUE
--------------------- ---------------
(US$ MILLIONS)
<S> <C>
January 2020......... 40.58
February 2020........ 39.77
March 2020........... 38.96
April 2020........... 38.15
May 2020............. 37.33
June 2020............ 36.64
July 2020............ 35.95
August 2020.......... 35.27
September 2020....... 34.59
October 2020......... 33.90
November 2020........ 33.21
December 2020........ 32.52
January 2021......... 31.82
February 2021........ 31.13
March 2021........... 30.43
April 2021........... 29.73
May 2021............. 29.02
June 2021............ 28.31
July 2021............ 27.61
August 2021.......... 26.89
September 2021....... 26.18
October 2021......... 25.46
November 2021........ 24.75
December 2021........ 24.02
January 2022......... 23.30
February 2022........ 22.57
March 2022........... 21.85
April 2022........... 21.12
May 2022............. 20.38
June 2022............ 19.65
July 2022............ 18.91
August 2022.......... 18.17
September 2022....... 17.42
October 2022......... 16.68
November 2022........ 15.93
December 2022........ 15.18
January 2023......... 14.42
February 2023........ 13.67
March 2023........... 12.91
April 2023........... 12.15
May 2023............. 11.39
June 2023............ 10.62
July 2023............ 9.85
August 2023.......... 9.08
September 2023....... 8.31
October 2023......... 7.53
November 2023........ 6.75
December 2023........ 5.97
</TABLE>
A-5-2
<PAGE> 291
ASSUMED PORTFOLIO VALUES (CONTINUED)
<TABLE>
<CAPTION>
ASSUMED
MONTH PORTFOLIO VALUE
--------------------- ---------------
(US$ MILLIONS)
<S> <C>
January 2024......... 5.29
February 2024........ 4.73
March 2024........... 4.17
April 2024........... 3.61
May 2024............. 3.18
June 2024............ 2.91
July 2024............ 2.63
August 2024.......... 2.35
September 2024....... 2.07
October 2024......... 1.79
November 2024........ 1.51
December 2024........ 1.23
January 2025......... 0.95
February 2025........ 0.67
March 2025........... 0.38
April 2025........... 0.10
May 2025............. 0.00
</TABLE>
<TABLE>
<CAPTION>
MONTH PORTFOLIO VALUE
--------------------- ---------------
(US$ MILLIONS)
<S> <C>
</TABLE>
<TABLE>
<CAPTION>
MONTH PORTFOLIO VALUE
--------------------- ---------------
(US$ MILLIONS)
<S> <C>
</TABLE>
A-5-3
<PAGE> 292
APPENDIX 6
CLASS A CLASS PERCENTAGES
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS A
PAYMENT DATE MINIMUM SCHEDULED SUPPLEMENTAL
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
------------ ---------- ---------- ------------
<S> <C> <C> <C>
July 2000............ 64.69% 64.69% 63.47%
August 2000.......... 64.65% 64.65% 63.73%
September 2000....... 64.61% 64.61% 63.39%
October 2000......... 64.56% 64.56% 63.05%
November 2000........ 64.52% 64.52% 63.00%
December 2000........ 64.02% 64.02% 63.59%
January 2001......... 64.03% 64.03% 63.41%
February 2001........ 64.03% 64.03% 63.42%
March 2001........... 64.03% 64.03% 63.30%
April 2001........... 64.03% 64.03% 63.12%
May 2001............. 64.03% 64.03% 62.82%
June 2001............ 64.03% 64.03% 62.82%
July 2001............ 64.03% 64.03% 62.83%
August 2001.......... 64.03% 64.03% 62.83%
September 2001....... 64.03% 64.03% 62.53%
October 2001......... 64.04% 64.04% 62.23%
November 2001........ 64.04% 64.04% 62.23%
December 2001........ 64.04% 64.04% 62.23%
January 2002......... 64.04% 64.04% 62.11%
February 2002........ 64.04% 64.04% 62.05%
March 2002........... 64.04% 64.04% 61.99%
April 2002........... 64.04% 64.04% 61.82%
May 2002............. 64.04% 64.04% 61.63%
June 2002............ 64.05% 64.05% 61.63%
July 2002............ 64.05% 64.05% 61.64%
August 2002.......... 64.05% 64.05% 61.63%
September 2002....... 64.05% 64.05% 61.33%
October 2002......... 64.05% 64.05% 61.34%
November 2002........ 64.05% 64.05% 61.33%
December 2002........ 64.05% 64.05% 61.33%
January 2003......... 64.06% 64.06% 61.33%
February 2003........ 64.06% 64.06% 61.32%
March 2003........... 64.06% 64.06% 61.32%
April 2003........... 64.06% 64.06% 61.32%
May 2003............. 64.06% 64.06% 61.31%
June 2003............ 64.06% 64.06% 61.31%
July 2003............ 64.06% 64.06% 61.30%
August 2003.......... 64.07% 64.06% 61.30%
September 2003....... 64.07% 64.06% 61.29%
October 2003......... 64.07% 64.06% 61.29%
November 2003........ 64.07% 64.06% 61.27%
December 2003........ 64.07% 64.07% 61.27%
January 2004......... 64.07% 64.07% 61.26%
February 2004........ 64.08% 64.07% 61.25%
March 2004........... 64.08% 64.07% 60.65%
April 2004........... 64.08% 64.07% 60.04%
May 2004............. 64.08% 64.07% 59.44%
June 2004............ 64.08% 64.07% 59.43%
July 2004............ 64.08% 64.07% 59.41%
August 2004.......... 64.09% 64.07% 59.40%
September 2004....... 64.09% 64.08% 59.39%
October 2004......... 64.09% 64.07% 59.37%
November 2004........ 64.09% 64.07% 59.36%
December 2004........ 64.09% 64.08% 59.35%
January 2005......... 64.10% 64.08% 59.33%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS A
PAYMENT DATE MINIMUM SCHEDULED SUPPLEMENTAL
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
------------ ---------- ---------- ------------
<S> <C> <C> <C>
February 2005........ 64.10% 64.07% 59.31%
March 2005........... 64.10% 64.07% 59.29%
April 2005........... 64.10% 64.08% 59.27%
May 2005............. 64.10% 64.07% 59.25%
June 2005............ 64.11% 64.07% 59.23%
July 2005............ 64.11% 64.07% 59.20%
August 2005.......... 64.10% 64.07% 59.18%
September 2005....... 64.11% 64.07% 59.15%
October 2005......... 64.11% 64.07% 59.13%
November 2005........ 64.11% 64.07% 59.10%
December 2005........ 64.11% 64.07% 59.07%
January 2006......... 64.12% 64.07% 59.04%
February 2006........ 64.12% 64.06% 59.01%
March 2006........... 64.12% 64.06% 58.98%
April 2006........... 64.12% 64.06% 58.94%
May 2006............. 64.12% 64.05% 58.90%
June 2006............ 64.12% 64.05% 58.86%
July 2006............ 64.12% 64.04% 58.82%
August 2006.......... 64.12% 64.03% 58.78%
September 2006....... 64.12% 64.03% 58.74%
October 2006......... 64.12% 64.02% 58.69%
November 2006........ 64.12% 64.02% 58.64%
December 2006........ 64.12% 64.01% 58.59%
January 2007......... 64.11% 64.00% 58.54%
February 2007........ 64.11% 63.99% 58.49%
March 2007........... 64.12% 63.99% 58.43%
April 2007........... 64.12% 63.97% 58.38%
May 2007............. 64.11% 63.97% 58.32%
June 2007............ 64.11% 63.95% 58.26%
July 2007............ 64.11% 63.94% 58.20%
August 2007.......... 64.10% 63.94% 58.13%
September 2007....... 64.10% 63.92% 58.07%
October 2007......... 64.10% 63.91% 58.00%
November 2007........ 64.10% 63.90% 57.93%
December 2007........ 64.09% 63.88% 57.85%
January 2008......... 64.09% 63.86% 57.78%
February 2008........ 64.09% 63.85% 57.70%
March 2008........... 64.08% 63.84% 57.62%
April 2008........... 64.08% 63.82% 57.53%
May 2008............. 64.08% 63.81% 57.45%
June 2008............ 64.07% 63.79% 57.36%
July 2008............ 64.07% 63.77% 57.27%
August 2008.......... 64.06% 63.75% 57.18%
September 2008....... 64.06% 63.73% 57.08%
October 2008......... 64.05% 63.71% 56.99%
November 2008........ 64.05% 63.68% 56.88%
December 2008........ 64.04% 63.66% 56.78%
January 2009......... 64.04% 63.64% 56.68%
February 2009........ 64.03% 63.61% 56.57%
March 2009........... 64.02% 63.59% 56.45%
April 2009........... 64.02% 63.57% 56.34%
May 2009............. 64.01% 63.53% 56.22%
June 2009............ 64.00% 63.51% 56.10%
July 2009............ 64.00% 63.48% 55.98%
August 2009.......... 63.98% 63.45% 55.85%
</TABLE>
A-6-1
<PAGE> 293
CLASS A CLASS PERCENTAGES (CONTINUED)
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS A
PAYMENT DATE MINIMUM SCHEDULED SUPPLEMENTAL
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
------------ ---------- ---------- ------------
<S> <C> <C> <C>
September 2009....... 63.98% 63.42% 55.72%
October 2009......... 63.96% 63.39% 55.59%
November 2009........ 63.96% 63.35% 55.45%
December 2009........ 63.94% 63.31% 55.31%
January 2010......... 63.94% 63.28% 55.17%
February 2010........ 63.92% 63.24% 55.02%
March 2010........... 63.91% 63.20% 54.87%
April 2010........... 63.90% 63.16% 54.72%
May 2010............. 63.88% 63.12% 54.56%
June 2010............ 63.87% 63.08% 54.40%
July 2010............ 63.86% 63.04% 54.24%
August 2010.......... 63.84% 62.99% 54.07%
September 2010....... 63.83% 62.94% 53.90%
October 2010......... 63.81% 62.89% 53.72%
November 2010........ 63.79% 62.84% 53.54%
December 2010........ 63.77% 62.79% 53.36%
January 2011......... 63.75% 62.73% 53.17%
February 2011........ 63.73% 62.68% 52.98%
March 2011........... 63.71% 62.62% 52.78%
April 2011........... 63.69% 62.57% 52.58%
May 2011............. 63.67% 62.50% 52.38%
June 2011............ 63.65% 62.44% 52.17%
July 2011............ 63.62% 62.38% 51.96%
August 2011.......... 63.60% 62.31% 51.74%
September 2011....... 63.57% 62.24% 51.51%
October 2011......... 63.54% 62.17% 51.29%
November 2011........ 63.51% 62.10% 51.06%
December 2011........ 63.48% 62.02% 50.82%
January 2012......... 63.45% 61.94% 50.58%
February 2012........ 63.42% 61.87% 50.34%
March 2012........... 63.39% 61.79% 50.09%
April 2012........... 63.35% 61.71% 49.83%
May 2012............. 63.31% 61.62% 49.57%
June 2012............ 63.27% 61.53% 49.31%
July 2012............ 63.24% 61.44% 49.04%
August 2012.......... 63.20% 61.34% 48.76%
September 2012....... 63.15% 61.25% 48.49%
October 2012......... 63.10% 61.15% 48.20%
November 2012........ 63.06% 61.05% 47.91%
December 2012........ 63.01% 60.95% 47.61%
January 2013......... 62.97% 60.84% 47.31%
February 2013........ 62.92% 60.73% 47.01%
March 2013........... 62.86% 60.62% 46.70%
April 2013........... 62.80% 60.50% 46.38%
May 2013............. 62.75% 60.39% 46.06%
June 2013............ 62.69% 60.26% 45.72%
July 2013............ 62.63% 60.14% 45.39%
August 2013.......... 62.57% 60.01% 45.05%
September 2013....... 62.50% 59.88% 44.71%
October 2013......... 62.43% 59.74% 44.35%
November 2013........ 62.36% 59.61% 44.00%
December 2013........ 62.29% 59.47% 43.63%
January 2014......... 62.22% 59.33% 43.26%
February 2014........ 62.14% 59.18% 42.89%
March 2014........... 62.06% 59.03% 42.51%
April 2014........... 61.98% 58.88% 42.12%
May 2014............. 61.90% 58.72% 41.72%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS A
PAYMENT DATE MINIMUM SCHEDULED SUPPLEMENTAL
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
------------ ---------- ---------- ------------
<S> <C> <C> <C>
June 2014............ 61.81% 58.56% 41.32%
July 2014............ 61.72% 58.40% 40.91%
August 2014.......... 61.63% 58.23% 40.50%
September 2014....... 61.54% 58.06% 40.08%
October 2014......... 61.44% 57.88% 39.65%
November 2014........ 61.34% 57.70% 39.22%
December 2014........ 61.23% 57.52% 38.78%
January 2015......... 61.12% 57.33% 38.33%
February 2015........ 61.01% 57.13% 37.88%
March 2015........... 60.90% 56.94% 37.42%
April 2015........... 60.77% 56.73% 36.95%
May 2015............. 60.65% 56.53% 36.46%
June 2015............ 60.51% 56.31% 35.98%
July 2015............ 60.38% 56.09% 35.48%
August 2015.......... 60.24% 55.86% 34.98%
September 2015....... 60.09% 55.62% 34.48%
October 2015......... 59.94% 55.39% 33.95%
November 2015........ 59.78% 55.15% 33.43%
December 2015........ 59.62% 54.89% 32.90%
January 2016......... 59.45% 54.64% 32.35%
February 2016........ 59.28% 54.38% 31.80%
March 2016........... 59.10% 54.11% 31.25%
April 2016........... 58.92% 53.84% 30.68%
May 2016............. 58.72% 53.55% 30.10%
June 2016............ 58.53% 53.27% 29.52%
July 2016............ 58.32% 52.98% 28.93%
August 2016.......... 58.11% 52.67% 28.33%
September 2016....... 57.90% 52.37% 27.72%
October 2016......... 57.69% 52.07% 27.11%
November 2016........ 57.46% 51.75% 26.48%
December 2016........ 57.24% 51.43% 25.86%
January 2017......... 57.00% 51.11% 25.22%
February 2017........ 56.76% 50.78% 24.57%
March 2017........... 56.51% 50.43% 23.91%
April 2017........... 56.25% 50.09% 23.25%
May 2017............. 56.00% 49.74% 22.58%
June 2017............ 55.74% 49.38% 21.90%
July 2017............ 55.47% 49.02% 21.20%
August 2017.......... 55.20% 48.66% 20.51%
September 2017....... 54.92% 48.29% 19.80%
October 2017......... 54.63% 47.92% 19.09%
November 2017........ 54.34% 47.53% 18.37%
December 2017........ 54.04% 47.14% 17.64%
January 2018......... 53.74% 46.75% 16.90%
February 2018........ 53.42% 46.35% 16.15%
March 2018........... 53.10% 45.94% 15.39%
April 2018........... 52.78% 45.52% 14.62%
May 2018............. 52.44% 45.09% 13.84%
June 2018............ 52.09% 44.67% 13.05%
July 2018............ 51.74% 44.22% 12.25%
August 2018.......... 51.37% 43.78% 11.44%
September 2018....... 51.00% 43.32% 10.63%
October 2018......... 50.62% 42.86% 9.80%
November 2018........ 50.23% 42.38% 8.96%
December 2018........ 49.83% 41.90% 8.11%
January 2019......... 49.42% 41.41% 7.25%
February 2019........ 49.00% 40.92% 6.39%
</TABLE>
A-6-2
<PAGE> 294
CLASS A CLASS PERCENTAGES (CONTINUED)
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS A
PAYMENT DATE MINIMUM SCHEDULED SUPPLEMENTAL
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
------------ ---------- ---------- ------------
<S> <C> <C> <C>
March 2019........... 48.57% 40.41% 5.51%
April 2019........... 48.13% 39.90% 4.62%
May 2019............. 47.68% 39.37% 3.71%
June 2019............ 47.22% 38.84% 2.80%
July 2019............ 46.75% 38.30% 1.88%
August 2019.......... 46.26% 37.74% 0.94%
September 2019....... 45.77% 37.18% 0.00%
October 2019......... 45.26% 36.62%
November 2019........ 44.73% 36.04%
December 2019........ 44.21% 35.45%
January 2020......... 43.66% 34.85%
February 2020........ 43.10% 34.24%
March 2020........... 42.53% 33.62%
April 2020........... 41.95% 32.99%
May 2020............. 41.35% 32.35%
June 2020............ 40.74% 31.70%
July 2020............ 40.11% 31.03%
August 2020.......... 39.47% 30.36%
September 2020....... 38.81% 29.68%
October 2020......... 38.15% 28.98%
November 2020........ 37.46% 28.27%
December 2020........ 36.76% 27.56%
January 2021......... 36.05% 26.83%
February 2021........ 35.31% 26.09%
March 2021........... 34.56% 25.33%
April 2021........... 33.80% 24.57%
May 2021............. 33.01% 23.79%
June 2021............ 32.21% 23.00%
July 2021............ 31.40% 22.20%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS A
PAYMENT DATE MINIMUM SCHEDULED SUPPLEMENTAL
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
------------ ---------- ---------- ------------
<S> <C> <C> <C>
August 2021.......... 30.56% 21.39%
September 2021....... 29.71% 20.56%
October 2021......... 28.84% 19.72%
November 2021........ 27.95% 18.87%
December 2021........ 27.04% 18.00%
January 2022......... 26.11% 17.12%
February 2022........ 25.16% 16.23%
March 2022........... 24.19% 15.32%
April 2022........... 23.20% 14.41%
May 2022............. 22.19% 13.47%
June 2022............ 21.16% 12.52%
July 2022............ 20.10% 11.56%
August 2022.......... 19.03% 10.59%
September 2022....... 17.93% 9.59%
October 2022......... 16.81% 8.59%
November 2022........ 15.67% 7.57%
December 2022........ 14.50% 6.54%
January 2023......... 13.31% 5.49%
February 2023........ 12.10% 4.42%
March 2023........... 10.85% 3.34%
April 2023........... 9.59% 2.24%
May 2023............. 8.30% 1.13%
June 2023............ 6.98% 0.00%
July 2023............ 5.64%
August 2023.......... 4.27%
September 2023....... 2.88%
October 2023......... 1.45%
November 2023........ 0.00%
</TABLE>
A-6-3
<PAGE> 295
APPENDIX 7
CLASS B CLASS PERCENTAGES
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS B
PAYMENT DATE MINIMUM SCHEDULED SUPPLEMENTAL
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
------------ ---------- ---------- ------------
<S> <C> <C> <C>
July 2000............ 10.05% 10.01% 9.95%
August 2000.......... 10.04% 10.00% 9.94%
September 2000....... 10.03% 9.99% 9.93%
October 2000......... 10.03% 9.99% 9.92%
November 2000........ 10.02% 9.98% 9.92%
December 2000........ 9.94% 9.90% 9.84%
January 2001......... 9.94% 9.90% 9.84%
February 2001........ 9.94% 9.90% 9.83%
March 2001........... 9.94% 9.90% 9.83%
April 2001........... 9.94% 9.90% 9.83%
May 2001............. 9.94% 9.90% 9.82%
June 2001............ 9.94% 9.90% 9.82%
July 2001............ 9.94% 9.90% 9.82%
August 2001.......... 9.94% 9.90% 9.81%
September 2001....... 9.94% 9.91% 9.80%
October 2001......... 9.95% 9.91% 9.80%
November 2001........ 9.95% 9.91% 9.79%
December 2001........ 9.95% 9.91% 9.78%
January 2002......... 9.95% 9.91% 9.78%
February 2002........ 9.95% 9.91% 9.77%
March 2002........... 9.95% 9.91% 9.76%
April 2002........... 9.95% 9.91% 9.75%
May 2002............. 9.95% 9.91% 9.74%
June 2002............ 9.95% 9.91% 9.73%
July 2002............ 9.95% 9.91% 9.72%
August 2002.......... 9.95% 9.91% 9.71%
September 2002....... 9.95% 9.91% 9.70%
October 2002......... 9.95% 9.91% 9.69%
November 2002........ 9.95% 9.91% 9.67%
December 2002........ 9.95% 9.91% 9.66%
January 2003......... 9.95% 9.91% 9.65%
February 2003........ 9.95% 9.91% 9.63%
March 2003........... 9.95% 9.91% 9.62%
April 2003........... 9.95% 9.91% 9.60%
May 2003............. 9.95% 9.91% 9.59%
June 2003............ 9.95% 9.90% 9.57%
July 2003............ 9.95% 9.90% 9.55%
August 2003.......... 9.95% 9.90% 9.53%
September 2003....... 9.95% 9.90% 9.52%
October 2003......... 9.95% 9.90% 9.50%
November 2003........ 9.95% 9.90% 9.48%
December 2003........ 9.95% 9.90% 9.46%
January 2004......... 9.95% 9.90% 9.44%
February 2004........ 9.95% 9.90% 9.42%
March 2004........... 9.95% 9.90% 9.40%
April 2004........... 9.95% 9.90% 9.38%
May 2004............. 9.95% 9.90% 9.35%
June 2004............ 9.95% 9.89% 9.33%
July 2004............ 9.95% 9.89% 9.31%
August 2004.......... 9.95% 9.89% 9.28%
September 2004....... 9.95% 9.89% 9.26%
October 2004......... 9.95% 9.89% 9.23%
November 2004........ 9.95% 9.89% 9.21%
December 2004........ 9.95% 9.88% 9.18%
January 2005......... 9.95% 9.88% 9.16%
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS B
PAYMENT DATE MINIMUM SCHEDULED SUPPLEMENTAL
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
------------ ---------- ---------- ------------
<S> <C> <C> <C>
February 2005........ 9.95% 9.88% 9.13%
March 2005........... 9.95% 9.88% 9.10%
April 2005........... 9.95% 9.87% 9.07%
May 2005............. 9.95% 9.87% 9.04%
June 2005............ 9.95% 9.87% 9.02%
July 2005............ 9.95% 9.86% 8.98%
August 2005.......... 9.95% 9.86% 8.95%
September 2005....... 9.95% 9.86% 8.92%
October 2005......... 9.95% 9.85% 8.89%
November 2005........ 9.95% 9.85% 8.86%
December 2005........ 9.95% 9.84% 8.83%
January 2006......... 9.95% 9.84% 8.79%
February 2006........ 9.95% 9.84% 8.76%
March 2006........... 9.95% 9.83% 8.73%
April 2006........... 9.95% 9.82% 8.69%
May 2006............. 9.95% 9.82% 8.65%
June 2006............ 9.95% 9.81% 8.62%
July 2006............ 9.95% 9.81% 8.58%
August 2006.......... 9.95% 9.80% 8.54%
September 2006....... 9.95% 9.79% 8.50%
October 2006......... 9.95% 9.79% 8.47%
November 2006........ 9.95% 9.78% 8.43%
December 2006........ 9.95% 9.77% 8.39%
January 2007......... 9.95% 9.76% 8.35%
February 2007........ 9.95% 9.76% 8.30%
March 2007........... 9.95% 9.75% 8.26%
April 2007........... 9.95% 9.74% 8.22%
May 2007............. 9.95% 9.73% 8.18%
June 2007............ 9.94% 9.72% 8.13%
July 2007............ 9.94% 9.71% 8.09%
August 2007.......... 9.94% 9.70% 8.05%
September 2007....... 9.94% 9.69% 8.00%
October 2007......... 9.94% 9.68% 7.95%
November 2007........ 9.94% 9.67% 7.91%
December 2007........ 9.94% 9.65% 7.86%
January 2008......... 9.94% 9.64% 7.81%
February 2008........ 9.93% 9.63% 7.77%
March 2008........... 9.93% 9.62% 7.72%
April 2008........... 9.93% 9.60% 7.67%
May 2008............. 9.93% 9.59% 7.62%
June 2008............ 9.93% 9.58% 7.57%
July 2008............ 9.92% 9.56% 7.52%
August 2008.......... 9.92% 9.55% 7.46%
September 2008....... 9.92% 9.53% 7.41%
October 2008......... 9.92% 9.52% 7.36%
November 2008........ 9.91% 9.50% 7.31%
December 2008........ 9.91% 9.48% 7.25%
January 2009......... 9.91% 9.46% 7.20%
February 2009........ 9.91% 9.45% 7.14%
March 2009........... 9.90% 9.43% 7.09%
April 2009........... 9.90% 9.41% 7.03%
May 2009............. 9.89% 9.39% 6.97%
June 2009............ 9.89% 9.37% 6.92%
July 2009............ 9.89% 9.35% 6.86%
August 2009.......... 9.88% 9.33% 6.80%
</TABLE>
A-7-1
<PAGE> 296
CLASS B CLASS PERCENTAGES (CONTINUED)
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS B
PAYMENT DATE MINIMUM SCHEDULED SUPPLEMENTAL
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
------------ ---------- ---------- ------------
<S> <C> <C> <C>
September 2009....... 9.88% 9.31% 6.74%
October 2009......... 9.87% 9.29% 6.68%
November 2009........ 9.87% 9.26% 6.62%
December 2009........ 9.86% 9.24% 6.56%
January 2010......... 9.86% 9.22% 6.49%
February 2010........ 9.85% 9.19% 6.43%
March 2010........... 9.85% 9.17% 6.37%
April 2010........... 9.84% 9.14% 6.31%
May 2010............. 9.84% 9.12% 6.24%
June 2010............ 9.83% 9.09% 6.18%
July 2010............ 9.82% 9.06% 6.11%
August 2010.......... 9.82% 9.04% 6.04%
September 2010....... 9.81% 9.01% 5.98%
October 2010......... 9.80% 8.98% 5.91%
November 2010........ 9.80% 8.95% 5.84%
December 2010........ 9.79% 8.92% 5.77%
January 2011......... 9.78% 8.89% 5.71%
February 2011........ 9.77% 8.85% 5.64%
March 2011........... 9.76% 8.82% 5.56%
April 2011........... 9.75% 8.79% 5.49%
May 2011............. 9.74% 8.75% 5.42%
June 2011............ 9.73% 8.72% 5.35%
July 2011............ 9.72% 8.68% 5.28%
August 2011.......... 9.71% 8.65% 5.20%
September 2011....... 9.70% 8.61% 5.13%
October 2011......... 9.69% 8.57% 5.06%
November 2011........ 9.68% 8.54% 4.98%
December 2011........ 9.67% 8.50% 4.90%
January 2012......... 9.65% 8.46% 4.83%
February 2012........ 9.64% 8.42% 4.75%
March 2012........... 9.63% 8.37% 4.67%
April 2012........... 9.61% 8.33% 4.60%
May 2012............. 9.60% 8.29% 4.52%
June 2012............ 9.58% 8.24% 4.44%
July 2012............ 9.56% 8.20% 4.36%
August 2012.......... 9.55% 8.15% 4.28%
September 2012....... 9.53% 8.11% 4.19%
October 2012......... 9.51% 8.06% 4.11%
November 2012........ 9.50% 8.01% 4.03%
December 2012........ 9.48% 7.96% 3.95%
January 2013......... 9.46% 7.91% 3.86%
February 2013........ 9.44% 7.86% 3.78%
March 2013........... 9.42% 7.81% 3.69%
April 2013........... 9.40% 7.75% 3.61%
May 2013............. 9.38% 7.70% 3.52%
June 2013............ 9.35% 7.64% 3.43%
July 2013............ 9.33% 7.59% 3.35%
August 2013.......... 9.30% 7.53% 3.26%
September 2013....... 9.28% 7.47% 3.17%
October 2013......... 9.25% 7.41% 3.08%
November 2013........ 9.23% 7.35% 2.99%
December 2013........ 9.20% 7.29% 2.90%
January 2014......... 9.17% 7.23% 2.81%
February 2014........ 9.14% 7.17% 2.72%
March 2014........... 9.11% 7.10% 2.62%
April 2014........... 9.08% 7.04% 2.53%
May 2014............. 9.05% 6.97% 2.44%
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS B
PAYMENT DATE MINIMUM SCHEDULED SUPPLEMENTAL
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
------------ ---------- ---------- ------------
<S> <C> <C> <C>
June 2014............ 9.02% 6.91% 2.34%
July 2014............ 8.99% 6.84% 2.25%
August 2014.......... 8.95% 6.77% 2.15%
September 2014....... 8.92% 6.70% 2.06%
October 2014......... 8.88% 6.63% 1.96%
November 2014........ 8.84% 6.55% 1.86%
December 2014........ 8.81% 6.48% 1.76%
January 2015......... 8.77% 6.41% 1.67%
February 2015........ 8.73% 6.33% 1.57%
March 2015........... 8.68% 6.25% 1.47%
April 2015........... 8.64% 6.17% 1.37%
May 2015............. 8.60% 6.09% 1.26%
June 2015............ 8.55% 6.01% 1.16%
July 2015............ 8.50% 5.93% 1.06%
August 2015.......... 8.45% 5.84% 0.96%
September 2015....... 8.40% 5.76% 0.85%
October 2015......... 8.35% 5.67% 0.75%
November 2015........ 8.30% 5.58% 0.64%
December 2015........ 8.24% 5.49% 0.54%
January 2016......... 8.19% 5.40% 0.43%
February 2016........ 8.13% 5.31% 0.32%
March 2016........... 8.07% 5.22% 0.22%
April 2016........... 8.01% 5.12% 0.11%
May 2016............. 7.95% 5.03% 0.00%
June 2016............ 7.88% 4.93%
July 2016............ 7.82% 4.83%
August 2016.......... 7.75% 4.73%
September 2016....... 7.68% 4.63%
October 2016......... 7.61% 4.53%
November 2016........ 7.54% 4.42%
December 2016........ 7.46% 4.32%
January 2017......... 7.39% 4.21%
February 2017........ 7.31% 4.10%
March 2017........... 7.23% 3.99%
April 2017........... 7.15% 3.88%
May 2017............. 7.07% 3.77%
June 2017............ 6.98% 3.65%
July 2017............ 6.89% 3.54%
August 2017.......... 6.81% 3.42%
September 2017....... 6.72% 3.30%
October 2017......... 6.62% 3.19%
November 2017........ 6.53% 3.06%
December 2017........ 6.43% 2.94%
January 2018......... 6.33% 2.82%
February 2018........ 6.23% 2.69%
March 2018........... 6.13% 2.57%
April 2018........... 6.02% 2.44%
May 2018............. 5.92% 2.31%
June 2018............ 5.81% 2.18%
July 2018............ 5.69% 2.04%
August 2018.......... 5.58% 1.91%
September 2018....... 5.46% 1.77%
October 2018......... 5.34% 1.63%
November 2018........ 5.22% 1.49%
December 2018........ 5.09% 1.35%
January 2019......... 4.96% 1.21%
February 2019........ 4.83% 1.06%
</TABLE>
A-7-2
<PAGE> 297
CLASS B CLASS PERCENTAGES (CONTINUED)
<TABLE>
<CAPTION>
CLASS B CLASS B CLASS B
PAYMENT DATE MINIMUM SCHEDULED SUPPLEMENTAL
OCCURRING IN PERCENTAGE PERCENTAGE PERCENTAGE
------------ ---------- ---------- ------------
<S> <C> <C> <C>
March 2019........... 4.69% 0.92%
April 2019........... 4.56% 0.77%
May 2019............. 4.42% 0.62%
June 2019............ 4.27% 0.47%
July 2019............ 4.13% 0.31%
August 2019.......... 3.98% 0.16%
September 2019....... 3.82% 0.00%
October 2019......... 3.67%
November 2019........ 3.51%
December 2019........ 3.34%
January 2020......... 3.18%
February 2020........ 3.01%
March 2020........... 2.84%
April 2020........... 2.66%
May 2020............. 2.48%
June 2020............ 2.29%
July 2020............ 2.10%
August 2020.......... 1.91%
September 2020....... 1.72%
October 2020......... 1.52%
November 2020........ 1.31%
December 2020........ 1.10%
January 2021......... 0.89%
February 2021........ 0.68%
March 2021........... 0.45%
April 2021........... 0.23%
May 2021............. 0.00%
</TABLE>
A-7-3
<PAGE> 298
APPENDIX 8
CLASS C CLASS PERCENTAGES
<TABLE>
<CAPTION>
CLASS C CLASS C
PAYMENT DATE MINIMUM SCHEDULED
OCCURRING IN PERCENTAGE PERCENTAGE
------------ ---------------- ----------------
<S> <C> <C>
July 2000............ 100.00% 100.00%
August 2000.......... 100.00% 99.99%
September 2000....... 100.00% 99.96%
October 2000......... 99.99% 99.92%
November 2000........ 99.98% 99.87%
December 2000........ 99.97% 99.80%
January 2001......... 99.96% 99.72%
February 2001........ 99.94% 99.64%
March 2001........... 99.92% 99.54%
April 2001........... 99.90% 99.42%
May 2001............. 99.87% 99.30%
June 2001............ 99.84% 99.17%
July 2001............ 99.81% 99.03%
August 2001.......... 99.77% 98.88%
September 2001....... 99.73% 98.72%
October 2001......... 99.69% 98.55%
November 2001........ 99.64% 98.36%
December 2001........ 99.59% 98.17%
January 2002......... 99.53% 97.97%
February 2002........ 99.47% 97.76%
March 2002........... 99.41% 97.55%
April 2002........... 99.34% 97.32%
May 2002............. 99.27% 97.08%
June 2002............ 99.20% 96.84%
July 2002............ 99.12% 96.58%
August 2002.......... 99.04% 96.32%
September 2002....... 98.95% 96.05%
October 2002......... 98.87% 95.77%
November 2002........ 98.77% 95.48%
December 2002........ 98.67% 95.18%
January 2003......... 98.57% 94.88%
February 2003........ 98.47% 94.56%
March 2003........... 98.36% 94.24%
April 2003........... 98.24% 93.91%
May 2003............. 98.12% 93.57%
June 2003............ 98.00% 93.22%
July 2003............ 97.87% 92.86%
August 2003.......... 97.74% 92.50%
September 2003....... 97.61% 92.13%
October 2003......... 97.47% 91.75%
November 2003........ 97.32% 91.36%
December 2003........ 97.17% 90.96%
January 2004......... 97.02% 90.56%
February 2004........ 96.87% 90.15%
March 2004........... 96.70% 89.73%
April 2004........... 96.54% 89.30%
May 2004............. 96.37% 88.86%
June 2004............ 96.19% 88.42%
July 2004............ 96.01% 87.97%
August 2004.......... 95.83% 87.51%
September 2004....... 95.64% 87.04%
October 2004......... 95.45% 86.57%
November 2004........ 95.25% 86.08%
December 2004........ 95.05% 85.59%
January 2005......... 94.85% 85.10%
</TABLE>
<TABLE>
<CAPTION>
CLASS C CLASS C
PAYMENT DATE MINIMUM SCHEDULED
OCCURRING IN PERCENTAGE PERCENTAGE
------------ ---------------- ----------------
<S> <C> <C>
February 2005........ 94.63% 84.59%
March 2005........... 94.42% 84.08%
April 2005........... 94.20% 83.56%
May 2005............. 93.97% 83.03%
June 2005............ 93.75% 82.49%
July 2005............ 93.51% 81.95%
August 2005.......... 93.27% 81.40%
September 2005....... 93.03% 80.84%
October 2005......... 92.78% 80.28%
November 2005........ 92.53% 79.71%
December 2005........ 92.27% 79.13%
January 2006......... 92.01% 78.54%
February 2006........ 91.74% 77.95%
March 2006........... 91.47% 77.35%
April 2006........... 91.20% 76.74%
May 2006............. 90.92% 76.12%
June 2006............ 90.63% 75.50%
July 2006............ 90.34% 74.87%
August 2006.......... 90.04% 74.23%
September 2006....... 89.74% 73.58%
October 2006......... 89.44% 72.93%
November 2006........ 89.13% 72.27%
December 2006........ 88.81% 71.61%
January 2007......... 88.49% 70.93%
February 2007........ 88.17% 70.25%
March 2007........... 87.84% 69.57%
April 2007........... 87.51% 68.87%
May 2007............. 87.17% 68.17%
June 2007............ 86.82% 67.46%
July 2007............ 86.47% 66.75%
August 2007.......... 86.12% 66.02%
September 2007....... 85.76% 65.29%
October 2007......... 85.40% 64.56%
November 2007........ 85.03% 63.81%
December 2007........ 84.65% 63.06%
January 2008......... 84.28% 62.31%
February 2008........ 83.89% 61.54%
March 2008........... 83.50% 60.77%
April 2008........... 83.11% 59.99%
May 2008............. 82.71% 59.21%
June 2008............ 82.31% 58.42%
July 2008............ 81.90% 57.62%
August 2008.......... 81.48% 56.81%
September 2008....... 81.06% 56.00%
October 2008......... 80.64% 55.18%
November 2008........ 80.21% 54.36%
December 2008........ 79.77% 53.52%
January 2009......... 79.33% 52.68%
February 2009........ 78.89% 51.84%
March 2009........... 78.44% 50.99%
April 2009........... 77.98% 50.13%
May 2009............. 77.52% 49.26%
June 2009............ 77.06% 48.39%
July 2009............ 76.59% 47.51%
August 2009.......... 76.11% 46.62%
</TABLE>
A-8-1
<PAGE> 299
CLASS C CLASS PERCENTAGES (CONTINUED)
<TABLE>
<CAPTION>
CLASS C CLASS C
PAYMENT DATE MINIMUM SCHEDULED
OCCURRING IN PERCENTAGE PERCENTAGE
------------ ---------------- ----------------
<S> <C> <C>
September 2009....... 75.63% 45.73%
October 2009......... 75.14% 44.83%
November 2009........ 74.65% 43.92%
December 2009........ 74.16% 43.01%
January 2010......... 73.65% 42.09%
February 2010........ 73.15% 41.16%
March 2010........... 72.63% 40.23%
April 2010........... 72.12% 39.29%
May 2010............. 71.59% 38.35%
June 2010............ 71.06% 37.39%
July 2010............ 70.53% 36.44%
August 2010.......... 69.99% 35.47%
September 2010....... 69.45% 34.50%
October 2010......... 68.90% 33.52%
November 2010........ 68.34% 32.53%
December 2010........ 67.78% 31.54%
January 2011......... 67.22% 30.55%
February 2011........ 66.65% 29.54%
March 2011........... 66.07% 28.53%
April 2011........... 65.49% 27.51%
May 2011............. 64.90% 26.49%
June 2011............ 64.31% 25.46%
July 2011............ 63.71% 24.42%
August 2011.......... 63.11% 23.38%
September 2011....... 62.50% 22.33%
October 2011......... 61.89% 21.27%
November 2011........ 61.27% 20.21%
December 2011........ 60.65% 19.14%
January 2012......... 60.02% 18.07%
February 2012........ 59.38% 16.98%
March 2012........... 58.74% 15.90%
April 2012........... 58.09% 14.80%
May 2012............. 57.44% 13.70%
June 2012............ 56.78% 12.59%
July 2012............ 56.12% 11.48%
August 2012.......... 55.45% 10.36%
September 2012....... 54.78% 9.24%
October 2012......... 54.10% 8.10%
November 2012........ 53.42% 6.96%
December 2012........ 52.73% 5.82%
January 2013......... 52.03% 4.67%
February 2013........ 51.33% 3.51%
March 2013........... 50.62% 2.35%
April 2013........... 49.91% 1.18%
May 2013............. 49.19% 0.00%
June 2013............ 48.47%
July 2013............ 47.74%
August 2013.......... 47.01%
September 2013....... 46.27%
October 2013......... 45.52%
November 2013........ 44.77%
</TABLE>
<TABLE>
<CAPTION>
CLASS C CLASS C
PAYMENT DATE MINIMUM SCHEDULED
OCCURRING IN PERCENTAGE PERCENTAGE
------------ ---------------- ----------------
<S> <C> <C>
December 2013........ 44.02%
January 2014......... 43.25%
February 2014........ 42.49%
March 2014........... 41.71%
April 2014........... 40.94%
May 2014............. 40.15%
June 2014............ 39.36%
July 2014............ 38.57%
August 2014.......... 37.76%
September 2014....... 36.96%
October 2014......... 36.14%
November 2014........ 35.33%
December 2014........ 34.50%
January 2015......... 33.67%
February 2015........ 32.84%
March 2015........... 32.00%
April 2015........... 31.15%
May 2015............. 30.30%
June 2015............ 29.44%
July 2015............ 28.58%
August 2015.......... 27.71%
September 2015....... 26.83%
October 2015......... 25.95%
November 2015........ 25.07%
December 2015........ 24.18%
January 2016......... 23.28%
February 2016........ 22.37%
March 2016........... 21.46%
April 2016........... 20.55%
May 2016............. 19.63%
June 2016............ 18.70%
July 2016............ 17.77%
August 2016.......... 16.83%
September 2016....... 15.89%
October 2016......... 14.94%
November 2016........ 13.98%
December 2016........ 13.02%
January 2017......... 12.06%
February 2017........ 11.08%
March 2017........... 10.10%
April 2017........... 9.12%
May 2017............. 8.13%
June 2017............ 7.13%
July 2017............ 6.13%
August 2017.......... 5.13%
September 2017....... 4.11%
October 2017......... 3.09%
November 2017........ 2.07%
December 2017........ 1.04%
January 2018......... 0.00%
</TABLE>
A-8-2
<PAGE> 300
APPENDIX 9
CLASS D CLASS PERCENTAGES
<TABLE>
<CAPTION>
CLASS D CLASS D
PAYMENT DATE MINIMUM SCHEDULED
OCCURRING IN PERCENTAGE PERCENTAGE
------------ ---------------- ----------------
<S> <C> <C>
July 2000............ 100.00% 100.00%
August 2000.......... 100.00% 100.00%
September 2000....... 100.00% 100.00%
October 2000......... 100.00% 100.00%
November 2000........ 100.00% 100.00%
December 2000........ 100.00% 100.00%
January 2001......... 100.00% 100.00%
February 2001........ 100.00% 100.00%
March 2001........... 100.00% 100.00%
April 2001........... 100.00% 100.00%
May 2001............. 100.00% 100.00%
June 2001............ 100.00% 100.00%
July 2001............ 100.00% 100.00%
August 2001.......... 100.00% 100.00%
September 2001....... 100.00% 100.00%
October 2001......... 100.00% 100.00%
November 2001........ 100.00% 100.00%
December 2001........ 100.00% 100.00%
January 2002......... 100.00% 100.00%
February 2002........ 100.00% 100.00%
March 2002........... 100.00% 100.00%
April 2002........... 100.00% 100.00%
May 2002............. 100.00% 100.00%
June 2002............ 100.00% 100.00%
July 2002............ 100.00% 100.00%
August 2002.......... 100.00% 100.00%
September 2002....... 100.00% 100.00%
October 2002......... 100.00% 100.00%
November 2002........ 100.00% 100.00%
December 2002........ 100.00% 100.00%
January 2003......... 100.00% 100.00%
February 2003........ 100.00% 100.00%
March 2003........... 100.00% 100.00%
April 2003........... 100.00% 100.00%
May 2003............. 100.00% 100.00%
June 2003............ 100.00% 100.00%
July 2003............ 100.00% 100.00%
August 2003.......... 100.00% 100.00%
September 2003....... 100.00% 100.00%
October 2003......... 100.00% 100.00%
November 2003........ 100.00% 100.00%
December 2003........ 100.00% 100.00%
January 2004......... 100.00% 100.00%
February 2004........ 100.00% 100.00%
March 2004........... 100.00% 100.00%
April 2004........... 100.00% 100.00%
May 2004............. 100.00% 100.00%
June 2004............ 100.00% 100.00%
July 2004............ 100.00% 100.00%
August 2004.......... 100.00% 100.00%
September 2004....... 100.00% 100.00%
October 2004......... 100.00% 100.00%
November 2004........ 100.00% 100.00%
December 2004........ 100.00% 100.00%
January 2005......... 100.00% 100.00%
</TABLE>
<TABLE>
<CAPTION>
CLASS D CLASS D
PAYMENT DATE MINIMUM SCHEDULED
OCCURRING IN PERCENTAGE PERCENTAGE
------------ ---------------- ----------------
<S> <C> <C>
February 2005........ 100.00% 100.00%
March 2005........... 100.00% 100.00%
April 2005........... 100.00% 100.00%
May 2005............. 100.00% 100.00%
June 2005............ 100.00% 100.00%
July 2005............ 100.00% 100.00%
August 2005.......... 100.00% 100.00%
September 2005....... 100.00% 100.00%
October 2005......... 100.00% 100.00%
November 2005........ 100.00% 100.00%
December 2005........ 100.00% 100.00%
January 2006......... 100.00% 100.00%
February 2006........ 100.00% 100.00%
March 2006........... 100.00% 100.00%
April 2006........... 100.00% 100.00%
May 2006............. 100.00% 100.00%
June 2006............ 100.00% 100.00%
July 2006............ 100.00% 100.00%
August 2006.......... 100.00% 100.00%
September 2006....... 100.00% 100.00%
October 2006......... 100.00% 99.95%
November 2006........ 100.00% 99.84%
December 2006........ 100.00% 99.69%
January 2007......... 100.00% 99.50%
February 2007........ 100.00% 99.27%
March 2007........... 100.00% 99.01%
April 2007........... 100.00% 98.71%
May 2007............. 100.00% 98.39%
June 2007............ 100.00% 98.03%
July 2007............ 100.00% 97.65%
August 2007.......... 100.00% 97.24%
September 2007....... 100.00% 96.80%
October 2007......... 100.00% 96.34%
November 2007........ 100.00% 95.85%
December 2007........ 99.99% 95.33%
January 2008......... 99.99% 94.80%
February 2008........ 99.99% 94.23%
March 2008........... 99.99% 93.65%
April 2008........... 99.98% 93.04%
May 2008............. 99.98% 92.41%
June 2008............ 99.97% 91.76%
July 2008............ 99.96% 91.09%
August 2008.......... 99.96% 90.39%
September 2008....... 99.95% 89.67%
October 2008......... 99.94% 88.94%
November 2008........ 99.93% 88.18%
December 2008........ 99.91% 87.40%
January 2009......... 99.90% 86.60%
February 2009........ 99.88% 85.78%
March 2009........... 99.86% 84.94%
April 2009........... 99.85% 84.09%
May 2009............. 99.82% 83.21%
June 2009............ 99.80% 82.31%
July 2009............ 99.78% 81.40%
August 2009.......... 99.75% 80.46%
</TABLE>
A-9-1
<PAGE> 301
CLASS D CLASS PERCENTAGES (CONTINUED)
<TABLE>
<CAPTION>
CLASS D CLASS D
PAYMENT DATE MINIMUM SCHEDULED
OCCURRING IN PERCENTAGE PERCENTAGE
------------ ---------------- ----------------
<S> <C> <C>
September 2009....... 99.72% 79.51%
October 2009......... 99.69% 78.54%
November 2009........ 99.65% 77.55%
December 2009........ 99.62% 76.55%
January 2010......... 99.58% 75.52%
February 2010........ 99.53% 74.48%
March 2010........... 99.49% 73.42%
April 2010........... 99.44% 72.34%
May 2010............. 99.39% 71.24%
June 2010............ 99.34% 70.13%
July 2010............ 99.28% 69.00%
August 2010.......... 99.22% 67.85%
September 2010....... 99.15% 66.69%
October 2010......... 99.09% 65.51%
November 2010........ 99.01% 64.31%
December 2010........ 98.94% 63.10%
January 2011......... 98.86% 61.86%
February 2011........ 98.78% 60.62%
March 2011........... 98.69% 59.35%
April 2011........... 98.60% 58.07%
May 2011............. 98.50% 56.78%
June 2011............ 98.40% 55.47%
July 2011............ 98.30% 54.14%
August 2011.......... 98.19% 52.79%
September 2011....... 98.07% 51.43%
October 2011......... 97.95% 50.06%
November 2011........ 97.83% 48.67%
December 2011........ 97.70% 47.26%
January 2012......... 97.56% 45.84%
February 2012........ 97.42% 44.40%
March 2012........... 97.27% 42.95%
April 2012........... 97.12% 41.48%
May 2012............. 96.97% 40.00%
June 2012............ 96.80% 38.50%
July 2012............ 96.63% 36.98%
August 2012.......... 96.46% 35.45%
September 2012....... 96.27% 33.91%
October 2012......... 96.09% 32.35%
November 2012........ 95.89% 30.78%
December 2012........ 95.69% 29.19%
January 2013......... 95.48% 27.59%
February 2013........ 95.27% 25.97%
March 2013........... 95.04% 24.34%
April 2013........... 94.82% 22.69%
May 2013............. 94.58% 21.03%
June 2013............ 94.34% 19.36%
July 2013............ 94.08% 17.67%
August 2013.......... 93.82% 15.97%
September 2013....... 93.56% 14.25%
October 2013......... 93.28% 12.52%
November 2013........ 93.00% 10.77%
December 2013........ 92.71% 9.01%
January 2014......... 92.41% 7.24%
February 2014........ 92.10% 5.45%
March 2014........... 91.79% 3.65%
April 2014........... 91.46% 1.83%
May 2014............. 91.13% 0.00%
</TABLE>
<TABLE>
<CAPTION>
CLASS D CLASS D
PAYMENT DATE MINIMUM SCHEDULED
OCCURRING IN PERCENTAGE PERCENTAGE
------------ ---------------- ----------------
<S> <C> <C>
June 2014............ 90.78%
July 2014............ 90.43%
August 2014.......... 90.07%
September 2014....... 89.70%
October 2014......... 89.32%
November 2014........ 88.93%
December 2014........ 88.53%
January 2015......... 88.12%
February 2015........ 87.70%
March 2015........... 87.27%
April 2015........... 86.83%
May 2015............. 86.38%
June 2015............ 85.92%
July 2015............ 85.45%
August 2015.......... 84.97%
September 2015....... 84.47%
October 2015......... 83.97%
November 2015........ 83.45%
December 2015........ 82.92%
January 2016......... 82.39%
February 2016........ 81.83%
March 2016........... 81.27%
April 2016........... 80.70%
May 2016............. 80.11%
June 2016............ 79.51%
July 2016............ 78.90%
August 2016.......... 78.28%
September 2016....... 77.64%
October 2016......... 76.99%
November 2016........ 76.33%
December 2016........ 75.65%
January 2017......... 74.96%
February 2017........ 74.26%
March 2017........... 73.54%
April 2017........... 72.81%
May 2017............. 72.07%
June 2017............ 71.31%
July 2017............ 70.54%
August 2017.......... 69.75%
September 2017....... 68.95%
October 2017......... 68.14%
November 2017........ 67.31%
December 2017........ 66.46%
January 2018......... 65.60%
February 2018........ 64.73%
March 2018........... 63.84%
April 2018........... 62.93%
May 2018............. 62.01%
June 2018............ 61.07%
July 2018............ 60.12%
August 2018.......... 59.15%
September 2018....... 58.16%
October 2018......... 57.16%
November 2018........ 56.14%
December 2018........ 55.10%
January 2019......... 54.05%
February 2019........ 52.98%
</TABLE>
A-9-2
<PAGE> 302
CLASS D CLASS PERCENTAGES (CONTINUED)
<TABLE>
<CAPTION>
CLASS D CLASS D
PAYMENT DATE MINIMUM SCHEDULED
OCCURRING IN PERCENTAGE PERCENTAGE
------------ ---------------- ----------------
<S> <C> <C>
March 2019........... 51.89%
April 2019........... 50.79%
May 2019............. 49.67%
June 2019............ 48.53%
July 2019............ 47.37%
August 2019.......... 46.20%
September 2019....... 45.00%
October 2019......... 43.79%
November 2019........ 42.56%
December 2019........ 41.31%
January 2020......... 40.05%
February 2020........ 38.76%
March 2020........... 37.45%
April 2020........... 36.13%
May 2020............. 34.79%
June 2020............ 33.42%
July 2020............ 32.04%
August 2020.......... 30.64%
September 2020....... 29.21%
October 2020......... 27.77%
November 2020........ 26.31%
December 2020........ 24.82%
January 2021......... 23.32%
February 2021........ 21.79%
March 2021........... 20.25%
April 2021........... 18.68%
May 2021............. 17.09%
June 2021............ 15.48%
July 2021............ 13.85%
August 2021.......... 12.20%
September 2021....... 10.52%
October 2021......... 8.82%
November 2021........ 7.10%
December 2021........ 5.36%
January 2022......... 3.60%
February 2022........ 1.81%
March 2022........... 0.00%
</TABLE>
<TABLE>
<CAPTION>
PAYMENT DATE MINIMUM SCHEDULED
OCCURRING IN PERCENTAGE PERCENTAGE
------------ ---------------- ----------------
<S> <C> <C>
</TABLE>
A-9-3
<PAGE> 303
APPENDIX 10
BASE POOL FACTORS
<TABLE>
<CAPTION>
SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
PAYMENT DATE OCCURRING IN A-2 A-3 A-4 B-1 B-2 C-1 C-2 D-2
------------------------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
July 2000............................... 74.39% 100.00% 100.00% 90.97% 100.00% 99.01% 100.00% 100.00%
August 2000............................. 73.31% 100.00% 98.02% 90.60% 100.00% 98.91% 99.99% 100.00%
September 2000.......................... 72.25% 100.00% 96.54% 90.12% 99.98% 98.81% 99.97% 100.00%
October 2000............................ 71.16% 100.00% 95.20% 89.64% 99.96% 98.70% 99.94% 100.00%
November 2000........................... 70.10% 100.00% 93.95% 89.17% 99.93% 98.59% 99.89% 100.00%
December 2000........................... 68.99% 100.00% 92.76% 88.69% 99.90% 98.47% 99.84% 100.00%
January 2001............................ 67.90% 100.00% 91.61% 88.31% 99.86% 98.35% 99.77% 100.00%
February 2001........................... 66.84% 100.00% 90.50% 87.83% 99.81% 98.22% 99.70% 100.00%
March 2001.............................. 65.63% 100.00% 89.42% 87.35% 99.76% 98.08% 99.61% 100.00%
April 2001.............................. 64.54% 100.00% 88.37% 86.87% 99.70% 97.94% 99.52% 100.00%
May 2001................................ 63.79% 100.00% 87.34% 86.38% 99.63% 97.80% 99.41% 100.00%
June 2001............................... 62.70% 100.00% 86.33% 85.90% 99.56% 97.65% 99.30% 100.00%
July 2001............................... 61.61% 100.00% 85.34% 85.32% 99.48% 97.49% 99.18% 100.00%
August 2001............................. 60.51% 100.00% 84.36% 84.84% 99.40% 97.33% 99.04% 100.00%
September 2001.......................... 59.42% 100.00% 83.40% 84.35% 99.31% 97.16% 98.90% 100.00%
October 2001............................ 58.27% 100.00% 82.45% 83.87% 99.22% 96.98% 98.75% 100.00%
November 2001........................... 57.17% 100.00% 81.51% 83.29% 99.11% 96.80% 98.59% 100.00%
December 2001........................... 56.02% 100.00% 80.59% 82.80% 99.01% 96.62% 98.42% 100.00%
January 2002............................ 54.92% 100.00% 79.67% 82.22% 98.90% 96.43% 98.24% 100.00%
February 2002........................... 53.80% 100.00% 78.77% 81.74% 98.78% 96.23% 98.05% 100.00%
March 2002.............................. 52.56% 100.00% 77.87% 81.16% 98.66% 96.02% 97.86% 100.00%
April 2002.............................. 51.41% 100.00% 76.98% 80.67% 98.53% 95.81% 97.65% 100.00%
May 2002................................ 50.61% 100.00% 76.10% 80.09% 98.39% 95.60% 97.44% 100.00%
June 2002............................... 49.49% 100.00% 75.23% 79.51% 98.25% 95.38% 97.22% 100.00%
July 2002............................... 48.28% 100.00% 74.37% 79.02% 98.11% 95.15% 96.99% 100.00%
August 2002............................. 47.15% 100.00% 73.51% 78.44% 97.96% 94.91% 96.75% 100.00%
September 2002.......................... 46.00% 100.00% 72.66% 77.86% 97.80% 94.67% 96.50% 100.00%
October 2002............................ 44.82% 100.00% 71.82% 77.28% 97.64% 94.43% 96.24% 100.00%
November 2002........................... 43.67% 100.00% 70.98% 76.70% 97.48% 94.17% 95.98% 100.00%
December 2002........................... 42.46% 100.00% 70.15% 76.12% 97.31% 93.91% 95.71% 100.00%
January 2003............................ 41.31% 100.00% 69.32% 75.55% 97.13% 93.65% 95.43% 100.00%
February 2003........................... 40.13% 100.00% 68.50% 74.97% 96.95% 93.37% 95.14% 100.00%
March 2003.............................. 38.85% 100.00% 67.68% 74.39% 96.76% 93.09% 94.84% 100.00%
April 2003.............................. 37.70% 100.00% 66.87% 73.73% 96.57% 92.81% 94.53% 100.00%
May 2003................................ 36.85% 100.00% 66.06% 73.15% 96.37% 92.52% 94.22% 100.00%
June 2003............................... 35.67% 100.00% 65.26% 72.57% 96.17% 92.22% 93.90% 100.00%
July 2003............................... 34.47% 100.00% 64.47% 71.91% 95.96% 91.91% 93.57% 100.00%
August 2003............................. 33.29% 100.00% 63.67% 71.34% 95.75% 91.60% 93.23% 100.00%
September 2003.......................... 32.14% 100.00% 62.88% 70.68% 95.53% 91.28% 92.88% 100.00%
October 2003............................ 30.94% 100.00% 62.10% 70.02% 95.31% 90.96% 92.53% 100.00%
November 2003........................... 29.74% 100.00% 61.32% 69.45% 95.08% 90.63% 92.16% 100.00%
December 2003........................... 28.54% 100.00% 60.54% 68.79% 94.85% 90.29% 91.79% 100.00%
January 2004............................ 27.37% 100.00% 59.77% 68.14% 94.61% 89.94% 91.41% 100.00%
February 2004........................... 26.17% 100.00% 59.00% 67.48% 94.37% 89.59% 91.03% 100.00%
March 2004.............................. 24.90% 100.00% 58.23% 66.83% 94.12% 89.23% 90.63% 100.00%
April 2004.............................. 23.73% 100.00% 57.47% 66.18% 93.87% 88.86% 90.23% 100.00%
May 2004................................ 22.89% 100.00% 56.71% 65.53% 93.61% 88.49% 89.82% 100.00%
June 2004............................... 21.72% 100.00% 55.95% 64.89% 93.35% 88.11% 89.40% 100.00%
July 2004............................... 20.50% 100.00% 55.19% 64.24% 93.08% 87.72% 88.98% 100.00%
August 2004............................. 19.30% 100.00% 54.44% 63.60% 92.81% 87.33% 88.54% 100.00%
September 2004.......................... 18.13% 100.00% 53.70% 62.88% 92.53% 86.93% 88.10% 100.00%
October 2004............................ 16.89% 100.00% 52.95% 62.24% 92.25% 86.52% 87.65% 100.00%
November 2004........................... 15.68% 100.00% 52.21% 61.60% 91.96% 86.11% 87.20% 100.00%
December 2004........................... 14.46% 100.00% 51.47% 60.88% 91.67% 85.69% 86.73% 100.00%
January 2005............................ 13.25% 100.00% 50.73% 60.25% 91.37% 85.26% 86.26% 100.00%
February 2005........................... 12.04% 100.00% 50.00% 59.54% 91.07% 84.82% 85.78% 100.00%
</TABLE>
A-10-1
<PAGE> 304
BASE POOL FACTORS (CONTINUED)
<TABLE>
<CAPTION>
SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
PAYMENT DATE OCCURRING IN A-2 A-3 A-4 B-1 B-2 C-1 C-2 D-2
------------------------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 2005.............................. 10.74% 100.00% 49.27% 58.83% 90.77% 84.38% 85.29% 100.00%
April 2005.............................. 9.51% 100.00% 48.54% 58.12% 90.46% 83.93% 84.80% 100.00%
May 2005................................ 8.59% 100.00% 47.81% 57.50% 90.14% 83.47% 84.30% 100.00%
June 2005............................... 7.36% 100.00% 47.09% 56.80% 89.82% 83.00% 83.78% 100.00%
July 2005............................... 6.09% 100.00% 46.37% 56.10% 89.49% 82.53% 83.27% 100.00%
August 2005............................. 4.85% 100.00% 45.65% 55.41% 89.16% 82.05% 82.74% 100.00%
September 2005.......................... 3.60% 100.00% 44.93% 54.64% 88.83% 81.56% 82.21% 100.00%
October 2005............................ 2.30% 100.00% 44.22% 53.95% 88.49% 81.07% 81.67% 100.00%
November 2005........................... 1.01% 100.00% 43.51% 53.27% 88.14% 80.57% 81.12% 100.00%
December 2005........................... 0.00% 99.99% 42.80% 52.58% 87.80% 80.06% 80.56% 100.00%
January 2006............................ 99.98% 42.09% 51.83% 87.44% 79.54% 80.00% 100.00%
February 2006........................... 99.95% 41.38% 51.16% 87.08% 79.02% 79.43% 100.00%
March 2006.............................. 99.90% 40.68% 50.42% 86.72% 78.49% 78.85% 100.00%
April 2006.............................. 99.85% 39.98% 49.70% 86.35% 77.95% 78.27% 100.00%
May 2006................................ 99.79% 39.28% 49.05% 85.98% 77.40% 77.67% 100.00%
June 2006............................... 99.71% 38.58% 48.33% 85.60% 76.85% 77.07% 100.00%
July 2006............................... 99.62% 37.88% 47.62% 85.22% 76.28% 76.46% 100.00%
August 2006............................. 99.52% 37.19% 46.91% 84.83% 75.71% 75.85% 100.00%
September 2006.......................... 99.40% 36.49% 46.21% 84.44% 75.14% 75.23% 100.00%
October 2006............................ 99.28% 35.80% 45.52% 84.05% 74.55% 74.60% 100.00%
November 2006........................... 99.14% 35.11% 44.86% 83.65% 73.96% 73.96% 100.00%
December 2006........................... 98.99% 34.43% 44.19% 83.24% 73.36% 73.31% 100.00%
January 2007............................ 98.82% 33.74% 43.47% 82.83% 72.75% 72.66% 99.72%
February 2007........................... 98.65% 33.06% 42.82% 82.42% 72.14% 72.00% 99.16%
March 2007.............................. 98.46% 32.38% 42.17% 82.00% 71.51% 71.34% 98.59%
April 2007.............................. 98.26% 31.70% 41.46% 81.58% 70.88% 70.66% 98.01%
May 2007................................ 98.05% 31.02% 40.75% 81.15% 70.25% 69.98% 97.42%
June 2007............................... 97.83% 30.34% 40.12% 80.72% 69.60% 69.29% 96.82%
July 2007............................... 97.59% 29.67% 39.42% 80.28% 68.94% 68.60% 96.21%
August 2007............................. 97.35% 28.99% 38.73% 79.84% 68.28% 67.89% 95.59%
September 2007.......................... 97.09% 28.32% 38.04% 79.39% 67.61% 67.18% 94.95%
October 2007............................ 96.81% 27.65% 37.36% 78.94% 66.93% 66.46% 94.30%
November 2007........................... 96.53% 26.98% 36.69% 78.49% 66.25% 65.74% 93.65%
December 2007........................... 96.23% 26.31% 36.02% 78.03% 65.55% 65.01% 92.98%
January 2008............................ 95.93% 25.64% 35.35% 77.56% 64.85% 64.27% 92.30%
February 2008........................... 95.60% 24.98% 34.63% 77.09% 64.14% 63.52% 91.61%
March 2008.............................. 95.27% 24.32% 33.98% 76.62% 63.43% 62.77% 90.90%
April 2008.............................. 94.93% 23.65% 33.33% 76.14% 62.70% 62.01% 90.19%
May 2008................................ 94.57% 22.99% 32.64% 75.66% 61.97% 61.24% 89.46%
June 2008............................... 94.20% 22.33% 31.97% 75.17% 61.22% 60.46% 88.72%
July 2008............................... 93.82% 21.68% 31.36% 74.68% 60.47% 59.68% 87.98%
August 2008............................. 93.42% 21.02% 30.69% 74.18% 59.72% 58.89% 87.21%
September 2008.......................... 93.02% 20.36% 30.04% 73.68% 58.95% 58.10% 86.44%
October 2008............................ 92.60% 19.71% 29.38% 73.18% 58.17% 57.29% 85.65%
November 2008........................... 92.17% 19.06% 28.74% 72.67% 57.39% 56.48% 84.86%
December 2008........................... 91.73% 18.40% 28.10% 72.16% 56.60% 55.66% 84.05%
January 2009............................ 91.27% 17.75% 27.47% 71.64% 55.80% 54.84% 83.23%
February 2009........................... 90.80% 17.10% 26.79% 71.12% 55.00% 54.01% 82.39%
March 2009.............................. 90.32% 16.46% 26.16% 70.59% 54.18% 53.17% 81.55%
April 2009.............................. 89.83% 15.81% 25.50% 70.06% 53.36% 52.32% 80.69%
May 2009................................ 89.33% 15.16% 24.89% 69.52% 52.52% 51.47% 79.82%
June 2009............................... 88.81% 14.52% 24.24% 68.98% 51.68% 50.61% 78.94%
July 2009............................... 88.28% 13.88% 23.60% 68.44% 50.84% 49.74% 78.04%
August 2009............................. 87.74% 13.24% 23.01% 67.89% 49.98% 48.87% 77.14%
September 2009.......................... 87.19% 12.59% 22.38% 67.33% 49.11% 47.99% 76.22%
October 2009............................ 86.62% 11.95% 21.75% 66.78% 48.24% 47.10% 75.28%
November 2009........................... 86.05% 11.32% 21.14% 66.21% 47.36% 46.20% 74.34%
December 2009........................... 85.46% 10.68% 20.53% 65.65% 46.47% 45.30% 73.38%
</TABLE>
A-10-2
<PAGE> 305
BASE POOL FACTORS (CONTINUED)
<TABLE>
<CAPTION>
SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
PAYMENT DATE OCCURRING IN A-2 A-3 A-4 B-1 B-2 C-1 C-2 D-2
------------------------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 2010............................ 84.85% 10.04% 19.88% 65.08% 45.57% 44.39% 72.41%
February 2010........................... 84.24% 9.41% 19.29% 64.50% 44.66% 43.48% 71.43%
March 2010.............................. 83.61% 8.77% 18.71% 63.92% 43.75% 42.55% 70.43%
April 2010.............................. 82.97% 8.14% 18.09% 63.34% 42.82% 41.62% 69.43%
May 2010................................ 82.32% 7.51% 17.47% 62.75% 41.89% 40.69% 68.40%
June 2010............................... 81.66% 6.88% 16.91% 62.15% 40.95% 39.74% 67.37%
July 2010............................... 80.98% 6.25% 16.32% 61.56% 40.00% 38.79% 66.32%
August 2010............................. 80.30% 5.62% 15.73% 60.96% 39.04% 37.83% 65.26%
September 2010.......................... 79.60% 4.99% 15.15% 60.35% 38.08% 36.87% 64.19%
October 2010............................ 78.88% 4.36% 14.58% 59.74% 37.10% 35.90% 63.10%
November 2010........................... 78.16% 3.74% 14.02% 59.12% 36.12% 34.92% 62.01%
December 2010........................... 77.42% 3.11% 13.47% 58.50% 35.12% 33.93% 60.89%
January 2011............................ 76.67% 2.49% 12.93% 57.88% 34.12% 32.94% 59.77%
February 2011........................... 75.91% 1.86% 12.36% 57.25% 33.11% 31.94% 58.63%
March 2011.............................. 75.14% 1.24% 11.84% 56.62% 32.09% 30.94% 57.48%
April 2011.............................. 74.35% 0.62% 11.28% 55.99% 31.07% 29.92% 56.31%
May 2011................................ 73.55% 0.00% 10.74% 55.34% 30.03% 28.90% 55.13%
June 2011............................... 72.74% 10.25% 54.70% 28.99% 27.88% 53.94%
July 2011............................... 71.92% 9.73% 54.05% 27.93% 26.84% 52.74%
August 2011............................. 71.08% 9.22% 53.40% 26.87% 25.80% 51.52%
September 2011.......................... 70.24% 8.72% 52.74% 25.80% 24.76% 50.28%
October 2011............................ 69.38% 8.23% 52.08% 24.72% 23.70% 49.04%
November 2011........................... 68.50% 7.72% 51.41% 23.63% 22.64% 47.78%
December 2011........................... 67.62% 7.25% 50.74% 22.54% 21.57% 46.50%
January 2012............................ 66.72% 6.80% 50.06% 21.43% 20.50% 45.22%
February 2012........................... 65.81% 6.32% 49.38% 20.32% 19.42% 43.91%
March 2012.............................. 64.89% 5.89% 48.70% 19.19% 18.33% 42.60%
April 2012.............................. 63.96% 5.44% 48.01% 18.06% 17.23% 41.27%
May 2012................................ 63.01% 5.00% 47.32% 16.92% 16.13% 39.93%
June 2012............................... 62.05% 4.57% 46.62% 15.77% 15.02% 38.57%
July 2012............................... 61.08% 4.15% 45.92% 14.61% 13.91% 37.20%
August 2012............................. 60.10% 3.75% 45.22% 13.44% 12.79% 35.82%
September 2012.......................... 59.10% 3.36% 44.51% 12.26% 11.66% 34.42%
October 2012............................ 58.10% 2.98% 43.80% 11.08% 10.52% 33.00%
November 2012........................... 57.08% 2.59% 43.08% 9.88% 9.38% 31.58%
December 2012........................... 56.04% 2.24% 42.36% 8.68% 8.23% 30.13%
January 2013............................ 55.00% 1.87% 41.63% 7.47% 7.08% 28.68%
February 2013........................... 53.94% 1.55% 40.90% 6.25% 5.91% 27.21%
March 2013.............................. 52.87% 1.21% 40.17% 5.01% 4.74% 25.73%
April 2013.............................. 51.79% 0.88% 39.43% 3.77% 3.57% 24.23%
May 2013................................ 50.70% 0.57% 38.68% 2.53% 2.39% 22.71%
June 2013............................... 49.59% 0.28% 37.94% 1.27% 1.20% 21.19%
July 2013............................... 48.47% 0.00% 37.19% 0.00% 0.00% 19.64%
August 2013............................. 47.34% 36.43% 18.09%
September 2013.......................... 46.20% 35.67% 16.52%
October 2013............................ 45.05% 34.91% 14.93%
November 2013........................... 43.88% 34.14% 12.50%
December 2013........................... 42.70% 33.37% 10.00%
January 2014............................ 41.51% 32.59% 7.50%
February 2014........................... 40.30% 31.81% 5.00%
March 2014.............................. 39.08% 31.02% 2.50%
April 2014.............................. 37.85% 30.23% 0.00%
May 2014................................ 36.61% 29.44%
June 2014............................... 35.36% 28.64%
July 2014............................... 34.09% 27.84%
August 2014............................. 32.81% 27.03%
September 2014.......................... 31.52% 26.22%
October 2014............................ 30.22% 25.41%
</TABLE>
A-10-3
<PAGE> 306
BASE POOL FACTORS (CONTINUED)
<TABLE>
<CAPTION>
SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
PAYMENT DATE OCCURRING IN A-2 A-3 A-4 B-1 B-2 C-1 C-2 D-2
------------------------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
November 2014........................... 28.90% 24.59%
December 2014........................... 27.58% 23.77%
January 2015............................ 26.24% 22.94%
February 2015........................... 24.88% 22.11%
March 2015.............................. 23.52% 21.28%
April 2015.............................. 22.14% 20.44%
May 2015................................ 20.75% 19.59%
June 2015............................... 19.35% 18.75%
July 2015............................... 17.93% 17.90%
August 2015............................. 16.51% 17.04%
September 2015.......................... 15.07% 16.18%
October 2015............................ 13.62% 15.32%
November 2015........................... 12.15% 14.45%
December 2015........................... 10.68% 13.58%
January 2016............................ 9.19% 12.70%
February 2016........................... 7.69% 11.82%
March 2016.............................. 6.18% 10.93%
April 2016.............................. 4.65% 10.05%
May 2016................................ 3.11% 9.15%
June 2016............................... 1.56% 8.26%
July 2016............................... 0.00% 7.36%
August 2016............................. 6.45%
September 2016.......................... 5.54%
October 2016............................ 4.63%
November 2016........................... 3.71%
December 2016........................... 2.79%
January 2017............................ 1.86%
February 2017........................... 0.93%
March 2017.............................. 0.00%
</TABLE>
A-10-4
<PAGE> 307
APPENDIX 11
BASE EXTENDED POOL FACTORS
<TABLE>
<CAPTION>
SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
PAYMENT DATE OCCURRING IN A-2 A-3 A-4 B-1 B-2 C-1 C-2 D-2
------------------------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
July 2000............................... 81.60% 100.00% 100.00% 95.87% 100.00% 100.00% 100.00% 100.00%
August 2000............................. 80.75% 100.00% 100.00% 95.52% 100.00% 100.00% 100.00% 100.00%
September 2000.......................... 79.90% 100.00% 100.00% 95.16% 100.00% 100.00% 100.00% 100.00%
October 2000............................ 79.05% 100.00% 100.00% 94.80% 100.00% 99.99% 100.00% 100.00%
November 2000........................... 78.20% 100.00% 100.00% 94.33% 100.00% 99.98% 100.00% 100.00%
December 2000........................... 77.31% 100.00% 100.00% 93.97% 100.00% 99.97% 100.00% 100.00%
January 2001............................ 76.45% 100.00% 100.00% 93.50% 100.00% 99.96% 100.00% 100.00%
February 2001........................... 75.55% 100.00% 100.00% 93.13% 100.00% 99.94% 100.00% 100.00%
March 2001.............................. 74.69% 100.00% 100.00% 92.76% 100.00% 99.92% 100.00% 100.00%
April 2001.............................. 73.79% 100.00% 100.00% 92.29% 100.00% 99.89% 100.00% 100.00%
May 2001................................ 72.89% 100.00% 100.00% 91.82% 100.00% 99.87% 100.00% 100.00%
June 2001............................... 71.98% 100.00% 100.00% 91.45% 100.00% 99.83% 100.00% 100.00%
July 2001............................... 71.07% 100.00% 100.00% 90.97% 100.00% 99.80% 100.00% 100.00%
August 2001............................. 70.16% 100.00% 98.02% 90.60% 100.00% 99.76% 99.99% 100.00%
September 2001.......................... 69.25% 100.00% 96.54% 90.12% 99.98% 99.71% 99.97% 100.00%
October 2001............................ 68.34% 100.00% 95.20% 89.64% 99.96% 99.66% 99.94% 100.00%
November 2001........................... 67.39% 100.00% 93.95% 89.17% 99.93% 99.61% 99.89% 100.00%
December 2001........................... 66.47% 100.00% 92.76% 88.69% 99.90% 99.55% 99.84% 100.00%
January 2002............................ 65.52% 100.00% 91.61% 88.31% 99.86% 99.49% 99.77% 100.00%
February 2002........................... 64.56% 100.00% 90.50% 87.83% 99.81% 99.42% 99.70% 100.00%
March 2002.............................. 63.63% 100.00% 89.42% 87.35% 99.76% 99.35% 99.61% 100.00%
April 2002.............................. 62.67% 100.00% 88.37% 86.87% 99.70% 99.27% 99.52% 100.00%
May 2002................................ 61.68% 100.00% 87.34% 86.38% 99.63% 99.19% 99.41% 100.00%
June 2002............................... 60.72% 100.00% 86.33% 85.90% 99.56% 99.10% 99.30% 100.00%
July 2002............................... 59.75% 100.00% 85.34% 85.32% 99.48% 99.01% 99.18% 100.00%
August 2002............................. 58.76% 100.00% 84.36% 84.84% 99.40% 98.91% 99.04% 100.00%
September 2002.......................... 57.78% 100.00% 83.40% 84.35% 99.31% 98.81% 98.90% 100.00%
October 2002............................ 56.78% 100.00% 82.45% 83.87% 99.22% 98.70% 98.75% 100.00%
November 2002........................... 55.78% 100.00% 81.51% 83.29% 99.11% 98.59% 98.59% 100.00%
December 2002........................... 54.77% 100.00% 80.59% 82.80% 99.01% 98.47% 98.42% 100.00%
January 2003............................ 53.76% 100.00% 79.67% 82.22% 98.90% 98.35% 98.24% 100.00%
February 2003........................... 52.75% 100.00% 78.77% 81.74% 98.78% 98.22% 98.05% 100.00%
March 2003.............................. 51.74% 100.00% 77.87% 81.16% 98.66% 98.08% 97.86% 100.00%
April 2003.............................. 50.70% 100.00% 76.98% 80.67% 98.53% 97.94% 97.65% 100.00%
May 2003................................ 49.65% 100.00% 76.10% 80.09% 98.39% 97.80% 97.44% 100.00%
June 2003............................... 48.63% 100.00% 75.23% 79.51% 98.25% 97.65% 97.22% 100.00%
July 2003............................... 47.59% 100.00% 74.37% 79.02% 98.11% 97.49% 96.99% 100.00%
August 2003............................. 46.51% 100.00% 73.51% 78.44% 97.96% 97.33% 96.75% 100.00%
September 2003.......................... 45.46% 100.00% 72.66% 77.86% 97.80% 97.16% 96.50% 100.00%
October 2003............................ 44.41% 100.00% 71.82% 77.28% 97.64% 96.98% 96.24% 100.00%
November 2003........................... 43.33% 100.00% 70.98% 76.70% 97.48% 96.80% 95.98% 100.00%
December 2003........................... 42.24% 100.00% 70.15% 76.12% 97.31% 96.62% 95.71% 100.00%
January 2004............................ 41.18% 100.00% 69.32% 75.55% 97.13% 96.43% 95.43% 100.00%
February 2004........................... 40.07% 100.00% 68.50% 74.97% 96.95% 96.23% 95.14% 100.00%
March 2004.............................. 38.99% 100.00% 67.68% 74.39% 96.76% 96.02% 94.84% 100.00%
April 2004.............................. 37.90% 100.00% 66.87% 73.73% 96.57% 95.81% 94.53% 100.00%
May 2004................................ 36.78% 100.00% 66.06% 73.15% 96.37% 95.60% 94.22% 100.00%
June 2004............................... 35.69% 100.00% 65.26% 72.57% 96.17% 95.38% 93.90% 100.00%
July 2004............................... 34.57% 100.00% 64.47% 71.91% 95.96% 95.15% 93.57% 100.00%
August 2004............................. 33.45% 100.00% 63.67% 71.34% 95.75% 94.91% 93.23% 100.00%
September 2004.......................... 32.31% 100.00% 62.88% 70.68% 95.53% 94.67% 92.88% 100.00%
October 2004............................ 31.18% 100.00% 62.10% 70.02% 95.31% 94.43% 92.53% 100.00%
November 2004........................... 30.04% 100.00% 61.32% 69.45% 95.08% 94.17% 92.16% 100.00%
December 2004........................... 28.91% 100.00% 60.54% 68.79% 94.85% 93.91% 91.79% 100.00%
January 2005............................ 27.76% 100.00% 59.77% 68.14% 94.61% 93.65% 91.41% 100.00%
February 2005........................... 26.61% 100.00% 59.00% 67.48% 94.37% 93.37% 91.03% 100.00%
</TABLE>
A-11-1
<PAGE> 308
BASE EXTENDED POOL FACTORS (CONTINUED)
<TABLE>
<CAPTION>
SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
PAYMENT DATE OCCURRING IN A-2 A-3 A-4 B-1 B-2 C-1 C-2 D-2
------------------------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 2005.............................. 25.44% 100.00% 58.23% 66.83% 94.12% 93.09% 90.63% 100.00%
April 2005.............................. 24.29% 100.00% 57.47% 66.18% 93.87% 92.81% 90.23% 100.00%
May 2005................................ 23.11% 100.00% 56.71% 65.53% 93.61% 92.52% 89.82% 100.00%
June 2005............................... 21.93% 100.00% 55.95% 64.89% 93.35% 92.22% 89.40% 100.00%
July 2005............................... 20.75% 100.00% 55.19% 64.24% 93.08% 91.91% 88.98% 100.00%
August 2005............................. 19.58% 100.00% 54.44% 63.60% 92.81% 91.60% 88.54% 100.00%
September 2005.......................... 18.40% 100.00% 53.70% 62.88% 92.53% 91.28% 88.10% 100.00%
October 2005............................ 17.20% 100.00% 52.95% 62.24% 92.25% 90.96% 87.65% 100.00%
November 2005........................... 15.99% 100.00% 52.21% 61.60% 91.96% 90.63% 87.20% 100.00%
December 2005........................... 14.79% 100.00% 51.47% 60.88% 91.67% 90.29% 86.73% 100.00%
January 2006............................ 13.59% 100.00% 50.73% 60.25% 91.37% 89.94% 86.26% 100.00%
February 2006........................... 12.36% 100.00% 50.00% 59.54% 91.07% 89.59% 85.78% 100.00%
March 2006.............................. 11.18% 100.00% 49.27% 58.83% 90.77% 89.23% 85.29% 100.00%
April 2006.............................. 9.99% 100.00% 48.54% 58.12% 90.46% 88.86% 84.80% 100.00%
May 2006................................ 8.81% 100.00% 47.81% 57.50% 90.14% 88.49% 84.30% 100.00%
June 2006............................... 7.61% 100.00% 47.09% 56.80% 89.82% 88.11% 83.78% 100.00%
July 2006............................... 6.43% 100.00% 46.37% 56.10% 89.49% 87.72% 83.27% 100.00%
August 2006............................. 5.23% 100.00% 45.65% 55.41% 89.16% 87.33% 82.74% 100.00%
September 2006.......................... 4.03% 100.00% 44.93% 54.64% 88.83% 86.93% 82.21% 100.00%
October 2006............................ 2.86% 100.00% 44.22% 53.95% 88.49% 86.52% 81.67% 100.00%
November 2006........................... 1.74% 100.00% 43.51% 53.27% 88.14% 86.11% 81.12% 100.00%
December 2006........................... 0.60% 99.99% 42.80% 52.58% 87.80% 85.69% 80.56% 100.00%
January 2007............................ 0.00% 99.98% 42.09% 51.83% 87.44% 85.26% 80.00% 100.00%
February 2007........................... 99.95% 41.38% 51.16% 87.08% 84.82% 79.43% 100.00%
March 2007.............................. 99.90% 40.68% 50.42% 86.72% 84.38% 78.85% 100.00%
April 2007.............................. 99.85% 39.98% 49.70% 86.35% 83.93% 78.27% 100.00%
May 2007................................ 99.79% 39.28% 49.05% 85.98% 83.47% 77.67% 100.00%
June 2007............................... 99.71% 38.58% 48.33% 85.60% 83.00% 77.07% 100.00%
July 2007............................... 99.62% 37.88% 47.62% 85.22% 82.53% 76.46% 100.00%
August 2007............................. 99.52% 37.19% 46.91% 84.83% 82.05% 75.85% 100.00%
September 2007.......................... 99.40% 36.49% 46.21% 84.44% 81.56% 75.23% 100.00%
October 2007............................ 99.28% 35.80% 45.52% 84.05% 81.07% 74.60% 100.00%
November 2007........................... 99.14% 35.11% 44.86% 83.65% 80.57% 73.96% 100.00%
December 2007........................... 98.99% 34.43% 44.19% 83.24% 80.06% 73.31% 100.00%
January 2008............................ 98.82% 33.74% 43.47% 82.83% 79.54% 72.66% 100.00%
February 2008........................... 98.65% 33.06% 42.82% 82.42% 79.02% 72.00% 100.00%
March 2008.............................. 98.46% 32.38% 42.17% 82.00% 78.49% 71.34% 100.00%
April 2008.............................. 98.26% 31.70% 41.46% 81.58% 77.95% 70.66% 100.00%
May 2008................................ 98.05% 31.02% 40.75% 81.15% 77.40% 69.98% 100.00%
June 2008............................... 97.83% 30.34% 40.12% 80.72% 76.85% 69.29% 100.00%
July 2008............................... 97.59% 29.67% 39.42% 80.28% 76.28% 68.60% 100.00%
August 2008............................. 97.35% 28.99% 38.73% 79.84% 75.71% 67.89% 100.00%
September 2008.......................... 97.09% 28.32% 38.04% 79.39% 75.14% 67.18% 100.00%
October 2008............................ 96.81% 27.65% 37.36% 78.94% 74.55% 66.46% 100.00%
November 2008........................... 96.53% 26.98% 36.69% 78.49% 73.96% 65.74% 100.00%
December 2008........................... 96.23% 26.31% 36.02% 78.03% 73.36% 65.01% 100.00%
January 2009............................ 95.93% 25.64% 35.35% 77.56% 72.75% 64.27% 99.72%
February 2009........................... 95.60% 24.98% 34.63% 77.09% 72.14% 63.52% 99.16%
March 2009.............................. 95.27% 24.32% 33.98% 76.62% 71.51% 62.77% 98.59%
April 2009.............................. 94.93% 23.65% 33.33% 76.14% 70.88% 62.01% 98.01%
May 2009................................ 94.57% 22.99% 32.64% 75.66% 70.25% 61.24% 97.42%
June 2009............................... 94.20% 22.33% 31.97% 75.17% 69.60% 60.46% 96.82%
July 2009............................... 93.82% 21.68% 31.36% 74.68% 68.94% 59.68% 96.21%
August 2009............................. 93.42% 21.02% 30.69% 74.18% 68.28% 58.89% 95.59%
September 2009.......................... 93.02% 20.36% 30.04% 73.68% 67.61% 58.10% 94.95%
October 2009............................ 92.60% 19.71% 29.38% 73.18% 66.93% 57.29% 94.30%
November 2009........................... 92.17% 19.06% 28.74% 72.67% 66.25% 56.48% 93.65%
December 2009........................... 91.73% 18.40% 28.10% 72.16% 65.55% 55.66% 92.98%
</TABLE>
A-11-2
<PAGE> 309
BASE EXTENDED POOL FACTORS (CONTINUED)
<TABLE>
<CAPTION>
SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
PAYMENT DATE OCCURRING IN A-2 A-3 A-4 B-1 B-2 C-1 C-2 D-2
------------------------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 2010............................ 91.27% 17.75% 27.47% 71.64% 64.85% 54.84% 92.30%
February 2010........................... 90.80% 17.10% 26.79% 71.12% 64.14% 54.01% 91.61%
March 2010.............................. 90.32% 16.46% 26.16% 70.59% 63.43% 53.17% 90.90%
April 2010.............................. 89.83% 15.81% 25.50% 70.06% 62.70% 52.32% 90.19%
May 2010................................ 89.33% 15.16% 24.89% 69.52% 61.97% 51.47% 89.46%
June 2010............................... 88.81% 14.52% 24.24% 68.98% 61.22% 50.61% 88.72%
July 2010............................... 88.28% 13.88% 23.60% 68.44% 60.47% 49.74% 87.98%
August 2010............................. 87.74% 13.24% 23.01% 67.89% 59.72% 48.87% 87.21%
September 2010.......................... 87.19% 12.59% 22.38% 67.33% 58.95% 47.99% 86.44%
October 2010............................ 86.62% 11.95% 21.75% 66.78% 58.17% 47.10% 85.65%
November 2010........................... 86.05% 11.32% 21.14% 66.21% 57.39% 46.20% 84.86%
December 2010........................... 85.46% 10.68% 20.53% 65.65% 56.60% 45.30% 84.05%
January 2011............................ 84.85% 10.04% 19.88% 65.08% 55.80% 44.39% 83.23%
February 2011........................... 84.24% 9.41% 19.29% 64.50% 55.00% 43.48% 82.39%
March 2011.............................. 83.61% 8.77% 18.71% 63.92% 54.18% 42.55% 81.55%
April 2011.............................. 82.97% 8.14% 18.09% 63.34% 53.36% 41.62% 80.69%
May 2011................................ 82.32% 7.51% 17.47% 62.75% 52.52% 40.69% 79.82%
June 2011............................... 81.66% 6.88% 16.91% 62.15% 51.68% 39.74% 78.94%
July 2011............................... 80.98% 6.25% 16.32% 61.56% 50.84% 38.79% 78.04%
August 2011............................. 80.30% 5.62% 15.73% 60.96% 49.98% 37.83% 77.14%
September 2011.......................... 79.60% 4.99% 15.15% 60.35% 49.11% 36.87% 76.22%
October 2011............................ 78.88% 4.36% 14.58% 59.74% 48.24% 35.90% 75.28%
November 2011........................... 78.16% 3.74% 14.02% 59.12% 47.36% 34.92% 74.34%
December 2011........................... 77.42% 3.11% 13.47% 58.50% 46.47% 33.93% 73.38%
January 2012............................ 76.67% 2.49% 12.93% 57.88% 45.57% 32.94% 72.41%
February 2012........................... 75.91% 1.86% 12.36% 57.25% 44.66% 31.94% 71.43%
March 2012.............................. 75.14% 1.24% 11.84% 56.62% 43.75% 30.94% 70.43%
April 2012.............................. 74.35% 0.62% 11.28% 55.99% 42.82% 29.92% 69.43%
May 2012................................ 73.55% 0.00% 10.74% 55.34% 41.89% 28.90% 68.40%
June 2012............................... 72.74% 10.25% 54.70% 40.95% 27.88% 67.37%
July 2012............................... 71.92% 9.73% 54.05% 40.00% 26.84% 66.32%
August 2012............................. 71.08% 9.22% 53.40% 39.04% 25.80% 65.26%
September 2012.......................... 70.24% 8.72% 52.74% 38.08% 24.76% 64.19%
October 2012............................ 69.38% 8.23% 52.08% 37.10% 23.70% 63.10%
November 2012........................... 68.50% 7.72% 51.41% 36.12% 22.64% 62.01%
December 2012........................... 67.62% 7.25% 50.74% 35.12% 21.57% 60.89%
January 2013............................ 66.72% 6.80% 50.06% 34.12% 20.50% 59.77%
February 2013........................... 65.81% 6.32% 49.38% 33.11% 19.42% 58.63%
March 2013.............................. 64.89% 5.89% 48.70% 32.09% 18.33% 57.48%
April 2013.............................. 63.96% 5.44% 48.01% 31.07% 17.23% 56.31%
May 2013................................ 63.01% 5.00% 47.32% 30.03% 16.13% 55.13%
June 2013............................... 62.05% 4.57% 46.62% 28.99% 15.02% 53.94%
July 2013............................... 61.08% 4.15% 45.92% 27.93% 13.91% 52.74%
August 2013............................. 60.10% 3.75% 45.22% 26.87% 12.79% 51.52%
September 2013.......................... 59.10% 3.36% 44.51% 25.80% 11.66% 50.28%
October 2013............................ 58.10% 2.98% 43.80% 24.72% 10.52% 49.04%
November 2013........................... 57.08% 2.59% 43.08% 23.63% 9.38% 47.78%
December 2013........................... 56.04% 2.24% 42.36% 22.54% 8.23% 46.50%
January 2014............................ 55.00% 1.87% 41.63% 21.43% 7.08% 45.22%
February 2014........................... 53.94% 1.55% 40.90% 20.32% 5.91% 43.91%
March 2014.............................. 52.87% 1.21% 40.17% 19.19% 4.74% 42.60%
April 2014.............................. 51.79% 0.88% 39.43% 18.06% 3.57% 41.27%
May 2014................................ 50.70% 0.57% 38.68% 16.92% 2.39% 39.93%
June 2014............................... 49.59% 0.28% 37.94% 15.77% 1.20% 38.57%
July 2014............................... 48.47% 0.00% 37.19% 14.61% 0.00% 37.20%
August 2014............................. 47.34% 36.43% 13.44% 35.82%
September 2014.......................... 46.20% 35.67% 12.26% 34.42%
October 2014............................ 45.05% 34.91% 11.08% 33.00%
</TABLE>
A-11-3
<PAGE> 310
BASE EXTENDED POOL FACTORS (CONTINUED)
<TABLE>
<CAPTION>
SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS SUBCLASS
PAYMENT DATE OCCURRING IN A-2 A-3 A-4 B-1 B-2 C-1 C-2 D-2
------------------------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
November 2014........................... 43.88% 34.14% 9.88% 31.58%
December 2014........................... 42.70% 33.37% 8.68% 30.13%
January 2015............................ 41.51% 32.59% 7.47% 28.68%
February 2015........................... 40.30% 31.81% 6.25% 27.21%
March 2015.............................. 39.08% 31.02% 5.01% 25.73%
April 2015.............................. 37.85% 30.23% 3.77% 24.23%
May 2015................................ 36.61% 29.44% 2.53% 22.71%
June 2015............................... 35.36% 28.64% 1.27% 21.19%
July 2015............................... 34.09% 27.84% 0.00% 19.64%
August 2015............................. 32.81% 27.03% 18.09%
September 2015.......................... 31.52% 26.22% 16.52%
October 2015............................ 30.22% 25.41% 14.93%
November 2015........................... 28.90% 24.59% 12.50%
December 2015........................... 27.58% 23.77% 10.00%
January 2016............................ 26.24% 22.94% 7.50%
February 2016........................... 24.88% 22.11% 5.00%
March 2016.............................. 23.52% 21.28% 2.50%
April 2016.............................. 22.14% 20.44% 0.00%
May 2016................................ 20.75% 19.59%
June 2016............................... 19.35% 18.75%
July 2016............................... 17.93% 17.90%
August 2016............................. 16.51% 17.04%
September 2016.......................... 15.07% 16.18%
October 2016............................ 13.62% 15.32%
November 2016........................... 12.15% 14.45%
December 2016........................... 10.68% 13.58%
January 2017............................ 9.19% 12.70%
February 2017........................... 7.69% 11.82%
March 2017.............................. 6.18% 10.93%
April 2017.............................. 4.65% 10.05%
May 2017................................ 3.11% 9.15%
June 2017............................... 1.56% 8.26%
July 2017............................... 0.00% 7.36%
August 2017............................. 6.45%
September 2017.......................... 5.54%
October 2017............................ 4.63%
November 2017........................... 3.71%
December 2017........................... 2.79%
January 2018............................ 1.86%
February 2018........................... 0.93%
March 2018.............................. 0.00%
</TABLE>
A-11-4
<PAGE> 311
APPENDIX 12
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
additional aircraft................. 11
Adjusted Base Value................. 119
Adjusted Portfolio Value............ 119
administrative agent's conflict
duties............................ 78
administrative agent's services
standard.......................... 77
ADs................................. 54
AerCo............................... 3
AerCo Group......................... 3
AerFi............................... 3
AerFi conflicts standard............ 72
AerFi Group......................... 3
AerFi services standard............. 72
AerFi transferred companies......... 38
affiliate........................... 33
aircraft agreement.................. 137
aircraft operating expenses......... 108
Assumed Debt Service Coverage
Ratio............................. 5
Assumed First Year's Interest....... 5
Assumed First Year's Interest and
Minimum and Scheduled Principal... 5
Assumed First Year's Net Revenue.... 5
Assumed Interest Coverage Ratio..... 5
Assumed Portfolio Value............. 118
Assumed Value....................... 118
Average Appraised Value............. 119
Base Case........................... 5
benefit plans....................... 172
charitable trust.................... 38
charitable trust trustee............ 71
class exemption..................... 172
clearing agency..................... 163
clearing corporation................ 163
Commission.......................... 3
concentration default............... 137
control............................. 132
covenant defeasance................. 127
debis............................... 22
debis group......................... 22
depreciation curve.................. 119
disqualified persons................ 172
DTC................................. 32
ERISA plans......................... 172
Excess Amortization Date............ 124
Exchange Act........................ 32
expected final payment date......... 105
expected maturity................... 110
Expected Principal Amortization
Period............................ 5
</TABLE>
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
expiration date..................... 32
final maturity date................. 105
guarantee........................... 136
Initial Appraised Value............. 118
Initial Loan........................ 5
Initial Loan to Value............... 5
interest earned..................... 107
Irish stamp duty.................... 167
lease rentals....................... 107
legal defeasance.................... 127
Liquidity Reserve Amount............ 5
Minimum Class Percentage............ 120
Minimum Principal Payment Amount.... 119
Minimum Target Principal Balance.... 120
net maintenance..................... 107
net sales proceeds.................. 137
net stress-related costs............ 107
new notes........................... 3
note target price................... 137
old notes........................... 3
parties in interest................. 172
permitted additional aircraft
acquisition....................... 138
permitted encumbrance............... 131
pool factor......................... 12
primary eligible credit
facilities........................ 154
PTCE................................ 172
recession........................... 113
remaining allocation................ 122
remaining principal balance......... 122
RPMs................................ 66
Scheduled Principal Payment
Amount............................ 120
Scheduled Target Principal
Balance........................... 121
secondary eligible credit
facilities........................ 154
Securities Act...................... 3
SG&A................................ 108
standby servicer.................... 44
step-up interest.................... 116
Supplemental Class Percentage....... 121
Supplemental Principal Payment
Amount............................ 121
Supplemental Target Principal
Balance........................... 121
Transaction......................... 95
Treasury yield...................... 125
Treaty.............................. 166
United States Holder................ 170
U.S. Holder......................... 166
wet lease........................... 53
</TABLE>
A-12-1
<PAGE> 312
AERCO LIMITED
c/o AerFi Administrative
Services Limited
Aviation House
Shannon
Ireland
and
22 Grenville Street
St. Helier
Jersey JE4 8PX
Channel Islands
<TABLE>
<S> <C>
BOOK-ENTRY DEPOSITARY,
TRUSTEE, SECURITY TRUSTEE, PAYING AGENT
AND REFERENCE AGENT AND REGISTRAR
BANKERS TRUST COMPANY BANKERS TRUST COMPANY
Four Albany Street Four Albany Street
Mail Stop 5091 Mail Stop 5091
New York, New York 10006 New York, New York 10006
USA USA
</TABLE>
<TABLE>
<S> <C> <C>
SERVICER ADMINISTRATIVE AGENT CASH MANAGER
AERFI GROUP PLC AERFI ADMINISTRATIVE AERFI CASH MANAGER II LIMITED
Aviation House SERVICES LIMITED Aviation House
Shannon Aviation House Shannon
Ireland Shannon Ireland
Ireland
</TABLE>
LUXEMBOURG PAYING AGENT
AND CO-REGISTRAR
BANQUE INTERNATIONALE A LUXEMBOURG S.A.
69, route d'Esch
L-1470 Luxembourg
LEGAL ADVISORS
<TABLE>
<S> <C> <C>
To the AerCo Group as to To the AerCo Group as to To the AerCo Group as to
United States law Jersey law Irish law
DAVIS POLK & WARDWELL MOURANT DU FEU & JEUNE MCCANN FITZGERALD
99 Gresham Street 22 Grenville Street 2 Harbourmaster Place
London EC2V 7NG St. Helier Custom House Dock
England Jersey JE4 8PX Dublin 1
Channel Islands Ireland
</TABLE>
LISTING AGENT
BANQUE INTERNATIONALE A LUXEMBOURG S.A.
69, route d'Esch
L-1470 Luxembourg
<PAGE> 313
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Except as hereinafter set forth, there is no provision of AerCo Limited's
Memorandum and Articles of Association, or of any contract, arrangement or
statute under which any director, trustee or officer of AerCo Limited is insured
or indemnified in any manner against any liability that he may incur in his
capacity as such.
AerCo Limited's Articles of Association provide that AerCo Limited shall
indemnify every present and former director of AerCo Limited against any loss or
liability incurred by reason of being or having been a director of AerCo Limited
to the fullest extent permitted by Jersey law. Article 77 of the Companies
(Jersey) Law 1991 ("Article 77") permits a Jersey company to indemnify each
director of that company against, among others, any liabilities incurred in
defending any proceedings whether civil or criminal (i) in which judgment is
given in his favor or he is acquitted, or (ii) which are discontinued otherwise
than for some benefit conferred by him or on his behalf or for some detriment
suffered by him, or (iii) which are settled on terms which include such benefit
or detriment and, in the opinion of a majority of the directors of the company
excluding any director who conferred such benefit or on whose behalf such
benefit was conferred or who suffered such detriment, the director was
substantially successful on the merits in his resistance to the proceedings.
AerCo Limited may purchase and maintain, in the name of and at the expense
of AerCo Limited, insurance for the benefit of any person who is or was a
director or officer of AerCo Limited or is or was serving at the request of
AerCo Limited as a director or officer in another corporation, partnership,
joint venture, trust or other enterprise against any liability incurred by him
or her in any such capacity, or arising out of such person's status as such,
whether or not AerCo Limited would have the power to indemnify him or her
against such liability under Article 77.
ITEM 21. EXHIBITS
(a) Exhibits
The following is a list of exhibits to this Registration Statement:
<TABLE>
<C> <S>
3.1 Memorandum and Articles of Association of AerCo
(incorporating all amendments up to and including July 14,
2000)**
4.1 Indenture dated as of July 15, 1998 between AerCo and
Bankers Trust Company, as trustee with respect to the Notes*
4.2 Indenture Supplement No. 1 dated as of July 17, 2000 between
AerCo and Bankers Trust Company, as trustee with respect to
the Notes**
4.3 Form of Global Note (included in Exhibits 4.1 and 4.2)*
4.4 Registration Rights Agreement dated July 15, 1998 by and
between AerCo and Morgan Stanley & Co. International
Limited*
4.5 Registration Rights Agreement (Subclass A-3, A-4, B-2 and
C-2 Notes) dated July 17, 2000 among AerCo, Morgan Stanley &
Co. International Limited and Lehman Brothers Inc., as
representatives of the several initial purchasers**
5.1 Opinion of Davis Polk & Wardwell as to the legality of the
securities being registered hereby**
5.2 Opinion of Mourant du Feu & Jeune as to the legality of the
securities being registered hereby**
8.1 Opinion of Davis Polk & Wardwell as to certain U.S. Federal
income tax matters (included in Exhibit 5.1)**
8.2 Opinion of KPMG as to certain Irish tax matters**
8.3 Opinion of Mourant du Feu & Jeune as to certain Jersey tax
matters**
9.1 Trust Instrument constituting AerCo Holding Trust*
</TABLE>
II-1
<PAGE> 314
<TABLE>
<C> <S>
9.2 Shareholders Undertaking between Mourant & Co. Trustees
Limited as trustee of AerCo Holding Trust, Juris Limited,
Lively Limited, GPA Group, AerCo and the trustee*
10.1 Security Trust Agreement dated as of July 15, 1998 among
AerCo, Bankers Trust Company, as security trustee and as
trustee, GPA Cash Manager II Limited, as cash manager, AerFi
Administrative Services Limited, as administrative agent,
Lively Limited, GPA Group, Babcock & Brown Limited, Mourant
& Co. Secretaries Limited and each subsidiary of AerCo*
10.2 Security Trust Agreement Supplement, dated July 17, 2000
among Gustav Leasing I Limited, Gustav Leasing V Limited,
Baltic Airlease III LLC, Ergo Leasing Limited, Lorenton
Limited, AerCo and Bankers Trust Company, as security
trustee**
10.3 Amended and Restated Cash Management Agreement dated as of
July 17, 2000 among AerFi Cash Manager II Limited, as cash
manager, AerFi, as guarantor, AerCo, Bankers Trust Company,
AerFi, as servicer and the entities listed in Appendix A
thereto**
10.4 Amended and Restated Administrative Agency Agreement dated
as of July 17, 2000 among AerFi Administrative Services
Limited, as administrative agent, AerFi, as guarantor,
AerCo, AerFi, as servicer, and the entities listed in
Appendix A thereto**
10.5 Servicing Agreement dated as of July 17, 2000 among AerFi,
AerCo, AerFi Administrative Services Limited, AerFi Cash
Manager II Limited, AerCo Ireland Limited, and other
subsidiaries of AerCo which acceded to such agreement
pursuant to an accession agreement**
10.6 Standby Servicing, Administrative Agency and Cash Management
Agreement dated as of July 17, 2000 among debis Aircraft
Leasing Ltd., debis and AerCo**
10.7 Cash Management Agreement dated as of July 17, 2000 among
debis Aircraft Leasing Ltd, as cash manager, debis, as
guarantor, AerCo and Bankers Trust Company, as trustee**
10.8 Administrative Agency Agreement dated as of July 17, 2000
among debis Aircraft Leasing Ltd, as administrative agent,
debis, as guarantor, AerCo, and debis Aircraft Leasing Ltd,
as servicer**
10.9 Servicing Agreement dated as of July 17, 2000 among debis
Aircraft Leasing Limited, as servicer, debis, as guarantor,
debis Aircraft Leasing Ltd, as administrative agent, and
debis Aircraft Leasing Ltd, as cash manager**
10.10 Share Purchase Agreement dated July 15, 1998 among AerCo,
GPA Group and Skyscape Limited*
10.11 Purchase Agreement dated July 12, 2000 among Morgan Stanley
& Co. International Limited and Lehman Brothers, Inc., as
representatives of the several initial purchasers, AerCo and
AerFi**
10.12 Share Purchase Agreement dated July 17, 2000 among AerFi,
Skyscape Limited, AerFi Inc., Indigo Aviation AB and
Kommanditbolaget Flygplanet XII, as sellers, and AerCo and
AerCo USA Inc., as purchasers**
10.13 Deposit Agreement dated as of July 15, 1998 between AerCo
and Bankers Trust Company, as book-entry depositary*
10.14 Deposit Agreement dated as of July 17, 2000 between AerCo
and Bankers Trust Company, as book-entry depositary**
21.1 Subsidiaries of AerCo**
23.1 Consent of Davis Polk & Wardwell (included in Exhibit 5.1)**
23.2 Consent of Aircraft Information Services, Inc.**
23.3 Consent of BK Associates, Inc.**
23.4 Consent of Airclaims Limited**
23.5 Consent of KPMG (included in Exhibit 8.2)**
23.6 Consent of Mourant du Feu & Jeune (included in Exhibit
8.3)**
23.7 Consent of KPMG, Chartered Accountants**
24.1 Directors' Power of Attorney (included in signature page)**
25.1 Statement of Eligibility of Bankers Trust Company, as
trustee, under the Indenture to be qualified under the Trust
Indenture Act of 1939*
99.1 Form of Letter of Transmittal**
</TABLE>
II-2
<PAGE> 315
<TABLE>
<C> <S>
99.2 Form of Notice of Guaranteed Delivery**
99.3 Form of Letters to DTC Participants**
99.4 Form of Letter to Clients and Form of Instruction to
Book-Entry Transfer Participant**
99.5 Appraisal of Aircraft Information Services, Inc. relating to
the Aircraft dated April 30, 2000**
99.6 Appraisal of BK Associates, Inc. relating to the Aircraft
dated April 30, 2000**
99.7 Appraisal of Airclaims Limited relating to the Aircraft
dated April 30, 2000**
99.8 Appraisal of Aircraft Information Services, Inc. relating to
the Aircraft dated January 18, 1999*
99.9 Appraisal of BK Associates, Inc. relating to the Aircraft
dated January 18, 1999*
99.10 Appraisal of Airclaims Limited relating to the Aircraft
dated January 18, 1999*
99.11 Form of Exchange Agent Agreement**
</TABLE>
* Previously filed on AerCo's Registration Statement on Form F-4 (File No.
333-66973).
** Filed herewith.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes: (i) to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means; and (ii) to arrange or provide for a
facility in the U.S. for the purpose of responding to such requests. The
undertaking in subparagraph (i) above includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) The undersigned registrant hereby undertakes as follows:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters,
in addition to the information called for by the other Items of the
applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will
be filed as a part of an amendment to the registration statement
and will not be used until such amendment is effective, and that,
for purposes of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offerings thereof.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing
II-3
<PAGE> 316
provisions, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other that the
payment by the registrant of expenses incurred or paid by a director, officer of
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-4
<PAGE> 317
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant, AerCo
Limited, has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in New Jersey, United States on
December 7, 2000.
AERCO LIMITED
By: /s/ FREDERICK W. BRADLEY, JR.
------------------------------------
Independent Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Frederick W. Bradley, Jr., Kenneth N. Peters, G.
Adrian Robinson, Edward Hansom and Rose Hynes his/her true and lawful
attorneys-in-fact and agent, each acting alone, with full powers of substitution
and resubstitution, for him/her and in his/her name, place and stead, in any and
all capacities, to sign any and all amendments to this Registration Statement,
including post-effective amendments, as well as any related registration
statement (or amendment thereto) and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, and hereby ratifies and confirms all
his/her said attorneys-in-fact and agents or any of them or his/her substitute
or substitutes may lawfully do or cause to be done by virtue thereof.
The Power of Attorney may be executed in multiple counterparts, each of
which shall be deemed an original, but which taken together shall constitute one
instrument.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the following
capacities on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ FREDERICK W. BRADLEY, JR. Independent Director December 7, 2000
----------------------------------------------------- (principal executive
Frederick W. Bradley, Jr. officer)
/s/ KENNETH N. PETERS Independent Director December 7, 2000
----------------------------------------------------- (principal accounting
Kenneth N. Peters officer)
/s/ G. ADRIAN ROBINSON Independent Director December 7, 2000
----------------------------------------------------- (principal financial
G. Adrian Robinson officer)
/s/ EDWARD HANSOM Director December 7, 2000
-----------------------------------------------------
Edward Hansom
/s/ ROSE HYNES Director December 7, 2000
-----------------------------------------------------
Rose Hynes
Authorized Representative in the United States
/s/ FREDERICK W. BRADLEY, JR.
-----------------------------------------------------
Name: Frederick W. Bradley, Jr.
</TABLE>
II-5
<PAGE> 318
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
3.1 Memorandum and Articles of Association of AerCo
(incorporating all amendments up to and including July 14,
2000)**
4.1 Indenture dated as of July 15, 1998 between AerCo and
Bankers Trust Company, as trustee with respect to the Notes*
4.2 Indenture Supplement No. 1 dated as of July 17, 2000 between
AerCo and Bankers Trust Company, as trustee with respect to
the Notes**
4.3 Form of Global Note (included in Exhibits 4.1 and 4.2)*
4.4 Registration Rights Agreement dated July 15, 1998 by and
between AerCo and Morgan Stanley & Co. International
Limited*
4.5 Registration Rights Agreement (Subclass A-3, A-4, B-2 and
C-2 Notes) dated July 17, 2000 among AerCo, Morgan Stanley &
Co. International Limited and Lehman Brothers Inc., as
representatives of the several initial purchasers**
5.1 Opinion of Davis Polk & Wardwell as to the legality of the
securities being registered hereby**
5.2 Opinion of Mourant du Feu & Jeune as to the legality of the
securities being registered hereby**
8.1 Opinion of Davis Polk & Wardwell as to certain U.S. Federal
income tax matters (included in Exhibit 5.1)**
8.2 Opinion of KPMG as to certain Irish tax matters**
8.3 Opinion of Mourant du Feu & Jeune as to certain Jersey tax
matters**
9.1 Trust Instrument constituting AerCo Holding Trust*
9.2 Shareholders Undertaking between Mourant & Co. Trustees
Limited as trustee of AerCo Holding Trust, Juris Limited,
Lively Limited, GPA Group, AerCo and the trustee*
10.1 Security Trust Agreement dated as of July 15, 1998 among
AerCo, Bankers Trust Company, as security trustee and as
trustee, GPA Cash Manager II Limited, as cash manager, AerFi
Administrative Services Limited, as administrative agent,
Lively Limited, GPA Group, Babcock & Brown Limited, Mourant
& Co. Secretaries Limited and each subsidiary of AerCo*
10.2 Security Trust Agreement Supplement, dated July 17, 2000
among Gustav Leasing I Limited, Gustav Leasing V Limited,
Baltic Airlease III LLC, Ergo Leasing Limited, Lorenton
Limited, AerCo and Bankers Trust Company, as security
trustee**
10.3 Amended and Restated Cash Management Agreement dated as of
July 17, 2000 among AerFi Cash Manager II Limited, as cash
manager, AerFi, as guarantor, AerCo, Bankers Trust Company,
AerFi as servicer and the entities listed in Appendix A
thereto**
10.4 Amended and Restated Administrative Agency Agreement dated
as of July 17, 2000 among AerFi Administrative Services
Limited, as administrative agent, AerFi, as guarantor,
AerCo, AerFi, as servicer, and the entities listed in
Appendix A thereto**
10.5 Servicing Agreement dated as of July 17, 2000 among AerFi,
AerCo, AerFi Administrative Services Limited, AerFi Cash
Manager II Limited, AerCo Ireland Limited, and other
subsidiaries of AerCo which acceded to such agreement
pursuant to an accession agreement**
10.6 Standby Servicing, Administrative Agency and Cash Management
Agreement dated as of July 17, 2000 among debis Aircraft
Leasing Ltd., debis and AerCo**
10.7 Cash Management Agreement dated as of July 17, 2000 among
debis Aircraft Leasing Ltd, as cash manager, debis, as
guarantor, AerCo and Bankers Trust Company, as trustee**
10.8 Administrative Agency Agreement dated as of July 17, 2000
among debis Aircraft Leasing Ltd, as administrative agent,
debis, as guarantor, AerCo, and debis Aircraft Leasing Ltd,
as servicer**
10.9 Servicing Agreement dated as of July 17, 2000 among debis
Aircraft Leasing Limited, as servicer, debis, as guarantor,
debis Aircraft Leasing Ltd, as administrative agent, and
debis Aircraft Leasing Ltd., as cash manager**
10.10 Share Purchase Agreement dated July 15, 1998 among AerCo,
GPA Group and Skyscape Limited*
10.11 Purchase Agreement dated July 12, 2000 among Morgan Stanley
& Co. International Limited and Lehman Brothers, Inc., as
representatives of the several initial purchasers, AerCo and
AerFi**
</TABLE>
<PAGE> 319
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.12 Share Purchase Agreement dated July 17, 2000 among AerFi,
Skyscape Limited, AerFi Inc., Indigo Aviation AB and
Kommanditbolaget Flygplanet XII, as sellers, and AerCo and
AerCo USA Inc., as purchasers**
10.13 Deposit Agreement dated as of July 15, 1998 between AerCo
and Bankers Trust Company, as book-entry depositary*
10.14 Deposit Agreement dated as of July 17, 2000 between AerCo
and Bankers Trust Company, as book-entry depositary**
21.1 Subsidiaries of AerCo**
23.1 Consent of Davis Polk & Wardwell (included in Exhibit 5.1)**
23.2 Consent of Aircraft Information Services, Inc.**
23.3 Consent of BK Associates, Inc.**
23.4 Consent of Airclaims Limited**
23.5 Consent of KPMG (included in Exhibit 8.3)**
23.6 Consent of Mourant du Feu & Jeune (included in Exhibit
8.3)**
23.7 Consent of KPMG, Chartered Accountants**
24.1 Directors' Power of Attorney (included in signature page)**
25.1 Statement of Eligibility of Bankers Trust Company, as
trustee, under the Indenture to be qualified under the Trust
Indenture Act of 1939*
99.1 Form of Letter of Transmittal**
99.2 Form of Notice of Guaranteed Delivery**
99.3 Form of Letters to DTC Participants**
99.4 Form of Letter to Clients and Form of Instruction to
Book-Entry Transfer Participant**
99.5 Appraisal of Aircraft Information Services, Inc. relating to
the Aircraft dated April 30, 2000**
99.6 Appraisal of BK Associates, Inc. relating to the Aircraft
dated April 30, 2000**
99.7 Appraisal of Airclaims Limited relating to the Aircraft
dated April 30, 2000**
99.8 Appraisal of Aircraft Information Services, Inc. relating to
the Aircraft dated January 18, 1999*
99.9 Appraisal of BK Associates, Inc. relating to the Aircraft
dated January 18, 1999*
99.10 Appraisal of Airclaims Limited relating to the Aircraft
dated January 18, 1999*
99.11 Form of Exchange Agent Agreement**
</TABLE>
* Previously filed on AerCo's Registration Statement on Form F-4 (File No.
333-66973).
** Filed herewith.
