UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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(MARK ONE)
_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission File No. 333-82153
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AIRCRAFT FINANCE TRUST
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(Exact name of registrant as specified in its charter)
51-6512392
(IRS Employer I.D. No.)
DELAWARE
(State or other jurisdiction of incorporation or organization)
1100 North Market Street, Rodney Square North, Wilmington, Delaware 19890
(302) 651-1000
(Address and telephone number of principal executive offices)
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
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This document consists of 159 pages.
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Aircraft Finance Trust
1999 Form 10-K Annual Report
Table of Contents
Page
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PART I
Item 1. Business...........................................................3
Item 2. Properties........................................................22
Item 3. Legal Proceedings.................................................22
Item 4. Submission of Matters to a Vote of Security Holders...............22
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters...........................................................23
Item 6. Selected Financial Data...........................................24
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................24
Item 7A. Quantitative and Qualitative Disclosures about Market Risk........28
Item 8. Financial Statements and Supplementary Data.......................30
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..............................................44
PART III
Item 10. Directors and Executive Officers of the Registrant................44
Item 11. Executive Compensation............................................51
Item 12. Security Ownership of Certain Beneficial Owners and Management....51
Item 13. Certain Relationships and Related Transactions....................52
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...53
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PART I
Item 1. Business
Introduction
Aircraft Finance Trust was formed on April 13, 1999 as a Delaware business
trust and is a special purpose company. The authorized business of Aircraft
Finance Trust and its present and future subsidiaries is limited to buying,
owning, leasing, selling commercial jet aircraft and related activities.
Aircraft Finance Trust currently has two subsidiaries: AFT Trust-Sub I, which is
a Delaware business trust, and Aircraft Finance Trust Ireland Limited, which is
an Irish corporation (collectively "Aircraft Finance"). All of Aircraft
Finance's aircraft are owned by AFT Trust-Sub I. Two of these aircraft are
leased by AFT Trust-Sub I to Aircraft Finance Trust Ireland Limited for sublease
to the ultimate user. Aircraft Finance's principal executive offices are located
at 1100 North Market Street, Rodney Square North, Wilmington, Delaware 19890.
Its telephone number is (302) 651-1000.
The beneficial interests in Aircraft Finance were originally purchased by
UniCapital AFT-I, Inc. (51%) and UniCapital AFT-II, Inc. (49%), each of which
were wholly-owned subsidiaries of UniCapital Air Group Inc., a wholly-owned
subsidiary of UniCapital Corporation (UniCapital). During 1999, UniCapital
AFT-I, Inc. subsequently sold 49.9% of its beneficial interest in Aircraft
Finance to third party financial services companies. UniCapital Air Group, Inc.
entered into an agreement to sell its interest in UniCapital AFT-I, Inc. to one
of the financial services companies. As a result, these financial services
companies own 51% of Aircraft Finance, and UniCapital Air Group, Inc.'s
subsidiary, UniCapital, AFT-II, Inc. owns 49%.
On May 5, 1999, Aircraft Finance issued $1,209 million of asset-backed
notes (the Initial Notes). As of that date, the Initial Notes consisted of
$512.5 million of Class A-1 Notes, $400 million of Class A-2 Notes, $126.5
million of Class B Notes, $106 million of Class C Notes and $64 million of Class
D Notes. On January 20, 2000, Aircraft Finance completed an exchange offer
whereby Aircraft Finance issued four classes of new notes, also designated Class
A-1, Class A-2, Class B and Class C (the Exchange Notes), in exchange for the
four corresponding classes of the Initial Notes. The terms of the Exchange Notes
are identical in all material respects to the Initial Notes, except that the
Exchange Notes are registered under the Securities Act of 1933, as amended. The
Class D Notes were not exchanged and remain unregistered. $3 million of the
Class A-2 Initial Notes were not tendered in the exchange offer and remain
outstanding. The remaining outstanding Initial Notes and the outstanding
Exchange Notes are together referred to as the Notes.
Also on May 5, 1999, Aircraft Finance and its subsidiaries agreed with
General Electric Capital Corporation to purchase 36 commercial jet aircraft from
General Electric Capital Corporation and some of its affiliates under a master
aircraft purchase agreement. Aircraft Finance paid the purchase price of
approximately $1,196 million in full for these initial aircraft with the
proceeds from the sale of the Initial Notes and from the sale of its beneficial
interest. Remaining proceeds were used to fund cash reserves of $52 million. As
of October 22, 1999, all of the 36 initial aircraft had been delivered to
Aircraft Finance. At December 31, 1999, 35 of the initial aircraft were on lease
to 22 lessees based in 12 countries. One aircraft was off lease and was
subsequently re-leased. For a detailed discussion of the value of the aircraft,
see "The Aircraft Portfolio".
The trust agreement governing Aircraft Finance provides for four trustees.
One of the four trustees of Aircraft Finance is Wilmington Trust Company, which
is acting as the statutory trustee and the owner trustee. The remaining three
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trustees are the "controlling trustees" and have the authority to manage the
property and affairs of Aircraft Finance under the trust agreement. All of the
controlling trustees are independent from General Electric Capital Corporation.
One of the controlling trustees, called the "equity trustee", has been appointed
by the holders of Aircraft Finance's beneficial interest, while the two other
controlling trustees, called the "independent controlling trustees", are
independent of those holders. The holders of the beneficial interest of Aircraft
Finance may, remove and replace the equity trustee, and each independent
controlling trustee may be replaced by the other independent controlling
trustee.
The trust agreement requires that any decision relating to insolvency
proceedings, mergers or other reorganizations of Aircraft Finance must be
approved by a unanimous vote of the controlling trustees. Any sale of aircraft,
decisions requiring Aircraft Finance's approval under the servicing agreement
for the aircraft or under the agreement with the administrative agent, and the
reduction of any required level of reserves must be approved by the equity
trustee and at least one of the independent controlling trustees. In order for
the controlling trustees to approve an aircraft sale on other than pre-approved
terms, it must confirm to the indenture trustee, prior to the sale, that the
sale will not materially and adversely affect the holders of the Notes. The
acquisition of additional aircraft by Aircraft Finance and the terms of any
related financing need only be approved by the equity trustee, subject to the
terms of the trust agreement and the indenture, including confirmation by the
rating agencies that the transaction will not adversely affect the rating on the
Notes.
As is common with many other special purpose companies, Aircraft Finance
will not have any officers or other employees, except, in the case of a
subsidiary, as may be required by applicable law. Aircraft Finance has arranged
for third-party service providers to provide aircraft servicing, managerial
services and financial advice. See "Part III, Item 10. Directors and Executive
Officers of the Registrant" for further information regarding the management of
Aircraft Finance.
Aircraft Finance may acquire additional commercial passenger or freight
aircraft from General Electric Capital Corporation or UniCapital or their
respective affiliates. The indenture under which the Notes were issued contains
a number of conditions for the acquisition of additional aircraft and for the
financing of such an acquisition. If these conditions are met, there is no limit
under the indenture to the number of additional aircraft that Aircraft Finance
may acquire. UniCapital has indicated that it may at some point sell additional
aircraft to Aircraft Finance.
All of the net revenues of Aircraft Finance and its subsidiaries are used
to pay principal, interest and other amounts due on the Notes or to provide for
cash reserves for some or all of the subclasses of Notes. Except for accruals
for the payment of anticipated expenses and required reserves, none of the
revenues will be re-used or retained in the business of Aircraft Finance or its
subsidiaries. In addition, none of the earnings of Aircraft Finance may be
distributed to the holders of its beneficial interest until all Notes are repaid
in full with the limited exception of reimbursing any payments made by those
holders to cure interest shortfalls.
Because the Notes do not provide for fixed principal payments, the ultimate
repayment of the Notes, the amount of individual payments over time and the
speed of repayment, are fully a function of Aircraft Finance's ability to
collect revenues from the portfolio of the 36 aircraft and, if acquired,
additional aircraft. Set forth below in the Risk Factors section are a variety
of factors that, in addition to general economic conditions, could influence
materially the collection of revenues -- principally lease rents and sale
proceeds -- available for debt repayment.
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Risk Factors
The following summarizes certain risks that may materially affect the
business operations of Aircraft Finance and its ability to pay the interest,
principal and premium, if any, on the Notes in full at or before their final
maturity dates and to make cash distributions to the beneficial interest
holders. There may be additional risks and uncertainties not known at the
present. There can be no assurance that payments under the aircraft leases will
be adequate to pay the interest, principal and premium, if any, on the Notes in
accordance with their terms.
It should be noted that this Annual Report on Form 10-K (Form 10-K)
contains, in addition to historical information, forward-looking statements that
involve risks and uncertainties. Actual results could differ materially from
those anticipated in these forward-looking statements. These statements relate
to our future plans, objectives, expectations and intentions, and the
assumptions underlying or relating to any of these statements. These statements
may be identified by the use of words such as "expect," "may," "anticipate,"
"intend" and "plan." Our actual results may differ materially from those
discussed in this Form 10-K.
References in this Form 10-K to the appraised value of aircraft at December
31, 1999 means the average of three appraisals of the aircraft as of December
31, 1999. For further discussion of the appraisals, see "The Aircraft Portfolio
- - Appraisal of Aircraft".
AIRCRAFT FINANCE IS A SPECIAL PURPOSE ENTITY AND THEREFORE IS RELYING ON ONLY A
LIMITED NUMBER OF REVENUE SOURCES FOR ITS BUSINESS.
It is unlikely that Aircraft Finance would be able to obtain any alternate
source of funds if any of its limited sources of funds prove to be insufficient
to pay the Notes and its other obligations. The sole sources of payment for the
Notes and the other obligations of Aircraft Finance and its subsidiaries are:
(1) funds derived from the aircraft owned or to be acquired by them,
including: rents, deposits, maintenance reserves and other payments
under existing leases and any future leases, insurance proceeds,
proceeds from the sale of aircraft and any payments by General Electric
Capital Corporation as to several initial Brazilian leases;
(2) liquidity reserves funded out of the proceeds of the Initial Notes or
that may be funded out of the proceeds of any future notes or
beneficial interests in Aircraft Finance or provided through any future
credit facilities;
(3) net payments under swap or other hedging agreements;
(4) investment earnings; and
(5) net proceeds from the sale of any notes issued to refinance other
notes.
AIRCRAFT FINANCE HAS NO EMPLOYEES OR MANAGERS OF ITS OWN, AND THEREFORE ITS
ABILITY TO GENERATE REVENUES DEPENDS ON CONTRACTS WITH, AND PERFORMANCE BY,
INDEPENDENT THIRD PARTY SERVICE PROVIDERS.
Inadequate performance and resignations by service providers may materially
and adversely affect revenues and costs. In the absence of an ownership stake,
third party service providers may have no incentive to perform beyond the strict
requirements of their contract. Aircraft Finance is especially dependent on
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service providers because neither Aircraft Finance nor its subsidiaries have any
employees or executive managers of its own.
Aircraft Finance relies on contracts with GE Capital Aviation Services,
Limited, an affiliate of General Electric Capital Corporation, as the servicer,
ReSource/Phoenix, Inc. as the administrative agent, Bankers Trust Company as the
financial advisor, Lehman Brothers Inc. as the capital markets advisor and
perhaps other service providers for all asset servicing, executive and
administrative functions. Regarding these arrangements, please note that:
(1) any of these organizations may fail to perform its contractual
obligations adequately;
(2) any of these organizations may exercise contract termination rights;
(3) Aircraft Finance may find it difficult to recover damages for poor
performance in light of contractual limitations;
(4) Aircraft Finance may not be able to terminate the contract itself -- in
particular its rights to terminate the aircraft servicing agreement are
very limited; and
(5) Aircraft Finance may not have the legal right to locate satisfactory
replacements on favorable terms.
THE AIRCRAFT SERVICER MAY FACE CONFLICTS OF INTEREST THAT COULD RESULT IN
PREFERENTIAL TREATMENT FOR A THIRD PARTY AT THE EXPENSE OF AIRCRAFT FINANCE. IF
THE SEVICER DID PREFER A THIRD PARTY IN A CONFLICT OF INTEREST, IT COULD
ADVERSELY AFFECT AIRCRAFT FINANCE'S REVENUES.
GE Capital Aviation Services, Limited will from time to time have conflicts
of interest that may adversely affect its ability to perform its obligations as
the servicer for Aircraft Finance because it manages aircraft and other assets
of other entities, in particular for its affiliate, General Electric Capital
Corporation and its group. These conflicts will arise if the servicer leases
Aircraft Finance's aircraft to the same entities that are also the lessees of
other aircraft managed by the servicer. In this circumstance, decisions
affecting some aircraft may unavoidably be adverse to others. If the servicer
makes a decision adverse to Aircraft Finance's interests, Aircraft Finance's
revenues could suffer.
These conflicts may be particularly acute when a lessee in financial
distress needs to return some of its aircraft. Conflicts will also arise when
the aircraft of Aircraft Finance are being marketed for re-lease or sale at a
time when other aircraft managed by the servicer are being similarly marketed.
These circumstances may be especially sensitive where General Electric Capital
Corporation is providing financing for the marketed aircraft or where the
servicer's contractual arrangements have the effect of requiring preferential
treatment for other aircraft.
Under the terms of its servicing agreement with the servicer, Aircraft
Finance is not necessarily entitled to be informed of all conflicts of interest
involving the servicer and is limited in its right to replace the servicer
because of conflicts of interest.
BECAUSE AIRCRAFT FINANCE'S CONTRACT LIMITS ITS REMEDIES AGAINST THE SERVICER FOR
POOR PERFORMANCE, AIRCRAFT FINANCE MAY AT SOME POINT BEAR COSTS THAT WILL REDUCE
ITS AVAILABLE REVENUES.
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Under the aircraft servicing agreement, Aircraft Finance may not in all
cases have the right to recover damages for inadequate performance. Aircraft
Finance's right to terminate the servicing agreement by reason of a failure of
the servicer to perform is, moreover, limited to those failures to perform that
materially and adversely affect Aircraft Finance and its subsidiaries as a
whole.
In particular, the servicer is not contractually responsible for, among
other things:
(1) the transfer of aircraft, leases or other assets to any person within
Aircraft Finance;
(2) the adequacy of the terms of any aircraft lease, including rent
payments, maintenance reserves or security deposits;
(3) the reliability or creditworthiness of any lessee; and
(4) the terms of the Notes and the ability of Aircraft Finance to comply
with the terms of the Notes.
Aircraft Finance has agreed to indemnify the servicer and its affiliates
for broad categories of losses arising out of the performance of services for
the aircraft and leases held by subsidiaries of Aircraft Finance, unless the
losses arise from the servicer's gross negligence or willful misconduct.
MARKET INTEREST RATE FLUCTUATIONS COULD CHANGE EXPECTED CASH FLOWS.
Interest rate exposure arises to the extent that Aircraft Finance's fixed
and floating rate obligations under the Notes do not correlate to either or both
of the mix of fixed and floating rate rental payments for different periods and
the timing of those payments. Although Aircraft Finance will attempt to hedge
that exposure as described in "Item 7A. Quantitative and Qualitative Disclosures
about Market Risk", it makes no assurance that it will be effective in
implementing its hedging goals. In addition, the premature termination of any
lease may result in Aircraft Finance incurring prepayment or cancellation costs
under its hedging agreements.
CHANGES IN THE AIRCRAFT PORTFOLIO COULD CHANGE EXPECTED CASH FLOWS.
The assumptions regarding the expected cash flow of Aircraft Finance are
subject not only to a variety of economic factors, but also to any substantial
change in the composition of the aircraft portfolio from that initially
contemplated. Any substantial change in that composition could significantly
alter expected cash flows and the nature and degree of risks affecting cash
flows. Three principal factors could affect the fleet composition.
(1) THE EXERCISE OF PURCHASE OPTIONS BY LESSEES. The exercise of a lessee
purchase option may result in sale proceeds lower than target sale
prices of the aircraft if payments on the Notes have not been made as
assumed. Two lessees with respect to three of the aircraft,
representing 11.6% of the aggregate appraised value at December 31,
1999, have unexpired options to purchase aircraft.
(2) THE LOSS OF AIRCRAFT THROUGH CASUALTY OR GOVERNMENTAL TAKING. The
proceeds of insurance and taking awards may not be sufficient to
compensate for the loss of the revenue otherwise available from the
affected aircraft.
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(3) THE PURCHASE OF ADDITIONAL AIRCRAFT. UniCapital has indicated that it
may at some point sell additional aircraft to Aircraft Finance.
Although any additional aircraft may add to the cash flow of Aircraft
Finance and such acquisitions are subject to confirmation by the rating
agencies rating the Notes that the agencies will not lower, qualify or
withdraw any rating on the Notes as a result and other requirements of
the indenture governing the Notes, Aircraft Finance cannot predict the
effect of additional aircraft on its cash flows and ability to repay
the Notes.
AIRCRAFT FINANCE WILL NOT RECEIVE ENOUGH REVENUES FROM ITS CURRENT AIRCRAFT
LEASES TO REPAY THE NOTES IN FULL AND THEREFORE IT WILL HAVE TO RELEASE OR SELL
THE AIRCRAFT IN ORDER TO REPAY THE NOTES IN FULL.
Aircraft Finance will need to re-lease aircraft as current leases expire in
order to continue to generate enough revenue to pay the Notes in full. Failing
re-leasing, it will need to attempt to sell the aircraft to provide funds for
note payments. Aircraft Finance may be unable to sell the aircraft at
satisfactory prices if market conditions decline.
OVER THE LIFE OF THE AIRCRAFT PORTFOLIO, IT IS LIKELY THAT SOME OF THE AIRCRAFT
LESSEES WILL EXPERIENCE FINANCIAL DIFFICULTIES WHICH WILL CAUSE THEM TO DELAY OR
MISS RENTAL PAYMENTS TO AIRCRAFT FINANCE.
The ability of each aircraft lessee to perform its lease obligations will
depend not only on the managerial skills of its employees but also on general
economic conditions in the country or region in which it operates as well as
competition, fare levels, passenger demand, and operating costs, including, but
not limited to, the cost of fuel. Some of Aircraft Finance's existing lessees
are in a weak financial position, and this is likely to be the case with future
aircraft lessees as well. As the aircraft approach the end of their realizable
useful life, it is increasingly likely that the aircraft will be leased to less
creditworthy lessees. In a portfolio the size of Aircraft Finance's, you should
expect that some aircraft lessees may at some point be slow in paying or may
fail to pay in full. In most instances, late payments are recovered, together
with default interest or other similar payments required by the leases. In other
instances, a restructuring of the lease is required, involving anything from a
simple rescheduling of payments to the termination of a lease.
A delayed or missed rental payment from a lessee decreases Aircraft
Finance's revenues, adversely affecting the timely or full repayment of the
Notes. A certain level of delinquency has been assumed for purposes of
calculating the estimated final payment date for the Notes. Aircraft Finance
cannot assure you, however, that default levels will not increase over time,
particularly if the current favorable economic conditions do not continue.
INCREASED FUEL PRICES COULD HAVE A NEGATIVE FINANCIAL IMPACT ON AIRCRAFT
FINANCE'S CURRENT LESSEES AND COULD ADVERSELY AFFECT IT'S ABILITY TO RE-LEASE
THE AIRCRAFT.
Oil prices have increased significantly over the previous year, and many
airlines have reported reduced levels of profitability due to higher fuel
prices. To the extent that fuel prices remain at their current levels or
increase further, this could cause lessees to experience financial difficulties
which could cause them to delay or miss their rental payments. High fuel prices
could also adversely affect Aircraft Finance's ability to re-lease or sell
aircraft on advantageous terms.
AIRCRAFT FINANCE FACES COMPETITION FROM A VARIETY OF ENTITIES.
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In leasing and selling aircraft in its portfolio, Aircraft Finance faces
competition from a variety of entities. These include:
(1) the manufacturers of aircraft, such as Boeing and Airbus;
(2) financial institutions engaged in the leasing business and other
leasing companies, such as General Electric Capital Corporation and
International Lease Finance Corporation;
(3) banks and other financial institutions that have foreclosed on aircraft
collateral;
(4) airlines which are disposing of aircraft; and
(5) other aircraft portfolio entities formed for purposes similar to those
of Aircraft Finance.
Many if not most of these entities have greater resources, greater
financial flexibility and longer operating histories than Aircraft Finance.
OPERATIONAL RESTRICTIONS MAY HARM AIRCRAFT FINANCE'S ABILITY TO COMPETE.
The indenture governing the Notes and other governing documents impose
restrictions on how Aircraft Finance operates its business. These restrictions
may limit the ability to compete effectively in the aircraft leasing market
under certain circumstances. For example, there are concentration limits
contained in the Indenture that restrict Aircraft Finance's ability to lease a
certain percentage of aircraft to any individual lessee, to lessees in
particular countries, or to lessees in particular geographical regions. Most of
our competitors do not operate under such restrictions.
THE CONCENTRATION OF LESSEES IN A PARTICULAR GEOGRAPHICAL REGION MAY AMPLIFY
AIRCRAFT FINANCE'S EXPOSURE TO LOCAL ECONOMIC CONDITIONS.
The commercial aviation industry throughout the world generally is highly
sensitive to general economic conditions. Because a substantial portion of
business and, especially, leisure airline travel is discretionary, the industry
has tended to suffer during economic downturns. In addition, local economic and
political conditions can influence the performance of a lessee located in a
particular region. The effect of those local conditions on Aircraft Finance will
be more or less intense depending on the concentration of the number of its
lessees in that region.
EUROPEAN CONCENTRATION. As of December 31, 1999, lessees based in Europe
account for aircraft having 57.3% of the aggregate appraised value at December
31, 1999, with 52.1% based in "developed" European markets and 5.2% based in
"emerging" European markets. Commercial airlines in Europe face, and can be
expected to continue to face, increased competitive pressures, in part as a
result of the deregulation of the airline industry by the EU. European countries
generally have relatively strict environmental regulations that can restrict
operational flexibility and decrease aircraft productivity. The effect of these
restrictions is illustrated by the noise curfews and environmental slot controls
for some of the larger European airports, as well as higher landing fees.
Meeting these tougher standards could significantly increase aircraft operating
costs of Aircraft Finance's aircraft.
ASIA PACIFIC REGION CONCENTRATION. As of December 31, 1999, lessees based
in the Asia Pacific region, including China and India, account for aircraft
having about 9.3% of the aggregate appraised value at December 31, 1999. Trading
conditions in the civil aviation industry in Asia have been adversely affected
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by the severe economic and financial difficulties experienced recently in the
region. The economies of Indonesia, Thailand, Japan, Korea and Malaysia have
experienced particularly acute difficulties resulting in many business failures,
and in many cases significant depreciation of local currencies and downgrades of
sovereign and corporate credit ratings. The regional economic downturn has
undermined business confidence, reduced demand for air travel and has adversely
impacted the results of operations of Aircraft Finance's lessees in the region.
Several airlines in the region have recently announced their intention to
reschedule their aircraft purchase obligations, eliminate some routes and reduce
employees. The downturn in Asia is likely to be exacerbated by the large number
of aircraft currently on order by Asian airlines. The recessionary conditions
that are now expected to prevail in large parts of the region for a significant
period of time may also have a significant adverse impact on global aircraft
demand.
LATIN AMERICAN CONCENTRATION. As of December 31, 1999, lessees based in
Latin America account for aircraft having 7.8% of the aggregate appraised value
at December 31, 1999. Although some countries in Latin America have experienced
in the past several years increased political stability, overall increased
economic growth, lower inflation rates and revitalized economies, the progress
has not been regionwide and may not be maintained or furthered.
For example, in 1994, Mexico experienced lower capital inflows, a large
current account deficit leading to diminishing foreign exchange reserves, a
devaluation of the peso and dampened investor confidence. Those circumstances
resulted in lower levels of foreign investment in Latin America in general. More
recently, Brazil has experienced significant downturns in its financial markets,
and, as a result, on January 13, 1999, Brazil devalued its currency. Continued
weakness in Brazil can affect not only leases with Brazilian lessees (accounting
for 7.8% of the aggregate appraised value at December 31, 1999) but, more
importantly, could spread throughout Latin America and other "emerging"
economies and affect other lessees of Aircraft Finance.
NORTH AMERICAN CONCENTRATION. As of December 31, 1999, lessees based in
North America account for aircraft having 23.0% of the aggregate appraised value
at December 31, 1999. Over the last decade, a number of the major North American
passenger airlines have filed Chapter 11 bankruptcy proceedings and several
major United States airlines have ceased operations altogether. Two lessees of
aircraft delivered to Aircraft Finance have recently emerged from bankruptcy
proceedings. While airline profitability in the region has improved since its
cyclical low in the 1990-1992 period, increasing competition from low-cost air
carriers and an inability to reduce labor and other costs to sustainable levels
continues to put pressure on North American airline margins. Further bankruptcy
or similar proceedings by low-cost or other North American carriers may
adversely affect the ability of North American lessees to make timely and full
rental payments.
OFF LEASE AIRCRAFT. As of December 31, 1999, one aircraft representing 2.6%
of the aggregate appraised value at December 31, 1999 was off lease. This
aircraft was re-leased in February 2000 to Philippine Airlines, Inc.
LEASE DEFAULTS WILL RESULT IN ADDITIONAL COSTS FOR AIRCRAFT FINANCE.
Although Aircraft Finance has the right to repossess aircraft and to
exercise remedies upon a lease default, it may incur significant costs in the
process. Those costs include legal and other expenses of court or other
governmental proceedings, particularly if the lessee is contesting the
proceeding or is in bankruptcy, to obtain possession and re-registration of the
aircraft and flight and export permissions. Delays resulting from any such
proceedings would also increase the period of time during which the relevant
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aircraft are not productively under lease. Aircraft Finance may, moreover, incur
substantial maintenance or repair costs that a defaulting lessee has failed to
pay and may need to pay off liens and governmental charges on the aircraft to
obtain clear possession and to re-market the aircraft effectively. Any such cost
or delays may adversely affect the amounts available to pay to the holders of
the Notes.
PAYMENT OF MAINTENANCE COSTS MAY AT TIMES BE PAID BY AIRCRAFT FINANCE.
Any failure of an aircraft to be maintained or modified properly in
accordance with manufacturer's requirements or airworthiness directives and
other governmental requirements, including those relating to noise and emissions
standards, can impair the safety of the aircraft, result in grounding or
penalties and affect the ability to re-lease or to sell the aircraft. The costs
of maintenance can be substantial and may have a higher payment priority than
that of the Notes. In many cases, the lessee is required to provide for
maintenance or modifications. Lessees could, however, fail to pay those costs,
and the burden would fall on Aircraft Finance. In addition, Aircraft Finance or
its subsidiary as the lessor is, in some instances, required to bear a portion
of the maintenance costs, and the pressure of competition may require it to bear
an increasing portion of those costs in the future. Although Aircraft Finance
established a cash reserve of $52 million on May 5, 1999, any significant
variations in the costs required to be paid directly by Aircraft Finance may
materially impair the ability of Aircraft Finance to make payments on the Notes.
PAYMENT OF OTHER OPERATING COSTS MAY AT TIMES BE PAID BY AIRCRAFT FINANCE.
As in the case of maintenance costs, Aircraft Finance may incur other
operational costs upon a lessee default or where the terms of the lease require
it to pay a portion of those costs. Those costs include:
(1) the costs of casualty, liability and political risk insurance and the
liability costs or losses when insurance coverage has not been or
cannot be obtained as required or is insufficient in amount or scope;
(2) the costs of licensing, exporting or importing an aircraft, airport
taxes, customs duties, air navigation charges and similar governmental
or quasi-governmental impositions, which can be substantial; and
(3) penalties and costs associated with the failure of lessees to keep the
aircraft registered under all appropriate local requirements.
The failure to pay some of these costs can result in liens on the aircraft,
and the failure to register can result in a loss of insurance. These matters can
prevent the re-lease, sale or other use of the aircraft until the problem is
cured.
AIRCRAFT FINANCE WILL NEED TO RE-LEASE OR SELL AIRCRAFT TO MAINTAIN ITS
REVENUES.
The number and types of the aircraft that Aircraft Finance must place with
lessees through December 31, 2004 is presented in the table below. That table
shows the years in which the leases for those aircraft are contractually
scheduled to expire or have terminated, including expirations of anticipated
leases that are currently represented by existing letters of intent. The table
illustrates that the leases for 28 of the aircraft, representing approximately
74.9% of the aggregate appraised value at December 31, 1999, are scheduled to
expire or permit early termination on or before December 31, 2004. The table
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<PAGE>
assumes that, except as indicated, no lease terminates prematurely, no aircraft
are sold and no additional aircraft are purchased. More aircraft will need to be
re-leased to the extent leases terminate prematurely. Aircraft Finance has one
aircraft off lease at December 31, 1999 due to an early termination. This
aircraft was re-leased in February 2000 to Philippine Airlines, Inc.
Year Ending December 31,
------------------------
Aircraft Type 2000 2001 2002 2003 2004
- ------------- ---- ---- ---- ---- ----
B737-300..................... - 1 3 - 3
B737-400..................... - - 2 - 2(e)
B767-300ER................... 1(d) - 1(a) - 1
A310-300..................... - - - 1 -
A320-200..................... - - - 2 5
DC-10-30..................... - - 2 - -
MD-83........................ 1(c) 1(a) 2(b) - -
------ ------ ------- --- ----
Total........................ 2 2 10 3 11
(a) Assuming an early termination option is exercised.
(b) Includes an aircraft for which an early termination option is assumed to be
exercised.
(c) A letter of intent has been signed with the current lessee to
extend this lease through October 2001.
(d) A letter of intent has been signed
with a Canadian lessee for a three year lease following the expiration in May
2000.
(e) The lessee for one of these aircraft is expected to return the
aircraft early in 2000. A letter of intent has been signed by a new lessee based
in Belgium for a three year lease.
AIRCRAFT FINANCE MAY HAVE DIFFICULTY IN RE-LEASING OR SELLING AIRCRAFT AT
FAVORABLE TERMS.
The servicer, GE Capital Aviation Services, Limited, has agreed to seek to
re-lease aircraft serviced by it as they become available upon the termination
of any lease. The servicer has not assured Aircraft Finance, and Aircraft
Finance makes no assurances, that it will be able to re-lease aircraft on a
timely basis, at equally favorable rental rates or otherwise on favorable lease
terms. Aircraft Finance's ability to obtain timely and favorable lease terms or
to sell aircraft at attractive prices may be adversely affected by unpredictable
changes in general economic conditions, passenger demand and the competitive
strength of the airline industry. The availability of commercial jet aircraft
for lease or sale has periodically experienced cycles of over supply and under
supply, resulting in sharp decreases and increases in aircraft values and lease
rates. Among other factors that could influence lease terms and sales prices are
the following:
(1) cyclical changes in interest rates and the availability of credit;
(2) fluctuations in the cost of fuels and other materials, labor costs,
costs associated with changing governmental regulations and air traffic
control constraints;
(3) manufacturer production levels, particularly increased production of
new aircraft, as announced by Boeing and Airbus, which makes older,
used models less attractive, especially in Asia where an over supply is
already perceived to exist;
(4) the cessation or announced cessation of production of particular
aircraft models, such as, after the merger of Boeing and McDonnell
Douglas, the MD-80 of which there are four in Aircraft Finance's
initial portfolio, representing approximately 7.0% of the aggregate
appraised value at December 31, 1999 of the portfolio;
12
<PAGE>
(5) the operating history of particular aircraft, the identity of its
operators and legal and regulatory requirements affecting its operation
and transfer or leasing;
(6) changes in aircraft technology, either significant advances by
manufacturers or governmentally mandated modifications, that may render
older models substantially less attractive or may result in
modification costs that reduce net sales prices or rentals; and
(7) competition from aircraft manufacturers, airlines, aircraft leasing
companies, financial institutions, aircraft broker and special purpose
leasing vehicles that may have greater financial resources and greater
legal and financial flexibility to structure and offer more favorable
leasing, pricing or financing alternatives.
AIRCRAFT TYPE CONCENTRATIONS MAY AMPLIFY OTHER RISK FACTORS.
The concentration of the types of aircraft held by Aircraft Finance may
amplify some of the factors noted above. The aircraft owned by Aircraft Finance
include eight aircraft types, three of which represent together 70.2% of the
aggregate appraised value at December 31, 1999, with Boeing 737-300s
constituting 28.6%, Boeing 767-300ERs constituting 23.8% and Airbus A320-200s
constituting 17.8% of that aggregate value. Also, narrowbody aircraft constitute
65.3% of the aggregate appraised value at December 31, 1999.
The Aircraft Portfolio
The following tables set forth details of the aircraft owned by Aircraft
Finance as of December 31, 1999. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Recent Developments"
for further information about events that have occurred subsequent to December
31, 1999.
The following table identifies the 36 aircraft by type of aircraft.
% of Aircraft by
Type of Number of Appraised Value as of
Manufacturer Aircraft Aircraft Body Type December 31, 1999
- ------------ -------- -------- --------- -----------------
Boeing B737-300 11 Narrowbody 28.6%
B737-400 5 Narrowbody 11.9%
B767-200ER 2 Widebody 5.2%
B767-300ER 4 Widebody 23.8%
Airbus A310-300 1 Widebody 2.7%
A320-200 7 Narrowbody 17.8%
McDonnell Douglas DC-10-30 2 Widebody 3.0%
MD-83 4 Narrowbody 7.0%
--- ----------
Total 36 100.0%
All of the aircraft hold or are capable of holding a noise certificate
issued under Chapter 3 of Volume I, 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.
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<PAGE>
The following table identifies the countries in which the lessees of the 36
aircraft are based, calculated as of December 31, 1999.
% of Aircraft by
Number of Appraised Value as of
Country Aircraft December 31, 1999
- ------- -------- -----------------
U.K...................................... 7 22.0%
U.S...................................... 6 15.8%
Italy.................................... 2 9.0%
Brazil................................... 3 7.8%
Canada................................... 3 7.2%
France................................... 2 6.3%
Turkey................................... 2 5.2%
China.................................... 2 5.2%
Ireland.................................. 2 5.0%
Spain.................................... 3 5.1%
Sweden................................... 1 4.7%
India.................................... 2 4.1%
Off Lease................................ 1 2.6%
--- ---------
Total.................................... 36 100.0%
The following table identifies the regions in which the 36 aircraft are
based, calculated as of December 31, 1999.
% of Aircraft by
Number of Appraised Value as of
Region Aircraft December 31, 1999
- ------ --------- ---------------------
Developed Markets
Europe.............................. 17 52.1%
North America....................... 9 23.0%
Emerging Markets
Asia................................ 4 9.3%
Europe and the Middle East.......... 2 5.2%
Latin America....................... 3 7.8%
Off Lease................................ 1 2.6%
---- ---------
Total.................................... 36 100.0%
14
<PAGE>
The following table identifies the current lessees of the 36 aircraft,
calculated as of December 31, 1999.
% of Aircraft by
Number of Appraised Value as of
Lessee Aircraft December 31, 1999
- ------ -------- -----------------
Air 2000 Limited............................ 1 7.0%
Airtours International Airways Limited...... 2 4.6%
Linee Aeree Italiane S.p.A.................. 1 7.1%
America West Airlines, Inc.................. 1 2.7%
Britannia Airways Limited................... 1 4.7%
British Airways............................. 1 2.6%
British Midland Airways PLC................. 3 7.7%
Canadian Airlines International Ltd......... 2 4.5%
China Eastern Airlines Corporation Limited.. 2 5.2%
Continental Airlines, Inc................... 2 3.0%
Eurofly S.p.A............................... 1 1.9%
Frontier Airlines, Inc...................... 1 2.6%
Istanbul Hava Yollari A.S................... 2 5.2%
Jet Airways (India) Limited................. 2 4.1%
Royal Aviation, Inc......................... 1 2.7%
Spanair S.A................................. 3 5.1%
Societe de Transport Aerien Regional........ 2 6.3%
TransBrasil S.A. Linhas Aereas.............. 1 2.7%
TransMeridian Airlines, Inc................. 1 2.4%
TWA......................................... 1 5.0%
VARIG....................................... 2 5.2%
Virgin Express S.A. N.V..................... 2 5.1%
Off Lease................................... 1 2.6%
--- ---------
Total....................................... 36 100.0%
Total Number of Lessees: 22
The following table lists the 36 aircraft by seat category.
% of Aircraft by
Number of Appraised Value as of
Seat Category Aircraft Types Aircraft December 31, 1999
- ------------- -------------- -------- -----------------
121-170 B737-300, B737-400, MD-83 20 47.5%
135-180 A320-200 7 17.8%
171-240 A310-300, B767-200ER, B767-300ER 7 31.7%
240+ DC-10-30 2 3.0%
--- ---------
Total 36 100.0%
15
<PAGE>
The following table identifies the aircraft by year of aircraft
manufacture. The weighted average age of the 36 aircraft as of December 31, 1999
is approximately 5.5 years.
% of Aircraft by
Number of Appraised Value as of
Year of Manufacture Aircraft December 31, 1999
- ------------------- -------- -----------------
1980..................................... 1 1.4%
1982..................................... 1 1.6%
1986..................................... 1 1.5%
1987..................................... 2 5.2%
1988..................................... 1 2.7%
1989..................................... 1 1.7%
1991..................................... 6 15.7%
1992..................................... 4 11.1%
1993..................................... 1 2.4%
1996..................................... 5 12.8%
1997..................................... 10 27.1%
1998..................................... 1 2.7%
1999..................................... 2 14.1%
---- ---------
Total.................................... 36 100.0%
Further particulars of the 36 aircraft, calculated as of December 31, 1999,
are contained in the table below:
<TABLE>
<CAPTION>
Date Appraised
of Value as of
Country in which Aircraft Engine Serial Manu- December 31,
Region Aircraft is based Lessee Type Type Number facture 1999
- ------ ----------------- ------ ---- ---- ------ ------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Europe (Developed) ($000)
France STAR Airlines A320-200 CFM56-5B4 737 9/97 $39,404
France STAR Airlines A320-200 CFM56-5B4 749 9/97 39,401
Ireland Virgin Express B737-300 CFM56-3C1 28333 8/96 30,721
Ireland Virgin Express B737-400 CFM56-3C1 28489 11/96 32,640
Italy Alitalia B767-300ER CF6-80C2B7F 30008 3/99 88,549
Italy Eurofly S.p.A. MD-83 JT8D-219 53199 3/92 24,288
Spain Spanair S.A. MD-83 JT8D-219 49398 11/86 18,829
Spain Spanair S.A. MD-83 JT8D-219 49791 9/89 21,674
Spain Spanair S.A. MD-83 JT8D-219 53198 4/91 22,882
United Kingdom Air 2000 B767-300ER CF6-80C2B7F 29617 3/99 88,308
United Kingdom Airtours A320-200 CFM56-5A3 221 9/91 29,019
United Kingdom Airtours A320-200 CFM56-5A3 222 10/91 29,053
Sweden Britannia(1) B767-300ER CF6-80C2B6F 25221 7/91 59,513
United Kingdom British Airways B737-300 CFM56-3C1 28548 12/97 33,207
United Kingdom British Midland B737-300 CFM56-3C1 28554 12/96 31,282
United Kingdom British Midland B737-300 CFM56-3C1 28557 3/97 32,447
United Kingdom British Midland B737-300 CFM56-3C1 28558 4/97 32,518
North America (Developed)
United States America West B737-300 CFM56-3C1 28740 6/98 34,467
16
<PAGE>
United States Continental DC-10-30 CF6-50C2 46584 2/80 18,070
United States Continental DC-10-30 CF6-50C2 48292 2/82 19,966
United States Frontier Airlines B737-300 CFM56-3C1 28563 8/97 32,874
United States TransMeridian A320-200 V2500-A1 373 1/93 30,623
Airlines
United States TWA B767-300ER PW4060 25403 1/92 62,950
Canada Canadian Airlines A320-200 CFM56-5A1 210 7/91 27,962
Canada Canadian Airlines A320-200 CFM56-5A1 231 9/91 28,330
Canada Royal Aviation A310-300 CF6-80C2A2 448 2/88 34,087
Asia (Emerging)
China China Eastern B737-300 CFM56-3C1 28561 6/97 32,424
China China Eastern B737-300 CFM56-3C1 28562 7/97 32,538
India Jet Airways B737-400 CFM56-3C1 25663 11/92 25,913
India Jet Airways B737-400 CFM56-3C1 25664 11/92 26,071
Europe & Middle East (Emerging)
Turkey Istanbul B737-400 CFM56-3C1 28490 11/96 32,510
Turkey Istanbul B737-400 CFM56-3C1 28491 11/96 32,550
Latin America (Emerging)
Brazil TransBrasil B737-300 CFM56-3C1 28564 11/97 33,321
Brazil VARIG B767-200ER CF6-80C2B 23805 7/87 32,515
Brazil VARIG B767-200ER CF6-80C2B 23806 7/87 32,527
Off Lease B737-300 CFM56-3C1 28559 5/97 32,701
----------
Total $1,256,134
</TABLE>
(1) Leased to Britannia (United Kingdom) and subleased to Britannia Airways AB
(Sweden).
APPRAISAL OF AIRCRAFT.
Aircraft Finance has agreed to deliver to Bankers Trust Company as the
security trustee, commencing in 2000, appraisals of the base value of each of
the aircraft at least once each year by May 31. The appraisals must come from at
least three independent appraisers that are members of the International Society
of Transport Aircraft Trading or any similar organization and be dated within 30
days prior to their delivery to the trustee.
Three appraisers, Aircraft Information Services, Inc., BK Associates, Inc.
and Morten Beyer & Agnew, Inc., provided appraisals of the value of each of the
aircraft as of December 31, 1999. The appraisals assume that the aircraft are
utilized normally in an open, unrestricted and stable market, adjusted where
necessary to account for the reported maintenance standard of the aircraft.
Values calculated under these assumptions are "base values." The current
appraised value of each aircraft is determined by taking the average of the base
values contained in the three appraisals. The appraisals were not based on a
physical inspection of the aircraft.
Based on the appraisals, the aggregate of the current appraised values for
the aircraft as of December 31, 1999 is $1,256,133,667. The aggregate of the
appraised values at December 31, 1998 was $1,322,643,333. You should not rely
upon these base values as a measure of the market or realizable value of any
initial aircraft. In addition, the base values of the aircraft are expected to
decline over time due to the aging of the aircraft, increasing maintenance
expenses and similar factors. The appraisals listed above were as of December
31, 1999, and the base values of the aircraft, if determined as of any date
17
<PAGE>
subsequent to December 31, 1999, would be expected to be lower than the base
values in the appraisals.
The appraised base values obtained and to be obtained assume an "open,
unrestricted stable market environment with a reasonable balance of supply and
demand" and other factors common for like appraisals. At any point in the
aircraft leasing cycle, however, there will be imbalances of aircraft supply and
demand and there may be particularly pronounced imbalances for specific aircraft
types. Although some initial aircraft may have market values approximating or
exceeding the appraised values given them, others, such as the older aircraft,
may have market values below, and in some cases significantly below, those
appraised base values. At a cyclical low, the market value of most aircraft
types is likely to be less than, and in some cases significantly less than, the
appraised base values. In addition, the appraised base values of the initial
aircraft will likely decline over time due to aging, increasing maintenance
expenses and similar factors. Accordingly, you should not place undue reliance
on the indicated appraised values as an accurate depiction of current market or
realizable values at any one point in time.
THE LEASES.
As of December 31, 1999, there were 22 lessees under leases for the
aircraft in 12 different countries. One aircraft was off lease at December 31,
1999, but was subsequently re-leased in February 2000. The following description
relates to the leases for the aircraft in effect on December 31, 1999. Any
leases of additional aircraft and any future leases entered into for the
re-lease of any aircraft may differ from the description provided below.
As a general matter, weakly capitalized airlines are more likely than well
capitalized airlines to seek operating leases. You should expect varying numbers
of lessees at any point in time to be experiencing payment difficulties.
The servicer has advised Aircraft Finance that in the servicer's experience
some lessees of aircraft similar to the aircraft owned by Aircraft Finance and
its affiliates fail to make timely lease, maintenance and other payments from
time to time over the course of their leases. In most instances, late payments
are recovered, together with default interest or other similar payments required
by the leases. In some instances, the financial difficulties of a portfolio's
lessees may result in a formal or informal restructuring. Restructurings may
involve the voluntary termination of a lease prior to its expiration and the
arrangement of subleases from the lessee to another aircraft operator. In
addition, restructurings may involve reduced rental payments for a specified
period, which may be several months.
MANAGEMENT, LEASE TERMS, RISK OF LOSS.
All leases of the aircraft will be managed by the servicer under the
servicing agreement. All of the leases for the initial aircraft are operating
leases. Under those leases, the lessees agreed to lease the aircraft for a fixed
term, although in some cases the lessees have purchase options, termination
rights and extension rights. Although most of the lease documentation for the
initial aircraft is fairly standardized in many respects, significant variations
do exist as a result of lessee negotiation.
18
<PAGE>
LEASE PAYMENTS AND SECURITY.
Each lease for an initial aircraft requires the lessee to pay periodic
rentals during the lease term. A number of the leases require the lessee to pay
periodic amounts as maintenance reserves.
The lessees are required to make payments without withholding payment on
account of any amounts the lessor may owe the lessee or any claims the lessee
may have against the lessor for any breach of contract. Each lease includes an
obligation of the lessee to gross-up payments under the lease where lease
payments are subject to withholdings and other taxes, although sometimes the
gross-up amount will be limited to the amount that would have been payable if
such lease had never been transferred to Aircraft Finance or its subsidiary. The
leases for the initial aircraft also require the lessee to indemnify the lessor
for some tax liabilities including, in some leases, value added tax and stamp
duties, but generally excluding income tax or its equivalent imposed on the
lessor. The lessees must also pay default interest on any overdue amounts. In
the lease with British Airways, the lessee may exercise remedies if the lessor
breaches its covenant not to interfere with the lessee's use of the aircraft.
Under the leases for the initial aircraft, the lessee must pay operating
expenses accrued or payable during the term of the lease, which would normally
include maintenance, operating, overhaul, airport and navigation charges,
certain taxes, licenses, consents and approvals, aircraft registration and hull
"all risks" and public liability insurance premiums. The lessees are obliged to
remove liens on the aircraft other than liens permitted under the leases.
Under all but three of the leases for the initial aircraft, the lessee has
provided security deposits to secure its obligations. In fifteen of the leases,
the lessee has provided cash security deposits. In seven of the leases, the
lessee has provided a letter of credit. One aircraft is currently off lease at
December 31, 1999. In the remaining ten leases, the lessee provided both letters
of credit and cash.
RENTALS.
Most of the rental payments are payable on a fixed rate basis and are not
adjustable by reference to market interest rate changes. Rentals under most of
the leases for the initial aircraft are payable monthly in advance.
OPERATION OF THE ORIGINAL AIRCRAFT.
The leases require the lessees to operate the aircraft in compliance with
all applicable laws and regulations. The initial aircraft generally must remain
in the possession of the lessees, and any subleases of the aircraft must be
approved by the lessor. The Britannia lease, however, permits a sublease to
Britannia Airways GmbH, and TWA permits it to sublease to a pre-approved list of
major U.S. airlines. Under some of the leases, the lessee may enter into charter
or other arrangements for the aircraft if the lessee does not part with
operational control of the aircraft. Generally, the lessees are not allowed to
re-register the aircraft without the lessor's permission, except in connection
with a permitted sublease if operating in specified countries.
All of the leases for the initial aircraft permit the lessees to remove or
replace the engines and in some cases other equipment or components. Sometimes
lessees are allowed to enter into pooling arrangements for the temporary
borrowing of equipment, in some cases without the lessor's consent. Under all of
the leases, the lessees may deliver the aircraft, engines and other equipment or
components to their manufacturer for testing or similar purposes, or to other
parties for service, maintenance, repair or other work required or permitted
19
<PAGE>
under the lease. The lessor's ability to repossess the aircraft or engines,
equipment or components from any sublessee, transferee, manufacturer or other
person may be restricted by liens or similar rights and by applicable bankruptcy
and similar laws.
MAINTENANCE AND MAINTENANCE RESERVES.
The leases for the aircraft specify maintenance standards and the required
condition of the aircraft upon redelivery to the lessor. In addition, under some
of the leases, depending on the condition of the aircraft including the
airframe, engines, the auxiliary power unit or landing gear at redelivery, the
lessee may have to make adjustment payments to the lessor. During the term of
each lease, the lessee must ensure that the aircraft is maintained in accordance
with an agreed maintenance program designed to provide that the aircraft meets
applicable airworthiness and other regulatory requirements. Under the leases for
the initial aircraft, maintenance is generally performed by the lessee or, for
some of the regional lessees, by a designated airline or other air authority
approved maintenance provider. Under most of the leases for the initial
aircraft, the lessee must provide monthly maintenance reserves. In some cases
where the lessee has paid maintenance reserves, those payments will be used to
reimburse the lessee for significant maintenance charges, including major
airframe and engine overhauls.
Some of the leases for the initial aircraft do not require maintenance
reserves to be paid. In those cases the lessor must rely on the credit of the
lessee or any credit support the lessee provides to ensure that the lessee
returns the aircraft in the condition required by the lease upon termination,
makes any payments required based on the aircraft's return condition upon
termination of the lease and performs scheduled maintenance throughout the lease
term.
Some of the leases for the initial aircraft require the lessor to
contribute to the cost of the first maintenance event in respect to the
airframe, engines, auxiliary power unit or landing gear. Such lessor
contributions are generally determined on a pro-rated basis, based upon the
condition of these components at delivery to the lessee.
The leases for the initial aircraft require the lessees to comply with the
airworthiness directives of the relevant aviation authorities and with
manufacturers' service bulletins. The lessees primarily bear the cost of
compliance. Some of the leases, however, require the lessor to contribute to the
cost of compliance with selected airworthiness directives or manufacturers'
service bulletins if compliance costs are above a specified threshold.
LESSEES' OPTIONS.
The leases or side agreements between the lessor and the lessee for three
of the aircraft, representing 11.6% of the aggregate appraised value at December
31, 1999 of the aircraft, grant purchase options to the lessee or its
affiliates. None of the purchase options were exercisable as of December 31,
1999. The latest date on which a purchase option may be exercised is December
31, 2003 for a purchase on April 30, 2005, or if all lease extension options are
exercised, April 30, 2010. If a purchase option is exercised, the proceeds
realized from the exercise may not, in some circumstances equal the principal of
the Notes allocable to the relevant aircraft.
Nine of the leases for the 36 aircraft give the lessee the option to extend
the term of the lease. The rent payable during the extension period varies from
lease to lease. Six of the leases allow the lessee to terminate its lease prior
to the scheduled expiration date, though sometimes the lessee must pay a fee or
fulfill other requirements.
20
<PAGE>
INDEMNIFICATION AND INSURANCE OF THE AIRCRAFT.
INSURANCE REQUIREMENTS. The leases for the initial aircraft require the
lessees to bear responsibility and carry insurance for any liabilities arising
out of the operation of the aircraft. These include any liabilities for death or
injury to persons and damage to property that would ordinarily attach to the
operator of the aircraft, subject to customary exclusions. In addition, the
lessees must carry other types of insurance that are customary in the air
transportation industry. These include aircraft hull all risks and hull war
risks insurance at a value stipulated in the lease and aircraft spares insurance
on a replacement cost basis, in each case subject to customary deductibles. The
servicer must monitor the lessees' compliance with the insurance provisions of
the leases.
In addition, Aircraft Finance and its subsidiaries also have in place their
own contingent liability coverage. That coverage covers both a liability that
exceeds the coverage provided by a lessee's policy and instances in which a
lessee's policy lapses for any reason. Aircraft Finance and its subsidiaries'
contingent third-party liability insurance covers all of the aircraft, and their
contingent hull and hull war risks insurance covers some of the aircraft. The
amount of the contingent liability policies may or may not exceed the amount
required under the relevant lease. The amount of third-party contingent
liability compliance insurance is subject to limitations imposed by the air
transportation insurance industry.
If any of the existing insurance policies are canceled or terminated and if
an aircraft is re-leased, the servicer may from time to time engage insurance
experts at Aircraft Finance's expense to advise and recommend the appropriate
amount of insurance coverage Aircraft Finance should procure.
LIABILITY INSURANCE. The leases for the initial aircraft require third
party liability insurance for a combined single limit for bodily injury and
property damage in minimum amounts ranging between $500 million and $750 million
for each aircraft. In general, liability coverage on each aircraft includes
third party legal liability, passenger legal liability, baggage legal liability,
cargo legal liability, mail and aviation general third party (including
products) legal liability.
In some jurisdictions Aircraft Finance or its subsidiary may be liable, as
owner of an aircraft, for obligations that may be insured against by the lessees
even if Aircraft Finance or that subsidiary is not responsible for the loss that
results in the obligation. In addition, claims may be made against Aircraft
Finance or its subsidiary on the basis of alleged responsibility for a loss,
even if such claim is not ultimately sustained.
The losses for which coverage is provided 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 lessees' liability insurance.
AIRCRAFT PROPERTY INSURANCE. In addition to hull risk, hull war and allied
peril risk and aircraft spares insurance coverage obtained by the lessees,
Aircraft Finance will also purchase "total loss only" coverage with respect to
some initial aircraft. Aircraft Finance is required to maintain aircraft
property insurance on it's aircraft in an amount equal to the greatest of a) the
note target price, b) the appraised value for such aircraft or c) 110% of the
net book value of such aircraft. In some cases, the lessor is allowed to
increase the insured value above the stipulated loss value consistent with
industry practice. In those cases the lessee is responsible for any increased
premium that results. Permitted deductibles range from $100,000 to $1,000,000;
the deductibles, however, apply only in the case of a partial loss.
21
<PAGE>
The leases for the initial aircraft include provisions defining an event of
loss or a casualty occurrence so that upon total loss of the airframe, with or
without loss of the engines, an agreed value is payable by the lessee. This
payment is generally funded with insurance proceeds. The air transportation
insurance industry practice, however, is to treat only a loss with likely repair
costs of greater than 75% of the insured value of the aircraft, including the
engines, as a total loss. Where insurance proceeds exceed the cost of repair or
the amount required to be insured under the lease, most leases require the
lessor to pay to the lessee the balance of the insurance proceeds received under
the hull all risks or war risks policy after deduction of all amounts payable by
the lessee to the lessor under the lease.
All insurance policies currently in place contain a breach of warranty
endorsement so that the additional insureds continue to be protected even if the
lessee violates one or more of the provisions of the insurance policies. In many
cases, these endorsements also provide that this protection will only apply if
the additional insured has not caused, contributed to or knowingly condoned the
breach.
An insurance advisor has confirmed to the servicer that the insurance
currently detailed in the current insurance certificates as to the initial
aircraft meets customary practices.
Generally, the leases for the initial aircraft require the lessee to
maintain as part of its hull war and allied perils insurance coverage for loss
or damage resulting from a governmental confiscation or requisition of the
applicable aircraft. In some countries, however, such as France and China, that
kind of insurance may not be obtainable by the lessee.
Item 2. Properties
Aircraft Finance has no ownership or leasehold interest in any real
property. For a description of Aircraft Finance's interest in other property,
including its aircraft, see "Item 1. Business."
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
22
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
a) Market Information.
As of the date of this Annual Report on Form 10-K (Form 10-K), no equity
securities of Aircraft Finance have been registered with, or are listed on any
national exchange or traded in any established market.
b) Holders.
There were eight beneficial interest holders of Aircraft Finance's
beneficial interest certificates at December 31, 1999.
c) Dividends.
As of the date of this Form 10-K, no distributions to the beneficial
interest holders have been paid or declared by Aircraft Finance. Under the terms
of the indenture, Aircraft Finance is restricted from making distributions to
the beneficial interest holders until, among other things, all outstanding
principal and interest balances due on the outstanding Notes have been paid in
full.
Recent Sales of Unregistered Securities.
The beneficial interest in Aircraft Finance was originally purchased by
UniCapital AFT-I, Inc. (51%) and UniCapital AFT-II, Inc. (49%), each of which
were wholly-owned subsidiaries of UniCapital Air Group Inc., a wholly-owned
subsidiary of UniCapital Corporation, on May 5, 1999 for $39.1 million in a
private sale exempt from registration under section 4(2) of the Securities Act
of 1933, as amended.
On May 5, 1999, Aircraft Finance issued $1,209 million of asset-backed
notes (the Initial Notes) in a Rule 144A/Regulation S offering. Lehman Brothers
Inc., Credit Suisse First Boston Corporation and Merrill Lynch, Pierce, Fenner &
Smith Incorporated acted as initial purchasers. As of that date, the Initial
Notes consisted of $512.5 million of Class A-1 Notes, $400 million of Class A-2
Notes, $126.5 million of Class B Notes, $106 million of Class C Notes and $64
million of Class D Notes. On January 20, 2000, Aircraft Finance completed an
exchange offer whereby Aircraft Finance issued four classes of new notes, also
designated Class A-1, Class A-2, Class B and Class C (the Exchange Notes), in
exchange for the four corresponding classes of the Initial Notes. The terms of
the Exchange Notes are identical in all material respects to the Initial Notes,
except that the Exchange Notes are registered under the Securities Act of 1933,
as amended. The Class D Notes were not exchanged and remain unregistered. $3
million of the Class A-2 Initial Notes were not tendered in the exchange offer
and remain outstanding. The remaining outstanding Initial Notes and the
outstanding Exchange Notes are together referred to as the Notes.
The Exchange Notes were registered on Form S-4 (file number 333-82153)
which became effective on December 20, 1999. The exchange offer commenced on
December 20, 1999 and ended on January 20, 2000. All Initial Notes that were
tendered were exchanged and global notes representing the Exchange Notes were
deposited with the trustee and book-entry depository on January 25, 2000.
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<PAGE>
The proceeds from the sale of the beneficial interest and the Initial Notes
of $39.1 million and $1,209 million, respectively, were used to purchase the
initial aircraft for $1,196.1 million and to fund the initial cash reserves of
$52 million. Issuance related costs incurred in connection with the offering
were paid by the seller of the aircraft.
Item 6. Selected Financial Data
The selected financial data in the following table have been derived from,
and should be read in conjunction with the consolidated financial statements and
notes thereto appearing elsewhere in this Form 10-K, of Aircraft Finance.
December 31,
1999
----
(in thousands)
Balance Sheet Data:
Aircraft, net $ 1,170,564
Total assets 1,266,974
Notes payable 1,176,195
Total liabilities 1,219,430
Total beneficial interest holders' equity 47,544
Statement of Income Data (1):
Rental and other income from operating leases 100,331
Interest expense 51,482
Depreciation expense 28,488
Net income 8,457
(1) Income statement data for 1999 is for the period from inception (April 13,
1999) through December 31, 1999.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
On May 5, 1999, Aircraft Finance issued $1,209 million of Asset Backed
Notes (the "Notes"). The Notes were issued in five classes; Class A-1, Class
A-2, Class B, Class C and Class D. The Asset Backed Notes were issued
simultaneously with the execution of an agreement to acquire 36 commercial jet
aircraft from General Electric Capital Corporation and certain of its affiliates
(collectively referred to as the Seller) for $1,196 million. As of October 22,
1999, all 36 of the initial aircraft had been delivered to Aircraft Finance.
Aircraft Finance is a special purpose entity which owns aircraft subject to
operating leases. Aircraft Finance's business consists of aircraft leasing
activities. Aircraft Finance may also engage in acquisitions of additional
aircraft and sales of aircraft. Aircraft Finance's cash flows from such
activities will be used to service the interest and principal on the Notes and
make distribution of remaining amounts to the holders of the beneficial interest
certificates, only after the payment of expenses incurred by Aircraft Finance.
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<PAGE>
Aircraft Finance's ability to generate sufficient cash from its aircraft
assets to service the Notes will depend primarily on the rental rates it can
achieve on leases, the lessees' ability to perform according to the terms of the
leases and the prices it can achieve on any aircraft sales. Aircraft Finance's
ability to service the Notes will also depend on the level of Aircraft Finance's
operating expenses, including maintenance obligations that are expected to
increase as the aircraft age, and any unforseen contingent liabilities. The
Indenture provides for Aircraft Finance to maintain a cash reserve balance on
deposit in the Collections Account and allows for Aircraft Finance to establish
a credit facility, in order to provide a source of liquidity for Aircraft
Finance's obligations.
Aircraft Finance may acquire additional aircraft in the future, financed
through the issuance of additional notes. Any acquisitions of additional
aircraft and the related issuance of additional notes will require confirmation
by the rating agencies that they will not lower, qualify or withdraw their
ratings on the Notes as a result.
Recent Developments
Under the terms of the indenture, Aircraft Finance is required to obtain
annual appraisals of its aircraft. In February 2000, Aircraft Finance received
appraisals of the adjusted base values of the aircraft as of December 31, 1999
from three independent appraisers that are members of the International Society
of Transport Aircraft Trading, as required by the Indenture. The aggregate of
the average of the three appraisals (the current appraised value) of the
aircraft at December 31, 1999 was $1,256.1 million. The appraisals at December
31, 1999 did not indicate a decline in value of the aircraft sufficiently in
excess of the value decline assumed under the terms of the indenture to require
excess cash flows to be redirected to the Class A notes.
In February 2000, the B737-300 aircraft formerly leased to a Dutch lessee
was delivered for lease to a lessee based in the Philippines for a lease term of
57 months at a lower rental rate than the former lease.
On January 20, 2000, Aircraft Finance completed an exchange offer whereby
Aircraft Finance issued four classes of new notes (the "Exchange Notes") in
exchange for the four corresponding classes of the Initial Notes. The terms of
the Exchange Notes are identical in all material respects to the Initial Notes,
except that the Exchange Notes are registered under the Securities Act of 1933,
as amended. The Class D Notes remain unchanged. $3 million of the Class A-2
Initial Notes were not tendered in the exchange offer and remain outstanding.
During 1999, Aircraft Finance entered into a non-binding letter of intent
to extend the lease of one MD-83 aircraft currently leased to an Italian lessee
for eighteen months beyond its current expiration in April 2000. The aircraft
with respect to this lessee represents approximately 1.9% of the aggregate
appraised value at December 31, 1999.
The B767-300ER aircraft currently on lease with a Swedish lessee, has a
lease expiration date in May 2000. Aircraft Finance has entered into a letter of
intent to lease this aircraft to a Canadian lessee for a lease term of 36 months
with an anticipated delivery date in May 2000.
During 1999, two existing lessees were experiencing financial difficulties
and became delinquent in their rental payments for a period of 90 days or more.
As a result, both of these lessees were placed on non-accrual status during
1999. The total amount of rental payments and maintenance reserve payments
outstanding under the leases for the three aircraft from these two existing
lessees amounted to approximately $3.7 million. One of these two lessees, based
in Brazil, owed approximately $0.9 million for outstanding rental payments and
25
<PAGE>
maintenance reserve payments at December 31, 1999. Aircraft Finance holds
security deposits of $0.9 million against these arrearages. The aircraft with
respect to this lessee represents approximately 2.7% of the aggregate appraised
value at December 31, 1999. The other lessee, based in Turkey, owed
approximately $2.8 million for outstanding rental payments and maintenance
reserve payments at December 31, 1999. Aircraft Finance holds security deposits
and letters of credit in the aggregate of $1.1 million against these arrearages.
The two aircraft with respect to this lessee represents approximately 5.2% of
the aggregate appraised value at December 31, 1999. Recently, the lessee has
reached an agreement with the Servicer, for the early return of one of the two
aircraft. A non-binding letter of intent has been entered into for the
re-delivery of this aircraft to a new lessee (based in Belgium) in April 2000.
In November 1999, an administrator was appointed to one of Aircraft
Finance's Dutch lessees and the aircraft was returned to Aircraft Finance. Upon
return of the aircraft, the security deposits were applied towards the
outstanding rent and maintenance amounts due from this lessee. The aircraft with
respect to this lessee represents approximately 2.6% of the aggregate appraised
value at December 31, 1999.
Results of Operations
Aircraft Finance reported net income of $8.5 million during the period from
inception (April 13, 1999) to December 31, 1999, on total revenues of $103
million. Aircraft Finance's revenues consisted of rental income from operating
leases and interest income earned on cash balances. Aircraft Finance Trust was
formed on April 13, 1999 and began significant operations on May 5, 1999. As a
result, the financial results for 1999 are not representative of a full year of
operations.
Rental income from aircraft subject to operating leases during 1999 was
$100.3 million. The lease default and return of the aircraft by a Dutch lessee
discussed previously did not impact rental income from operating leases during
1999. The defaults of the two leases based in Brazil and Turkey negatively
impacted rental and other income from operating leases by approximately $3.7
million during 1999. Included in rental income from operating leases during 1999
were supplemental rental income of $11.6 million. These payments are variable
based on aircraft flight hours or cycles.
Interest income during 1999 was $2.7 million. Interest income is earned on
Aircraft Finance's cash balances which are invested in short-term highly liquid
investments as permitted by the Trust Indenture. The amount of interest income
earned varies based upon the current interest rates paid on such investments and
the level of cash balances held by Aircraft Finance.
Interest expense, including interest rate swap costs of $1.2 million, was
$51.5 million during 1999. Interest expense is paid on Aircraft Finance's
outstanding Notes issued on May 5, 1999. The weighted average interest rate on
the Notes during 1999 was 6.47% and the outstanding balance of the Notes at
December 31, 1999 was $1,176.2 million. Interest expense varies based on the
actual interest rates on the floating rate Notes, the interest rate swap costs
and the outstanding principal balances of the Notes.
Depreciation expense during 1999 was $28.5 million. Depreciation expense is
anticipated to be higher in 2000 since Aircraft Finance did not own the aircraft
throughout all of 1999.
Operating expense during 1999 was $10.6 million. Operating expense
primarily consists of aircraft maintenance expense and lease related costs. Most
of Aircraft Finance's lease contracts require the lessee to bear the obligation
for maintenance costs on airframes and engines, and require the lessee to make
certain payments to the lessor, calculated on measures of usage to cover the
expected costs of scheduled maintenance charges, including major airframe and
engine overhauls. Reserves are maintained at amounts considered adequate to
cover those expected payments for maintenance costs.
26
<PAGE>
Administrative and other expenses during 1999 were $4.0 million. These
expenses consist primarily of fees paid to the service providers and other
general and administrative costs. The most significant of these fees was the
servicer fee, which amounted to $3.1 million. A significant portion of the fees
paid to the Servicer correspond to rental payments due and received.
Accordingly, these fees will vary with rental income of Aircraft Finance.
Liquidity
Aircraft Finance held cash and cash equivalents of $72.7 million, and
restricted cash of $19.5 million at December 31, 1999. The liquidity reserve
amount, which is included in cash and cash equivalents, was $52 million at
December 31, 1999. The liquidity reserve amount is required under the terms of
the Indenture and is intended to serve as a source of liquidity for Aircraft
Finance's maintenance obligations and other contingent costs.
Cash Flows from Operating Activities
Aircraft Finance's cash flows from operating activities depend on many
factors including, but not limited to, the performance of lessees and Aircraft
Finance's ability to re-lease aircraft, the average cost of the Notes, the
efficiency of its interest rate hedging policies, the ability of interest rate
swap providers to perform under the terms of the swap agreements and whether
Aircraft Finance will be able to refinance certain subclasses of Notes that have
not been repaid with lease cash flows.
Net cash provided by operating activities for the period from inception
(April 13, 1999) to December 31, 1999 amounted to $56.5 million, which was
generated primarily from security and other deposits, lease cash flows net of
operating expense and interest expense on the Notes. Other items included in net
cash provided by operating activities was deferred rental income of $7.0
million. These were partially offset by restricted cash of $19.5 million.
Cash Flows from Investing and Financing Activities
Net cash used in investing activities for the period from inception (April
13, 1999) to December 31, 1999 amounted to $1,199.1 million, due to $1,196.1
million for the purchase of aircraft and $3.0 million for capitalized aircraft
improvements and aircraft delivery costs.
Net cash provided by financing activities for the period from inception
(April 13, 1999) to December 31, 1999 amounted to $1,215.3 million due to the
receipt of proceeds from the Notes of $1,209 million, issued on May 5, 1999, as
well as the issuance of the beneficial interest certificates for $39.1 million,
partially off set by $32.8 million of principal repayment on the Notes. As a
result, the balance of these Notes were $1,176.2 million at December 31, 1999.
Generally, principal and interest is repaid on these Notes monthly based upon
the cash collected, the anticipated expenses and the cash balances held by
Aircraft Finance on the calculation date. As a result, monthly principal
payments on the Notes will vary depending on Aircraft Finance's revenues and
expenses for the month.
Aircraft Finance is a party to five interest rate swap agreements. The net
aggregate amounts due to be paid or received by Aircraft Finance under these
agreements are determined monthly and are due on the same day as the payments
under the Notes. The net economic effect of these interest rate swaps was
intended to hedge Aircraft Finance's variable interest rate exposure from
movements in interest rates over the duration of the lease terms. Please see
"Item 7A. Quantitative and Qualitative Disclosures about Market Risk" for
further information about these interest rate swap agreements.
27
<PAGE>
Year 2000 Computer Issues
Because Aircraft Finance has no computer systems of its own, it was not
directly exposed to the millennium (Y2K) computer problem and incurred no
Y2K-related expenses. Aircraft Finance has, however, engaged the administrative
agent to perform its internal corporate functions, the servicer to manage its
aircraft portfolio, and Bankers Trust Company to perform financial advisory and
banking services. In addition, Aircraft Finance's business would have suffered
had its lessees or governmental agencies such as the Federal Aviation
Administration failed to be Y2K compliant. Consequently, prior to January 1,
2000, Aircraft Finance made inquiries of the administrative agent, the servicer
and Bankers Trust Company, as to their state of readiness and their contingency
plans. Since January 1, 2000, Aircraft Finance has not experienced any material
Y2K-related disruptions and is not aware that any of these other parties have
either.
Aircraft Finance will continue to monitor the situation, however, for the
unlikely appearance of Y2K-related complications or disruptions and will, if
necessary, seek to replace problematic third-party service providers or lessees.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities", which is effective for
fiscal years beginning after June 15, 1999. SFAS 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities and it
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. Changes in the fair value of derivatives are recorded each period
in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. The accounting for changes in the fair value of such
derivatives will vary based on the intended use of the derivative. In June 1999,
the FASB issued Statement of Financial Accounting Standard No. 137 ("SFAS 137"),
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133". SFAS 137 deferred the effective date
of SFAS 133 for one year to fiscal years beginning after June 15, 2000. Aircraft
Finance plans to adopt SFAS 133 beginning in the year 2001. Adoption of SFAS 133
is not expected to have a significant impact on Aircraft Finance's results of
operations, cash flows or financial position.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest incurred by Aircraft Finance on the Notes and the rental income
received by Aircraft Finance under operating leases are based on combinations of
variable and fixed measures of interest rates. Aircraft Finance is exposed to
interest rate risk to the extent that the mix of variable and fixed interest
obligations under the Notes do not correlate to the mix of variable and fixed
rents under operating leases. Aircraft Finance has engaged advisors to monitor
interest rates in order to mitigate its exposure to unfavorable variations.
Aircraft Finance utilizes interest rate swaps that shift the risk of
fluctuations in floating rates to the counterparty in exchange for fixed
payments by Aircraft Finance. Risks in the use of these instruments arise from
the possible inability of the counterparties to meet the terms of their
contracts and from market movements in securities values and interest rates.
Aircraft Finance is a party to five classes of Notes. The estimated fair
value of these Notes at December 31, 1999 was approximately $1,167 million. The
terms of each class of the Notes, including the outstanding principal amount at
December 31, 1999, are as follows:
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<PAGE>
Outstanding
Class of Principal Expected Final Final
Notes Amount Interest Rate Payment Date Maturity Date
----- ------ ------------- ------------ -------------
Class A-1 $512,500,000 LIBOR + 0.48% May 15, 2004 May 15, 2024
Class A-2 368,896,643 LIBOR + 0.50% June 15, 2008 May 15, 2024
Class B 124,798,361 LIBOR + 1.15% May 15, 2016 May 15, 2024
Class C 106,000,000 8.00% July 15, 2016 May 15, 2024
Class D 64,000,000 11.00% August 15, 2016 May 15, 2024
Aircraft Finance is a party to five interest rate swap agreements. Under
the agreements, Aircraft Finance will pay a fixed rate of interest on the
notional amount to the counterparty and, in turn, the counterparty will pay
Aircraft Finance a rate of interest on the notional amount based on LIBOR. On
December 31, 1999, the estimated fair values of these interest rate swaps was
approximately $34 million.
The following table presents, as of December 31, 1999, the terms of
Aircraft Finance's interest rate swap agreements:
Rate to be Rate to be
Fixed paid by received by
Notional Aircraft Aircraft Maturity Estimated
Amount Finance Finance Date fair value
------ ------- ------- ---- ----------
$ 80,000,000 5.23% LIBOR April 15, 2000 $ 247,349
60,000,000 5.50% LIBOR January 15, 2002 1,395,868
175,000,000 5.56% LIBOR October 15, 2002 5,542,080
345,000,000 5.65% LIBOR January 15, 2004 15,157,012
230,000,000 5.71% LIBOR November 15, 2004 11,741,234
Aircraft Finance expects to enter into additional swaps, or sell at market
values or unwind part or all of its initial swaps and any future swaps on a
periodic basis in its efforts to mitigate its exposure to unfavorable changes in
interest rates. Any changes in Aircraft Finance's policy regarding its use of
interest rate hedging products will be subject to periodic review by the rating
agencies. The controlling trustees of Aircraft Finance, with the assistance of
Bankers Trust Company and Lehman Brothers Inc., are responsible for reviewing
and approving the overall interest rate management policies and transaction
authority limits. Counterparty risk will be monitored on an ongoing basis.
Counterparties will be subject to the prior approval of the controlling
trustees. Currently, Aircraft Finance's counterparty is an affiliate of Lehman
Brothers Inc. Future counterparties will consist primarily of the affiliates of
major United States and European financial institutions, including
special-purpose derivative vehicles, that have credit ratings, or that provide
collateralization arrangements, consistent with maintaining the ratings of the
Notes.
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<PAGE>
Item 8. Financial Statements and Supplementary Data
Aircraft Finance Trust and Subsidiaries
Financial Statements as of December 31, 1999
and for the Period from Inception (April 13, 1999) to
December 31, 1999
together with the
Report of Independent Certified Public Accountants
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<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Trustees:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of changes in beneficial
interest present fairly, in all material respects, the financial position of
Aircraft Finance Trust and its subsidiaries at December 31, 1999, and the
results of their operations and their cash flows for the period from inception
(April 13, 1999) to December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with auditing standards generally accepted in
the United States, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 3, 2000
31
<PAGE>
Aircraft Finance Trust and Subsidiaries
Consolidated Balance Sheet
(dollars in thousands)
December 31,
1999
------------
Assets
Cash and cash equivalents $ 72,682
Restricted cash 19,468
Rents and other receivables 4,122
Aircraft, net 1,170,564
Other assets 138
----------
Total assets $1,266,974
==========
Liabilities and Beneficial Interest Holders' Equity
Accounts payable and accrued liabilities $ 5,819
Deferred rental income 7,031
Security and other deposits 30,385
Notes payable:
Class A-1 512,500
Class A-2 368,897
Class B 124,798
Class C 106,000
Class D 64,000
----------
Total Notes payable 1,176,195
----------
Total liabilities 1,219,430
----------
Commitments and contingencies (Note 9) --
Beneficial interest holders' equity:
Beneficial interest 47,544
----------
Total liabilities and beneficial interest holders' equity $1,266,974
==========
The accompanying notes are an integral part
of these consolidated financial statements.
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<PAGE>
Aircraft Finance Trust and Subsidiaries
Consolidated Statement of Income
(dollars in thousands)
Period from
Inception
(April 13, 1999)
to December 31, 1999
--------------------
Revenues:
Rental and other income from operating leases $100,331
Interest income 2,679
--------
Total revenues 103,010
--------
Expenses:
Interest expense 51,482
Depreciation expense 28,488
Operating expense 10,632
Administration and other 3,951
--------
Total expenses 94,553
--------
Net Income $ 8,457
========
The accompanying notes are an integral part
of these consolidated financial statements.
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<PAGE>
Aircraft Finance Trust and Subsidiaries
Consolidated Statement of Cash Flows
(dollars in thousands)
Period from
Inception
(April 13, 1999)
to December 31, 1999
--------------------
Cash Flows from Operating Activities:
Net income $ 8,457
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 28,488
Changes in assets and liabilities:
Rents and other receivables (4,122)
Restricted cash (19,468)
Other assets (138)
Accounts payable and accrued liabilities 5,819
Deferred rental income 7,031
Security and other deposits 30,385
-----------
Net cash provided by operating activities 56,452
-----------
Cash Flows from Investing Activities:
Purchase of aircraft (1,196,087)
Aircraft improvements (2,965)
-----------
Net cash used in investing activities (1,199,052)
-----------
Cash Flows from Financing Activities:
Issuance of beneficial interest 39,087
Proceeds from notes payable 1,209,000
Repayment of notes payable (32,805)
-----------
Net cash provided by financing activities 1,215,282
-----------
Net Increase in Cash and Cash Equivalents 72,682
Cash and Cash Equivalents at Beginning of Period --
-----------
Cash and Cash Equivalents at End of Period $ 72,682
===========
The accompanying notes are an integral part
of these consolidated financial statements.
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<PAGE>
Aircraft Finance Trust and Subsidiaries
Consolidated Statement of Changes in Beneficial Interest
(dollars in thousands)
Beneficial
Interest
--------
Issuance of Beneficial Interest (May 5, 1999) $39,087
Net income 8,457
-------
Balance at December 31, 1999 $47,544
=======
The accompanying notes are an integral part
of these consolidated financial statements.
35
<PAGE>
Aircraft Finance Trust and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999
Note 1 - Organization
Aircraft Finance Trust is a special-purpose statutory business trust
that was formed on April 13, 1999 under the laws of Delaware. Aircraft Finance
Trust and its two subsidiaries (collectively "Aircraft Finance") were formed to
conduct certain limited activities, including buying, owning, leasing, selling
commercial jet aircraft and related activities. All of the beneficial interest
of Aircraft Finance was initially purchased by UniCapital AFT-I, Inc. (51%) and
UniCapital AFT-II, Inc. (49%), both wholly-owned indirect subsidiaries of
UniCapital Corporation. During 1999, UniCapital AFT-I, Inc. sold 49.9% of the
beneficial interest of Aircraft Finance to several financial services companies
and UniCapital Corporation sold its remaining interest in UniCapital AFT-I, Inc.
to one of these financial services companies. As a result, at December 31, 1999,
these financial services companies own 51% of Aircraft Finance and UniCapital
Corporation owns 49%.
The Trust Agreement provides for four trustees, an Owner Trustee and
three Controlling Trustees. The three Controlling Trustees have the authority to
manage the property and affairs of Aircraft Finance under the Trust Agreement.
One of the Controlling Trustees, the Equity Trustee, is appointed by the
beneficial interest holders, while the other two Controlling Trustees are
independent of the beneficial interest holders. Aircraft Finance does not have
any officers or employees. Aircraft Finance has contracted with certain third
parties to provide aircraft servicing, lease administration and accounting
services and financial and capital market advisory services.
On May 5, 1999, Aircraft Finance completed a securitization transaction
in which it received proceeds from a private placement offering of notes and
simultaneously paid for 36 commercial jet aircraft which were acquired from
General Electric Capital Corporation and certain of its affiliates (together,
the "Seller"). Aircraft Finance's obligations, including its debt obligations,
are not obligations of, or guaranteed by, the Seller, UniCapital AFT-II, Inc.,
UniCapital Corporation or any of its other subsidiaries, other owners of the
beneficial interest or any person other than Aircraft Finance.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared
in accordance with generally accepted accounting principles and includes the
accounts of Aircraft Finance and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
36
<PAGE>
statements and the reported amounts of revenues and expenses during the
reporting period. While management believes that the estimates and related
assumptions used in the preparation of the financial statements are appropriate,
actual results could differ from those estimates. Significant estimates are made
in the assessment of the collectibility of receivables, depreciable lives and
estimated salvage values of leased aircraft and estimates of expected
maintenance and overhaul costs in connection with certain leases of aircraft.
Cash and Cash Equivalents
Aircraft Finance classifies highly liquid investments with original
maturities of three months or less from the date of purchase as cash
equivalents.
Operating Leases
Aircraft are recorded at cost and depreciated on a straight-line basis
over the estimated life to their estimated salvage value. Generally, aircraft
and aircraft equipment are depreciated over estimated useful lives of 30 years
from the date of manufacture to a 15% estimated salvage value. Aircraft
Finance's estimates are reviewed periodically to ensure continued
appropriateness.
Revenue under operating leases is recognized as rental income on a
straight-line basis over the lease term. In addition, certain leases provide for
contingent rental payments based on measures of usage.
Aircraft Finance will generally place lessees on non-accrual status
when the cumulative amount of outstanding rent receivables due from such lessee
is equivalent to three monthly payments or if other circumstances warrant such
treatment. Upon placement on to non-accrual status, all outstanding receivables
accrued but not paid will be reversed against income. Subsequent payments from
lessees placed on to non-accrual status will be recognized on a cash basis as
received. The Lessee will not be placed back on to current accrual status unless
they become current with all past due amounts and they further demonstrate an
improvement in their financial position.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS 121"), the recognition of an impairment loss for an asset
held for use is required when the estimate of undiscounted future cash flows
expected to be generated by the asset is less than its carrying amount.
Measurement of an impairment loss is to be recognized based on the fair value of
the asset. Fair value reflects the underlying economic value of the aircraft,
including engines, in normal market conditions (where supply and demand are in
reasonable equilibrium) and assumes adequate time for a sale and a willing buyer
and seller. Short-term fluctuations in the market place are disregarded and it
is assumed that there is no necessity either to dispose of a significant number
of aircraft simultaneously or to dispose of aircraft quickly. The fair value of
the assets is based on independent valuations of the aircraft and/or estimates
of discounted future cash flows. SFAS 121 also requires that long-lived assets
to be disposed of be reported at the lower of the carrying amount or fair value
less estimated disposal costs.
Maintenance Reserves
Most lease contracts require the lessee to bear the obligation for
maintenance costs on airframes and engines, and require the lessee to make
certain payments to the lessor, calculated on measures of usage to cover the
expected costs of scheduled maintenance charges, including major airframe and
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engine overhauls. Reserves are maintained at amounts considered adequate to
cover those expected payments for maintenance costs.
Income Taxes
The operating results of Aircraft Finance are included in the tax
returns of their beneficial interest holders. As such, Aircraft Finance is not
subject to U.S. Federal, State and local income taxes.
Derivative Financial Instruments
Derivative financial instruments, as defined in Statement of Financial
Accounting Standards No. 119, "Disclosure about Derivative Financial Instruments
and Fair Value of Financial Instruments", used by Aircraft Finance include
interest rate swaps. Aircraft Finance utilizes interest rate swaps to
synthetically alter the repricing characteristics of variable-rate interest
obligations, effectively allowing Aircraft Finance to pay a fixed interest rate
on certain notes, reducing its exposure to unfavorable variations in the LIBOR
rate charged on those variable rate interest obligations. Risks arise from the
use of such instruments from the possible inability of the counterparties to
meet the terms of their contracts and from market movements in values and
interest rates. Aircraft Finance does not enter into interest rate swaps for
trading purposes.
In accounting for interest rate swaps, the net differential to be paid
or received on the interest rate swap is recognized as a yield adjustment to the
related asset or liability over the life of the swap agreement. If the related
liability is disposed of, the swap agreement is marked to market. Thereafter,
the interest rate swap is accounted for in the consolidated financial statements
at its fair value with any unrealized gains and losses recognized in the period
incurred. If the interest rate swap agreement is terminated, the gain or loss is
deferred and amortized over the remaining life of the related asset or
liability.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments", requires disclosure of the fair value of
financial instruments, for both assets and liabilities recognized and not
recognized on the balance sheet, for which it is practicable to estimate fair
value. Fair value of Aircraft Finance's financial instruments are based on
pricing models or formulas using assumptions about future interest rates,
interest volatility and other factors (swaps, swaptions and interest rate
floors).
Note 3 - Cash Balances
Aircraft Finance maintains various cash accounts as required by the
Trust Indenture, including a Rental Account, a Collections Account, an Expense
Account, the Lessee Funded Accounts and restricted reserve accounts related to
one lessee.
All payments under the leases are deposited into the Rental Account and
subsequently swept to the Collection Account within one business day of receipt.
Aircraft Finance maintains a cash reserve balance in the Collection Account in
an amount determined monthly in accordance with the Trust Indenture. At December
31, 1999, the cash reserves included in the Collection Account were $52 million.
The cash reserves are intended to provide a source of liquidity for the payment
of expenses, swap payments and interest on certain classes of notes. Expenses of
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Aircraft Finance are generally paid out of the Expense Account, which is funded
through transfers from the Collections Account.
The Lessee Funded Accounts and certain lessee reserve accounts are not
available for general use. Security deposits and maintenance reserve payments
from lessees that are required to be segregated from other funds are deposited
into the Lessee Funded Accounts. Certain lessee reserve accounts consists of a
deposit from the Seller of the aircraft that can be drawn upon by Aircraft
Finance should such lessee be delinquent on any of its rent payments. The
balances in the Lessee Funded Accounts and the one lessee reserve account at
December 31, 1999 were $12.72 million and $6.75 million, respectively.
Note 4 - Aircraft Under Operating Leases
On May 5, 1999, Aircraft Finance purchased 36 commercial jet aircraft
from General Electric Capital Corporation and certain of its subsidiaries having
an aggregate cost of $1,196 million pursuant to a Master Aircraft Purchase
Agreement. Aircraft Finance financed these purchases primarily through the net
proceeds from Aircraft Finance's private placement of asset-backed notes and
proceeds from the issuance of beneficial interests. As of October 22, 1999, all
36 of Aircraft Finance's aircraft had been delivered to Aircraft Finance. At
December 31, 1999, Aircraft Finance had 35 aircraft on lease and one aircraft
off-lease, as follows:
December 31, 1999
-----------------
(in thousands)
Aircraft under operating lease $ 1,167,431
Accumulated depreciation (27,842)
-----------
Aircraft under operating lease, net 1,139,589
Aircraft off-lease 31,620
Accumulated depreciation (645)
-----------
Aircraft off-lease, net 30,975
Aircraft, net $ 1,170,564
===========
All aircraft are compliant with Stage 3 noise levels set out in the
United States Federal Aviation Regulations. As of December 31, 1999, 35 of
Aircraft Finance's 36 aircraft, were on lease to 22 airlines in 12 countries. An
analysis of the various lessee expiration periods of the aircraft under
operating leases is as follows at December 31, 1999:
On lease for a further period of:
---------------------------------
More than five years.......................................... 8
From one to five years........................................ 25
Less than one year............................................ 2
Not on Lease.................................................. 1
--
Total aircraft portfolio...................................... 36
==
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At December 31, 1999 future scheduled minimum lease contract payments
to be received under operating leases for the years ended December 31, are as
follows: (dollars in thousands)
2000.................................................$ 123,933
2001................................................. 121,086
2002................................................. 110,533
2003................................................. 87,686
2004................................................. 55,897
Thereafter........................................... 62,706
------------
Total................................................$ 561,841
============
Additional contingent rentals are earned by Aircraft Finance based on
certain lessee's usage. Contingent rentals in the amount of $11.56 million were
earned by Aircraft Finance during the period from inception (April 13, 1999) to
December 31, 1999.
Aircraft Finance may acquire additional aircraft and related leases
from the Seller, UniCapital Corporation or their affiliates using proceeds from
the issuance of additional notes and equity. Any such acquisition of additional
aircraft by Aircraft Finance will be subject to the terms of the Trust Indenture
and will require written confirmation from the rating agencies rating the notes
that they will not lower, qualify or withdraw any rating on the notes as a
result.
Note 5 - Notes Payable
On May 5, 1999 (the "Initial Closing Date"), Aircraft Finance completed
a private placement offering of $1,209 million of securitized notes (the
"Initial Notes") on a basis exempt from registration under the Securities Act of
1933, as amended. Aircraft Finance utilized the proceeds from the Initial Notes
as payment for the acquisition of 36 commercial jet aircraft. Underwriting and
certain other issuance related costs incurred in connection with the offering
were paid by the Seller.
The repayment terms of each class of Initial Notes are such that
certain principal amounts are expected to be repaid on dates which are based on
certain operating assumptions (the "Expected Final Payment Date") or refinanced
through the issuance of new notes, but in any event are ultimately due for
repayment on specified final maturity dates (the "Final Maturity Date"). The
Expected Final Payment Dates, Final Maturity Dates and interest rates applicable
to each class of the Initial Notes are listed as follows:(dollars in thousands)
Initial Expected Final Final
Class of Note Principal Amount Interest Rate Payment Date Maturity Date
- ------------- ---------------- ------------- ------------ -------------
Class A-1 $ 512,500 LIBOR + 0.48% May 15, 2004 May 15, 2024
Class A-2 400,000 LIBOR + 0.50% June 15, 2008 May 15, 2024
Class B 126,500 LIBOR + 1.15% May 15, 2016 May 15, 2024
Class C 106,000 8.00% July 15, 2016 May 15, 2024
Class D 64,000 11.00% August 15, 2016 May 15, 2024
-----------
$ 1,209,000
===========
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The one-month LIBOR rate with respect to these notes as of December 31,
1999 was 6.46%.
If the Class A-1 Notes are not repaid on or before their Expected Final
Payment Date, such class of notes will accrue interest thereafter at the stated
interest rate plus 0.50% per annum ("Maturity Step-Up Interest").
On January 20, 2000, Aircraft Finance completed an exchange offer
whereby Aircraft Finance issued four classes of new notes (the "Exchange Notes"
or "Notes") in exchange for the four corresponding classes of the Initial Notes.
The terms of the Exchange Notes are identical in all material respects to the
Initial Notes, except that the Exchange Notes are registered under the
Securities Act of 1933, as amended. The Class D Notes remain unchanged. $3
million of the Class A-2 Initial Notes were not tendered in the exchange offer
and remain outstanding.
Aircraft Finance has the right to make an optional redemption of any
Notes. Should Aircraft Finance choose to exercise an early redemption of any of
the Notes, it may be required to pay a redemption premium as required by the
Trust Indenture.
The dates on which principal repayments on the Notes will actually
occur will depend on the cash flows generated by the rental income from the
Aircraft Finance's portfolio of aircraft, Aircraft Finance's ability to
refinance any or all of the Notes and the amount of operating costs incurred in
the ordinary course of business. Amounts received by Aircraft Finance and
available for distribution are paid in accordance with the priorities specified
in the Trust Indenture. As of December 31, 1999 the estimated fair value of the
Notes was approximately $1,167 million.
Cash paid for interest, which includes interest rate swaps accounted
for as a hedge, during the period from inception (April 13, 1999) through
December 31, 1999 amounted to $47.9 million.
Note 6 - Derivative Financial Instruments
Interest Rate Swaps
At December 31, 1999, Aircraft Finance was a party to five interest
rate swap agreements which it entered into on May 5, 1999. Under the agreements,
Aircraft Finance will pay a fixed rate of interest on the notional amount to the
counterparty and, in turn, the counterparty will pay Aircraft Finance a rate of
interest on the notional amount based on LIBOR. On December 31, 1999, the fair
values of these interest rate swaps was approximately $34 million.
The following table presents, as of December 31, 1999, a summary of the
terms of the Aircraft Finance's interest rate swap agreements:(dollars in
thousands)
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Rate to be Rate to be
Fixed paid by received by
Notional Aircraft Aircraft Maturity Estimated
Amount Finance Finance Date fair value
------ ------- ------- ---- ----------
$ 80,000 5.23% LIBOR April 15, 2000 $ 247
60,000 5.50% LIBOR January 15, 2002 1,396
175,000 5.56% LIBOR October 15, 2002 5,542
345,000 5.65% LIBOR January 15, 2004 15,157
230,000 5.71% LIBOR November 15, 2004 11,741
Note 7 - New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities", which is effective for
fiscal years beginning after June 15, 1999. SFAS 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities and it
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. Changes in the fair value of derivatives are recorded each period
in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. The accounting for changes in the fair value of such
derivatives will vary based on the intended use of the derivative. In June 1999,
the FASB issued Statement of Financial Accounting Standard No. 137 ("SFAS 137"),
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133". SFAS 137 deferred the effective date
of SFAS 133 for one year to fiscal years beginning after June 15, 2000. Aircraft
Finance plans to adopt SFAS 133 beginning in the year 2001. Adoption of SFAS 133
is not expected to have a significant impact on Aircraft Finance's results of
operations, cash flows or financial position.
Note 8 - Related Party
On May 5, 1999, UniCapital Corporation (parent company of the initial
beneficial interest holders) purchased approximately $3.8 million of the Class D
Notes. UniCapital Corporation subsequently sold these notes to an unrelated
party in July 1999.
One of the three Controlling Trustees, the Equity Trustee, is an
employee of UniCapital Air Group, Inc. a wholly-owned subsidiary of UniCapital
Corporation and the parent company of UniCapital AFT-II, Inc. The acquisition of
additional aircraft by Aircraft Finance and the terms of any related financing
need only be approved by the equity trustee, subject to the terms of the trust
agreement and the indenture, including confirmation by the rating agencies that
the transaction will not adversely affect the rating on the Notes. Further, any
sale of any aircraft, decisions requiring Aircraft Finance's approval under the
Servicing Agreement with GECAS or the agreement with the administrative agent
and the reduction of any required level of reserves must be approved by the
Equity Trustee and at least one of the Independent Controlling Trustees.
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Note 9 - Commitments and Contingencies
In accordance with the terms of a servicing agreement (the "Servicing
Agreement"), GE Capital Aviation Services, Limited, ("GECAS") is performing
certain aircraft related services with respect to Aircraft Finance's aircraft
portfolio. Such activities include the collection of rents and other amounts due
from lessees, the monitoring of maintenance, insurance and other obligations
under the aircraft leases, the enforcement of rights against the lessees, the
remarketing of aircraft for re-lease or sale and the performance of other
specified aircraft-related services. In accordance with the Servicing Agreement,
fees payable to GECAS by Aircraft Finance include base fees and fees calculated
as a percentage of lease rentals received, in addition to certain incentive
based fees.
The Servicing Agreement expires on the latter of (i) the payment in
full of all amounts due on the notes and other similar obligations and all
amounts due to the holders of beneficial interests in Aircraft Finance and (ii)
the date on which Aircraft Finance and its subsidiaries cease to own any
aircraft. Each party has the right to terminate the Servicing Agreement under
specified circumstances.
Additionally, Aircraft Finance has contracted with third parties to
provide administrative, financial and capital markets advisory and trust
services.
Note 10 - Concentration of Credit Risk
Credit risk with respect to operating lease receivables is generally
diversified due to the number of lessees comprising Aircraft Finance's customer
base and the different geographic areas in which they operate. During the period
from inception (April 13, 1999) to December 31, 1999, Aircraft Finance
recognized $100 million of rental and other income from operating leases,
comprised of $14 million from lessees based in the United States and $86 million
from lessees based outside the United States. At December 31, 1999, 35 of
Aircraft Finance's 36 aircraft were on lease to 22 lessees in 12 countries,
while one aircraft was off lease after being repossessed. Also, on December 31,
1999, nine of the aircraft are being leased to lessees domiciled in certain
emerging markets, including those located in Eastern Europe, the Middle East,
Latin America and Asia. The exposure of Aircraft Finance's aircraft to
particular countries and customers is managed partly through concentration
limits and through obtaining deposits from lessees and certain cash reserves.
At December 31, 1999, Aircraft Finance held cash reserves of $6.75
million that are available to fund delinquent rentals and other payments due
from one certain lessee. Such amounts are not available for general use. The
reserve amount is required to be returned to the Seller after two years from the
delivery date of the aircraft, providing the lessee has not been delinquent for
more than sixty days on any single rental payment during the last year of such
two year period. Any unused reserve amount must be returned to the Seller at
lease expiration.
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Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
CONTROLLING AND INDEPENDENT TRUSTEES.
The trust agreement governing Aircraft Finance provides for four trustees.
One of the four trustees of Aircraft Finance is Wilmington Trust Company, which
is acting as the statutory trustee and the owner trustee. The remaining three
trustees are the "controlling trustees" and have the authority to manage the
property and affairs of Aircraft Finance under the trust agreement. All of the
controlling trustees are independent from General Electric Capital Corporation.
One of the controlling trustees, called the "equity trustee", is appointed by
the holders of Aircraft Finance's beneficial interest, while the two other
controlling trustees, called the "independent controlling trustees" are
independent of those holders. The holders of the beneficial interest of Aircraft
Finance may remove and replace the equity trustee, and each independent
controlling trustee may be replaced by the other independent controlling
trustee.
The trust agreement requires that any decision relating to insolvency
proceedings, merger or other reorganization of Aircraft Finance must be approved
by a unanimous vote of the controlling trustees. Any sale of any aircraft,
decisions requiring Aircraft Finance's approval under the servicing agreement
for the aircraft or the agreement with the administrative agent and the
reduction of any required level of reserves must be approved by the equity
trustee and at least one of the independent controlling trustees. The
controlling trustees approving aircraft sales on other than pre-approved terms
must also confirm to the indenture trustee, prior to the sale, that the sale
will not materially and adversely affect the holders of the Notes. The
acquisition of additional aircraft by Aircraft Finance and the terms of any
related financing need only be approved by the equity trustee.
The controlling trustees, their respective ages and principal activities
are as follows:
Name Age Title
---- --- -----
David H. Treitel 45 Independent Controlling Trustee
Richard E. Cavanagh 53 Independent Controlling Trustee
Wayne D. Lippman 52 Equity Trustee
DAVID H. TREITEL -- Mr. Treitel is the Chairman and Chief Executive Officer
of Simat, Helliesen & Eichner, Inc. (SH&E), a leading aviation consulting firm
based in New York City. Mr. Treitel has been with SH&E since 1977, and prior to
taking up his current position at SH&E in 1996, he served as the firm's
President from 1993 to September 1998 and its Executive Vice President from 1989
until 1993. Mr. Treitel also serves as a director of Midwest Express Holdings,
Inc.
RICHARD E. CAVANAGH -- Mr. Cavanagh is the President and Chief Executive
Officer of The Conference Board, Inc., a global business research and membership
enterprise supported by some 3,000 corporate members in 67 countries and based
in New York City. Prior to taking up his current position in 1995, he served for
eight years as the Executive Dean of the Kennedy School of Government at Harvard
University. Before that, he was a partner of McKinsey & Company, Inc., an
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international management consulting firm. During his 17 years with McKinsey, he
took a two-year public service leave and held senior positions in the White
House Office of Management & Budget. He co-authored the management book The
Winning Performance. Mr. Cavanagh serves as a director of Airplanes Limited and
Airplanes U.S. Trust, the BlackRock Mutual Fund family, Arch Chemicals (formerly
Olin), The Fremont Group (formerly Bechtel Investments) and The Guardian Life
Insurance Company.
WAYNE D. LIPPMAN -- Mr. Lippman is the Vice Chairman of UniCapital Air
Group, Inc., a wholly-owned subsidiary of UniCapital Corporation, a New York
Stock Exchange listed company. Mr. Lippman has held the position of Vice
Chairman and Chief Operating Officer of Cauff, Lippman Aviation, Inc. and
affiliated aircraft leasing and trading companies since 1981. Cauff, Lippman
Aviation, Inc. and some of its affiliates were acquired by UniCapital in May
1998. In May 1999 Mr. Lippman was appointed President of UniCapital's Big Ticket
Leasing Division.
As is common with many other special purpose companies, neither Aircraft
Finance nor any of its subsidiaries will have any officers or other employees,
except, in the case of a subsidiary, as may be required by applicable law.
Aircraft Finance has arranged for GE Capital Aviation Services, Limited (GECAS),
ReSource/Phoenix, Inc., Wilmington Trust Company, Bankers Trust Company and
Lehman Brothers Inc. to provide aircraft servicing, managerial services and
financial advice.
THE SERVICER
The servicer and Aircraft Finance have entered into a servicing agreement
dated as of May 5, 1999. The servicing agreement sets forth the various duties
of GECAS as the servicer with respect to the management and administration of
the aircraft and the leases, the aircraft marketing activities to be performed
by the servicer and the aircraft management-related obligations of the servicer
in connection with offers and sales by Aircraft Finance of refinancing or
additional notes.
The servicer has agreed to provide its services in accordance with the
express terms of the servicing agreement. The terms of the servicing agreement
provide that the servicer will act in accordance with laws applicable to it,
with directions given by the administrative agent on behalf of Aircraft Finance,
with specified standards of care and with specified standards regarding
conflicts of interest. The duties and obligations of the servicer are limited to
those expressly set forth in the servicing agreement, and the servicer has not
undertaken any fiduciary or other implied duties or obligations to Aircraft
Finance, the holders of the notes or any other person.
The servicer has agreed to perform the services required by the servicing
agreement with reasonable care and diligence at all times and, if a conflict of
interest arises as to an Aircraft Finance aircraft and other aircraft managed by
GECAS, in good faith. In addition, to the extent that either two or more
particular Aircraft Finance aircraft or an Aircraft Finance aircraft and other
aircraft managed by GECAS have substantially similar objectively identifiable
characteristics that are relevant for purposes of the particular services to be
performed, the servicer has agreed not to discriminate among those Aircraft
Finance aircraft or between any of the Aircraft Finance aircraft and any other
managed aircraft on an unreasonable basis and, in the case of the two aircraft
leased to VARIG, on the basis of General Electric Capital Corporation's interest
in the reserve deposits established for the VARIG leases.
If the servicer in good faith determines that circumstances as to a
particular aircraft or lease require an arm's-length negotiation between the
servicer or any of its affiliates and Aircraft Finance and the servicer believes
it would not be appropriate for the servicer to act on behalf of Aircraft
Finance, the servicer has agreed to notify Aircraft Finance promptly and to
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withdraw from acting as the servicer with respect to the matter and Aircraft
Finance has agreed to appoint an independent representative to act on its
behalf. The servicer is entitled to act on its own or its affiliates' behalf in
those negotiations.
Neither Aircraft Finance nor the servicer may assign its rights and
obligations under the servicing agreement without the other's prior consent. The
servicer may, however, delegate some, but not all, of its duties to some of its
affiliates.
AIRCRAFT SERVICES. The main categories of aircraft services being provided
by the servicer under the servicing agreement are:
(1) lease marketing and remarketing, lease negotiation and execution;
(2) collecting rental payments and other amounts due under leases, aircraft
maintenance, insurance monitoring and procurement, lease compliance and
enforcement and accepting delivery and redelivery of aircraft;
(3) sales services and aircraft acquisition;
(4) monitoring aircraft maintenance and providing records and information
about the aircraft;
(5) using commercially reasonable efforts to keep Aircraft Finance in
compliance with terms of the indenture that directly relate to the
operation of the aircraft;
(6) limited assistance in connection with the public or private offerings
of any notes, such as providing information relating to the servicer
and its affiliates for inclusion in any offering document or
prospectus, participating in marketing activities solely with respect
to the aircraft and providing underwriters, rating agencies and other
advisors with the reasonable opportunity to conduct due diligence with
respect to the servicer as it relates to the aircraft;
(7) legal and other professional services with respect to the lease, sale
or financing of the aircraft, any amendment or modification of any
lease, the enforcement of the rights of Aircraft Finance and its
subsidiaries under any lease, any disputes that arise as to any
aircraft or for any other purpose that the servicer reasonably
determines is necessary in connection with the performance of its
services; and
(8) periodic reporting of operational information relating to the aircraft.
OPERATING GUIDELINES. Under the servicing agreement, the servicer is
entitled to exercise such authority as is necessary to give it a practicable and
working autonomy in performing its services. The servicing agreement provides
that the servicer will give Aircraft Finance and its agents access to records
related to the aircraft under specified circumstances to enable Aircraft Finance
to monitor the performance by the servicer and not commingle any funds of
Aircraft Finance with its own funds. Aircraft Finance, acting through the
administrative agent or directly, has established monitoring and control
procedures that it expects will enable it to properly manage its and its
subsidiaries' business and assets.
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The servicing agreement requires all transactions entered into by the
servicer on behalf of Aircraft Finance and its subsidiaries other than
intercompany transactions to be at arm's length and on market terms unless
otherwise agreed or directed by the administrative agent on Aircraft Finance's
behalf. Transactions or matters on behalf of Aircraft Finance and its
subsidiaries that require the specific approval of Aircraft Finance include:
(1) sales of or agreements to sell aircraft, other than as required by a
lease or the purchase agreement for the initial 36 aircraft;
(2) entering into any new leases if the lease does not comply with any
applicable operating covenants set forth under the indenture governing
the notes or if the lease grants a purchase option in favor of the
lessee and renewing or extending existing leases, other than as a
result of the exercise of an extension option;
(3) terminating any lease or leases to any single lessee for aircraft then
having an aggregate depreciated net book value in excess of $75 million
unless a substantially similar replacement or substitute lease is put
into place;
(4) unless provided for in the applicable budget, entering into any
contract for the modification or maintenance of aircraft where the
costs to be incurred by Aircraft Finance and its subsidiaries will
exceed the greater of the estimated aggregate cost of a heavy
maintenance check for similar aircraft and total refurbishment of the
related engines and available maintenance reserves or other collateral
under the related lease or if those costs would be outside the ordinary
course of the business of Aircraft Finance and its subsidiaries;
(5) issuing any guarantee on behalf of, or otherwise pledging the credit
of, Aircraft Finance or any of its subsidiaries, other than with
respect to trade payables in the ordinary course of business and other
than guarantees by Aircraft Finance of the obligations of its
subsidiaries;
(6) entering into, amending or granting a waiver with respect to, any
transaction between Aircraft Finance or its subsidiaries and General
Electric Capital Corporation or any of its affiliates not contemplated
in the servicing agreement;
(7) incurring any actual or contingent liability, unless contemplated in
the applicable budget pursuant to a transaction of a type for which
Aircraft Finance's specific approval is otherwise required, incurred in
the ordinary course of the business of Aircraft Finance and its
subsidiaries or incurred in entering into a lease or performing any
obligations under a lease; and
(8) entering into any order or commitment to acquire, or acquiring,
aircraft or aircraft engines unless provided for in a lease, the order
or commitment to acquire a replacement engine has been provided for in
the applicable budget or the servicer determines that the purchase or
exchange of an engine is necessary or appropriate.
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BUDGETS. The servicing agreement calls for the administrative agent to
adopt each year a single lease operating budget for all aircraft owned by
Aircraft Finance and its subsidiaries and a single budget for the aircraft
expenses related to all aircraft.
SERVICING FEES AND THEIR PAYMENT PRIORITY. The servicing agreement provides
that Aircraft Finance will pay to the servicer a base fee of $150,000 per month,
which increases if additional aircraft are acquired by Aircraft Finance and a
rent fee equal to 1% of the aggregate amount of basic rent due for all or any
part of a month for any Aircraft Finance aircraft and 1% of the aggregate basic
rent actually paid for the month. The servicer also will receive a disposition
fee equal to 1% of the gross proceeds of the sale of any Aircraft Finance
aircraft. The servicer also will be reimbursed for aircraft maintenance costs
and insurance, outside legal and professional advisory fees and other out of
pocket expenses incurred in connection with its performance. The aggregate
reimbursement expenses may be significant. Aircraft Finance has also agreed to
indemnify the servicer as described under "Risk Factors -- BECAUSE AIRCRAFT
FINANCE'S CONTRACT LIMITS ITS REMEDIES AGAINST THE SERVICER FOR POOR
PERFORMANCE, AIRCRAFT FINANCE MAY AT SOME POINT BEAR COSTS THAT WILL REDUCE ITS
AVAILABLE REVENUES." The subsidiaries of Aircraft Finance have guaranteed the
obligations of Aircraft Finance to the servicer.
The above fees and expense reimbursements are payable monthly in arrears on
the payment dates for the Notes. The payment of those fees and expenses has a
payment priority that is higher than that of all payments on the Notes. The
servicer has agreed to allocate a portion of the fees payable to it to
UniCapital to the extent of the two initial and any other aircraft acquired from
UniCapital.
The servicer is also entitled to additional fees (the "Additional Servicing
Fees") consisting of an additional sales fee for each sale of an aircraft, an
additional disposition fee for each sale of an aircraft and an additional
rent-related fee based on basic rent actually paid. Additional Servicing Fees
are payable only after all amounts on the Notes have been paid in full.
In addition, the servicer will be entitled to fees for aircraft management
services under the servicing agreement in connection with the offer and sale by
Aircraft Finance of refinancing and additional notes and any resales of notes by
any person who has any right to cause Aircraft Finance to assist in the resale.
TERM AND TERMINATION. The term of the servicing agreement expires on the
later of the payment in full of all amounts due on the Notes and other similar
obligations and all amounts due to the holders of the beneficial interest in
Aircraft Finance and Aircraft Finance and its subsidiaries ceasing to hold any
aircraft. Each party also has the right to terminate the servicing agreement
under specified circumstances.
The servicer has the right to terminate the servicing agreement if, among
other things, Aircraft Finance defaults in its payment and other obligations
under the servicing agreement and related documents, any material representation
or warranty made by Aircraft Finance or its subsidiaries is false or misleading
in a manner material to the servicer, Aircraft Finance or its subsidiaries
become subject to bankruptcy or other insolvency proceedings, neither Aircraft
Finance nor any of its subsidiaries holds any aircraft or the indenture or any
guaranty in favor of the servicer ceases to be in effect.
The servicer may resign under the servicing agreement with respect to all
aircraft, or at its election, any affected aircraft if it reasonably determines
that directions given, or services required, would, if carried out be unlawful
under applicable law, be in violation of any corporate policy regarding business
practices or legal, ethical or social matters, be likely to lead to an
investigation by any governmental authority of the servicer or its affiliates,
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expose the servicer to liabilities for which, in the servicer's good faith
opinion, adequate bond or indemnity has not been provided or place the servicer
in a conflict of interest with respect to which, in the servicer's good faith
opinion, the servicer could not continue to perform its obligations under the
servicing agreement. Whether or not it resigns, the servicer is not required to
take any action of the foregoing kind. The servicer may also resign in the event
it becomes subject to unindemnified taxes.
Aircraft Finance has the right to terminate the servicing agreement upon
payment in full of the Notes and other similar obligations. Aircraft Finance
also has the right to terminate the servicing agreement if, among other things,
the servicer ceases to be at least 75% owned directly or indirectly by General
Electric Capital Corporation or its ultimate parent, General Electric
Corporation, the servicer breaches its obligations under the servicing agreement
in a manner that is material to Aircraft Finance and its subsidiaries as a
whole, the servicer, General Electric Capital Corporation or General Electric
Company becomes subject to bankruptcy or insolvency proceedings, there are
insufficient funds for the payment on any Class A Note for a period of 60 days
or at least 10 aircraft remain off-lease but available for re-lease for a period
of at least 90 days following specified events set forth in the indenture.
Aircraft Finance may remove the servicer for any affected aircraft if the
servicer has reasonably determined that directions given, or services required,
would, if carried out, place the servicer in a conflict of interest with respect
to which, in the servicer's good faith opinion, the servicer could not continue
to perform its obligations under the servicing agreement.
The servicer may not resign or be removed under the servicing agreement and
the servicing agreement may not be terminated, except as described above and
unless a replacement servicer, which may be UniCapital, has been appointed and
Aircraft Finance has obtained a confirmation from the rating agencies rating the
Notes that they will not lower, qualify or withdraw any rating as a result. If a
replacement servicer has not been appointed within 90 days after notice of any
termination, resignation or removal, the servicer may petition any court
jurisdiction to appoint a replacement servicer. The servicer may terminate the
servicing agreement, whether or not a replacement servicer has been appointed,
if Aircraft Finance fails, after the applicable cure periods, to pay amounts due
to the servicer.
CORPORATE MANAGEMENT
Corporate management services for Aircraft Finance will be provided by the
administrative agent, ReSource/Phoenix, Inc., the financial advisor, Bankers
Trust Company, the owner trustee, Wilmington Trust Company and the capital
markets advisor, Lehman Brothers Inc.
ADMINISTRATIVE AGENT
ReSource/Phoenix, Inc. will act as the initial administrative agent of
Aircraft Finance. The administrative agent has agreed to provide administrative,
accounting and other services that include:
(1) monitoring the performance of the servicer and reporting its
conclusions to the controlling trustees of Aircraft Finance;
(2) acting as a liaison with various rating agencies to assess the impact
of management decisions on the ratings of the notes and coordinating
responses to rating agency questions;
49
<PAGE>
(3) maintaining accounting ledgers and providing draft accounts on a
quarterly and annual basis;
(4) preparing annual budgets for Aircraft Finance's approval;
(5) authorizing the payment of expenses and determining the amount of
expense accruals;
(6) coordinating any amendments to the agreements of Aircraft Finance and
its subsidiaries, with the approval of Aircraft Finance;
(7) supervising outside counsel and other professional advisers and
coordinating legal and other professional advice other than with
respect to any service or matter that is the responsibility of the
servicer or any additional servicer;
(8) preparing and coordinating press releases and reports to investors and
to the SEC, and managing investor relations;
(9) preparing or arranging for the preparation of and filing all required
tax returns; and
(10) overseeing the general operation of any liquidity facility and advising
Aircraft Finance as to the appropriate reserve levels for the Notes.
In addition to its services on behalf of Aircraft Finance, the
administrative agent has agreed to act as the agent for the trustee and the
security trustee in managing the accounts in which the funds and investments of
Aircraft Finance will be held in the name of the security trustee and related
matters. Aircraft Finance is not entitled to direct the administrative agent as
to these matters. ReSource/Phoenix' duties for the trustee and the security
trustee include:
(1) establishing and maintaining the accounts held in the name of the
security trustee and any other accounts;
(2) directing withdrawals and transfers from those accounts under the
indenture governing the notes;
(3) calculating certain monthly payments and making all other calculations
required under that indenture;
(4) providing reports and other information required under that indenture;
(5) providing the trustee with information required by the trustee to
provide its reports to the holders of the Notes; and
(6) subject to specified limitations and at the written direction of the
controlling trustees, directing the investment of the funds in those
accounts in investments permitted by that indenture.
50
<PAGE>
The administrative agent is entitled to a fee of $497,000 per year, plus an
additional amount for any additional aircraft acquired in the future, payable
monthly in arrears in equal installments. The administrative agent is entitled
to be indemnified by Aircraft Finance against any loss or liability incurred by
the administrative agent in connection with its services to Aircraft Finance or
as the agent for the trustee and the security trustee, other than through its
own deceit, fraud, gross negligence or willful misconduct or that of its
officers, directors, agents and employees.
FINANCIAL ADVISOR
Bankers Trust Company will act as the initial financial advisor. The
financial advisor is responsible for assisting Aircraft Finance in developing
models for the purposes of analyzing the financial impact of aircraft lease,
sale and capital investment decisions. The agreement with the financial advisor
may be terminated by either Aircraft Finance or the financial advisor on 30
days' written notice.
OWNER TRUSTEE
Wilmington Trust will act as the initial owner trustee. The owner trustee
will maintain the books and records, including minute books and records and
trust certificate records, of Aircraft Finance. It will make available
telephone, facsimile and post office box facilities and will maintain Aircraft
Finance's principal place of business in Delaware.
CAPITAL MARKETS ADVISOR
Lehman Brothers Inc. will act as the initial capital markets advisor. The
capital markets advisor is responsible for providing Aircraft Finance with
investment banking advice in connection with the issuance of additional notes,
financial advice to assist Aircraft Finance in evaluating interest rate risk and
other analytical advice. Aircraft Finance may remove the capital markets advisor
at any time on 90 days' written notice.
Item 11. Executive Compensation
All trustees will be compensated for travel and other expenses incurred
by them in the performance of their duties. The Independent Controlling Trustees
receive a salary of $60,000 per annum for their services in such capacity, as
well as additional compensation in the event Aircraft Finance acquires
additional aircraft. The aggregate annual compensation for each independent
controlling trustee may not exceed $100,000 per annum. The Equity Trustee
appointed by the beneficial interest holders does not receive any compensation
from Aircraft Finance for his services.
Item 12. Security Ownership of Certain Beneficial Owners and Management
a) Security ownership of certain beneficial owners.
Name and Address of
Title of Class Beneficial Owner Percent of Class
- -------------- ------------------- ----------------
Beneficial Interest Certificate UniCapital AFT-II, Inc. 49%
10800 Biscayne Boulevard
Miami, Florida 33161
51
<PAGE>
Beneficial Interest Certificate IBC Aircraft Services, Inc. 20%
1200 San Bernardo
Laredo, Texas 78042-1359
Beneficial Interest Certificate General Bank 10%
800 West 6th Street
Los Angeles, CA 90017
Beneficial Interest Certificate TransCapital Corporation *11%
11130 Sunrise Valley Drive
Reston, VA 20191
* TransCapital Corporation owns 9.9% of the beneficial interest directly and
1.1% indirectly through its wholly-owned subsidiary UniCapital AFT-I, Inc.
Item 13. Certain Relationships and Related Transactions
a) Transactions with management and others.
On May 5, 1999, UniCapital Corporation, the parent company of the initial
beneficial interest holders, purchased approximately $3.8 million of the Class D
Notes. UniCapital Corporation subsequently sold these Notes to an unrelated
party in July 1999. Also on May 5, 1999, General Electric Capital Corporation,
parent company of the aircraft servicer, purchased approximately $48.2 million
of the Class D Notes.
Aircraft Finance and its subsidiaries have acquired title to 36 Aircraft
from General Electric Capital Corporation and its affiliates under the master
aircraft purchase agreement dated as of May 5, 1999. Two of the aircraft were
acquired by General Electric Capital Corporation affiliates from affiliates of
UniCapital on May 5, 1999. These two aircraft were acquired by Aircraft Finance
for $85.9 million. UniCapital has indicated that it may at some point sell
additional aircraft to Aircraft Finance. The servicer has agreed to allocate a
portion of the fees payable to it to UniCapital to the extent of the two initial
and any other aircraft acquired from UniCapital.
b) Certain business relationships.
Wayne D. Lippman, the equity trustee and one of the three controlling
trustees of Aircraft Finance, is an employee of UniCapital Air Group, Inc., a
wholly-owned subsidiary of UniCapital Corporation and the parent company of one
of the holders of Aircraft Finance's beneficial interest. The acquisition of
additional aircraft by Aircraft Finance and the terms of any related financing
need only be approved by the equity trustee, subject to the terms of the trust
agreement and the indenture, including confirmation by the rating agencies that
the transaction will not adversely affect the rating on the Notes. Though it had
been contemplated that Mr. Lippman would at some point resign as equity trustee,
Mr. Lippman now plans to stay on indefinitely.
52
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
a. Financial Statements.
The following are included in Part II of this report:
Page
----
Report of Independent Certified Public Accountants............31
Consolidated Balance Sheet....................................32
Consolidated Statement of Income..............................33
Consolidated Statement of Cash Flows..........................34
Consolidated Statement of Changes in Beneficial Interest......35
Notes to Consolidated Financial Statements....................36
b. Current Reports on Form 8-K.
No Current Reports on Form 8-K were filed during the quarter ended
December 31, 1999.
c. Exhibits required to be filed by Item 601 of Regulation S-K.
Exhibit
Number
- -------
3.1 Certificate of Trust of Aircraft Finance Trust.*
3.2 Amended and Restated Trust Agreement of Aircraft Finance Trust dated as
of May 4, 1999.*
4.1 Indenture dated as of May 5, 1999 between Aircraft Finance Trust,
Resource/Phoenix, Inc. and Bankers Trust Company.*
4.2 Form of Global Note (included in Exhibit 4.1).*
4.4 Registration Rights Agreement dated as of May 5, 1999 between Aircraft
Finance Trust and Lehman Brothers Inc.*
4.5 Form of Restricted Global Note.**
4.6 Form of Exchange Notes.**
10.1 Master Aircraft Purchase Agreement, dated as of May 5, 1999 among
General Electric Capital Corporation, Aircraft Finance Trust, the
Sellers listed on Annex A thereto and AFT Trust-Sub I.*
10.2 Security Trust Agreement dated as of May 5, 1999 between Aircraft
Finance Trust, Bankers Trust Company, AFT Trust-Sub I and Aircraft
Finance Trust Ireland, Limited.*
10.3 Servicing Agreement dated as of May 5, 1999 among GE Capital Aviation
Services, Limited and Aircraft Finance Trust.*
10.4 Administrative Agency Agreement dated as of May 5, 1999 between Bankers
Trust Company, Aircraft Finance Trust, ReSource/Phoenix, Inc., AFT
Trust-Sub I and Aircraft Finance Trust Ireland, Limited.*
10.5 Reference Agency Agreement dated as of May 5, 1999 between Bankers
Trust Company, Aircraft Finance Trust and ReSource/Phoenix, Inc.*
10.6 Master Swap Agreement and Schedule dated as of May 5, 1999 between
Aircraft Finance Trust and Lehman Brothers Financial Products Inc.*
21. Subsidiaries of Aircraft Finance Trust.*
23.1 Consent of Aircraft Information Services, Inc.**
23.2 Consent of BK Associates, Inc.**
53
<PAGE>
23.3 Consent of Morton, Beyer & Agnew.**
27.1 Financial Data Schedule.**
99.1 Appraisal of Aircraft Information Sercices, Inc.**
99.2 Appraisal of BK Associates, Inc.**
99.3 Appraisal of Morton, Beyer & Agnew.**
* Incorporated by reference to the Registration Statement on Form S-4
(File No. 333-82153) previously filed with the Securities and Exchange
Commission on July 2, 1999.
** Filed herewith.
d. Financial Statement Schedules.
All financial statement schedules are omitted because they are not
applicable, not required or because the required information is
included in the financial statements or notes thereto.
54
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AIRCRAFT FINANCE TRUST
by Wilmington Trust Company,
not in its individual capacity but
solely as the Owner Trustee
March 22, 2000 By: /S/CHARISSE L. RODGERS
- -------------------------- --------------------------------------------
Date Name: Charisse L. Rodgers
Title: Senior Financial Services Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/S/DAVID H. TREITEL Independent Controlling Trustee March 22, 2000
- ----------------------- ----------------
David H. Treitel
/S/RICHARD E. CAVANAGH Independent Controlling Trustee March 22, 2000
- ----------------------- ----------------
Richard E. Cavanagh
/S/WAYNE D. LIPPMAN Equity Trustee and March 22, 2000
- ----------------------- Controlling Trustee ----------------
Wayne D. Lippman
/S/CHARISSE L. RODGERS Owner Trustee March 22, 2000
- ----------------------- ----------------
Wilmington Trust Company,
not in its individual
capacity but solely as
the Owner Trustee
55
SUBCLASS A-2 FLOATING RATE ASSET-BACKED NOTE, SERIES 1999-1
<PAGE>
AIRCRAFT FINANCE TRUST
$400,000,000 CLASS A-2 FLOATING RATE ASSET-BACKED NOTES, SERIES 1999-1
SUBCLASS A-2
No. ___
CUSIP:
ISIN:
COMMON CODE:
$_________________
AIRCRAFT FINANCE TRUST, a business trust organized under the
laws of the State of Delaware (herein referred to as the "Issuer"), for value
received, hereby promises to pay to CEDE & CO., or registered assigns, the
principal sum of __________ DOLLARS ($___________) on May 15, 2024 (the "Final
Maturity Date") and to pay interest monthly in arrears on the Outstanding
Principal Balance hereof at a fluctuating interest rate per annum equal to the
sum of LIBOR (calculated as provided in the Indenture) plus 0.50% per annum (the
"Stated Rate of Interest") from the date hereof until the Outstanding Principal
Balance hereof is paid, payable on each Payment Date. Interest on the Subclass
A-2 Notes in each Interest Accrual Period will be calculated by the
Administrative Agent (as hereinafter defined) by multiplying the Stated Rate of
Interest on the Subclass A-2 Notes for the relevant Interest Accrual Period by
the Outstanding Principal Balance of the Subclass A-2 Notes on the first day of
such Interest Accrual Period and by multiplying the product by the actual number
of days in such Interest Accrual Period divided by 360 and rounding the
resulting amount to the nearest cent (with half a cent being rounded upwards).
This Subclass A-2 Note is one of a duly authorized issue of Notes of
the Issuer issued under the Trust Indenture dated as of May 5, 1999 (as amended
or supplemented from time to time, the "Indenture"), between the Issuer,
ReSource/Phoenix, Inc., in its capacity as Administrative Agent (the
<PAGE>
"Administrative Agent") and Bankers Trust Company, as trustee (the "Trustee").
The Indenture also provides for the issuance of Class A Notes of any subclass
(including additional Subclass A-2 Notes), Class B Notes, Class C Notes and
Class D Notes. All capitalized terms used in this Subclass A-2 Note and not
defined herein shall have the respective meanings assigned to such terms in the
Indenture. Reference is made to the Indenture and all indentures supplemental
thereto for a statement of the respective rights and obligations thereunder of
the Issuer, the Trustee and the Subclass A-2 Holders. This Subclass A-2 Note is
subject to all of the terms of the Indenture.
The Outstanding Principal Balance of this Subclass A-2 Note may be
repaid prior to the Final Maturity Date through the application on the Payment
Dates of the Available Collections to the principal hereof as provided in
Section 3.08 of the Indenture (after making payments entitled to priority under
Section 3.08 of the Indenture). In addition, the Issuer may optionally redeem
all or part of the Outstanding Principal Balance of this Subclass A-2 Note on
any Payment Date at the applicable Redemption Price (calculated as provided in
the Indenture) or, in the case of a redemption for taxation reasons specified in
the Indenture or a redemption in certain default circumstances as provided in
the Indenture, at the Outstanding Principal Balance hereof plus accrued and
unpaid interest hereon.
Any amount of premium or interest on this Subclass A-2 Note that is not
paid when due shall, to the fullest extent permitted by applicable law, bear
interest at an interest rate per annum equal to the Stated Rate of Interest from
the date when due until such amount is paid or duly provided for, payable on the
next succeeding Payment Date, subject to the availability of the Available
Collections therefor after making payments entitled to priority under Section
3.08 of the Indenture.
<PAGE>
The indebtedness evidenced by the Subclass A-2 Notes is, to the extent
and in the manner provided in the Indenture and the Security Trust Agreement,
subordinate and subject in right of payment to the prior payment in full of all
Senior Claims (as defined in the Indenture), and this Subclass A-2 Note is
issued subject to the provisions thereof providing for such subordination. Each
Holder of this Subclass A-2 Note, by accepting the same, (a) agrees to and shall
be bound by such provisions, (b) authorizes and directs the Trustee and the
Security Trustee on its behalf to take such action as may be necessary or
appropriate to effectuate the subordination as provided in the Indenture and (c)
appoints each of the Trustee and the Security Trustee its attorney-in-fact for
such purpose. All payments or distributions upon or with respect to any
Obligations (as defined in the Indenture), which include payment of principal,
premium and interest on this Note, that are received by the Holder of this Note
contrary to the priority of payment provisions of the Indenture or in excess of
the amounts to which the Holder of this Note is entitled under Section 3.08 of
the Indenture shall be received for the benefit of the Senior Claimant (as
defined in the Indenture), shall be segregated from other funds and property
held by the Holder of this Note and shall be forthwith paid over to the Security
Trustee in the same form as so received (with any necessary endorsement) to be
applied (in the case of cash) to or held as collateral (in the case of non-cash
property or securities) for the payment or prepayment of the Senior Claims (as
defined in the Indenture) in accordance with the terms of the Indenture.
The maturity of this Subclass A-2 Note is subject to acceleration upon
the occurrence and during the continuance of the Events of Default specified in
the Indenture.
This Subclass A-2 Note is and will be secured, on a subordinated basis
as referred to above, by the collateral pledged as security therefor as provided
in the Security Trust Agreement.
<PAGE>
Subject to and in accordance with the terms of the Indenture, there
will be distributed monthly on each Payment Date commencing on June 15, 1999, to
the Person in whose name this Subclass A-2 Note is registered at the close of
business on the Record Date with respect to such Payment Date, such Person's pro
rata share (based on the aggregate percentage of the Outstanding Principal
Balance of the Subclass A-2 Notes held by such Person) of the aggregate amount
as may be distributable to all Holders of Subclass A-2 Notes on such Payment
Date pursuant to Section 3.08 of the Indenture.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO AIRCRAFT FINANCE TRUST OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN SECTION 2.13 OF THE INDENTURE.
All amounts payable in respect of this Subclass A-2 Note shall be
payable in U.S. dollars in immediately available funds in the manner provided in
the Indenture to the Holder hereof on the Record Date relating to such payment.
The final payment with respect to this Subclass A-2 Note, however, shall be made
only upon presentation and surrender of this Note by the Holder or its agent at
the Corporate Trust Office or agency of the Trustee or Paying Agent specified in
the notice given by the Trustee or Paying Agent with respect to such final
payment. The Trustee or Paying Agent shall mail such notice of the final payment
<PAGE>
of this Note to the Holder, specifying the date and amount of such final
payment, no later than five Business Days prior to such final payment. At such
time, if any, as this Subclass A-2 Note is issued in the form of one or more
Definitive Notes, payments on a Payment Date shall be made by check mailed to
each Holder of such a Definitive Note on the applicable Record Date at its
address appearing on the Register maintained with respect to Subclass A-2 Notes.
Alternatively, upon application in writing to the Trustee, not later than the
applicable Record Date, by a Holder of one or more Definitive Notes of Subclass
A-2 Notes having an aggregate principal amount of not less than $1,000,000, any
such payments shall be made by wire transfer to an account designated by such
Holder at a financial institution in New York, New York. The final payment with
respect to any such Definitive Note, however, shall be made only upon
presentation and surrender of such Definitive Note by the Holder or its agent at
the Corporate Trust Office or agency of the Trustee or Paying Agent specified in
the notice of such final payment given by the Trustee or Paying Agent. The
Trustee or Paying Agent shall mail such notice of the final payment of this Note
to the Holder, specifying the date and amount of such final payment, no later
than five Business Days prior to such final payment.
This Subclass A-2 Note is issuable only in registered form. A
Holder may transfer this Note only by written application to the Registrar
stating the name of the proposed transferee and otherwise complying with the
terms of the Indenture. No such transfer shall be effective until, and such
transferee shall succeed to the rights of a Holder only upon, final registration
of the transfer by the Registrar in the Register. When this Subclass A-2 Note is
presented to the Registrar with a request to register the transfer or to
exchange it for an equal principal amount of Subclass A-2 Notes of other
authorized denominations (including an exchange of this Subclass A-2 Note for an
Exchange Note), the Registrar shall register the transfer or make the exchange
<PAGE>
as requested if its requirements for such transactions are met (including, in
the case of a transfer, that such Note is duly endorsed or accompanied by a
written instrument of transfer in form satisfactory to the Trustee and Registrar
duly executed by the Holder thereof or by an attorney who is authorized in
writing to act on behalf of the Holder). No service charge shall be made for any
registration of transfer or exchange of this Subclass A-2 Note, but the party
requesting such new Note or Notes may be required to pay a sum sufficient to
cover any transfer tax or similar governmental charge payable in connection
therewith.
Prior to the registration of transfer of this Subclass A-2 Note, the
Issuer and the Trustee may deem and treat the Person in whose name this Subclass
A-2 Note (as of the day of determination or as of such other date as may be
specified in the Indenture) is registered as the absolute owner and Holder
hereof for the purpose of receiving payment of all amounts payable with respect
to this Subclass A-2 Note and for all other purposes, and neither the Issuer nor
the Trustee shall be affected by notice to the contrary.
The Indenture permits the amendment or modification of the Indenture
and the Subclass A-2 Notes by the issuer with the consent of the Holders of a
majority of the Outstanding Principal Balance of all Notes on the date of any
vote of such Holders (voting as a single class); provided that, (A) without the
consent of each provider of a Credit Facility, no such amendment may modify (i)
the provisions of the Indenture relating to such Person's Credit Facility or
(ii) to the extent affecting such Person's Credit Facility, Credit Facilities
generally; provided further that, (B) without the consent of each Swap Provider,
each provider of a Credit Facility and each Holder of any Notes, in each
instance affected thereby, no such amendment may, except as otherwise provided
in Section 3.11 of the Indenture, (i) modify the provisions of the Indenture or
the Notes setting forth the frequency or the currency of payment of, the
<PAGE>
maturity of, or the method of calculation of the amount of, any interest,
principal or Redemption Price and Sale Premium, if any, payable in respect of
any subclass of Notes, (ii) reduce the percentage of the aggregate Outstanding
Principal Balance of any subclass of Notes required to approve any amendment or
waiver of Section 9.01 of the Indenture or, except as otherwise provided in
Section 3.09 of the Indenture, (iii) alter the manner or priority of payment of
such subclass of Notes (each such amendment referred to in subsection A and B, a
"Basic Terms Modification"). The Indenture also permits the Trustee to agree
with the Issuer, without the consent of any Holder of the Notes, (a) to any
modification (other than a Basic Terms Modification) of, or the waiver or
authorization of any breach or prospective breach of, any provision of any
Related Document or of the relevant subclass of Notes to correct a manifest
error or an error which is of a formal, minor or technical nature, (b) to modify
the provisions of the Indenture or the Administrative Agency Agreement relating
to the timing of movement of Rental Payments or other monies received or
Expenses Incurred among the Accounts by the Administrative Agent, (c) to add or
reflect any Credit Facility, (d) to any amendment (other than a Basic Terms
Modification) of an immaterial nature necessary to permit the issuance of
Refinancing Notes and/or Additional Notes and the acquisition of Additional
Aircraft consistent with the expense provisions of the Indenture or (e) to
comply with the requirements of the Commission in connection with the
qualification of the Indenture under the Trust Indenture Act of 1939 (as
amended, the "Trust Indenture Act"). Any amendment or modification of the
Indenture shall be binding on every Holder hereof, whether or not notation
thereof is made upon this Subclass A-2 Note.
The subordination provisions contained in Section 3.08, Section 3.09
and Article X of the Indenture may not be amended or modified without the
consent of each Swap Provider, each provider of a Credit Facility, each Holder
<PAGE>
of the Notes of the subclass affected thereby and each Holder of any subclass of
Notes ranking senior thereto. In no event shall the provisions set forth in
Section 3.08 of the Indenture relating to the priority of the Expenses, Swap
Payments and payments under all Credit Facilities be amended or modified.
The Indenture also contains provisions permitting the Holders of Notes
representing a majority of the Outstanding Principal Balance of the Senior
Class, on behalf of the Holders of all of the Subclass A-2 Notes, to waive
compliance by the Issuer with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver shall be conclusive and binding upon all present and future Holders of
this Subclass A-2 Note and of any Subclass A-2 Note issued upon the registration
of transfer of, in exchange or in lieu of or upon the refinancing of this
Subclass A-2 Note, whether or not notation of such consent or waiver is made
upon this Subclass A-2 Note.
The term "Issuer" as used in this Subclass A-2 Note includes any
successor to the Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances,
to merge or consolidate, subject to the rights of the Trustee and the Holders of
Subclass A-2 Notes under the Indenture.
The Subclass A-2 Notes are issuable only in registered form in
denominations as provided in the Indenture, subject to certain limitations
therein set forth.
THIS SUBCLASS A-2 NOTE SHALL IN ALL RESPECTS BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
<PAGE>
Unless the certificate of authentication hereon has been executed by
the Trustee whose name appears below by manual or facsimile signature, this
Subclass A-2 Note shall not be entitled to any benefit under the Indenture, or
be valid or obligatory for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this Subclass A-2 Note to be
signed manually or by facsimile by its Owner Trustee.
Date: _________________ AIRCRAFT FINANCE TRUST
By: Wilmington Trust Company,
not in its individual capacity but
solely as the Owner Trustee
By:_________________________________
Name:
Title: Authorized Signatory
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Subclass A-2 Notes designated above and referred to
in the within-mentioned Indenture.
Date: ____________ BANKERS TRUST COMPANY, not in its individual
capacity but solely as the Trustee
By: _______________________________
Authorized Signatory
<PAGE>
TRANSFER NOTICE
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No. __________________
________________________________________________________________________________
(Please print or typewrite name and address including zip code of assignee)
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing ______________________________ attorney to transfer said Note on the
books of the Issuer with full power of substitution in the premises.
Date: {Signature of Transferor}
NOTE: The signature to this
assignment must correspond with the
name as written upon the face of the
within-mentioned instrument in every
particular, without alteration or
any change whatsoever.
The undersigned covenants and agrees that it will treat this Note as
indebtedness for all purposes and will not take any action contrary to such
characterization, including, without limitation, filing any tax returns or
financial statements inconsistent therewith.
Date: {Signature of Transferee}
NOTICE: to be executed by an
executive officer
SUBCLASS A-1 FLOATING RATE ASSET-BACKED NOTE, SERIES 1999-1
<PAGE>
AIRCRAFT FINANCE TRUST
$512,500,000 CLASS A-1 FLOATING RATE ASSET-BACKED NOTES, SERIES 1999-1
SUBCLASS A-1
No. ___
CUSIP:
ISIN:
COMMON CODE:
$____________________
AIRCRAFT FINANCE TRUST, a business trust organized under the laws of
the State of Delaware (herein referred to as the "Issuer"), for value received,
hereby promises to pay to CEDE & CO., or registered assigns, the principal sum
of _____________ DOLLARS ($___________) on May 15, 2024 (the "Final Maturity
Date") and to pay interest monthly in arrears on the Outstanding Principal
Balance hereof at a fluctuating rate per annum equal to the sum of LIBOR
(calculated as provided in the Indenture) plus 0.48% per annum (together with
Maturity Step-Up Interest, the "Stated Rate of Interest") from the date hereof
until the Outstanding Principal Balance hereof is paid, payable on each Payment
Date. Interest on the Subclass A-1 Notes in each Interest Accrual Period will be
calculated by the Administrative Agent (as hereinafter defined) by multiplying
the Stated Rate of Interest on the Subclass A-1 Notes for the relevant Interest
Accrual Period by the Outstanding Principal Balance of the Subclass A-1 Notes on
the first day of such Interest Accrual Period and by multiplying the product by
the actual number of days in such Interest Accrual Period divided by 360 and
rounding the resulting amount to the nearest cent (with half a cent being
rounded upwards).
This Subclass A-1 Note is one of a duly authorized issue of Notes of
the Issuer issued under the Trust Indenture dated as of May 5, 1999 (as amended
<PAGE>
or supplemented from time to time, the "Indenture"), between the Issuer,
ReSource/Phoenix, Inc., in its capacity as Administrative Agent (the
"Administrative Agent") and Bankers Trust Company (the "Trustee"). The Indenture
also provides for the issuance of Class A Notes of any subclass (including
additional Subclass A-1 Notes), Class B Notes, Class C Notes and Class D Notes.
All capitalized terms used in this Subclass A-1 Note and not defined herein
shall have the respective meanings assigned to such terms in the Indenture.
Reference is made to the Indenture and all indentures supplemental thereto for a
statement of the respective rights and obligations thereunder of the Issuer, the
Trustee and the Holders of Subclass A-1 Notes. This Subclass A-1 Note is subject
to all of the terms of the Indenture.
The Outstanding Principal Balance of this Subclass A-1 Note may be
repaid prior to the Final Maturity Date through the application on the Payment
Dates of the Available Collections to the principal hereof as provided in
Section 3.08 of the Indenture (after making payments entitled to priority under
Section 3.08 of the Indenture). In addition, the Issuer may optionally redeem
all or part of the Outstanding Principal Balance of this Subclass A-1 Note on
any Payment Date at the applicable Redemption Price (calculated as provided in
the Indenture) or, in the case of a redemption for taxation reasons specified in
the Indenture or a redemption in certain default circumstances as provided in
the Indenture, at the Outstanding Principal Balance hereof plus accrued and
unpaid interest hereon.
Any amount of premium or interest (including Maturity Step-Up Interest)
on this Subclass A-1 Note that is not paid when due shall, to the fullest extent
permitted by applicable law, bear interest at an interest rate per annum equal
to the Stated Rate of Interest from the date when due until such amount is paid
or duly provided for, payable on the next succeeding Payment Date, subject to
<PAGE>
the availability of the Available Collections therefor after making payments
entitled to priority under Section 3.08 of the Indenture.
If this Note is not repaid on or before May 15, 2004, additional
interest, at a rate of 0.5% per annum shall accrue on the Outstanding Principal
Balance (as defined in the Indenture) of this Note ("Maturity Step-Up
Interest").
The indebtedness evidenced by the Subclass A-1 Notes is, to the extent
and in the manner provided in the Indenture and the Security Trust Agreement,
subordinate and subject in right of payment to the prior payment in full of all
Senior Claims (as defined in the Indenture), and this Subclass A-1 Note is
issued subject to the provisions thereof providing for such subordination. Each
Holder of this Subclass A-1 Note, by accepting the same, (a) agrees to and shall
be bound by such provisions, (b) authorizes and directs the Trustee and the
Security Trustee on its behalf to take such action as may be necessary or
appropriate to effectuate the subordination as provided in the Indenture and (c)
appoints each of the Trustee and the Security Trustee its attorney-in-fact for
such purpose. All payments or distributions upon or with respect to any
Obligations (as defined in the Indenture), which include payment of principal,
premium and interest on this Note, that are received by the Holder of this Note
contrary to the priority of payment provisions of the Indenture or in excess of
the amounts to which the Holder of this Note is entitled under Section 3.08 of
the Indenture shall be received for the benefit of the Senior Claimant (as
defined in the Indenture), shall be segregated from other funds and property
held by the Holder of this Note and shall be forthwith paid over to the Security
Trustee in the same form as so received (with any necessary endorsement) to be
applied (in the case of cash) to or held as collateral (in the case of non-cash
property or securities) for the payment or prepayment of the Senior Claims (as
defined in the Indenture) in accordance with the terms of the Indenture.
<PAGE>
The maturity of this Subclass A-1 Note is subject to acceleration upon
the occurrence and during the continuance of the Events of Default specified in
the Indenture.
This Subclass A-1 Note is and will be secured, on a subordinated basis
as referred to above, by the collateral pledged as security therefor as provided
in the Security Trust Agreement.
Subject to and in accordance with the terms of the Indenture, there
will be distributed monthly on each Payment Date commencing on June 15, 1999, to
the Person in whose name this Subclass A-1 Note is registered at the close of
business on the Record Date with respect to such Payment Date, such Person's pro
rata share (based on the aggregate percentage of the Outstanding Principal
Balance of the Subclass A-1 Notes held by such Person) of the aggregate amount
as may be distributable to all Holders of Subclass A-1 Notes on such Payment
Date pursuant to Section 3.08 of the Indenture.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO AIRCRAFT FINANCE TRUST OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN SECTION 2.13 OF THE INDENTURE.
All amounts payable in respect of this Subclass A-1 Note shall be
payable in U.S. dollars in immediately available funds in the manner provided in
the Indenture to the Holder hereof on the Record Date relating to such payment.
<PAGE>
The final payment with respect to this Subclass A-1 Note, however, shall be made
only upon presentation and surrender of this Note by the Holder or its agent at
the Corporate Trust Office or agency of the Trustee or Paying Agent specified in
the notice given by the Trustee or Paying Agent with respect to such final
payment. The Trustee or Paying Agent shall mail such notice of the final payment
of this Note to the Holder, specifying the date and amount of such final
payment, no later than five Business Days prior to such final payment. At such
time, if any, as this Subclass A-1 Note is issued in the form of one or more
Definitive Notes, payments on a Payment Date shall be made by check mailed to
each Holder of such a Definitive Note on the applicable Record Date at its
address appearing on the Register maintained with respect to Subclass A-1 Notes.
Alternatively, upon application in writing to the Trustee, not later than the
applicable Record Date, by a Holder of one or more Definitive Notes of Subclass
A-1 Notes having an aggregate principal amount of not less than $1,000,000, any
such payments shall be made by wire transfer to an account designated by such
Holder at a financial institution in New York, New York. The final payment with
respect to any such Definitive Note, however, shall be made only upon
presentation and surrender of such Definitive Note by the Holder or its agent at
the Corporate Trust Office or agency of the Trustee or Paying Agent specified in
the notice of such final payment given by the Trustee or Paying Agent. The
Trustee or Paying Agent shall mail such notice of the final payment of this Note
to the Holder, specifying the date and amount of such final payment, no later
than five Business Days prior to such final payment.
This Subclass A-1 Note is issuable only in registered form. A Holder
may transfer this Note only by written application to the Registrar stating the
name of the proposed transferee and otherwise complying with the terms of the
Indenture. No such transfer shall be effective until, and such transferee shall
<PAGE>
succeed to the rights of a Holder only upon, final registration of the transfer
by the Registrar in the Register. When this Subclass A-1 Note is presented to
the Registrar with a request to register the transfer or to exchange it for an
equal principal amount of Subclass A-1 Notes of other authorized denominations
(including an exchange of this Subclass A-1 Note for an Exchange Note), the
Registrar shall register the transfer or make the exchange as requested if its
requirements for such transactions are met (including, in the case of a
transfer, that such Note is duly endorsed or accompanied by a written instrument
of transfer in form satisfactory to the Trustee and Registrar duly executed by
the Holder thereof or by an attorney who is authorized in writing to act on
behalf of the Holder). No service charge shall be made for any registration of
transfer or exchange of this Subclass A-1 Note, but the party requesting such
new Note or Notes may be required to pay a sum sufficient to cover any transfer
tax or similar governmental charge payable in connection therewith.
Prior to the registration of transfer of this Subclass A-1 Note, the
Issuer and the Trustee may deem and treat the Person in whose name this Subclass
A-1 Note (as of the day of determination or as of such other date as may be
specified in the Indenture) is registered as the absolute owner and Holder
hereof for the purpose of receiving payment of all amounts payable with respect
to this Subclass A-1 Note and for all other purposes, and neither the Issuer nor
the Trustee shall be affected by notice to the contrary.
The Indenture permits the amendment or modification of the Indenture
and the Subclass A-1 Notes by the Issuer with the consent of the Holders of a
majority of the Outstanding Principal Balance of all Notes on the date of any
vote of such Holders (voting as a single class); provided that, (A) without the
consent of each provider of a Credit Facility, no such amendment may modify (i)
the provisions of the Indenture relating to such Person's Credit Facility or
(ii) to the extent affecting such Person's Credit Facility, Credit Facilities
<PAGE>
generally; provided further that, (B) without the consent of each Swap Provider,
each provider of a Credit Facility and each Holder of any Notes, in each
instance affected thereby, no such amendment may, except as otherwise provided
in Section 3.11 of the Indenture, (i) modify the provisions of the Indenture or
the Notes 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 or Redemption Price and Sale Premium, if any, payable in respect of
any subclass of Notes, (ii) reduce the percentage of the aggregate Outstanding
Principal Balance of any subclass of Notes required to approve any amendment or
waiver of Section 9.01 of the Indenture or, except as otherwise provided in
Section 3.09 of the Indenture, (iii) alter the manner or priority of payment of
such subclass of Notes (each such amendment referred to in subsection A and B, a
"Basic Terms Modification"). The Indenture also permits the Trustee to agree
with the Issuer, without the consent of any Holder of the Notes, (a) to any
modification (other than a Basic Terms Modification) of, or the waiver or
authorization of any breach or prospective breach of, any provision of any
Related Document or of the relevant subclass of Notes to correct a manifest
error or an error which is of a formal, minor or technical nature, (b) to modify
the provisions of the Indenture or the Administrative Agency Agreement relating
to the timing of movement of Rental Payments or other monies received or
Expenses Incurred among the Accounts by the Administrative Agent, (c) to add or
reflect any Credit Facility, (d) to any amendment (other than a Basic Terms
Modification) of an immaterial nature necessary to permit the issuance of
Refinancing Notes and/or Additional Notes and the acquisition of Additional
Aircraft consistent with the expense provisions of the Indenture or (e) to
comply with the requirements of the Commission in connection with the
qualification of the Indenture under the Trust Indenture Act of 1939 (as
<PAGE>
amended, the "Trust Indenture Act"). Any amendment or modification of the
Indenture shall be binding on every Holder hereof, whether or not notation
thereof is made upon this Subclass A-1 Note.
The subordination provisions contained in Section 3.08, Section 3.09
and Article X of the Indenture may not be amended or modified without the
consent of each Swap Provider, each provider of a Credit Facility, each Holder
of the Notes of the subclass affected thereby and each Holder of any subclass of
Notes ranking senior thereto. In no event shall the provisions set forth in
Section 3.08 of the Indenture relating to the priority of the Expenses, Swap
Payments and payments under all Credit Facilities be amended or modified.
The Indenture also contains provisions permitting the Holders of Notes
representing a majority of the Outstanding Principal Balance of the Senior
Class, on behalf of the Holders of all of the Subclass A-1 Notes, to waive
compliance by the Issuer with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver shall be conclusive and binding upon all present and future Holders of
this Subclass A-1 Note and of any Subclass A-1 Note issued upon the registration
of transfer of, in exchange or in lieu of or upon the refinancing of this
Subclass A-1 Note, whether or not notation of such consent or waiver is made
upon this Subclass A-1 Note.
The term "Issuer" as used in this Subclass A-1 Note includes any
successor to the Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances,
to merge or consolidate, subject to the rights of the Trustee and the Holders of
Subclass A-1 Notes under the Indenture.
<PAGE>
The Subclass A-1 Notes are issuable only in registered form in
denominations as provided in the Indenture, subject to certain limitations
therein set forth.
THIS SUBCLASS A-1 NOTE SHALL IN ALL RESPECTS BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
Unless the certificate of authentication hereon has been executed by
the Trustee whose name appears below by manual or facsimile signature, this
Subclass A-1 Note shall not be entitled to any benefit under the Indenture, or
be valid or obligatory for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this Subclass A-1 Note to be
signed manually or by facsimile by its Owner Trustee.
Date:______________ AIRCRAFT FINANCE TRUST
By: Wilmington Trust Company, not in its individual
capacity but solely as the Owner Trustee
By:___________________________________
Name:
Title: Authorized Signatory
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Subclass A-1 Notes designated above and referred to in the
within-mentioned Indenture.
Date: ____________ BANKERS TRUST COMPANY, not in its
individual capacity but solely as the Trustee
By: _______________________________
Authorized Signatory
<PAGE>
TRANSFER NOTICE
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s), assign(s)
and transfer(s) unto
Insert Taxpayer Identification No. __________________
________________________________________________________________________________
(Please print or typewrite name and address including zip code of assignee)
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing ______________________________ attorney to transfer said Note on the
books of the Issuer with full power of substitution in the premises.
Date: {Signature of Transferor}
NOTE: The signature to this assignment
must correspond with the name as written
upon the face of the within-mentioned
instrument in every particular, without
alteration or any change whatsoever.
The undersigned covenants and agrees that it will treat this Note as
indebtedness for all purposes and will not take any action contrary to such
characterization, including, without limitation, filing any tax returns or
financial statements inconsistent therewith.
Date: {Signature of Transferee}
NOTICE: to be executed by an executive
officer
<PAGE>
SUBCLASS A-2 FLOATING RATE ASSET-BACKED NOTE, SERIES 1999-1
<PAGE>
AIRCRAFT FINANCE TRUST
$400,000,000 CLASS A-2 FLOATING RATE ASSET-BACKED NOTES, SERIES 1999-1
SUBCLASS A-2
No. ___
CUSIP:
ISIN:
COMMON CODE:
$____________________
AIRCRAFT FINANCE TRUST, a business trust organized under the laws of
the State of Delaware (herein referred to as the "Issuer"), for value received,
hereby promises to pay to CEDE & CO., or registered assigns, the principal sum
of _________________ DOLLARS ($____________) on May 15, 2024 (the "Final
Maturity Date") and to pay interest monthly in arrears on the Outstanding
Principal Balance hereof at a fluctuating interest rate per annum equal to the
sum of LIBOR (calculated as provided in the Indenture) plus 0.50% per annum (the
"Stated Rate of Interest") from the date hereof until the Outstanding Principal
Balance hereof is paid, payable on each Payment Date. Interest on the Subclass
A-2 Notes in each Interest Accrual Period will be calculated by the
Administrative Agent (as hereinafter defined) by multiplying the Stated Rate of
Interest on the Subclass A-2 Notes for the relevant Interest Accrual Period by
the Outstanding Principal Balance of the Subclass A-2 Notes on the first day of
such Interest Accrual Period and by multiplying the product by the actual number
of days in such Interest Accrual Period divided by 360 and rounding the
resulting amount to the nearest cent (with half a cent being rounded upwards).
This Subclass A-2 Note is one of a duly authorized issue of Notes of
the Issuer issued under the Trust Indenture dated as of May 5, 1999 (as amended
or supplemented from time to time, the "Indenture"), between the Issuer,
ReSource/Phoenix, Inc., in its capacity as Administrative Agent (the
<PAGE>
"Administrative Agent") and Bankers Trust Company, as trustee (the "Trustee").
The Indenture also provides for the issuance of Class A Notes of any subclass
(including additional Subclass A-2 Notes), Class B Notes, Class C Notes and
Class D Notes. All capitalized terms used in this Subclass A-2 Note and not
defined herein shall have the respective meanings assigned to such terms in the
Indenture. Reference is made to the Indenture and all indentures supplemental
thereto for a statement of the respective rights and obligations thereunder of
the Issuer, the Trustee and the Subclass A-2 Holders. This Subclass A-2 Note is
subject to all of the terms of the Indenture.
The Outstanding Principal Balance of this Subclass A-2 Note may be
repaid prior to the Final Maturity Date through the application on the Payment
Dates of the Available Collections to the principal hereof as provided in
Section 3.08 of the Indenture (after making payments entitled to priority under
Section 3.08 of the Indenture). In addition, the Issuer may optionally redeem
all or part of the Outstanding Principal Balance of this Subclass A-2 Note on
any Payment Date at the applicable Redemption Price (calculated as provided in
the Indenture) or, in the case of a redemption for taxation reasons specified in
the Indenture or a redemption in certain default circumstances as provided in
the Indenture, at the Outstanding Principal Balance hereof plus accrued and
unpaid interest hereon.
Any amount of premium or interest on this Subclass A-2 Note that is not
paid when due shall, to the fullest extent permitted by applicable law, bear
interest at an interest rate per annum equal to the Stated Rate of Interest from
the date when due until such amount is paid or duly provided for, payable on the
next succeeding Payment Date, subject to the availability of the Available
Collections therefor after making payments entitled to priority under Section
3.08 of the Indenture.
<PAGE>
The indebtedness evidenced by the Subclass A-2 Notes is, to the extent
and in the manner provided in the Indenture and the Security Trust Agreement,
subordinate and subject in right of payment to the prior payment in full of all
Senior Claims (as defined in the Indenture), and this Subclass A-2 Note is
issued subject to the provisions thereof providing for such subordination. Each
Holder of this Subclass A-2 Note, by accepting the same, (a) agrees to and shall
be bound by such provisions, (b) authorizes and directs the Trustee and the
Security Trustee on its behalf to take such action as may be necessary or
appropriate to effectuate the subordination as provided in the Indenture and (c)
appoints each of the Trustee and the Security Trustee its attorney-in-fact for
such purpose. All payments or distributions upon or with respect to any
Obligations (as defined in the Indenture), which include payment of principal,
premium and interest on this Note, that are received by the Holder of this Note
contrary to the priority of payment provisions of the Indenture or in excess of
the amounts to which the Holder of this Note is entitled under Section 3.08 of
the Indenture shall be received for the benefit of the Senior Claimant (as
defined in the Indenture), shall be segregated from other funds and property
held by the Holder of this Note and shall be forthwith paid over to the Security
Trustee in the same form as so received (with any necessary endorsement) to be
applied (in the case of cash) to or held as collateral (in the case of non-cash
property or securities) for the payment or prepayment of the Senior Claims (as
defined in the Indenture) in accordance with the terms of the Indenture.
The maturity of this Subclass A-2 Note is subject to acceleration upon
the occurrence and during the continuance of the Events of Default specified in
the Indenture.
This Subclass A-2 Note is and will be secured, on a subordinated basis
as referred to above, by the collateral pledged as security therefor as provided
in the Security Trust Agreement.
<PAGE>
Subject to and in accordance with the terms of the Indenture, there
will be distributed monthly on each Payment Date commencing on June 15, 1999, to
the Person in whose name this Subclass A-2 Note is registered at the close of
business on the Record Date with respect to such Payment Date, such Person's pro
rata share (based on the aggregate percentage of the Outstanding Principal
Balance of the Subclass A-2 Notes held by such Person) of the aggregate amount
as may be distributable to all Holders of Subclass A-2 Notes on such Payment
Date pursuant to Section 3.08 of the Indenture.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO AIRCRAFT FINANCE TRUST OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN SECTION 2.13 OF THE INDENTURE.
All amounts payable in respect of this Subclass A-2 Note shall be
payable in U.S. dollars in immediately available funds in the manner provided in
the Indenture to the Holder hereof on the Record Date relating to such payment.
The final payment with respect to this Subclass A-2 Note, however, shall be made
only upon presentation and surrender of this Note by the Holder or its agent at
the Corporate Trust Office or agency of the Trustee or Paying Agent specified in
the notice given by the Trustee or Paying Agent with respect to such final
payment. The Trustee or Paying Agent shall mail such notice of the final payment
<PAGE>
of this Note to the Holder, specifying the date and amount of such final
payment, no later than five Business Days prior to such final payment. At such
time, if any, as this Subclass A-2 Note is issued in the form of one or more
Definitive Notes, payments on a Payment Date shall be made by check mailed to
each Holder of such a Definitive Note on the applicable Record Date at its
address appearing on the Register maintained with respect to Subclass A-2 Notes.
Alternatively, upon application in writing to the Trustee, not later than the
applicable Record Date, by a Holder of one or more Definitive Notes of Subclass
A-2 Notes having an aggregate principal amount of not less than $1,000,000, any
such payments shall be made by wire transfer to an account designated by such
Holder at a financial institution in New York, New York. The final payment with
respect to any such Definitive Note, however, shall be made only upon
presentation and surrender of such Definitive Note by the Holder or its agent at
the Corporate Trust Office or agency of the Trustee or Paying Agent specified in
the notice of such final payment given by the Trustee or Paying Agent. The
Trustee or Paying Agent shall mail such notice of the final payment of this Note
to the Holder, specifying the date and amount of such final payment, no later
than five Business Days prior to such final payment.
This Subclass A-2 Note is issuable only in registered form. A Holder
may transfer this Note only by written application to the Registrar stating the
name of the proposed transferee and otherwise complying with the terms of the
Indenture. No such transfer shall be effective until, and such transferee shall
succeed to the rights of a Holder only upon, final registration of the transfer
by the Registrar in the Register. When this Subclass A-2 Note is presented to
the Registrar with a request to register the transfer or to exchange it for an
equal principal amount of Subclass A-2 Notes of other authorized denominations
(including an exchange of this Subclass A-2 Note for an Exchange Note), the
Registrar shall register the transfer or make the exchange as requested if its
<PAGE>
requirements for such transactions are met (including, in the case of a
transfer, that such Note is duly endorsed or accompanied by a written instrument
of transfer in form satisfactory to the Trustee and Registrar duly executed by
the Holder thereof or by an attorney who is authorized in writing to act on
behalf of the Holder). No service charge shall be made for any registration of
transfer or exchange of this Subclass A-2 Note, but the party requesting such
new Note or Notes may be required to pay a sum sufficient to cover any transfer
tax or similar governmental charge payable in connection therewith.
Prior to the registration of transfer of this Subclass A-2 Note, the
Issuer and the Trustee may deem and treat the Person in whose name this Subclass
A-2 Note (as of the day of determination or as of such other date as may be
specified in the Indenture) is registered as the absolute owner and Holder
hereof for the purpose of receiving payment of all amounts payable with respect
to this Subclass A-2 Note and for all other purposes, and neither the Issuer nor
the Trustee shall be affected by notice to the contrary.
The Indenture permits the amendment or modification of the Indenture
and the Subclass A-2 Notes by the issuer with the consent of the Holders of a
majority of the Outstanding Principal Balance of all Notes on the date of any
vote of such Holders (voting as a single class); provided that, (A) without the
consent of each provider of a Credit Facility, no such amendment may modify (i)
the provisions of the Indenture relating to such Person's Credit Facility or
(ii) to the extent affecting such Person's Credit Facility, Credit Facilities
generally; provided further that, (B) without the consent of each Swap Provider,
each provider of a Credit Facility and each Holder of any Notes, in each
instance affected thereby, no such amendment may, except as otherwise provided
in Section 3.11 of the Indenture, (i) modify the provisions of the Indenture or
the Notes setting forth the frequency or the currency of payment of, the
maturity of, or the method of calculation of the amount of, any interest,
<PAGE>
principal or Redemption Price and Sale Premium, if any, payable in respect of
any subclass of Notes, (ii) reduce the percentage of the aggregate Outstanding
Principal Balance of any subclass of Notes required to approve any amendment or
waiver of Section 9.01 of the Indenture or, except as otherwise provided in
Section 3.09 of the Indenture, (iii) alter the manner or priority of payment of
such subclass of Notes (each such amendment referred to in subsection A and B, a
"Basic Terms Modification"). The Indenture also permits the Trustee to agree
with the Issuer, without the consent of any Holder of the Notes, (a) to any
modification (other than a Basic Terms Modification) of, or the waiver or
authorization of any breach or prospective breach of, any provision of any
Related Document or of the relevant subclass of Notes to correct a manifest
error or an error which is of a formal, minor or technical nature, (b) to modify
the provisions of the Indenture or the Administrative Agency Agreement relating
to the timing of movement of Rental Payments or other monies received or
Expenses Incurred among the Accounts by the Administrative Agent, (c) to add or
reflect any Credit Facility, (d) to any amendment (other than a Basic Terms
Modification) of an immaterial nature necessary to permit the issuance of
Refinancing Notes and/or Additional Notes and the acquisition of Additional
Aircraft consistent with the expense provisions of the Indenture or (e) to
comply with the requirements of the Commission in connection with the
qualification of the Indenture under the Trust Indenture Act of 1939 (as
amended, the "Trust Indenture Act"). Any amendment or modification of the
Indenture shall be binding on every Holder hereof, whether or not notation
thereof is made upon this Subclass A-2 Note.
The subordination provisions contained in Section 3.08, Section 3.09
and Article X of the Indenture may not be amended or modified without the
consent of each Swap Provider, each provider of a Credit Facility, each Holder
<PAGE>
of the Notes of the subclass affected thereby and each Holder of any subclass of
Notes ranking senior thereto. In no event shall the provisions set forth in
Section 3.08 of the Indenture relating to the priority of the Expenses, Swap
Payments and payments under all Credit Facilities be amended or modified.
The Indenture also contains provisions permitting the Holders of Notes
representing a majority of the Outstanding Principal Balance of the Senior
Class, on behalf of the Holders of all of the Subclass A-2 Notes, to waive
compliance by the Issuer with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver shall be conclusive and binding upon all present and future Holders of
this Subclass A-2 Note and of any Subclass A-2 Note issued upon the registration
of transfer of, in exchange or in lieu of or upon the refinancing of this
Subclass A-2 Note, whether or not notation of such consent or waiver is made
upon this Subclass A-2 Note.
The term "Issuer" as used in this Subclass A-2 Note includes any
successor to the Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances,
to merge or consolidate, subject to the rights of the Trustee and the Holders of
Subclass A-2 Notes under the Indenture.
The Subclass A-2 Notes are issuable only in registered form in
denominations as provided in the Indenture, subject to certain limitations
therein set forth.
THIS SUBCLASS A-2 NOTE SHALL IN ALL RESPECTS BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
<PAGE>
Unless the certificate of authentication hereon has been executed by
the Trustee whose name appears below by manual or facsimile signature, this
Subclass A-2 Note shall not be entitled to any benefit under the Indenture, or
be valid or obligatory for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this Subclass A-2 Note to be
signed manually or by facsimile by its Owner Trustee.
Date: _________________ AIRCRAFT FINANCE TRUST
By: Wilmington Trust Company,
not in its individual capacity but
solely as the Owner Trustee
By:_________________________________
Name:
Title: Authorized Signatory
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Subclass A-2 Notes designated above and referred to
in the within-mentioned Indenture.
Date: ____________ BANKERS TRUST COMPANY, not in its individual
capacity but solely as the Trustee
By: _______________________________
Authorized Signatory
<PAGE>
TRANSFER NOTICE
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No. __________________
________________________________________________________________________________
(Please print or typewrite name and address including zip code of assignee)
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing ______________________________ attorney to transfer said Note on the
books of the Issuer with full power of substitution in the premises.
Date: {Signature of Transferor}
NOTE: The signature to this assignment
must correspond with the name as written
upon the face of the within-mentioned
instrument in every particular, without
alteration or any change whatsoever.
The undersigned covenants and agrees that it will treat this Note as
indebtedness for all purposes and will not take any action contrary to such
characterization, including, without limitation, filing any tax returns or
financial statements inconsistent therewith.
Date: {Signature of Transferee}
NOTICE: to be executed by an executive
officer
<PAGE>
CLASS B FLOATING RATE ASSET-BACKED NOTE, SERIES 1999-1
<PAGE>
AIRCRAFT FINANCE TRUST
$126,500,000 CLASS B FLOATING RATE ASSET-BACKED NOTE, SERIES 1999-1
No. ___
CUSIP:
ISIN:
COMMON CODE:
$_______________________
AIRCRAFT FINANCE TRUST, a business trust organized under the laws of
the State of Delaware (herein referred to as the "Issuer"), for value received,
hereby promises to pay to CEDE & CO., or registered assigns, the principal sum
of ________________ DOLLARS ($__________) on May 15, 2024 (the "Final Maturity
Date") and to pay interest monthly in arrears on the Outstanding Principal
Balance hereof at a fluctuating interest rate per annum equal to the sum of
LIBOR (calculated as provided in the Indenture) plus 1.15% per annum (the
"Stated Rate of Interest") from the date hereof until the Outstanding Principal
Balance hereof is paid, payable on each Payment Date. Interest on this Class B
Note in each Interest Accrual Period will be calculated by the Administrative
Agent (as hereinafter defined) by multiplying the Stated Rate of Interest on
this Class B Note for the relevant Interest Accrual Period by the Outstanding
Principal Balance of this Class B Note on the first day of such Interest Accrual
Period and by multiplying the product by the actual number of days in such
Interest Accrual Period divided by 360 and rounding the resulting amount to the
nearest cent (with half a cent being rounded upwards).
This Class B Note is one of a duly authorized issue of Notes of the
Issuer issued under the Trust Indenture dated as of May 5, 1999 (as amended or
supplemented from time to time, the "Indenture"), between the Issuer,
ReSource/Phoenix, Inc., in its capacity as Administrative Agent (the
<PAGE>
"Administrative Agent"), and Bankers Trust Company (the "Trustee"). The
Indenture also provides for the issuance of Class A Notes, Class C Notes and
Class D Notes. All capitalized terms used in this Class B Note and not defined
herein shall have the respective meanings assigned to such terms in the
Indenture. Reference is made to the Indenture and all indentures supplemental
thereto for a statement of the respective rights and obligations thereunder of
the Issuer, the Trustee and the Class B Holders. This Class B Note is subject to
all of the terms of the Indenture.
The Outstanding Principal Balance of this Class B Note may be repaid
prior to the Final Maturity Date through the application on the Payment Dates of
the Available Collections to the principal hereof as provided in Section 3.08 of
the Indenture (after making payments entitled to priority under Section 3.08 of
the Indenture). In addition, the Issuer may optionally redeem all or part of the
Outstanding Principal Balance of this Class B Note on any Payment Date at the
applicable Redemption Price (calculated as provided in the Indenture) or, in the
case of a redemption for taxation reasons specified in the Indenture or a
redemption in certain default circumstances as provided in the Indenture, at the
Outstanding Principal Balance hereof plus accrued and unpaid interest hereon.
Any amount of premium or interest on this Class B Note that is not paid
when due shall, to the fullest extent permitted by applicable law, bear interest
at an interest rate per annum equal to the Stated Rate of Interest from the date
when due until such amount is paid or duly provided for, payable on the next
succeeding Payment Date, subject to the availability of the Available
Collections therefor after making payments entitled to priority under Section
3.08 of the Indenture.
<PAGE>
The indebtedness evidenced by the Class B Notes is, to the extent and
in the manner provided in the Indenture and the Security Trust Agreement,
subordinate and subject in right of payment to the prior payment in full of all
Senior Claims (as defined in the Indenture), and this Class B Note is issued
subject to the provisions thereof providing for such subordination. Each Holder
of this Class B Note, by accepting the same, (a) agrees to and shall be bound by
such provisions, (b) authorizes and directs the Trustee and the Security Trustee
on its behalf to take such action as may be necessary or appropriate to
effectuate the subordination as provided in the Indenture and (c) appoints each
of the Trustee and the Security Trustee its attorney-in-fact for such purpose.
All payments or distributions upon or with respect to any Obligations (as
defined in the Indenture), which include payment of principal, premium and
interest on this Note, that are received by the Holder of this Note contrary to
the priority of payment provisions of the Indenture or in excess of the amounts
to which the Holder of this Note is entitled under Section 3.08 of the
Indenture, shall be received for the benefit of the Senior Claimant (as defined
in the Indenture), shall be segregated from other funds and property held by the
Holder of this Note and shall be forthwith paid over to the Security Trustee in
the same form as so received (with any necessary endorsement) to be applied (in
the case of cash) to or held as collateral (in the case of non-cash property or
securities) for the payment or prepayment of the Senior Claims (as defined in
the Indenture) in accordance with the terms of the Indenture.
The maturity of this Class B Note is subject to acceleration upon the
occurrence and during the continuance of the Events of Default specified in the
Indenture. The Class B Holders shall not be permitted to deliver a Default
Notice or to exercise or to direct the exercise of any remedy in respect of any
such Event of Default until all interest and principal on the Class A Notes have
been paid in full.
<PAGE>
This Class B Note is and will be secured, on a subordinated basis, as
referred to above, by the collateral pledged as security therefor as provided in
the Security Trust Agreement.
Subject to and in accordance with the terms of the Indenture, there
will be distributed monthly on each Payment Date commencing on June 15, 1999, to
the Person in whose name this Class B Note is registered at the close of
business on the Record Date with respect to such Payment Date, such Person's pro
rata share (based on the aggregate percentage of the Outstanding Principal
Balance of the Class B Notes held by such Person) of the aggregate amount as may
be distributable to all Holders of Class B Notes on such Payment Date pursuant
to Section 3.08 of the Indenture.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO AIRCRAFT FINANCE TRUST OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN SECTION 2.13 OF THE INDENTURE.
All amounts payable in respect of this Class B Note shall be payable in
U.S. dollars in immediately available funds in the manner provided in the
Indenture to the Holder hereof on the Record Date relating to such payment. The
final payment with respect to this Class B Note, however, shall be made only
upon presentation and surrender of this Note by the Holder or its agent at the
Corporate Trust Office or agency of the Trustee or Paying Agent specified in the
<PAGE>
notice given by the Trustee or Paying Agent with respect to such final payment.
The Trustee or Paying Agent shall mail such notice of the final payment of this
Note to the Holder, specifying the date and amount of such final payment, no
later than five Business Days prior to such final payment. At such time, if any,
as this Class B Note is issued in the form of one or more Definitive Notes,
payments on a Payment Date shall be made by check mailed to each Holder of such
a Definitive Note on the applicable Record Date at its address appearing on the
Register maintained with respect to Class B Notes. Alternatively, upon
application in writing to the Trustee, not later than the applicable Record
Date, by a Holder of one or more Definitive Notes of Class B Notes having an
aggregate principal amount of not less than $1,000,000, any such payments shall
be made by wire transfer to an account designated by such Holder at a financial
institution in New York, New York. The final payment with respect to any such
Definitive Note, however, shall be made only upon presentation and surrender of
such Definitive Note by the Holder or its agent at the Corporate Trust Office or
agency of the Trustee or Paying Agent specified in the notice of such final
payment given by the Trustee or Paying Agent. The Trustee or Paying Agent shall
mail such notice of the final payment of this Note to the Holder, specifying the
date and amount of such final payment, no later than five Business Days prior to
such final payment.
This Class B Note is issuable only in registered form. A Holder may
transfer this Note only by written application to the Registrar stating the name
of the proposed transferee and otherwise complying with the terms of the
Indenture. No such transfer shall be effective until, and such transferee shall
succeed to the rights of a Holder only upon, final registration of the transfer
by the Registrar in the Register. When this Class B Note is presented to the
Registrar with a request to register the transfer or to exchange it for an equal
<PAGE>
principal amount of Class B Notes of other authorized denominations (including
an exchange of this Class B Note for an Exchange Note), the Registrar shall
register the transfer or make the exchange as requested if its requirements for
such transactions are met (including, in the case of a transfer, that such Note
is duly endorsed or accompanied by a written instrument of transfer in form
satisfactory to the Trustee and Registrar duly executed by the Holder thereof or
by an attorney who is authorized in writing to act on behalf of the Holder). No
service charge shall be made for any registration of transfer or exchange of
this Class B Note, but the party requesting such new Note or Notes may be
required to pay a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith.
Prior to the registration of transfer of this Class B Note, the Issuer
and the Trustee may deem and treat the Person in whose name this Class B Note
(as of the day of determination or as of such other date as may be specified in
the Indenture) is registered as the absolute owner and Holder hereof for the
purpose of receiving payment of all amounts payable with respect to this Class B
Note and for all other purposes, and neither the Issuer nor the Trustee shall be
affected by notice to the contrary.
The Indenture permits the amendment or modification of the Indenture
and the Class B Notes by the Issuer with the consent of the Holders of a
majority of the Outstanding Principal Balance of all Notes on the date of any
vote of such Holders (voting as a single class); provided that, (A) without the
consent of each provider of a Credit Facility, no such amendment may modify (i)
the provisions of the Indenture relating to such Person's Credit Facility or
(ii) to the extent affecting such Person's Credit Facility, Credit Facilities
generally; provided further that, (B) without the consent of each Swap Provider,
each provider of a Credit Facility and each Holder of any Notes, in each
instance affected thereby, no such amendment may, except as otherwise provided
<PAGE>
in Section 3.11 of the Indenture, (i) modify the provisions of the Indenture or
the Notes 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 or Redemption Price and Sale Premium, if any, payable in respect of
any subclass of Notes, (ii) reduce the percentage of the aggregate Outstanding
Principal Balance of any subclass of Notes required to approve any amendment or
waiver of Section 9.01 of the Indenture or, except as otherwise provided in
Section 3.09 of the Indenture, (iii) alter the manner or priority of payment of
such subclass of Notes (each such amendment referred to in subsection A and B, a
"Basic Terms Modification"). The Indenture also permits the Trustee to agree
with the Issuer, without the consent of any Holder of the Notes, (a) to any
modification (other than a Basic Terms Modification) of, or the waiver or
authorization of any breach or prospective breach of, any provision of any
Related Document or of the relevant subclass of Notes to correct a manifest
error or an error which is of a formal, minor or technical nature, (b) to modify
the provisions of the Indenture or the Administrative Agency Agreement relating
to the timing of movement of Rental Payments or other monies received or
Expenses Incurred among the Accounts by the Administrative Agent, (c) to add or
reflect any Credit Facility, (d) to any amendment (other than a Basic Terms
Modification) of an immaterial nature necessary to permit the issuance of
Refinancing Notes and/or Additional Notes and the acquisition of Additional
Aircraft consistent with the expense provisions of the Indenture or (e) to
comply with the requirements of the Commission in connection with the
qualification of the Indenture under the Trust Indenture Act of 1939 (as
amended, the "Trust Indenture Act"). Any amendment or modification of the
<PAGE>
Indenture shall be binding on every Holder hereof, whether or not notation
thereof is made upon this Class B Note.
The subordination provisions contained in Section 3.08, Section 3.09
and Article X of the Indenture may not be amended or modified without the
consent of each Swap Provider, each provider of a Credit Facility, each Holder
of the Notes of the subclass affected thereby and each Holder of any subclass of
Notes ranking senior thereto. In no event shall the provisions set forth in
Section 3.08 of the Indenture relating to the priority of the Expenses, Swap
Payments and payments under all Credit Facilities be amended or modified.
The Indenture also contains provisions permitting the Holders of Notes
representing a majority of the Outstanding Principal Balance of the Senior
Class, on behalf of the Holders of all of the Class B Notes, to waive compliance
by the Issuer with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver shall be
conclusive and binding upon all present and future Holders of this Class B Note
and of any Class B Note issued upon the registration of transfer of, in exchange
or in lieu of or upon the refinancing of this Class B Note, whether or not
notation of such consent or waiver is made upon this Class B Note.
The term "Issuer" as used in this Class B Note includes any successor
to the Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances,
to merge or consolidate, subject to the rights of the Trustee and the Holders of
Class B Notes under the Indenture.
The Class B Notes are issuable only in registered form in denominations
as provided in the Indenture, subject to certain limitations therein set forth.
THIS CLASS B NOTE SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF
<PAGE>
CONSTRUCTION, VALIDITY AND PERFORMANCE.
Unless the certificate of authentication hereon has been executed by
the Trustee whose name appears below by manual or facsimile signature, this
Class B Note shall not be entitled to any benefit under the Indenture, or be
valid or obligatory for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this Class B Note to be
signed manually or by facsimile by its Owner Trustee.
Date: ________________ AIRCRAFT FINANCE TRUST
By: Wilmington Trust Company,
not in its individual capacity but
solely as the Owner Trustee
By:___________________________________
Name:
Title: Authorized Signatory
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Class B Notes designated above and referred to in
the within-mentioned Indenture.
Date: ____________ BANKERS TRUST COMPANY, not in its
individual capacity but solely as the Trustee
By:_______________________________
Authorized Signatory
<PAGE>
TRANSFER NOTICE
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No. __________________
________________________________________________________________________________
(Please print or typewrite name and address including zip code of assignee)
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing ______________________________ attorney to transfer said Note on the
books of the Issuer with full power of substitution in the premises.
Date: {Signature of Transferor}
NOTE: The signature to this assignment
must correspond with the name as written
upon the face of the within-mentioned
instrument in every particular, without
alteration or any change whatsoever.
The undersigned covenants and agrees that it will treat this Note as
indebtedness for all purposes and will not take any action contrary to such
characterization, including, without limitation, filing any tax returns or
financial statements inconsistent therewith.
Date: {Signature of Transferee}
NOTICE: to be executed by an executive
officer
<PAGE>
CLASS C FIXED RATE ASSET-BACKED NOTE, SERIES 1999-1
<PAGE>
AIRCRAFT FINANCE TRUST
$106,000,000 CLASS C FIXED RATE ASSET-BACKED NOTES, SERIES 1999-1
No. ___
CUSIP:
ISIN:
COMMON CODE:
$___________________
AIRCRAFT FINANCE TRUST, a business trust organized under the laws of
the State of Delaware (herein referred to as the "Issuer"), for value received,
hereby promises to pay to CEDE & CO., or registered assigns, the principal sum
of __________________ DOLLARS ($____________) on May 15, 2024 (the "Final
Maturity Date") and to pay interest monthly in arrears on the Outstanding
Principal Balance hereof at the rate of 8.00% per annum (the "Stated Rate of
Interest") from the date hereof until the Outstanding Principal Balance hereof
is paid, payable on each Payment Date. Interest on this Class C Note for each
Interest Accrual Period shall be calculated (i) on the basis of a 360-day year
and one-twelfth of an annual interest payment, (ii) on the first Payment Date,
on the basis of the actual number of days in the first Interest Accrual Period
divided by 360 and (iii) in the case of a payment other than on a Payment Date,
on the basis of a 360-day year consisting of twelve 30-day months.
This Class C Note is one of a duly authorized issue of Notes of the
Issuer issued under the Trust Indenture dated as of May 5, 1999 (as amended or
supplemented from time to time, the "Indenture"), between the Issuer,
ReSource/Phoenix, Inc., in its capacity as Administrative Agent (the
"Administrative Agent"), and Bankers Trust Company (the "Trustee"). The
Indenture also provides for the issuance of Class A Notes, Class B Notes and
Class D Notes. All capitalized terms used in this Class C Note and not defined
<PAGE>
herein shall have the respective meanings assigned to such terms in the
Indenture. Reference is made to the Indenture and all indentures supplemental
thereto for a statement of the respective rights and obligations thereunder of
the Issuer, the Trustee and the Class C Holders. This Class C Note is subject to
all of the terms of the Indenture.
The Outstanding Principal Balance of this Class C Note may be repaid
prior to the Final Maturity Date through the application on the Payment Dates of
the Available Collections to the principal hereof as provided in Section 3.08 of
the Indenture (after making payments entitled to priority under Section 3.08 of
the Indenture). In addition, the Issuer may optionally redeem all or part of the
Outstanding Principal Balance of this Class C Note on any Payment Date at the
applicable Redemption Price (calculated as provided in the Indenture) or, in the
case of a redemption for taxation reasons specified in the Indenture or a
redemption in certain default circumstances as provided in the Indenture, at the
Outstanding Principal Balance hereof plus accrued and unpaid interest and
accrued and unpaid Sales Premium, if any, hereon.
Any amount of premium or interest on this Class C Note that is not paid
when due shall, to the fullest extent permitted by applicable law, bear interest
at an interest rate per annum equal to the Stated Rate of Interest from the date
when due until such amount is paid or duly provided for, payable on the next
succeeding Payment Date, subject to the availability of the Available
Collections therefor after making payments entitled to priority under Section
3.08 of the Indenture.
The indebtedness evidenced by the Class C Notes is, to the extent and
in the manner provided in the Indenture and the Security Trust Agreement,
subordinate and subject in right of payment to the prior payment in full of all
Senior Claims (as defined in the Indenture), and this Class C Note is issued
subject to the provisions thereof providing for such subordination. Each Holder
<PAGE>
of this Class C Note, by accepting the same, (a) agrees to and shall be bound by
such provisions, (b) authorizes and directs the Trustee and the Security Trustee
on its behalf to take such action as may be necessary or appropriate to
effectuate the subordination as provided in the Indenture and (c) appoints each
of the Trustee and the Security Trustee its attorney-in-fact for such purpose.
All payments or distributions upon or with respect to any Obligations (as
defined in the Indenture), which include payment of principal, Sale Premium and
interest on this Note, that are received by the Holder of this Note contrary to
the priority of payment provisions of the Indenture or in excess of the amounts
to which such the Holder of this Note is entitled under Section 3.08 of the
Indenture, shall be received for the benefit of the Senior Claimant (as defined
in the Indenture), shall be segregated from other funds and property held by the
Holder of this Note and shall be forthwith paid over to the Security Trustee in
the same form as so received (with any necessary indorsement) to be applied (in
the case of cash) to or held as collateral (in the case of non-cash property or
securities) for the payment or prepayment of the Senior Claims (as defined in
the Indenture) in accordance with the terms of the Indenture.
The maturity of this Class C Note is subject to acceleration upon the
occurrence and during the continuance of the Events of Default specified in the
Indenture. The Class C Holders shall not be permitted to deliver a Default
Notice or to exercise or to direct the exercise of any remedy in respect of any
such Event of Default until all interest and principal on the Class A Notes and
the Class B Notes have been paid in full.
This Class C Note is and will be secured, on a subordinated basis as
referred to above, by the collateral pledged as security therefor as provided in
the Security Trust Agreement.
<PAGE>
Subject to and in accordance with the terms of the Indenture, there
will be distributed monthly on each Payment Date commencing on June 15, 1999, to
the Person in whose name this Class C Note is registered at the close of
business on the Record Date with respect to such Payment Date, such Person's pro
rata share (based on the aggregate percentage of the Outstanding Principal
Balance of the Class C Notes held by such Person) of the aggregate amount as may
be distributable to all Holders of Class C Notes on such Payment Date pursuant
to Section 3.08 of the Indenture.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO AIRCRAFT FINANCE TRUST OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN SECTION 2.13 OF THE INDENTURE.
All amounts payable in respect of this Class C Note shall be payable in
U.S. dollars in immediately available funds in the manner provided in the
Indenture to the Holder hereof on the Record Date relating to such payment. The
final payment with respect to this Class C Note, however, shall be made only
upon presentation and surrender of this Note by the Holder or its agent at the
Corporate Trust Office or agency of the Trustee or Paying Agent specified in the
notice given by the Trustee or Paying Agent with respect to such final payment.
The Trustee or Paying Agent shall mail such notice of the final payment of this
Note to the Holder, specifying the date and amount of such final payment, no
<PAGE>
later than five Business Days prior to such final payment. At such time, if any,
as this Class C Note is issued in the form of one or more Definitive Notes,
payments on a Payment Date shall be made by check mailed to each Holder of such
a Definitive Note on the applicable Record Date at its address appearing on the
Register maintained with respect to Class C Notes. Alternatively, upon
application in writing to the Trustee, not later than the applicable Record
Date, by a Holder of one or more Definitive Notes of Class C Notes having an
aggregate principal amount of not less than $1,000,000, any such payments shall
be made by wire transfer to an account designated by such Holder at a financial
institution in New York, New York. The final payment with respect to any such
Definitive Note, however, shall be made only upon presentation and surrender of
such Definitive Note by the Holder or its agent at the Corporate Trust Office or
agency of the Trustee or Paying Agent specified in the notice of such final
payment given by the Trustee or Paying Agent. The Trustee or Paying Agent shall
mail such notice of the final payment of this Note to the Holder, specifying the
date and amount of such final payment, no later than five Business Days prior to
such final payment.
This Class C Note is issuable only in registered form. A Holder may
transfer this Note only by written application to the Registrar stating the name
of the proposed transferee and otherwise complying with the terms of the
Indenture. No such transfer shall be effective until, and such transferee shall
succeed to the rights of a Holder only upon, final registration of the transfer
by the Registrar in the Register. When this Class C Note is presented to the
Registrar with a request to register the transfer or to exchange it for an equal
principal amount of Class C Notes of other authorized denominations (including
an exchange of this Class C Note for an Exchange Note), the Registrar shall
register the transfer or make the exchange as requested if its requirements for
<PAGE>
such transactions are met (including, in the case of a transfer, that such Note
is duly endorsed or accompanied by a written instrument of transfer in form
satisfactory to the Trustee and Registrar duly executed by the Holder thereof or
by an attorney who is authorized in writing to act on behalf of the Holder). No
service charge shall be made for any registration of transfer or exchange of
this Class C Note, but the party requesting such new Note or Notes may be
required to pay a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith.
Prior to the registration of transfer of this Class C Note, the Issuer
and the Trustee may deem and treat the Person in whose name this Class C Note
(as of the day of determination or as of such other date as may be specified in
the Indenture) is registered as the absolute owner and Holder hereof for the
purpose of receiving payment of all amounts payable with respect to this Class C
Note and for all other purposes, and neither the Issuer nor the Trustee shall be
affected by notice to the contrary.
The Indenture permits the amendment or modification of the Indenture
and the Class C Notes by the Issuer with the consent of the Holders of a
majority of the Outstanding Principal Balance of all Notes on the date of any
vote of such Holders (voting as a single class); provided that, (A) without the
consent of each provider of a Credit Facility, no such amendment may modify (i)
the provisions of the Indenture relating to such Person's Credit Facility or
(ii) to the extent affecting such Person's Credit Facility, Credit Facilities
generally; provided further that, (B) without the consent of each Swap Provider,
each provider of a Credit Facility and each Holder of any Notes, in each
instance affected thereby, no such amendment may, except as otherwise provided
in Section 3.11 of the Indenture, (i) modify the provisions of the Indenture or
the Notes setting forth the frequency or the currency of payment of, the
maturity of, or the method of calculation of the amount of, any interest,
<PAGE>
principal or Redemption Price and Sale Premium, if any, payable in respect of
any subclass of Notes, (ii) reduce the percentage of the aggregate Outstanding
Principal Balance of any subclass of Notes required to approve any amendment or
waiver of Section 9.01 of the Indenture or, except as otherwise provided in
Section 3.09 of the Indenture, (iii) alter the manner or priority of payment of
such subclass of Notes (each such amendment referred to in subsection A and B, a
"Basic Terms Modification"). The Indenture also permits the Trustee to agree
with the Issuer, without the consent of any Holder of the Notes, (a) to any
modification (other than a Basic Terms Modification) of, or the waiver or
authorization of any breach or prospective breach of, any provision of any
Related Document or of the relevant subclass of Notes to correct a manifest
error or an error which is of a formal, minor or technical nature, (b) to modify
the provisions of the Indenture or the Administrative Agency Agreement relating
to the timing of movement of Rental Payments or other monies received or
Expenses Incurred among the Accounts by the Administrative Agent, (c) to add or
reflect any Credit Facility, (d) to any amendment (other than a Basic Terms
Modification) of an immaterial nature necessary to permit the issuance of
Refinancing Notes and/or Additional Notes and the acquisition of Additional
Aircraft consistent with the expense provisions of the Indenture or (e) to
comply with the requirements of the Commission in connection with the
qualification of the Indenture under the Trust Indenture Act of 1939 (as
amended, the "Trust Indenture Act"). Any amendment or modification of the
Indenture shall be binding on every Holder hereof, whether or not notation
thereof is made upon this Class C Note.
The subordination provisions contained in Section 3.08, Section 3.09
and Article X of the Indenture may not be amended or modified without the
consent of each Swap Provider, each provider of a Credit Facility, each Holder
of the Notes of the subclass affected thereby and each Holder of any subclass of
<PAGE>
Notes ranking senior thereto. In no event shall the provisions set forth in
Section 3.08 of the Indenture relating to the priority of the Expenses, Swap
Payments and payments under all Credit Facilities be amended or modified.
The Indenture also contains provisions permitting the Holders of Notes
representing a majority of the Outstanding Principal Balance of the Senior
Class, on behalf of the Holders of all of the Class C Notes, to waive compliance
by the Issuer with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver shall be
conclusive and binding upon all present and future Holders of this Class C Note
and of any Class C Note issued upon the registration of transfer of, in exchange
or in lieu of or upon the refinancing of this Class C Note, whether or not
notation of such consent or waiver is made upon this Class C Note.
The term "Issuer" as used in this Class C Note includes any successor
to the Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances,
to merge or consolidate, subject to the rights of the Trustee and the Holders of
Class C Notes under the Indenture.
The Class C Notes are issuable only in registered form in denominations
as provided in the Indenture, subject to certain limitations therein set forth.
THIS CLASS C NOTE SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE.
<PAGE>
Unless the certificate of authentication hereon has been executed by
the Trustee whose name appears below by manual or facsimile signature, this
Class C Note shall not be entitled to any benefit under the Indenture, or be
valid or obligatory for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this Class C Note to be
signed manually or by facsimile by its Owner Trustee.
Date: ______________ AIRCRAFT FINANCE TRUST
By: Wilmington Trust Company,
not in its individual capacity but
solely as the Owner Trustee
By:___________________________________
Name:
Title: Authorized Signatory
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Class C Notes designated above and referred to in
the within-mentioned Indenture.
Date: ____________ BANKERS TRUST COMPANY, not in its individual
capacity but solely as the Trustee
By: __________________________
Authorized Signatory
<PAGE>
TRANSFER NOTICE
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No. __________________
________________________________________________________________________________
(Please print or typewrite name and address including zip code of assignee)
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing ______________________________ attorney to transfer said Note on the
books of the Issuer with full power of substitution in the premises.
Date: {Signature of Transferor}
NOTE: The signature to this assignment
must correspond with the name as written
upon the face of the within-mentioned
instrument in every particular, without
alteration or any change whatsoever.
The undersigned covenants and agrees that it will treat this Note as
indebtedness for all purposes and will not take any action contrary to such
characterization, including, without limitation, filing any tax returns or
financial statements inconsistent therewith.
Date: {Signature of Transferee}
NOTICE: to be executed by an executive
officer
[LETTERHEAD OF AIRCRAFT INFORMATION SERVICES, INC.]
March 22, 2000
Aircraft Finance Trust
c/o Wilmington Trust Company
1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890
Re: Aircraft Finance Trust, Series 1999-1
Ladies and Gentlemen:
Reference is made to Form 10-K for the fiscal year ended December 31, 1999 (file
no. 333-82153) of Aircraft Finance Trust, to be filed with the Securities and
Exchange Commission under the Exchange Act of 1934, as amended.
We hereby consent to (i) the use of the information contained in our
appraisal(s) for the dates set forth in the Form 10-K, (ii) the references to
our firm in such Form 10-K, (iii) the filing of our appraisals as an exhibit to
the Form 10-K and (iv) the filing of this letter as an exhibit to the Form 10-K.
Aircraft Information Services, Inc.
By: /s/ John D. McNicol
---------------------------
Name: John D. McNicol
Title: Vice President
Appraisals & Forecasts
[LETTERHEAD OF BK ASSOCIATES, INC.]
March 22, 2000
Aircraft Finance Trust
c/o Wilmington Trust Company
1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890
Re: Aircraft Finance Trust, Series 1999-1
Ladies and Gentlemen:
Reference is made to Form 10-K for the fiscal year ended December 31, 1999 (file
no. 333-82153) of Aircraft Finance Trust, to be filed with the Securities and
Exchange Commission under the Exchange Act of 1934, as amended.
We hereby consent to (i) the use of the information contained in our
appraisal(s) for the dates set forth in the Form 10-K, (ii) the references to
our firm in such Form 10-K, (iii) the filing of our appraisals as an exhibit to
the Form 10-K and (iv) the filing of this letter as an exhibit to the Form 10-K.
BK ASSOCIATES, INC.
/s/ R. L. Britton
-------------------------
R. L. Britton
Vice President
ISTAT Certified Appraiser
[LETTERHEAD OF MORTON BEYER & AGNEW]
March 22, 2000
Aircraft Finance Trust
c/o Wilmington Trust Company
1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890
Re: Aircraft Finance Trust, Series 1999-1
Ladies and Gentlemen:
Reference is made to Form 10-K for the fiscal year ended December 31, 1999 (file
no. 333-82153) of Aircraft Finance Trust, to be filed with the Securities and
Exchange Commission under the Exchange Act of 1934, as amended.
We hereby consent to (i) the use of the information contained in our
appraisal(s) for the dates set forth in the Form 10-K, (ii) the references to
our firm in such Form 10-K, (iii) the filing of our appraisals as an exhibit to
the Form 10-K and (iv) the filing of this letter as an exhibit to the Form 10-K.
MORTON BEYER & AGNEW
By: /s/ Bryson P. Monteleone
-------------------------
Bryson P. Monteleone
Director of Operations
<TABLE> <S> <C>
<ARTICLE>5
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 92,150
<SECURITIES> 0
<RECEIVABLES> 4,122
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,199,052
<DEPRECIATION> 28,488
<TOTAL-ASSETS> 1,266,974
<CURRENT-LIABILITIES> 0
<BONDS> 1,176,195
<COMMON> 0
0
0
<OTHER-SE> 47,544
<TOTAL-LIABILITY-AND-EQUITY> 1,266,974
<SALES> 0
<TOTAL-REVENUES> 103,010
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 94,553
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,482
<INCOME-PRETAX> 8,457
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,457
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,457
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
AIRCRAFT
INFORMATION
SERVICES, INC.
04 February 2000
Aircraft Finance Trust
c/o Wilmington Trust Company
1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890
Subject: Half Life and Adjusted Base Value Appraisal for Fleet of 36 Aircraft
The Aircraft Finance Trust ("AFT") Portfolio
AISI File number: A0S015BVO
Ref: (a) Data - Previous AISI Reports A9S006BVO, A9S039BVO
(b) Data - UniCapital Fax Data 25 January 2000
(c) Data - UniCapital Email Data 27 January 2000
Ladies and Gentlemen:
In response to your request, Aircraft Information Services, Inc. (AISI) is
pleased to offer our opinion to Aircraft Finance Trust (AFT) of the half life
and adjusted base values as of 31 December 1999 of the Fleet of 36 Aircraft as
identified and defined in Table I and reference (a), (b) and (c) above (the
'Aircraft').
1. METHODOLOGY AND DEFINITIONS
---------------------------
The standard terms of reference for commercial aircraft value are 'half-life
base market value' and `half-life current market value' of an 'average'
aircraft. Base value is a theoretical value that assumes a balanced market while
current market value is the value in the real market; both assume a hypothetical
average aircraft condition. AISI value definitions are consistent with the
current definitions of the International Society of Transport Aircraft Trading
(ISTAT), those of 01 January 1994. AISI is a member of that organization and
employs an ISTAT Certified and Senior Certified Aircraft Appraiser.
AISI defines a 'base value' as that of a transaction between equally willing and
informed buyer and seller, neither under compulsion to buy or sell, for a single
unit cash transaction with no hidden value or liability, and with supply and
demand of the sale item roughly in balance. Base values are typically given for
aircraft in 'new' condition, 'average half-life' condition, or in a specifically
described condition unique to a single aircraft at a specific time. An 'average'
aircraft is an operable airworthy aircraft in average physical condition and
with average accumulated flight hours and cycles, with clear title and standard
unrestricted certificate of airworthiness, and registered in an authority which
does not represent a penalty to aircraft value or liquidity, with no damage
history and with inventory configuration and level of modification which is
normal for its intended use and age. AISI assumes average condition unless
Headquarters, 26072 Merit Circle, Suite 123, Laguna Hills, CA 92653
TEL: 949-582-8888 FAX: 949-582-8887 E-MAIL: [email protected]
<PAGE>
04 February 2000
AISI File No. A0S015BVO
Page - 2 -
otherwise specified in this report. 'Half-life' condition assumes that every
component or maintenance service which has a prescribed interval that determines
its service life, overhaul interval or interval between maintenance services, is
at a condition which is one-half of the total interval. It should be noted that
AISI and ISTAT value definitions apply to a transaction involving a single
aircraft, and that transactions involving more than one aircraft are often
executed at considerable and highly variable discounts to a single aircraft
price, for a variety of reasons relating to an individual buyer or seller.
AISI defines a 'current market value', which is synonymous with the older term
`fair market value' as that value which reflects the real market conditions,
whether at, above or below the base value conditions. Assumption of a single
unit sale and definitions of aircraft condition, buyer/seller qualifications and
type of transaction remain unchanged from that of base value. Current market
value takes into consideration the status of the economy in which the aircraft
is used, the status of supply and demand for the particular aircraft type, the
value of recent transactions and the opinions of informed buyers and sellers.
Current market value assumes that there is no short term time constraint to buy
or sell.
AISI encourages the use of base values to consider historical trends, to
establish a consistent baseline for long term value comparisons and future value
considerations, or to consider how actual market values vary from theoretical
base values. Base values are less volatile than current market values and tend
to diminish regularly with time. Base values are normally inappropriate to
determine near term values. AISI encourages the use of current market values to
consider the probable near term value of an aircraft.
AISI determines an 'adjusted market value' by determining the value of known
deviations from half-life condition, which may be better or worse than half-life
condition, and to account for better or worse than average physical condition,
and the inclusion of additional equipment, or absence of standard equipment. Our
opinion of the adjusted base values of the Aircraft are derived from information
and specifications supplied by GECAS in above referenced (a) data. No physical
inspection of the Aircraft or their essential records was made by AISI for the
purposes of this report.
2. VALUATION
---------
Adjustments from half life have been applied based on the current maintenance
status of the Aircraft as indicated to AISI by the client in the above reference
(b) and (c) data and in the previous AISI reference (a) reports and in
accordance with standard AISI methods. Adjustments are calculated only where
there is sufficient information to do so, or where reasonable assumptions can be
made.
<PAGE>
04 February 2000
AISI File No. A0S015BVO
Page - 3 -
With regard to airframe and gear maintenance, if no time between check/overhaul
(TBO) or time since check/overhaul (TSO) information was provided, and if the
total hours/cycles of the airframe do not exceed the TBO limits then the total
hours/cycles of the airframe were assumed to be the TSO. This was typical of
newer aircraft. If no information was provided and if the TSO could not be
calculated, then half life was assumed.
With regard to the engines, on aircraft where all engines total cycles equal the
total cycles of the airframe, the engine's life limit CSOs and overhaul CSOs are
assumed to be the same as the total cycles of the airframe. This is typical of
newer aircraft. Where this assumption can not be made, the engines are
considered to be in half life condition.
All hours and cycle information provided for airframe, C Check, D Check, and
gear have been projected from the Aircraft Technical & Maintenance Detail sheet
dates to 31 December 1999 based on a daily utilization factor calculated for
each aircraft.
It is our considered opinion that the half life and adjusted base values of the
Aircraft are as follows in Table I subject to the assumptions, definitions, and
disclaimers herein.
Unless otherwise agreed by Aircraft Information Services, Inc. (AISI) in
writing, this report shall be for the sole use of the client/addressee. This
report is offered as a fair and unbiased assessment of the subject aircraft or
equipment. AISI has no past, present, or anticipated future interest in the
subject aircraft or equipment. The conclusions and opinions expressed in this
report are based on published information, information provided by others,
reasonable interpretations and calculations thereof and are given in good faith.
Such conclusions and opinions are judgments that reflect conditions and values
which are current at the time of this report. The values and conditions reported
upon are subject to any subsequent change. AISI shall not be liable to any party
for damages arising out of reliance or alleged reliance on this report, or for
any parties action or failure to act as a result of reliance or alleged reliance
on this report.
Sincerely,
AIRCRAFT INFORMATION SERVICES, INC.
John D. McNicol
VICE PRESIDENT
APPRAISALS & FORECASTS
<PAGE>
TABLE I - AISI FILE A0S015BVO
REPORT DATE: 04 FEBRUARY 2000
VALUES AS OF: 31 DECEMBER 1999
FLEET VALUATION - THE AFT PORTFOLIO
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Half Life Adjusted
Base Value Base Value
Type MSN DOM YOB Engine MTOW Dec 1999 Dec 1999
USDollars USDollars
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------
A310-300 448 Feb-88 1988 CF6-80C2A2 346,125 32,140,000 32,270,000
- ------------------------------------------------------------------------------------
A320-200 210 Jul-91 1991 CFM56-5A1 166,500 27,250,000 27,100,000
- ------------------------------------------------------------------------------------
A320-200 221 Sep-91 1991 CFM56-5A3 169,700 27,700,000 27,650,000
- ------------------------------------------------------------------------------------
A320-200 222 Oct-91 1991 CFM56-5A3 169,700 27,700,000 27,630,000
- ------------------------------------------------------------------------------------
A320-200 231 Sep-91 1991 CFM56-5A1 166,500 27,250,000 27,210,000
- ------------------------------------------------------------------------------------
A320-200 373 Jan-93 1993 V2500-A1 169,700 29,050,000 29,080,000
- ------------------------------------------------------------------------------------
A320-200 737 Sep-97 1997 CFM56-5B4 169,700 38,440,000 39,760,000
- ------------------------------------------------------------------------------------
A320-200 749 Sep-97 1997 CFM56-5B4 169,700 38,640,000 39,930,000
- ------------------------------------------------------------------------------------
B737-300 28333 Aug-96 1996 CFM56-3C1 135,000 30,790,000 31,440,000
- ------------------------------------------------------------------------------------
B737-300 28548 Dec-97 1997 CFM56-3C1 124,500 32,180,000 33,740,000
- ------------------------------------------------------------------------------------
B737-300 28554 Dec-96 1996 CFM56-3C1 139,500 31,000,000 31,810,000
- ------------------------------------------------------------------------------------
B737-300 28557 Mar-97 1997 CFM56-3C1 139,500 32,860,000 33,810,000
- ------------------------------------------------------------------------------------
B737-300 28558 Apr-97 1997 CFM56-3C1 139,500 32,860,000 33,750,000
- ------------------------------------------------------------------------------------
B737-300 28559 May-97 1997 CFM56-3C1 138,500 32,810,000 33,910,000
- -----------------------------------------------------------------------------------
B737-300 28561 Jun-97 1997 CFM56-3C1 135,000 32,650,000 32,890,000
- ------------------------------------------------------------------------------------
B737-300 28562 Jul-97 1997 CFM56-3C1 135,000 32,650,000 32,900,000
- ------------------------------------------------------------------------------------
B737-300 28563 Aug-97 1997 CFM56-3C1 135,000 32,650,000 33,940,000
- ------------------------------------------------------------------------------------
B737-300 28564 Nov-97 1997 CFM56-3C1 135,000 32,650,000 33,990,000
- -----------------------------------------------------------------------------------
B737-300 28740 Jun-98 1998 CFM56-3C1 124,500 33,840,000 35,520,000
- ------------------------------------------------------------------------------------
B737-400 25663 Nov-92 1992 CFM56-3C1 143,500 26,720,000 26,330,000
- ------------------------------------------------------------------------------------
B737-400 25664 Nov-92 1992 CFM56-3C1 143,500 26,720,000 26,720,000
- ------------------------------------------------------------------------------------
B737-400 28489 Nov-96 1996 CFM56-3C1 138,500 32,570,000 33,230,000
- ------------------------------------------------------------------------------------
B737-400 28490 Nov-96 1996 CFM56-3C1 138,500 32,570,000 33,090,000
- ------------------------------------------------------------------------------------
B737-400 28491 Nov-96 1996 CFM56-3C1 138,500 32,570,000 33,150,000
- ------------------------------------------------------------------------------------
B767-200ER 23805 Jul-87 1987 CF6-80C2B2 351,000 35,500,000 35,440,000
- ------------------------------------------------------------------------------------
B767-200ER 23806 Aug-87 1987 CF6-80C2B2 351,000 35,500,000 35,460,000
- ------------------------------------------------------------------------------------
B767-300ER 25221 Aug-91 1991 CF680C2B6F 407,000 61,530,000 61,000,000
- ------------------------------------------------------------------------------------
B767-300ER 25403 Jan-92 1992 PW4060 409,000 65,030,000 65,420,000
- ------------------------------------------------------------------------------------
B767-300ER 29617 Mar-99 1999 CF6-80C2B7F 412,000 86,550,000 90,720,000
- ------------------------------------------------------------------------------------
B767-300ER 30008 May-99 1999 CF6-80C2B7F 407,000 86,550,000 90,810,000
- ------------------------------------------------------------------------------------
DC-10-30 46584 Feb-80 1980 CF6-50C2 580,000 16,970,000 15,970,000
- ------------------------------------------------------------------------------------
DC-10-30 48292 Feb-82 1982 CF6-50C2 580,000 18,210,000 17,800,000
- ------------------------------------------------------------------------------------
MD83 49398 Nov-86 1986 JT8D-219 160,000 19,200,000 19,510,000
- ------------------------------------------------------------------------------------
MD83 49791 Sep-89 1989 JT8D-219 160,000 21,750,000 21,750,000
- ------------------------------------------------------------------------------------
MD83 53198 Apr-91 1991 JT8D-219 160,000 23,510,000 23,030,000
- ------------------------------------------------------------------------------------
MD83 53199 Mar-92 1992 JT8D-219 160,000 24,500,000 24,310,000
- ------------------------------------------------------------------------------------
------------------------------------------------------------------
Total $1,251,060,000 $1,272,070,000
------------------------------------------------------------------
</TABLE>
BK Associates, Inc.
1295 Northern Boulevard
Manhasset, New York 11030
(516) 365-6272 o Fax (516) 365-6287
February 1, 2000
Aircraft Finance Trust
c/o Wilmington Trust Company
1100 N. Market Street, Rodney Square
Wilmington, DE 19890
Gentlemen:
In response to your request, BK Associates, Inc. is pleased to provide our
opinion of current Base Values as of December 31, 1999 for the 36 commercial jet
transport aircraft which comprise the Aircraft Finance Trust (AFT) Portfolio
(Portfolio). The Portfolio aircraft are further identified by type, serial
number, year of manufacture and engine model in Figure 1.
Based upon our knowledge of these various aircraft types, our knowledge of the
capabilities and uses to which they have been put in various parts of the world,
our knowledge of the marketing of used aircraft, and our knowledge of aircraft
in general, it is our opinion that the Base Values of each aircraft are as shown
in Figure 1.
Our values presented in Figure 1 include appropriate financial adjustments based
on our interpretation of the maintenance summary and fleet utilization data you
provided. The adjustments are approximate, based on industry average costs, and
normally would include an adjustment for the time remaining to a "C" check, time
remaining to a "D" check, time remaining to landing gear overhaul and time
remaining to a heavy shop visit on engines. In some cases, sufficient relevant
data were not available to make all such adjustments and in these instances they
were assumed to be at half-time.
According to the International Society of Transport Aircraft Trading's (ISTAT)
definition of Base Value, to which BK Associates subscribes, the base value is
the Appraiser's opinion of the underlying economic value of an aircraft in an
open, unrestricted, stable market environment with a reasonable balance of
supply and demand, and assumes full consideration of its "highest and best use".
An aircraft's base value is founded in the historical trend of values and in the
projection of future value trends and presumes an arm's length, cash transaction
between willing, able and knowledgeable parties, acting prudently, with an
absence of duress and with a reasonable period of time available for marketing.
As the definition suggests, Base Value is determined from historic and future
value trends and is not influenced by current market conditions. It is often
determined as a function of the original cost of the aircraft, technical
<PAGE>
February 1, 2000
Page 2
characteristics of competing aircraft, and development of new models. BK
Associates has determined from analysis of historic data, a relationship between
aircraft age and its value as a percentage of original value for the average
aircraft.
Supply and demand is the major influence on aircraft values. Our industry has
experienced a peak of surplus commercial jet aircraft on the market in mid-1991
and watched the subsequent increase in demand for air travel bring about a
return of many of the grounded and stored surplus fleet to revenue service.
According to BACK Information Services, the peak surplus of 815 aircraft in 1991
was significantly reduced during the ensuing years to a sustained low period
beginning in 1997 with an annualized average of 310 surplus aircraft. However,
during the second and third quarter periods of 1998, the fleet availability
began to increase once again, with the latest period reported at 514 units.
The following, summarized from the BACK Information Services reports, lists
aircraft similar to those in the Portfolio which are publicly advertised for
sale or lease and compares the current availability to that one year ago.
Additionally, the aircraft currently in storage are quantified however, it
should be understood that some operators and lessors do not publicize their
aircraft availability and the list of stored aircraft does not directly
compliment the availability listing. Therefore, it is reasonable to assume that
to some extent these two lists are additive.
STORED
MODEL 12/1998 12/1999 12/1999
----- ------- ------- -------
A310-300 7 7 4
A320 2 5 3
B737-300 13 23 6
B737-400 5 9 0
B767-200 2 5 1
B767-300 0 9 0
MD83 0 0 1
DC10-30 17 4 16
-- -- --
TOTAL AIRCRAFT 46 62 31
The trend of available or surplus aircraft continues to increase since late last
year. This escalation is illustrated in the above table which focuses only on
the aircraft type in the Portfolio, but is evident across almost all commercial
jet aircraft types. The above chart reports a lower availability of the DC10-30
<PAGE>
February 1, 2000
Page 3
aircraft in 1999 from the previous year as most of the available type were
committed to modification to full main deck freighters during the intervening
year. Availability of the selected Portfolio aircraft has increased by 35
percent over the 1998/1999 one-year period. BK Associates believes some
availability of aircraft is normal even in a balanced market such that a few
units of each model could be expected to be available as is currently the case.
Appraised values contained in this report in most cases are moderately less than
values of one year ago based on the additional age of the Portfolio and
continued utilization of the Aircraft.
It should be understood that BK Associates has not inspected the Aircraft nor
the maintenance records for this appraisal, but has relied upon the information
you have provided and our own database. The assumptions have been made that the
Aircraft, are in average or better condition; all Airworthiness Directives have
been complied with; accident damage has not been incurred that would affect
market values; and maintenance has been accomplished in accordance with an
Airworthiness Authority approved maintenance program and accepted industry
standards. Deviations from these assumptions can change our opinion
significantly regarding the Aircraft values.
BK Associates, Inc. has no present or contemplated future interest in the
Aircraft, nor any interest that would preclude our making a fair and unbiased
estimate. This appraisal represents the opinion of BK Associates, Inc. and
reflects our best judgment based on the information available to us at the time
of preparation and the time and budget constraints imposed by the client. It is
not given as a recommendation, or as an inducement, for any financial
transaction and further, BK Associates, Inc. assumes no responsibility or legal
liability for any action taken or not taken by the addressee, or any other
party, with regard to the appraised equipment. By accepting this appraisal, the
addressee agrees that BK Associates, Inc. shall bear no such responsibility or
legal liability. This appraisal is prepared for the use of the addressee and
shall not be provided to other parties without the express consent of the
addressee.
Sincerely yours,
BK ASSOCIATES, INC.
R. L. Britton
RLB/kf Vice President
Attachment ISTAT Certified Appraiser
<PAGE>
UNICAPITAL AIR GROUP
AFT PORTFOLIO
DECEMBER 31, 1999
CURRENT
MTC ADJ'D
AIRCRAFT SERIAL MFG. BASE VALUE
ITEM TYPE NUMBER DATE ENGINE ( $ MIL )
---- ---- ------ ---- ------ ---------
1 A310-300 448 Feb-88 CF6-80C2A2 34.36
2 A320-200 210 Jul-91 CFM56-5A1 26.54
3 A320-200 221 Sep-91 CFM56-5A3 28.70
4 A320-200 222 Oct-91 CFM56-5A3 28.70
5 A320-200 231 Sep-91 CFM56-5A1 27.00
6 A320-200 737 Sep-97 CFM56-5B4 37.67
7 A320-200 749 Sep-97 CFM56-5B4 37.49
8 A320-200 373 Jan-93 V2500-A1 30.03
9 B737-300 28559 May-97 CFM56-3C1 31.98
10 B737-300 28554 Dec-96 CFM56-3C1 30.70
11 B737-300 28557 Mar-97 CFM56-3C1 31.62
12 B737-300 28558 Apr-97 CFM56-3C1 31.76
13 B737-300 28561 Jun-97 CFM56-3C1 32.15
14 B737-300 28562 Jul-97 CFM56-3C1 32.30
15 B737-300 28563 Aug-97 CFM56-3C1 32.09
16 B737-300 28564 Nov-97 CFM56-3C1 32.85
17 B737-300 28740 Jun-98 CFM56-3C1 33.93
18 B737-300 28548 Dec-97 CFM56-3C1 33.06
19 B737-300 28333 Aug-96 CFM56-3C1 30.24
20 B737-400 28489 Nov-96 CFM56-3C1 31.64
21 B737-400 28490 Nov-96 CFM56-3C1 31.39
22 B737-400 28491 Nov-96 CFM56-3C1 31.45
23 B737-400 25663 Nov-92 CFM56-3C1 24.76
24 B737-400 25664 Nov-92 CFM56-3C1 24.83
25 B767-200ER 23805 Jul-87 CF6-80C2-B2 30.43
26 B767-200ER 23806 Aug-87 CF6-80C2-B2 30.42
27 B767-300ER 29617 Mar-99 CF6-80C2B7F 84.31
28 B767-300ER 25403 Jan-92 PW4060 60.40
29 B767-300ER 30008 May-99 CF6-80C2B7F 84.51
30 B767-300ER 25221 Aug-91 CF6-80C2B6F 56.74
31 MD83 53199 Mar-92 JT8D-219 23.95
32 MD83 49398 Nov-86 JT8D-219 17.23
33 MD83 49791 Sep-89 JT8D-219 21.36
34 MD83 53198 Apr-91 JT8D-219 22.30
35 DC10-30 48292 Feb-82 CF6-50C2 20.25
36 DC10-30 46584 Feb-80 CF6-50C2 19.23
MORTEN BEYER & AGNEW
________________________________________________________________________________
AVIATION CONSULTING FIRM
Appraisal of
36 Various Aircraft
PREPARED FOR:
Aircraft Finance Trust
FEBRUARY 8, 2000
Washington, D.C. London
8180 Greensboro Drive Lahinch 62, Lashmere
Suite 1000 Copthorne
McLean, Virginia 22102 West Sussex
Phone +703 847 6598 Phone + 44 1342 716248
Fax + 703 847 1911 Fax + 44 1342 718967
MBA
<PAGE>
I. INTRODUCTION AND EXECUTIVE SUMMARY
MORTEN BEYER & AGNEW, INC. (MBA) has been retained by Aircraft Finance Trust to
determine the Current Base and Market Values of eleven B737-300, five B737-400,
two B767-200ER, four B767-300ER, two DC10-30, four MD-83, seven A320-200, and
one A310-300 in their present configuration as passenger aircraft as of December
31, 1999. The aircraft are further identified in Section II of this report.
In performing this valuation, MBA did not inspect the aircraft or their
historical maintenance documentation, and we relied solely on information
provided to us by UniCapital Air Group. Based on the information set forth in
this report, it is our opinion that the Adjusted Current Base Value of the
aircraft in this portfolio $1,277,961,000 (and, the Adjusted Current Market
Value is $1,222,941,000) as noted in Section III and IV.
MBA uses the definition of certain terms, such as Current Market Value and Base
Value, as promulgated by the Appraisal Program of International Society of
Transport Aircraft Trading (ISTAT), a non-profit association of management
personnel from banks, leasing companies, airlines, manufacturers, brokers, and
others who have a vested interest in the commercial aviation industry and who
have established a technical and ethical certification program for expert
appraisers.
ISTAT defines Current Market Value (CMV) as the appraiser's opinion of the most
likely trading price that may be generated for an aircraft under market
conditions that are perceived to exist at the time in question. Current Market
Value assumes that the aircraft is valued for its highest, best use; that the
parties to the hypothetical sale transaction are willing, able, prudent and
knowledgeable and under no unusual pressure for a prompt sale; and that the
transaction would be negotiated in an open and unrestricted market on an
arm's-length basis, for cash or equivalent consideration, and given an adequate
amount of time for effective exposure to prospective buyers.
The ISTAT definition of Base Value (BV) has, essentially, the same elements of
Market Value except that the market circumstances are assumed to be in a
reasonable state of equilibrium. Thus, Base Value pertains to an idealized
aircraft and market combination, but will not necessarily reflect the actual
Current Market Value of the aircraft in question. BV is founded in the
historical trend of values and is generally used to analyze historical values or
to project future values.
<PAGE>
II. AIRCRAFT DETAILS
- ------------------------------------------------------------------------------
Aircraft Type Serial Number Manufacture Date Operator
- ------------------------------------------------------------------------------
A310-300 448 Feb-88 Royal Aviation
- ------------------------------------------------------------------------------
A320-200 210 Jul-91 CAI
- ------------------------------------------------------------------------------
A320-200 221 Sep-91 AirTours
- ------------------------------------------------------------------------------
A320-200 222 Oct-91 AirTours
- ------------------------------------------------------------------------------
A320-200 231 Sep-91 CAI
- ------------------------------------------------------------------------------
A320-200 373 Jan-93 Transmeridian
- ------------------------------------------------------------------------------
A320-200 737 Sep-97 Star
- ------------------------------------------------------------------------------
A320-200 749 Sep-97 Star
- ------------------------------------------------------------------------------
B737-300 28333 Aug-96 Virgin
- ------------------------------------------------------------------------------
B737-300 28548 Dec-97 BA
- ------------------------------------------------------------------------------
B737-300 28554 Dec-96 British Midland
- ------------------------------------------------------------------------------
B737-300 28557 Mar-97 British Midland
- ------------------------------------------------------------------------------
B737-300 28558 Apr-97 British Midland
- ------------------------------------------------------------------------------
B737-300 28559 May-97 Unknown
- ------------------------------------------------------------------------------
B737-300 28561 Jun-97 China Eastern
- ------------------------------------------------------------------------------
B737-300 28562 Jul-97 China Eastern
- ------------------------------------------------------------------------------
B737-300 28563 Aug-97 Frontier
- ------------------------------------------------------------------------------
B737-300 28564 Nov-97 Transbrasil
- ------------------------------------------------------------------------------
B737-300 28740 Jun-98 AWA
- ------------------------------------------------------------------------------
B737-400 25663 Nov-92 Jet Airways
- ------------------------------------------------------------------------------
B737-400 25664 Nov-92 Jet Airways
- ------------------------------------------------------------------------------
B737-400 28489 Nov-96 Virgin
- ------------------------------------------------------------------------------
B737-400 28490 Nov-96 Istanbul
- ------------------------------------------------------------------------------
B737-400 28491 Nov-96 Istanbul
- ------------------------------------------------------------------------------
B767-200ER 23805 Jul-87 Varig
- ------------------------------------------------------------------------------
B767-200ER 23806 Jul-87 Varig
- ------------------------------------------------------------------------------
B767-300ER 25221 Jul-91 Britannia
- ------------------------------------------------------------------------------
B767-300ER 25403 Jan-92 TWA
- ------------------------------------------------------------------------------
B767-300ER 29617 Mar-99 Air 2000
- ------------------------------------------------------------------------------
B767-300ER 30008 May-99 Alitalia
- ------------------------------------------------------------------------------
DC10-30 46584 Feb-80 Continental
- ------------------------------------------------------------------------------
DC10-30 48292 Feb-82 Continental
- ------------------------------------------------------------------------------
MD-83 49398 Nov-86 Spanair
- ------------------------------------------------------------------------------
MD-83 49791 Sep-89 Spanair
- ------------------------------------------------------------------------------
MD-83 53198 Apr-91 Spanair
- ------------------------------------------------------------------------------
MD-83 53199 Mar-92 Eurofly
- ------------------------------------------------------------------------------
2
<PAGE>
III. VALUATION (CURRENT BASE VALUE)
In developing the Current Market Value of these aircraft, MBA did not inspect
the aircraft or their historical maintenance documentation, but relied on
partial information supplied by the Client. Therefore, we used certain
assumptions that are generally accepted industry practice to calculate the value
of aircraft when more detailed information is not available. The principal
assumptions for aircraft is as follows:
1. The aircraft are in good overall condition.
2. The overhaul status of the airframe, engines, landing gear and other
major components are the equivalent of mid-time/mid-life unless
otherwise specified.
3. The historical maintenance documentation has been maintained to
acceptable international standards.
4. The specifications of the aircraft are those most common for an
aircraft of its type and vintage.
5. The aircraft are in a standard airline configuration.
6. The aircraft are current as to all Airworthiness Directives and Service
Bulletins.
7. The modification status is comparable to that most common for aircraft
of the type and vintage.
8. The utilization is comparable to industry averages.
9. There are no histories of accident or incident damage.
10. No accounting is made for lease obligations or terms of ownership.
11. MBA applies credits for higher MTOW aircraft on a scale that varies
with year of manufacture.
3
<PAGE>
- --------------------------------------------------------------------------------
Total Adjusted Current
Aircraft Type Serial Number Current Base Adjustments Base
Value Value
- ------------------------------------------------------------------------------
A310-300 448 $35,310,000 $320,000 $35,630,000
- --------------------------------------------------------------------------------
A320-200 210 $30,280,000 -$35,000 $30,245,000
- --------------------------------------------------------------------------------
A320-200 221 $30,520,000 $186,000 $30,706,000
- --------------------------------------------------------------------------------
A320-200 222 $30,640,000 $190,000 $30,830,000
- --------------------------------------------------------------------------------
A320-200 231 $30,520,000 $259,000 $30,779,000
- --------------------------------------------------------------------------------
A320-200 373 $32,480,000 $279,000 $32,759,000
- --------------------------------------------------------------------------------
A320-200 737 $40,450,000 $332,000 $40,782,000
- --------------------------------------------------------------------------------
A320-200 749 $40,450,000 $332,000 $40,782,000
- --------------------------------------------------------------------------------
B737-300 28333 $30,030,000 $452,000 $30,482,000
- --------------------------------------------------------------------------------
B737-300 28548 $32,820,000 $0 $32,820,000
- --------------------------------------------------------------------------------
B737-300 28554 $30,690,000 $645,000 $31,335,000
- --------------------------------------------------------------------------------
B737-300 28557 $31,220,000 $690,000 $31,910,000
- --------------------------------------------------------------------------------
B737-300 28558 $31,400,000 $644,000 $32,044,000
- --------------------------------------------------------------------------------
B737-300 28559 $31,570,000 $644,000 $32,214,000
- --------------------------------------------------------------------------------
B737-300 28561 $31,750,000 $483,000 $32,233,000
- --------------------------------------------------------------------------------
B737-300 28562 $31,930,000 $483,000 $32,413,000
- --------------------------------------------------------------------------------
B737-300 28563 $32,110,000 $483,000 $32,593,000
- --------------------------------------------------------------------------------
B737-300 28564 $32,640,000 $483,000 $33,123,000
- --------------------------------------------------------------------------------
B737-300 28740 $33,950,000 $0 $33,950,000
- --------------------------------------------------------------------------------
B737-400 25663 $26,770,000 -$120,000 $26,650,000
- --------------------------------------------------------------------------------
B737-400 25664 $26,770,000 -$106,000 $26,664,000
- --------------------------------------------------------------------------------
B737-400 28489 $33,050,000 $0 $33,050,000
- --------------------------------------------------------------------------------
B737-400 28490 $33,050,000 $0 $33,050,000
- --------------------------------------------------------------------------------
B737-400 28491 $33,050,000 $0 $33,050,000
- --------------------------------------------------------------------------------
B767-200ER 23805 $31,900,000 -$225,000 $31,675,000
- --------------------------------------------------------------------------------
B767-200ER 23806 $31,900,000 -$199,000 $31,701,000
- --------------------------------------------------------------------------------
B767-300ER 25221 $60,010,000 $789,000 $60,799,000
- --------------------------------------------------------------------------------
B767-300ER 25403 $61,520,000 $1,511,000 $63,031,000
- --------------------------------------------------------------------------------
B767-300ER 29617 $88,320,000 $1,575,000 $89,895,000
- --------------------------------------------------------------------------------
B767-300ER 30008 $89,070,000 $1,260,000 $90,330,000
- --------------------------------------------------------------------------------
DC10-30 46584 $19,260,000 -$250,000 $19,010,000
- --------------------------------------------------------------------------------
DC10-30 48292 $21,500,000 $348,000 $21,848,000
- --------------------------------------------------------------------------------
MD-83 49398 $19,480,000 $266,000 $19,746,000
- --------------------------------------------------------------------------------
MD-83 49791 $22,190,000 -$279,000 $21,911,000
- --------------------------------------------------------------------------------
MD-83 53198 $23,870,000 -$554,000 $23,316,000
- --------------------------------------------------------------------------------
MD-83 53199 $24,890,000 -$285,000 $24,605,000
- --------------------------------------------------------------------------------
Total $1,267,360,000 $10,601,000 $1,277,961,000
- --------------------------------------------------------------------------------
Legend - Total adjustments equals MTOW credits plus maintenance adjustments
as presented in section V.
4
<PAGE>
IV. VALUATION (CURRENT MARKET VALUE)
- --------------------------------------------------------------------------------
Adjusted
Total Current
Aircraft Type Serial Number Current Market Adjustments Market
Value Value
- --------------------------------------------------------------------------------
A310-300 448 $28,248,000 $320,000 $28,568,000
- --------------------------------------------------------------------------------
A320-200 210 $30,280,000 -$35,000 $30,245,000
- --------------------------------------------------------------------------------
A320-200 221 $30,520,000 $186,000 $30,706,000
- --------------------------------------------------------------------------------
A320-200 222 $30,640,000 $190,000 $30,830,000
- --------------------------------------------------------------------------------
A320-200 231 $30,520,000 $259,000 $30,779,000
- --------------------------------------------------------------------------------
A320-200 373 $32,480,000 $279,000 $32,759,000
- --------------------------------------------------------------------------------
A320-200 737 $40,450,000 $332,000 $40,782,000
- --------------------------------------------------------------------------------
A320-200 749 $40,450,000 $332,000 $40,782,000
- --------------------------------------------------------------------------------
B737-300 28333 $27,027,000 $452,000 $27,479,000
- --------------------------------------------------------------------------------
B737-300 28548 $29,538,000 $0 $29,538,000
- --------------------------------------------------------------------------------
B737-300 28554 $27,621,000 $645,000 $28,266,000
- --------------------------------------------------------------------------------
B737-300 28557 $28,098,000 $690,000 $28,788,000
- --------------------------------------------------------------------------------
B737-300 28558 $28,260,000 $644,000 $28,904,000
- --------------------------------------------------------------------------------
B737-300 28559 $28,413,000 $644,000 $29,057,000
- --------------------------------------------------------------------------------
B737-300 28561 $28,575,000 $483,000 $29,058,000
- --------------------------------------------------------------------------------
B737-300 28562 $28,737,000 $483,000 $29,220,000
- --------------------------------------------------------------------------------
B737-300 28563 $28,899,000 $483,000 $29,382,000
- --------------------------------------------------------------------------------
B737-300 28564 $29,376,000 $483,000 $29,859,000
- --------------------------------------------------------------------------------
B737-300 28740 $30,555,000 $0 $30,555,000
- --------------------------------------------------------------------------------
B737-400 25663 $24,093,000 -$120,000 $23,973,000
- --------------------------------------------------------------------------------
B737-400 25664 $24,093,000 -$106,000 $23,987,000
- --------------------------------------------------------------------------------
B737-400 28489 $29,745,000 $0 $29,745,000
- --------------------------------------------------------------------------------
B737-400 28490 $29,745,000 $0 $29,745,000
- --------------------------------------------------------------------------------
B737-400 28491 $29,745,000 $0 $29,745,000
- --------------------------------------------------------------------------------
B767-200ER 23805 $30,305,000 -$225,000 $30,080,000
- --------------------------------------------------------------------------------
B767-200ER 23806 $30,305,000 -$199,000 $30,106,000
- --------------------------------------------------------------------------------
B767-300ER 25221 $54,009,000 $789,000 $54,798,000
- --------------------------------------------------------------------------------
B767-300ER 25403 $55,368,000 $1,511,000 $56,879,000
- --------------------------------------------------------------------------------
B767-300ER 29617 $79,488,000 $1,575,000 $81,063,000
- --------------------------------------------------------------------------------
B767-300ER 30008 $80,163,000 $1,260,000 $81,423,000
- --------------------------------------------------------------------------------
DC10-30 46584 $17,334,000 -$250,000 $17,084,000
- --------------------------------------------------------------------------------
DC10-30 48292 $19,350,000 $348,000 $19,698,000
- --------------------------------------------------------------------------------
MD-83 49398 $18,506,000 $266,000 $18,772,000
- --------------------------------------------------------------------------------
MD-83 49791 $21,081,000 -$279,000 $20,802,000
- --------------------------------------------------------------------------------
MD-83 53198 $66,677,000 -$554,000 $66,123,000
- --------------------------------------------------------------------------------
MD-83 53199 $23,646,000 -$285,000 $23,361,000
- --------------------------------------------------------------------------------
Total $1,212,340,000 $10,601,000 $1,222,941,000
- --------------------------------------------------------------------------------
Legend - CMV equals MAF times Base Value (MAF is the Market
Adjustment Factor). MAF for A310-200 is 80% (100% for
A320-200; 90% for B737-300 & -400, DC10-30 & B767-300ER; 95%
for B767-200ER & MD-83).
5
<PAGE>
V. MAINTENANCE ADJUSTMENTS & MTOW CREDITS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Engine Engine Engine Engine
Aircraft Serial Int. MX Int. MX Heavy MX Heavy MX LLP LLP Shop Shop
Type Number Potential Actual Potential Actual Potential Actual Potential Actual
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A310-300 448 $300,000 $0 $1,250,000 $208,000 $1,700,000 $0 $1,100,000 $0
- --------------------------------------------------------------------------------------------------------
A320-200 210 $200,000 $0 $500,000 -$150,000 $1,250,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
A320-200 221 $200,000 $0 $500,000 $0 $1,250,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
A320-200 222 $200,000 $0 $500,000 $0 $1,250,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
A320-200 231 $200,000 $0 $500,000 $50,000 $1,250,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
A320-200 373 $200,000 $0 $500,000 -$7,000 $1,250,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
A320-200 737 $200,000 $0 $500,000 $0 $1,250,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
A320-200 749 $200,000 $0 $500,000 $0 $1,250,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
B737-300 28333 $150,000 $0 $500,000 $0 $1,100,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
B737-300 28548 $150,000 $0 $500,000 $0 $1,100,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
B737-300 28554 $150,000 $0 $500,000 $0 $1,100,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
B737-300 28557 $150,000 $0 $500,000 $0 $1,100,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
B737-300 28558 $150,000 $0 $500,000 $0 $1,100,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
B737-300 28559 $150,000 $0 $500,000 $0 $1,100,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
B737-300 28561 $150,000 $0 $500,000 $0 $1,100,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
B737-300 28562 $150,000 $0 $500,000 $0 $1,100,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
B737-300 28563 $150,000 $0 $500,000 $0 $1,100,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
B737-300 28564 $150,000 $0 $500,000 $0 $1,100,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
B737-300 28740 $150,000 $0 $500,000 $0 $1,100,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
B737-400 25663 $175,000 $0 $600,000 -$310,000 $1,100,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
B737-400 25664 $175,000 $0 $600,000 -$296,000 $1,100,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
B737-400 28489 $175,000 $0 $600,000 $0 $1,100,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
B737-400 28490 $175,000 $0 $600,000 $0 $1,100,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
B737-400 28491 $175,000 $0 $600,000 $0 $1,100,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
B767-200ER 23805 $200,000 -$67,000 $900,000 $0 $2,000,000 $0 $1,000,000 $0
- ---------------------------------------------------------------------------------------------------------
B767-200ER 23806 $200,000 -$44,000 $900,000 $0 $2,000,000 $0 $1,000,000 $0
- ---------------------------------------------------------------------------------------------------------
B767-300ER 25221 $200,000 -$111,000 $900,000 $200,000 $2,000,000 $0 $1,000,000 $0
- ---------------------------------------------------------------------------------------------------------
B767-300ER 25403 $200,000 $0 $900,000 $675,000 $2,000,000 $0 $1,000,000 $0
- ---------------------------------------------------------------------------------------------------------
B767-300ER 29617 $200,000 $0 $900,000 $0 $2,000,000 $0 $1,000,000 $0
- ---------------------------------------------------------------------------------------------------------
B767-300ER 30008 $200,000 $0 $900,000 $0 $2,000,000 $0 $1,000,000 $0
- ---------------------------------------------------------------------------------------------------------
DC10-30 46584 $500,000 $63,000 $1,000,000 -$417,000 $2,550,000 $0 $1,000,000 $0
- ---------------------------------------------------------------------------------------------------------
DC10-30 48292 $500,000 -$42,000 $1,000,000 $278,000 $2,550,000 $0 $1,000,000 $0
- ---------------------------------------------------------------------------------------------------------
MD-83 49398 $250,000 $8,000 $500,000 $258,000 $1,100,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
MD-83 49791 $250,000 -$217,000 $500,000 $0 $1,100,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
MD-83 53198 $250,000 -$142,000 $500,000 -$367,000 $1,100,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
MD-83 53199 $250,000 -$8,000 $500,000 -$275,000 $1,100,000 $0 $750,000 $0
- ---------------------------------------------------------------------------------------------------------
TOTAL $7,425,000 ($560,000) $22,650,000 ($153,000) $49,550,000 $0 $29,350,000 $0
- ---------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Total from
Aircraft Type Serial Number LG Potential LG Actual MTOW previous Total
TABLE Adjustment
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
A310-300 448 $200,000 -$68,000 $180,000 $208,000 $320,000
- ----------------------------------------------------------------------------------------------------
A320-200 210 $130,000 -$9,000 $124,000 -$150,000 -$35,000
- ----------------------------------------------------------------------------------------------------
A320-200 221 $130,000 -$30,000 $216,000 $0 $186,000
- ----------------------------------------------------------------------------------------------------
A320-200 222 $130,000 -$26,000 $216,000 $0 $190,000
- ----------------------------------------------------------------------------------------------------
A320-200 231 $130,000 -$7,000 $216,000 $50,000 $259,000
- ----------------------------------------------------------------------------------------------------
A320-200 373 $130,000 $31,000 $255,000 -$7,000 $279,000
- ----------------------------------------------------------------------------------------------------
A320-200 737 $130,000 $0 $332,000 $0 $332,000
- ----------------------------------------------------------------------------------------------------
A320-200 749 $130,000 $0 $332,000 $0 $332,000
- ----------------------------------------------------------------------------------------------------
B737-300 28333 $120,000 $0 $452,000 $0 $452,000
- ----------------------------------------------------------------------------------------------------
B737-300 28548 $120,000 $0 $0 $0 $0
- ----------------------------------------------------------------------------------------------------
B737-300 28554 $120,000 $0 $645,000 $0 $645,000
- ----------------------------------------------------------------------------------------------------
B737-300 28557 $120,000 $0 $690,000 $0 $690,000
- ----------------------------------------------------------------------------------------------------
B737-300 28558 $120,000 $0 $644,000 $0 $644,000
- ----------------------------------------------------------------------------------------------------
B737-300 28559 $120,000 $0 $644,000 $0 $644,000
- ----------------------------------------------------------------------------------------------------
B737-300 28561 $120,000 $0 $483,000 $0 $483,000
- ----------------------------------------------------------------------------------------------------
B737-300 28562 $120,000 $0 $483,000 $0 $483,000
- ----------------------------------------------------------------------------------------------------
B737-300 28563 $120,000 $0 $483,000 $0 $483,000
- ----------------------------------------------------------------------------------------------------
B737-300 28564 $120,000 $0 $483,000 $0 $483,000
- ----------------------------------------------------------------------------------------------------
B737-300 28740 $120,000 $0 $0 $0 $0
- ----------------------------------------------------------------------------------------------------
B737-400 25663 $135,000 $0 $190,000 -$310,000 -$120,000
- ----------------------------------------------------------------------------------------------------
B737-400 25664 $135,000 $0 $190,000 -$296,000 -$106,000
- ----------------------------------------------------------------------------------------------------
B737-400 28489 $135,000 $0 $0 $0 $0
- ----------------------------------------------------------------------------------------------------
B737-400 28490 $135,000 $0 $0 $0 $0
- ----------------------------------------------------------------------------------------------------
B737-400 28491 $135,000 $0 $0 $0 $0
- ----------------------------------------------------------------------------------------------------
B767-200ER 23805 $173,000 -$158,000 $0 -$67,000 -$225,000
- ----------------------------------------------------------------------------------------------------
B767-200ER 23806 $173,000 -$155,000 $0 -$44,000 -$199,000
- ----------------------------------------------------------------------------------------------------
B767-300ER 25221 $173,000 $0 $700,000 $89,000 $789,000
- ----------------------------------------------------------------------------------------------------
B767-300ER 25403 $173,000 $0 $836,000 $675,000 $1,511,000
- ----------------------------------------------------------------------------------------------------
B767-300ER 29617 $173,000 $0 $1,575,000 $0 $1,575,000
- ----------------------------------------------------------------------------------------------------
B767-300ER 30008 $173,000 $0 $1,260,000 $0 $1,260,000
- ----------------------------------------------------------------------------------------------------
DC10-30 46584 $230,000 $0 $104,000 -$354,000 -$250,000
- ----------------------------------------------------------------------------------------------------
DC10-30 48292 $230,000 $0 $112,000 $236,000 $348,000
- ----------------------------------------------------------------------------------------------------
MD-83 49398 $108,000 $0 $0 $266,000 $266,000
- ----------------------------------------------------------------------------------------------------
MD-83 49791 $108,000 -$62,000 $0 -$217,000 -$279,000
- ----------------------------------------------------------------------------------------------------
MD-83 53198 $108,000 -$45,000 $0 -$509,000 -$554,000
- ----------------------------------------------------------------------------------------------------
MD-83 53199 $108,000 -$2,000 $0 -$283,000 -$285,000
- ----------------------------------------------------------------------------------------------------
TOTAL $5,035,000 ($531,000) $11,845,000 ($713,000) $10,601,000
- ----------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
VI. AIRCRAFT PROFILES & CURRENT MARKET CONDITIONS
Airbus A319/320/321 Series Aircraft
The A320 was Airbus' first all new design since the launch of the original A300
in 1971. The program was initiated in 1983 and logged almost 400 orders prior to
first delivery in 1988. The A320s are now offered with both the CFM-56 and the
IAE V-2500 engine, with the CFM version having a long head start.
The A321, a stretched version designed to directly challenge the 757-200 and
bridge the gap between the A320 and A330/340, was launched in 1989. The first
deliveries were made to Lufthansa and Alitalia in early 1994. Seating in the
A321 was increased to 186 (and more in all-coach configurations) from a nominal
150 in the A320 and the gross weight increased by 19,200 pounds. As of September
1999, there were 139 A321s delivered and 125 on order.
The A319 is the opposite of the A321--that is, a truncated version of the
original aircraft. The program was officially launched with a modest
six-aircraft order by leasing giant ILFC in late 1992. Prospects were not
encouraging as more than one year went by before subsequent orders were placed.
However, Air Canada provided a major boost to Airbus with an order of 34 A319s
in April 1994. Ironically, the carrier had reportedly decided against ordering
new aircraft to replace its aging DC-9 fleet when Fokker Aircraft convinced the
carrier to re-examine the benefits of new airframes. ACA Chairman Hollis Harris
agreed, but Fokker lost the battle to its European competitor. As of September
1999, 622 A319s have been ordered, 155 delivered, and 448 are on order.
The Northwest and Air Canada situations are significant due to the Airbus family
concept factor, (common type ratings and minimal differences training for pilots
of the A319 through A340 aircraft), which is the core of the manufacturer's goal
to develop entire fleets with major carriers. Air Canada, which operates A320s
already, chose this Airbus concept with both the A319 order and an eight-plane
A340 order as well. Northwest Airlines, which operates 69 A320s (and has 13 on
order) ordered 50 A319s and switched their A340 order for 16 A330s for delivery
beyond 2000. Other carriers, including Air France and Lufthansa, operate at
8
<PAGE>
least three of these five types, but the European influence may tilt
decision-makers at airlines such as these. Airbus believes its concept will give
its new designs significant advantages over Boeing aircraft, and the 1997 and
1998 order books indicate it is doing just that. MBA believes the combination of
extremely efficient designs and the inherent savings in training and other costs
make the Airbus family an attractive avenue for an entire fleet refurbishment,
as US Airways' commitment for 400-some aircraft appears to justify.
The A320 family incorporates an increased amount of composites in its secondary
structure compared to older jets, a complete fly-by-wire control system, and a
computerized flight management system which, when engaged, virtually precludes
putting the aircraft into stalls or other extreme conditions. This system has
been blamed by some for two early incidents in which the crews placed the
aircraft in an untenable position close to the ground with the system
disconnected and from which it was unable to recover. These two aircraft were
totally cleared by the airworthiness authorities, as well as one involved in a
third incident in which the crew made a below-minimum approach in bad weather
and struck high ground. This third aircraft had no ground proximity warning
device installed, a device now required by the French government and long
required by many others. In general, all these components have held up well in
service, and the reliability of the aircraft has been excellent.
United's 1994 order for 50 A320s, plus an option for 50 more was announced as a
727 replacement, of which United still operates 53 and has 33 A320s on order. It
is obvious that other airlines will use their large orders to surplus older
aircraft as well. Alitalia, with 22 A321s in service and three on order, is
replacing its stable of MD-82s. As mentioned, Air Canada's commitments for the
A319 will eventually go to reduce the fleet count of DC-9s. Thus the advent of
the A320 family is hastening the retirement of older, far less efficient jets.
The A320s currently in service are operating at seat mile costs as low as half
of that for older aircraft. The combination of all the above factors leads us to
believe the A320 family will enjoy a long production run and in-service useful
life, with strong residual values.
The A320 also offers the advantage of being able to carry seven LD-3 cargo
containers--a feat not even the 767 can perform. The fuselage is approximately
10 inches wider than that of the 727/737/757 series, offering wider aisles and
9
<PAGE>
roomier seats--a feature much appreciated by passengers. There are no cargo or
Combi models currently offered by Airbus, although such a configuration is
obviously possible. The exception is the A300 `Beluga' outsized special cargo
aircraft, which is already being leased for commercial applications.
ECONOMICS
The A320/321 vies with the 757 for top honors as the most efficient aircraft in
service. Great fuel efficiency, new technology design and low operating cost
parameters all combine to give these aircraft among the lowest seat mile costs
of any being built or in service. The MBA Model indicates that both will produce
very satisfactory operating and net ratios well into the next century. The A319
will not be quite as favorable, as is the case with most truncated derivatives
(747SP, L-1011-500). They will, however, provide enough incentive for larger
carriers (likely with Airbus aircraft already) to order and place them at the
bottom of the capacity scale in their fleets.
STATISTICS
------------------------------------------------------------------------
A320-200 Fleet Statistics
(as of November 1999)
------------------------------------------------------------------------
A320-200
------------------------------------------------------------------------
Number of Ordered Aircraft 1,397
------------------------------------------------------------------------
Number of Delivered Aircraft 757
------------------------------------------------------------------------
Number of Cancelled Aircraft 132
------------------------------------------------------------------------
Backlog 508
------------------------------------------------------------------------
Options 160
------------------------------------------------------------------------
Delivered in the last 12 months 92
------------------------------------------------------------------------
Number of Destroyed Aircraft 4
------------------------------------------------------------------------
Number of Retired Aircraft 0
------------------------------------------------------------------------
Number of Parked Aircraft 5
------------------------------------------------------------------------
Number of Aircraft in Operation 751
------------------------------------------------------------------------
Number of Operators 83
------------------------------------------------------------------------
Number of Leased Aircraft 440
------------------------------------------------------------------------
Number of Owned Aircraft 311
------------------------------------------------------------------------
Fleet Average Hours 17,423
------------------------------------------------------------------------
Fleet Average Cycles 10,449
------------------------------------------------------------------------
Average Age 5.6
------------------------------------------------------------------------
A320-200 AVAILABILITY
TOTAL NUMBER ON MARKET, NOVEMBER/98: 5
TOTAL NUMBER ON MARKET, NOVEMBER/99: 8
10
<PAGE>
Airbus A310-200/-300 Aircraft
The A310 entered service in 1982, and 255 have been delivered. The earlier -200
version has been superseded by the higher gross weight and longer range -300
model. The aircraft are offered with both the GE and P&W power plants, the
former having about a two-thirds market share. The A310 was primarily ordered by
European carriers, and the only ones in service in North America are those Delta
took over from Pan Am (21 - quickly returned to Airbus) and those bought by
FedEx to convert to cargo. The A310 has appealed to those airlines wanting full
widebody capability with minimum seating capacity. It is generally operated with
about 218 seats, although Pan Am used only 192, and Delta knocked that down to
177, contributing to poor economics.
In an economic comparison, the A310 is equal to or better than a 767-200, but
will be more costly per seat mile than the larger capacity 767-300. Various
gross weight options are offered up to 361,600 pounds, but this is almost 50,000
pounds below the maximum of 412,000 permitted on a hi-gross 767-300. This means
the Boeing can carry more payload further than an A310.
The A310 is also offered in a cargo/combi version, but no one operates it in
this mode. Like its brother the A300, this is changing as operators find success
with the freighter version. FedEx has converted 41 aircraft acquired from
Lufthansa, Delta others and is very satisfied with them.
The A310 has had a boost from the current trend toward use of ETOPS twins on
over-ocean routes, replacing the larger 747s and DC-10/L-1011s. This permits
airlines to serve long thin routes more frequently and economically.
The A310 is a two-crew aircraft with a glass cockpit and incorporates a standard
tail-tank, which allows in-flight center of gravity control for optimum fuel
efficiency. The aircraft is too new to have experienced aging aircraft
maintenance problems. The A310 fully complies with Stage 3 noise criteria.
11
<PAGE>
ECONOMICS
The limited seating capacity of the A310 aircraft gives it a relatively high
cost per seat-mile and, therefore, a thin earnings potential in the MBA Model.
The lower cost per aircraft mile and lesser capacity is justified by many
operators because of the nature of their route systems. However, in head-to-head
competition, the A310 (and the 767-200 as well) is at a disadvantage because of
its lack of leverage.
The longer range model of the A310 enjoys a stronger market than the earlier
version, and none have been converted to freighters as of this date, however,
look for conversion in five to ten years.
STATISTICS
-------------------------------------------------------------------
A310 Fleet Statistics
(as of November 1999)
-------------------------------------------------------------------
Number of Ordered Aircraft 282
------------------------------------------------------------------
Number of Delivered Aircraft 255
-------------------------------------------------------------------
Number of Cancelled Aircraft 21
-------------------------------------------------------------------
Backlog 6
-------------------------------------------------------------------
Options 2
-------------------------------------------------------------------
Delivered in the last 12 months 0
-------------------------------------------------------------------
Number of Destroyed Aircraft 4
-------------------------------------------------------------------
Number of Retired Aircraft 2
-------------------------------------------------------------------
Number of Parked Aircraft 16
-------------------------------------------------------------------
Number of Aircraft in Operation 249
-------------------------------------------------------------------
Number of Operators 61
-------------------------------------------------------------------
Number of Leased Aircraft 105
-------------------------------------------------------------------
Number of Owned Aircraft 144
-------------------------------------------------------------------
Fleet Average Hours 32,318
-------------------------------------------------------------------
Fleet Average Cycles 13,079
-------------------------------------------------------------------
Average Age 11.2
-------------------------------------------------------------------
A310-300 AVAILABILITY
TOTAL NUMBER ON MARKET, NOVEMBER/98: 7
TOTAL NUMBER ON MARKET, NOVEMBER/99: 3
12
<PAGE>
Boeing B737-300/-400/-500 Series Aircraft
As Stage 3 noise rules closed in at last on the 737-200, Boeing re-engined the
aircraft with the CFM-56 engine, which met the rules and also offered higher
power and the opportunity to stretch both the fuselage (capacity) in the -400
model and the range. Boeing also built the model -500, which kept the basic -200
configuration. The 737-300 was introduced in the early 1980s, and entered
service in 1984, several years behind the MD-80 which was already achieving
extensive orders, again giving the lead to Douglas.
As of December 1999, Boeing had delivered 1,987 of this re-engined 2nd
Generation series, thus continuing the successful tradition of the 737. Success
was quick for the B737-300/-400/-500 aircraft as they found homes in fleets
already populated with the -100s and -200s. The aircraft particularly suited the
deregulated American market, where smaller planes fitted hub-and-spoke
operations. Overall, more than 160 airlines have selected the 2nd generation 737
to meet their growth/replacement needs. As airline consolidation continues,
however, and as limited slot, gate, runway, and terminal facilities impede
growth, we look to the airlines to turn to larger aircraft to meet their needs.
This, in short, means that not all-737 operators will upgrade with the newer 3rd
generation (-600/-700/-800/-900) models. The introduction of the
- -600/-700/-800/-900 series terminated incoming orders for the second generation
B737 aircraft. Orders for this 3rd generation now stand at 1,302. We suspect a
good number of the orders for the -700/-800 will be converted to the -900 as
time goes by. Eighty percent of American's 630-plane commitment to Boeing is for
next generation B737 aircraft.
The 737-300/-400/-500 series is fully compliant with all-current noise and
environmental regulations, and has a wide margin of tolerance.
ECONOMICS
The MBA Model indicates good operating economics for the 737-300 and
particularly the higher capacity -400 during the forecast period. The -500 is
quite marginal on a comparable basis due to its lack of seat capacity and,
therefore, lack of earning power. It was built to be a niche aircraft, and it is
going to have to stay in its niche.
13
<PAGE>
STATISTICS
------------------------------------------------------------------------
737-300/-400/-500/700 Fleet Statistics
(as of November 1999)
-----------------------------------------------------------------------
B737-300 B737-400 B737-500
------------------------------------------------------------------------
Number of Ordered Aircraft 1,257 530 443
------------------------------------------------------------------------
Number of Delivered Aircraft 1,110 483 389
------------------------------------------------------------------------
Number of Cancelled Aircraft 145 44 54
------------------------------------------------------------------------
Backlog 2 3 0
------------------------------------------------------------------------
Options 0 17 10
------------------------------------------------------------------------
Delivered in the last 12 months 33 11 7
------------------------------------------------------------------------
Number of Destroyed Aircraft 9 4 1
------------------------------------------------------------------------
Number of Retired Aircraft 0 0 0
------------------------------------------------------------------------
Number of Parked Aircraft 14 8 1
------------------------------------------------------------------------
Number of Aircraft in Operation 1,100 480 388
------------------------------------------------------------------------
Number of Operators 120 67 39
------------------------------------------------------------------------
Number of Leased Aircraft 743 308 219
------------------------------------------------------------------------
Number of Owned Aircraft 357 172 169
------------------------------------------------------------------------
Fleet Average Hours 28,231 21,142 18,491
------------------------------------------------------------------------
Fleet Average Cycles 19,719 14,229 14,900
------------------------------------------------------------------------
Average Age 9.0 6.9 6.3
------------------------------------------------------------------------
B737-300 AVAILABILITY
TOTAL NUMBER ON MARKET, NOVEMBER/98: 13
TOTAL NUMBER ON MARKET, NOVEMBER/99: 27
B737-400 AVAILABILITY
TOTAL NUMBER ON MARKET, NOVEMBER/98: 5
TOTAL NUMBER ON MARKET, NOVEMBER/99: 15
14
<PAGE>
Boeing B767-200/-300/-400 Aircraft
The twin-aisle semi-widebody 767 was launched in 1978 and entered service in
1982. The aircraft has undergone significant development in terms of gross
weight and capacity, affecting payload and range. The initial model, the
767-200, offered a MGTOW of 280,000 pounds, while the current 767-300ER is
certified at 412,000 pounds. Early development extended the range of the -200 as
the ER model, enabling it to fly the Atlantic nonstop. Initial routings were
circuitous, since the aircraft had to stay within 90 minutes of a landing place.
But as experience was gained, the FAA and international authorities approved
ETOPS (extended range twin-engine over water operations), and more direct routes
became possible. The first production models of the larger 767-300 were
delivered in 1986 in domestic configuration, soon to be followed by successively
higher gross weight Extended Range (ER) models. Orders for the -200 slowed to a
trickle following the introduction of the -300, and it is probable that
production of this model will be discontinued in the near future. Much of the
success of the 767 program is attributable to ETOPS operations, where these
aircraft (and the A310) have replaced 747s, DC-10s and L-1011s on many long
flights. So far there have been no untoward incidents under the ETOPS programs.
The 767 has an exemplary overall safety record, with only one flight accident
attributed to inadvertent thrustreverser deployment on a Lauda Air 767-300 over
Bangkok, while a second, an Ethiopian -200 was lost in a hijacking incident in
the Comoro Islands in 1996. The most recent Egypt Air accident is still under
investigation by NTSB and it is most likely again caused by human error.
ECONOMICS
The MBA Model indicates that it is hard to make money with the 767. Satisfactory
margins are achieved only by classifying the 767 as a narrowbody in terms of
seating capacity. By definition, MBA has assumed that only 67.5 percent of
maximum certified seating is installed in a widebody, compared to 85 percent in
a narrowbody. This is in accord with industry experience. By making this
narrowbody assumption, we increased the available seating in the 767-300 from
218 to 247. Interestingly, this compares with the experience of American and
Delta in their -300s. American uses theirs both domestically and
internationally, and has 215 seats installed. Delta's are all used domestically,
and have 248 seats.
15
<PAGE>
In the long term, the relatively high seat mile costs of the 767s will make them
less desirable in the used market, and the demand for and price of these
aircraft will decline further than that of more desirable types. Their residual
values will also be impaired and they will move into the cargo market.
MBA has classified the aircraft as having seven-abreast seating. Interestingly,
British tour operators utilize the aircraft in an eight-abreast configuration,
thus increasing potential maximum seating from 290 seats in our model to 375
seats claimed by Boeing. With 375 seats, the 767-300 becomes a potent economic
competitor. However, until the industry shows more signs of utilizing this
capability we will continue to use the conventional capacity.
STATISTICS
-----------------------------------------------------------------------
B767 Series Fleet Statistics
(as of November 1999)
-----------------------------------------------------------------------
B767-200 B767-300
-----------------------------------------------------------------------
Number of Ordered Aircraft 242 642
-----------------------------------------------------------------------
Number of Delivered Aircraft 230 536
-----------------------------------------------------------------------
Number of Cancelled Aircraft 2 53
-----------------------------------------------------------------------
Backlog 10 43
------------------------------------------------------ ---------------
Options 0 29
-----------------------------------------------------------------------
Delivered in the last 12 months 0 40
-----------------------------------------------------------------------
Number of Destroyed Aircraft 4 2
-----------------------------------------------------------------------
Number of Retired Aircraft 0 0
-----------------------------------------------------------------------
Number of Parked Aircraft 3 2
-----------------------------------------------------------------------
Number of Aircraft in Operation 226 534
-----------------------------------------------------------------------
Number of Operators 37 67
-----------------------------------------------------------------------
Number of Leased Aircraft 71 235
-----------------------------------------------------------------------
Number of Owned Aircraft 155 299
-----------------------------------------------------------------------
Fleet Average Hours 48,731 26,521
-----------------------------------------------------------------------
Fleet Average Cycles 17,997 7,577
-----------------------------------------------------------------------
Average Age 13.7 6.2
-----------------------------------------------------------------------
16
<PAGE>
B767-200 AVAILABILITY
TOTAL NUMBER ON MARKET, NOVEMBER/98: 1
TOTAL NUMBER ON MARKET, NOVEMBER/99: 6
B767-300 AVAILABILITY
TOTAL NUMBER ON MARKET, NOVEMBER/98: 7
TOTAL NUMBER ON MARKET, NOVEMBER/99: 12
17
<PAGE>
MD-80 Series Aircraft
McDonnell Douglas was the first manufacturer to recognize and act on the
imminence of future noise restrictions, as well as to take advantage of
available technology to stretch the DC-9 at least one more time from a basic
139-seat to a 172-seat configuration. The MD-80 series is an elongated, higher
gross version of the venerable DC-9 fitted with Stage 3 Pratt & Whitney JT8D-217
/ -219 engines. It was originally certified in 1980 after a few embarrassing
pratfalls. In the last decade gross weight and range have been increased, and a
truncated version, the MD-87, offered. Most recently, DAC had announced the
MD-90 series, using the new IAE V-2500 engine, which offered quieter, more
efficient operation. But the MD-90 was a slow seller, a victim of the malaise,
which gradually paralyzed Douglas and lead to the Boeing merger. Boeing after
the remaining 30 orders are delivered has now officially terminated the MD-90.
However, 20 of them are MD-90-30Ts, to be built in China, and the prospect for
these is not encouraging. Saudi Arabian Airlines, with 19 MD-90s in service, is
the largest remaining customer.
Eleven hundred and sixty-three MD-80s of all versions are currently in service.
MD-80s have a five-abreast seating configuration, contrasted with the
six-abreast seating of the competitive Boeing and Airbus products. The
JT8D-217/-219 engines achieve only marginal compliance with Stage 3 noise
limits; therefore, the nagging concern exists that as noise rules are invariably
tightened the MD-80 will be squeezed out before its time. The only solution
would be reengining with the same power plants as the MD-90--an $8.0 to $10.0
million project per aircraft, or development of further noise suppression, which
is the more likely solution.
The MD-80 suffers from a smaller operator base than the Boeing
737-300/-400/-500s with which it competes. This has been a long-term problem
with the Douglas DC-8 and DC-9 as well. There are 56 airlines worldwide, which
operate the MD-80 series, and 40 percent are in the hands of two carriers,
American and Delta. Many operators utilize more than one type of MD-80; no
carrier utilizes more than four of the five. Most carriers have fleets of five
or less, suggesting that ultimate resales to these operators will inevitably be
in lots of one and two each.
18
<PAGE>
The MD-80's accident record is relatively good--only five have been destroyed,
only one of which is potentially attributable to design problems: the SAS icing
incident in Europe in 1994. The MD-80 should have a long and relatively
problem-free structural life, given the good record of Douglas on the DC-8,
DC-9, and DC-10.
The MD-80's cost characteristics are reasonable due to its high seating
capacity; and provided it can skirt the ever-present risk of more stringent
noise restrictions, it should have a long and productive useful life in
competition with existing and newly developing aircraft. On the used market
older models are already priced in the range of $80,000 a seat--about 30 percent
that of a new aircraft--giving it a significant advantage for a new operator.
Its largest probable market is with existing DC-9 operators, replacing their
30-year-old aircraft as they are forced to retire them.
ECONOMICS
The MBA Model shows the MD-80 series (with the exception of the short-bodied
MD-87) to have superior economic characteristics. At comparable seating
densities, its lower capital costs offset slightly higher fuel consumption than
the 737-300. The stretched fuselage gives it better seat-mile costs than earlier
DC-9s.
GENERAL COMMENT
FAA very recently announced that they were planning to order the re-wiring of
all DC-10, MD-11 and MD 80-90 series aircraft. The contemplated AD will order
the removal of all metalized mylar-covered wiring and replacement within four
years in conjunction with major maintenance operation. The change is supposed to
decrease the danger of wire fires such as suspected to have brought down the
Swissair MD-11 a year ago. The FAA estimates the cost per aircraft at $380,000
to $800,000 per aircraft
19
<PAGE>
STATISTICS
------------------------------------------------------------------------
MD-82/-83 Fleet Statistics
(as of November 1999)
------------------------------------------------------------------------
MD-82 MD-83
------------------------------------------------------------------------
Number of Ordered Aircraft 583 284
------------------------------------------------------------------------
Number of Delivered Aircraft 565 276
------------------------------------------------------------------------
Number of Cancelled Aircraft 18 2
------------------------------------------------------------------------
Backlog 0 6
------------------------------------------------------------------------
Options 1 10
------------------------------------------------------------------------
Delivered in the last 12 months 0 22
------------------------------------------------------------------------
Number of Destroyed Aircraft 6 1
------------------------------------------------------------------------
Number of Retired Aircraft 0 0
------------------------------------------------------------------------
Number of Parked Aircraft 4 2
------------------------------------------------------------------------
Number of Aircraft in Operation 590 260
------------------------------------------------------------------------
Number of Operators 29 26
------------------------------------------------------------------------
Number of Leased Aircraft 308 200
------------------------------------------------------------------------
Number of Owned Aircraft 289 60
------------------------------------------------------------------------
Fleet Average Hours 35,479 25,125
------------------------------------------------------------------------
Fleet Average Cycles 22,651 15,130
------------------------------------------------------------------------
Average Age 12.1 8.3
------------------------------------------------------------------------
MD-83 AVAILABILITY
TOTAL NUMBER ON MARKET, NOVEMBER/98: 2
TOTAL NUMBER ON MARKET, NOVEMBER/99: 0
20
<PAGE>
McDonnell Douglas DC-10 Series / MD-11 Aircraft
The DC-10-10 was Douglas' entry in the widebody sweepstakes in the late 1960s.
First deliveries were in mid-1971, a year and a half after the 747. American and
United were both big launch customers, placing orders for 50 and 60,
respectively. These orders were cut back by 25 percent as deliveries began
during the recession of the early 1970s. The DC-10-10 was primarily a U.S.
domestic aircraft, lacking the range for over water flights. Few were sold
outside the USA, and at one time five then 'trunk' U.S. airlines operated them,
and a sixth, Delta, ordered five, but its order was transferred to United.
Today, most of the 80-odd aircraft still in service are flown by American and
United--but both carriers have already retired more than half of their fleets,
trading them to FedEx in exchange for 727 hushkits valued about $2.0 million
each. FedEx is planning a major upgrade and freighter conversion program,
including a two-man glass cockpit with a future life expectancy of 20 years or
more. This program has been dubbed the MD-10 and the prototype has been
completed.
Douglas offered a cargo/convertible model, capitalizing on its great success
with the DC-8, but only nine were ever built -- all acquired by Continental and
subsequently sold to Federal Express who uses them as dedicated freighters.
FedEx later bought two more all cargo models of the DC-10-10 from Douglas.
Today, besides AA and UA, there are only five operators of the DC-10-10. An
upgraded model, designated the -15, was acquired by Mexicana and Aeromexico, but
only seven were produced. No DC-10-10/-15s are for sale--at the time of this
writing.
The DC-10 series aircraft (including the later -30 models) have experienced an
unfortunately high loss rate due to accidents and terrorism. While few of these
incidents are attributed to the aircraft's design, the plane has developed a
reputation, which is enthusiastically resurrected and exploited by the media at
each new incident. Only two accidents were ascribed to design deficiencies --
the rest ran the gamut from pilot error to hangar fires to terrorist acts.
Regardless of merit, the accidents and incidents have affected the marketability
of the aircraft, and continue to hang over it like a cloud.
21
<PAGE>
MBA believes that the DC-10-10 offers its operators a low cost, medium range
transport that can serve the bulk of the domestic U.S. and North American
markets efficiently for years to come. Its small market base is a definite
inhibitor which will not be eliminated unless and until it becomes possible for
more new airlines to be launched in the USA. The present operators have neither
the cost structure nor the marketing philosophy to utilize the aircraft
differently than they do today. Thus current plans call for continued early
retirement of the DC-10-10 by American and United and its replacement with 757s,
767s and 777s.
We predicted two years ago that "One possible destination for these aircraft is
the mod center, from which they will emerge as freighters. Cheap hulls will
attract ambitious purchasers, and the continued freight boom will make converted
freighters an attractive option to new models. Douglas currently offers a
conversion package in cooperation with Alenia--which has experience from its
numerous DC-8 conversions". This prediction came to pass with the AA/UA - FedEx
deal, and it appears that only a handful will remain in passenger service.
ECONOMICS
The MBA Model shows that the DC-10-10 makes a reasonable operating return, but
only a marginal return after lease or financial costs. Particularly compared to
the L-1011-1 series, the aircraft generally has a few less seats and costs more
to maintain. These factors are operator-sensitive, but indicate that additional
care must be taken to insure a reasonable profit. The principal future passenger
use is now as a charter aircraft.
The DC-10-30 is the upgraded, long-range partner of the DC-10-10. First
deliveries were in 1972, about a year after the -10. The -30 featured more
powerful GE CF6-50C1 engines and a 110,000 pound increase in maximum takeoff
gross weight, permitting nonstop operations over ranges as great as 6,000
statute miles. The aircraft was offered in both passenger and cargo/convertible
- -30CF configurations and proved particularly popular with international
airlines. A total of 169 passenger and 27 convertibles were produced.
Subsequently, ten all-cargo aircraft were ordered during the 1980s by Federal
Express, which standardized on the DC-10 in the early years.
22
<PAGE>
There were two derivatives of the DC-10-30--the DC-10-40, equipped with P&W JT9D
engines, and the military tanker KC-10A. Forty-two -40s were produced for
Northwest and Japan Airlines, and 60 KC-10As for the U.S. Air Force.
The DC-10-30 equipped with the early GE CF6-50C1 engine was not certified to
meet Stage 3, while the later models equipped or converted to the -50C2 engine
do meet Stage 3. The alternative is a $1.0 million per engine upgrade from the
C1 to the C2 configuration, much of which can be accomplished during overhaul.
The DC-10-30 enjoyed a very strong secondhand market during the late 1980s, with
prices being bid up to over $40.0 million on even the oldest models. The past
recession and glut of used aircraft brought a sharp decline in prices. Demand
slackened as new replacement MD-11s, B-747s, and B-767s were delivered. However,
the tide turned in 1996, with Northwest, Continental and others adding to their
DC-10-30 fleets and prices rebounded strongly, but are again softening.
The DC-10-30 is not a particularly effective cargo aircraft because of its
inability to handle large intermodal containers side-by-side like the 747.
Nevertheless, it has found a firm market with FedEx and Gemini and is
extensively utilized under the U.S. Air Force's CRAF program. In the future, it
is likely that more DC-10-30s will be converted to cargo to replace older B-707s
and DC-8s still in operation and a dozen have been converted by Gemini and Varig
at Alenia and Phoenix. Currently, six carriers operate a total of 45 -30CF and
converted aircraft, of which FedEx employs 26.
There have been no major aging aircraft problems with the DC-10-30 to date. 'D'
Checks cost between $3.0 and $4.0 million, and engine overhauls around $1.0 to
$1.2 million at 6,000 hour/1,500 cycle intervals.
ECONOMICS
The MBA Model shows the operating economics of the DC-10-30 to be slightly
poorer than those of the DC-10-10 over the 'standard' 1,000 mile segment due to
its higher gross weight, crew costs, landing fees, and maintenance and
acquisition costs. Passenger capacity of the two aircraft is the same.
Nevertheless, the aircraft continues to hold its own against both the new
B-747-400 and the A340, and so far is economically superior to the big twins in
23
<PAGE>
service. We believe that the DC-10-30 will continue to enjoy an active market
and long useful life, with more conversions to cargo.
Despite the aircraft's scarcity and feeble market penetration in the CF/F mode,
we place a higher CMP on this aircraft than on the DC-10-30 passenger aircraft.
This is primarily due to the versatility of the CF, the tighter current market
for this version, and the potential full-cargo conversion.
STATISTICS
------------------------------------------------------------------------
DC10-30 Series Fleet Statistics
(as of November 1999)
------------------------------------------------------------------------
Number of Ordered Aircraft 201
------------------------------------------------------------------------
Number of Delivered Aircraft 201
------------------------------------------------------------------------
Delivered in the last 12 months 0
------------------------------------------------------------------------
Number of Destroyed Aircraft 13
------------------------------------------------------------------------
Number of Retired Aircraft 5
------------------------------------------------------------------------
Number of Parked Aircraft 22
------------------------------------------------------------------------
Number of Aircraft in Operation 186
------------------------------------------------------------------------
Number of Operators 40
------------------------------------------------------------------------
Number of Leased Aircraft 103
------------------------------------------------------------------------
Number of Owned Aircraft 83
------------------------------------------------------------------------
Fleet Average Hours 81,091
------------------------------------------------------------------------
Fleet Average Cycles 19,024
------------------------------------------------------------------------
Average Age 21.9
------------------------------------------------------------------------
DC10-30 AVAILABILITY
TOTAL NUMBER ON MARKET, NOVEMBER/98: 17
TOTAL NUMBER ON MARKET, NOVEMBER/99: 11
24
<PAGE>
VII. COVENANTS
This report has been prepared for the exclusive use of Aircraft Finance Trust
and shall not be provided to other parties by MBA without the express consent of
Aircraft Finance Trust.
MBA certifies that this report has been independently prepared and that it fully
and accurately reflects MBA's opinion as to the Current Base and Market Values.
MBA further certifies that it does not have, and does not expect to have, any
financial or other interest in the subject or similar aircraft.
This report represents the opinion of MBA as to the Current Base and Market
Values of the subject aircraft and is intended to be advisory only, in nature.
Therefore, MBA assumes no responsibility or legal liability for any actions
taken, or not taken, by Aircraft Finance Trust or any other party with regard to
the subject aircraft. By accepting this report, all parties agree that MBA shall
bear no such responsibility or legal liability.
PREPARED BY:
Teo Ozdener, M.Sc., P.Eng.
Vice President, Technical
REVIEWED BY:
February 8, 2000 Morten S. Beyer, Appraiser Fellow
Chairman & CEO
ISTAT Certified Senior Appraiser
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