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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2000

Commission File Number 0-10795

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BOEING CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE
(State or other jurisdiction of 95-2564584
Incorporation or Organization) (I.R.S. Employer Identification No.)

500 NACHES AVE., SW, 3RD FLOOR - RENTON, WASHINGTON 98055
(Address of principal executive offices)

(425) 393-2914
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

NONE

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, PAR VALUE $100 PER SHARE

Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes /X/ No / /

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/

As of March 20, 2001, there were 50,000 shares of the Company's common stock
outstanding.

Registrant meets the conditions set forth in General Instruction I(1)(a) and
(b) of Form 10-K and is therefore filing this Form with the reduced disclosure
format.

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TABLE OF CONTENTS

PAGE
--------

PART I

Item 1. Business.................................................... 3
Item 2. Properties.................................................. 16
Item 3. Legal Proceedings........................................... 17
Item 4. Submission of Matters to a Vote of Security Holders *

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matter........................................ 17
Item 6. Selected Financial Data..................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 18
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 22
Item 8. Financial Statements and Supplementary Data................. 22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 41

PART III

Item 10. Directors and Executive Officers of the Registrant *
Item 11. Executive Compensation *
Item 12. Security Ownership of Certain Beneficial Owners and
Management *
Item 13. Certain Relationships and Related Transactions *

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................. 41
Signatures.................................................. 45
Exhibits.................................................... 46

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* Omitted pursuant to General Instruction I(2)(c) of Form 10-K.

PART I

ITEM 1. BUSINESS

GENERAL

Boeing Capital Corporation (formerly McDonnell Douglas Finance Corporation)
(together with its subsidiaries the "Company") is a wholly owned subsidiary of
Boeing Capital Services Corporation ("BCSC"), which is a wholly owned subsidiary
of McDonnell Douglas Corporation ("McDonnell Douglas"), which, in turn, is
wholly owned by The Boeing Company ("Boeing"). The Company was incorporated in
Delaware in 1968 and provides equipment financing and leasing arrangements to a
diversified range of customers and industries. The Company's primary operations
at December 31, 2000 included two financial reporting segments: commercial
aircraft financing and commercial finance (formerly commercial equipment leasing
and financing). Currently, the commercial aircraft financing group ("CAF") is
active in providing lease and debt financing to domestic and international
airlines and the commercial finance group ("CFG") is active in providing lease
and debt financing to a broad range of commercial and industrial customers. As
of December 31, 2000, the Company had 143 employees. As of the filing date, the
Company had 157 employees.

On October 4, 1999, Boeing announced its decision to consolidate its
customer financing under one group. Boeing's press release explained that
"Boeing Capital Corporation will continue as a wholly owned subsidiary of The
Boeing Company, but will now integrate the existing financial services
activities supporting commercial aircraft, military aircraft and missiles, and
space and communication markets."

As of March 31, 2000, the Company acquired certain tangible assets and
assumed certain liabilities of Boeing and certain subsidiaries of Boeing,
pursuant to a Term Sheet dated as of January 1, 2000, as well as various
definitive asset transfer agreements dated as of March 31, 2000 (collectively
referred to as the "Transfer Agreements"). Under the terms of the Transfer
Agreements, the Company acquired, effective as of January 1, 2000, a significant
portion of Boeing's aircraft customer financing portfolio, including lease and
loan agreements and the related receivables and assets (the "Portfolio"). This
transfer was not accounted for as new business volume. The purchase price was
paid in the form of promissory notes, dated January 1, 2000, in the aggregate
principal amount of $1,261.9 million, together with an equity contribution to
the Company of $50.1 million. The Company recorded an intercompany receivable
for $17.3 million from Boeing in consideration for which the Company assumed
Boeing's deferred taxes with respect to the Portfolio. The promissory notes were
paid in full during the third quarter of 2000.

On November 1, 2000, James F. Palmer was elected president of the Company,
replacing Thomas J. Motherway. Mr. Palmer, a senior vice president of Boeing and
a member of the Executive Council of Boeing, has been a member of the Company's
board of directors since November 1999. In his capacity as president of the
Company, Mr. Palmer will report to the Office of the Chairman of Boeing. On
October 31, 2000, Phil Condit, the CEO of Boeing, announced that "We are
elevating the reporting level of Boeing Capital Corporation and moving Jim
Palmer into the leadership position to enable us to use his strong financial and
leadership skills to rapidly expand our position in this fast-growing,
high-opportunity business area."

Information on the Company's principal segments is included in the following
tables.

NEW BUSINESS VOLUME

YEARS ENDED DECEMBER 31,
----------------------------------------------------
(Dollars in millions) 2000 1999 1998 1997 1996
- --------------------- -------- -------- -------- -------- --------

Commercial aircraft financing................ $1,001.7 $ 7.0 $ 201.6 $ 176.3 $ 475.3
Commercial finance........................... 710.7 664.9 491.0 414.8 392.0
-------- -------- -------- -------- --------
$1,712.4 $ 671.9 $ 692.6 $ 591.1 $ 867.3
======== ======== ======== ======== ========

PORTFOLIO BALANCES

DECEMBER 31,
----------------------------------------------------
(Dollars in millions) 2000 1999 1998 1997 1996
- --------------------- -------- -------- -------- -------- --------

Commercial aircraft financing................ $3,432.8 $1,410.8 $1,573.5 $1,711.5 $1,814.9
Commercial finance........................... 1,870.1 1,497.6 1,225.0 976.6 769.8
-------- -------- -------- -------- --------
$5,302.9 $2,908.4 $2,798.5 $2,688.1 $2,584.7
======== ======== ======== ======== ========

Prior to 1995, the Company operated in three segments: CAF, CFG and non-core
businesses. Non-core businesses represented market segments in which the Company
is no longer active. At December 31, 2000 and 1999, the portfolio balances for
non-core businesses totaled $0.5 million and $0.6 million, respectively.

For financial information about the Company's segments, see Note 13 of
"Notes to Consolidated Financial Statements" included in Item 8.

COMMERCIAL AIRCRAFT FINANCING SEGMENT

CAF, primarily located at the Company's headquarters in Seattle, specializes
in secured financing for customers acquiring aircraft. The Company's strategy is
to (1) generate and participate in finance transactions in which the Company's
structuring and analysis can provide high returns on its invested equity and
(2) assist in arranging financing for Boeing's customers and participate in such
financing if the Company's investment requirements are met. Approximately 45% of
the value of the CAF portfolio, at December 31, 2000, is derived from aircraft
manufactured by McDonnell Douglas. CAF also invests in used aircraft subject to
leases to commercial airlines where such investments can be structured to
provide a satisfactory return on invested equity.

Boeing and BCSC had unfunded commercial aircraft financing commitments
existing at December 31, 2000 of approximately $4,911.0 million. The Company may
ultimately fund a portion of such commitments, subject to approval on a
transaction by transaction basis by the Company's investment committee, which
may require credit enhancements from Boeing or other parties or other conditions
to meet the Company's investment requirements.

Portfolio balances for the Company's CAF segment are summarized as follows:

COMMERCIAL AIRCRAFT PORTFOLIO BY AIRCRAFT TYPE

DECEMBER 31,
----------------------------------------------------
(Dollars in millions) 2000 1999 1998 1997 1996
- --------------------- -------- -------- -------- -------- --------

BOEING AIRCRAFT FINANCING:
Finance leases............................. $ 977.2 $ 744.7 $ 803.3 $ 964.9 $1,132.6
Operating leases........................... 1,692.0 470.0 513.3 495.2 402.0
Notes receivable........................... 595.0 51.8 82.9 61.9 82.9
-------- -------- -------- -------- --------
3,264.2 1,266.5 1,399.5 1,522.0 1,617.5
-------- -------- -------- -------- --------
OTHER COMMERCIAL AIRCRAFT FINANCING:
Finance leases............................. 107.7 119.8 131.6 133.3 136.9
Operating leases........................... 58.4 21.3 30.4 51.9 56.0
Notes receivable........................... 2.5 3.2 12.0 4.3 4.5
-------- -------- -------- -------- --------
168.6 144.3 174.0 189.5 197.4
-------- -------- -------- -------- --------
$3,432.8 $1,410.8 $1,573.5 $1,711.5 $1,814.9
======== ======== ======== ======== ========

COMMERCIAL AIRCRAFT PORTFOLIO BY PRODUCT TYPE

DECEMBER 31,
----------------------------------------------------
(Dollars in millions) 2000 1999 1998 1997 1996
- --------------------- -------- -------- -------- -------- --------

AIRCRAFT LEASES:
Finance leases
Domestic................................. $ 844.8 $ 723.2 $ 786.9 $ 863.1 $ 950.0
Foreign.................................. 240.1 141.3 148.0 235.1 319.5
Operating leases
Domestic................................. 355.1 297.8 357.9 319.2 357.2
Foreign.................................. 1,395.3 193.5 185.8 227.9 100.8
-------- -------- -------- -------- --------
2,835.3 1,355.8 1,478.6 1,645.3 1,727.5
-------- -------- -------- -------- --------
AIRCRAFT RELATED NOTES RECEIVABLE:
Domestic................................... 247.4 31.4 33.5 2.2 22.6
Foreign.................................... 350.1 23.6 61.4 64.0 64.8
-------- -------- -------- -------- --------
597.5 55.0 94.9 66.2 87.4
-------- -------- -------- -------- --------
$3,432.8 $1,410.8 $1,573.5 $1,711.5 $1,814.9
======== ======== ======== ======== ========

At December 31, 2000, the Company's CAF portfolio was comprised of finance
leases to 26 customers (19 domestic and seven foreign) with a carrying amount of
$1,084.9 million (20.5% of total Company portfolio), notes receivable from 20
customers (five domestic and 15 foreign) with a carrying amount of
$597.5 million (11.3% of total Company portfolio) and operating leases to 38
customers (eight domestic and 30 foreign) with a carrying amount of
$1,750.4 million (33.0% of total Company portfolio).

At December 31, 2000, 61.6% of the Company's total portfolio consisted of
financings related to Boeing (including McDonnell Douglas) aircraft, compared
with 43.6% and 50.0% in 1999 and 1998, respectively.

- FACTORS AFFECTING THE COMMERCIAL AIRCRAFT FINANCING PORTFOLIO

A substantial portion of the Company's total portfolio is concentrated among
the Company's CAF customers. The five largest CAF customers accounted for
$1,221.6 million (23.0% of total Company portfolio) and $840.9 million (28.9% of
total Company portfolio) at December 31, 2000 and 1999, respectively. Two of the
Company's CAF customers each account for more than 5.0% of the total Company
portfolio.

The Company's largest customer, Viacao Aerea Rio-Grandense ("VARIG"),
accounted for $339.4 million (6.4% of total Company portfolio) at December 31,
2000. VARIG has defaulted on its obligations under leases within the Portfolio
in recent years, which has resulted in deferrals and restructurings. Taking into
account collateral values, as well as certain first loss deficiency and lease
rental guaranties, which Boeing has provided to the Company covering a portion
of the VARIG obligations, it is not expected that the VARIG transactions will
have a material adverse effect on the Company's earnings, cash flow or financial
position.

The Company's second largest customer, Federal Express Corporation
("FedEx"), accounted for $288.8 million (5.5% of total Company portfolio) and
$295.8 million (10.2% of total Company portfolio) at December 31, 2000 and 1999,
respectively.

Trans World Airlines, Inc. ("TWA"), which accounted for $134.5 million (2.5%
of total Company portfolio) and $147.3 million (5.1% of total Company portfolio)
at December 31, 2000 and 1999, respectively, filed for protection under Chapter
11 of the bankruptcy code on January 10, 2001. McDonnell Douglas provides first
loss deficiency guaranties to the Company for certain obligations of TWA under
the various lease agreements between the Company and TWA. At December 31, 2000,
the maximum aggregate coverage under such guaranties was $40.5 million. The
Company believes that the ultimate outcome of the TWA bankruptcy will not have a
material adverse effect on the Company's earnings, cash flow or financial
position. See Boeing's Form 10-K for the year ended December 31, 2000 (SEC File
No. 01-00442) for Boeing's discussion on TWA.

- CURRENT COMMERCIAL AIRCRAFT MARKET CONDITIONS

The Company's financial performance is dependent in part upon general
economic conditions which may affect the profitability of the commercial
airlines with which the Company does business. The worldwide market for
commercial jet aircraft is predominantly driven by long-term trends in airline
passenger traffic. The principal factors underlying long-term traffic growth are
sustained economic growth, both in developed and emerging countries, and
political stability. The Company continues to search for opportunities to expand
its CAF portfolio while managing its portfolio with respect to concentration and
certain exposure levels.

The Company believes that realizable values for its aircraft at lease
maturity are likely to remain above the values actually recorded, but this is
subject to many uncertainties. If aircraft values decline and the Company is
required, as a result of customer defaults, to repossess a substantial number of
aircraft prior to the expiration of the related lease or financing, the Company
could incur substantial losses in remarketing the aircraft, which could have a
material adverse effect on the Company's earnings, cash flow or financial
position.

Boeing is no longer producing MD-80, MD-90 and MD-11 aircraft. The Company's
CAF portfolio as of December 31, 2000 included 29 MD-80s, six MD-90s and 13
MD-11s, representing an aggregate of $1,451.2 million in net asset value (27.4%
of total Company portfolio). The Company's CAF portfolio as of December 31, 1999
included 28 MD-80s, three MD-90s and five MD-11s, representing an aggregate of
$897.6 million in net asset value (30.9% of total Company portfolio). The
Company periodically reviews the carrying and residual values of all aircraft in
its portfolio. Such reviews include the effects, if any, of the foregoing as
they become known or can be reasonably estimated. While

management believes that currently recorded residual values are conservative,
significant declines in market value could impact the gain or loss on
disposition of these aircraft.

For further discussion on the commercial jet aircraft market and the airline
industry, see "Competition and Economic Factors."

- COMMERCIAL AIRCRAFT LEASING

The Company normally purchases commercial aircraft for lease to airlines
only when such aircraft are subject to a signed lease contract. At December 31,
2000, the Company owned or participated in the ownership of 151 leased
commercial aircraft.

- FACTORS AFFECTING COMMERCIAL AIRCRAFT FINANCING VOLUME

In the fourth quarter of 1999, Boeing decided that the Company would assist
and participate, as appropriate, in Boeing's customer financing. In view of
Boeing's decision to consolidate its customer financing activities within the
Company, the Company received in 2000 and is expected to continue to receive a
large volume of new business opportunities. Boeing and BCSC had unfunded
commercial aircraft financing commitments existing at December 31, 2000, of
approximately $4,911.0 million. The Company may ultimately fund a portion of
such commitments, subject to approval on a transaction by transaction basis by
the Company's investment committee, which may require credit enhancements from
Boeing or other parties or other conditions to meet the Company's investment
requirements. Additionally, at December 31, 2000, the Company had commitments to
provide leasing and other financing related to commercial aircraft totaling
$1,020.0 million.

The following table lists information on new business volume for the
Company's CAF segment:

YEARS ENDING DECEMBER 31,
----------------------------------------------------
(Dollars in millions) 2000 1999 1998 1997 1996
- --------------------- -------- -------- -------- -------- --------

BOEING AIRCRAFT FINANCING VOLUME:
Finance leases..................................... $ 25.8 $ -- $ 78.3 $ 7.1 $234.1
Operating leases................................... 712.6 -- 75.3 146.5 196.9
Notes receivable................................... 230.8 7.0 25.5 18.2 24.2
-------- ---- ------ ------ ------
969.2 7.0 179.1 171.8 455.2
-------- ---- ------ ------ ------
OTHER COMMERCIAL AIRCRAFT FINANCING VOLUME:
Finance leases..................................... -- -- 22.5 4.5 20.1
Operating leases................................... 32.5 -- -- -- --
-------- ---- ------ ------ ------
32.5 -- 22.5 4.5 20.1
-------- ---- ------ ------ ------
$1,001.7 $7.0 $201.6 $176.3 $475.3
======== ==== ====== ====== ======

- COMMERCIAL AIRCRAFT FINANCING GUARANTIES

At December 31, 2000, the Company had $800.9 million of guaranties in its
favor with respect to its CAF portfolio relating to transactions with a carrying
amount of $1,546.6 million (45.1% of CAF portfolio). The following table
summarizes such guaranties:

DOMESTIC FOREIGN
(Dollars in millions) AIRLINES AIRLINES TOTAL
- --------------------- -------- -------- --------

AMOUNTS GUARANTEED BY:
Boeing.................................................... $ 31.3 $290.3 $321.6
McDonnell Douglas......................................... 207.3 14.0 221.3
Other(1).................................................. 54.9 203.1 258.0
------ ------ ------
$293.5 $507.4 $800.9
====== ====== ======

- ------------------------

(1) Includes guaranties made by parent and other entities affiliated with the
primary obligor as well as various third parties.

COMMERCIAL FINANCE SEGMENT

CFG specializes in secured financing arrangements, such as lease financing
as well as loans secured by personal property or real estate. In addition, CFG
participates in senior secured bank loans. CFG obtains its business primarily
through direct solicitation by its marketing personnel and maintains its
principal operations in Long Beach, California with marketing offices in
Atlanta, Georgia; Chicago, Illinois; Detroit, Michigan; Austin, Texas; and New
York, New York. CFG specializes in leasing and financing of commercial equipment
such as executive aircraft, production equipment, transportation equipment,
printing equipment and other types of equipment which it believes will maintain
strong collateral and residual values. Terms are generally between three and ten
years and transaction sizes usually range between $5.0 million and
$50.0 million.

Portfolio balances for the Company's CFG segment are summarized as follows:

DECEMBER 31,
----------------------------------------------------
(Dollars in millions) 2000 1999 1998 1997 1996
- --------------------- -------- -------- -------- -------- --------

Finance leases.................................. $ 585.7 $ 508.3 $ 430.1 $410.9 $361.7
Operating leases................................ 400.7 336.9 345.5 375.1 231.5
Notes receivable................................ 883.7 652.4 449.4 190.6 176.6
-------- -------- -------- ------ ------
$1,870.1 $1,497.6 $1,225.0 $976.6 $769.8
======== ======== ======== ====== ======

- FACTORS AFFECTING THE COMMERCIAL FINANCE PORTFOLIO

The Company's CFG portfolio is diversified among executive aircraft,
production equipment, transportation equipment, printing equipment and other
equipment types. Executive aircraft represent the highest concentration,
accounting for $507.5 million (9.6% of total Company portfolio) and
$286.3 million (9.8% of total Company portfolio) at December 31, 2000 and 1999,
respectively. At December 31, 2000 and 1999, no single CFG customer represented
a significant portion of the Company's total portfolio. Executive aircraft
financing, as well as the rest of the CFG portfolio, is dependent in part upon
general economic conditions which may affect the profitability of the Company's
customers and residual value of the equipment financed by CFG. The Company
believes that realizable values at lease maturity for its commercial equipment
are generally likely to remain above the values actually recorded, but this is
subject to many uncertainties including economic conditions.

- FACTORS AFFECTING COMMERCIAL FINANCE VOLUME

The particular portion of the commercial finance market in which the Company
generally operates is highly competitive. In 2000, CFG recorded $710.7 million
of new business volume. As shown in the following table, a significant portion
of the new CFG business volume in recent years has consisted of secured loans
rather than lease financings. Of the $710.7 million in new business volume for
CFG in 2000, $407.7 million (57.4%) represented loans rather than true leases.

In 2000, of the $710.7 million in new business volume for CFG,
$99.0 million (13.9%) represented business with foreign lessees or borrowers. In
1999, of the $664.9 million in new business volume for CFG, $104.0 million
(15.6%) represented business with foreign lessees or borrowers. For discussion
of additional risks associated with foreign financing, see "Cross-Border
Outstandings." At December 31, 2000, the CFG segment had commitments to provide
leasing and other financing of $406.6 million, compared to $212.4 million at
December 31, 1999. The Company's ability to compete in the commercial finance
market is dependent to a significant extent upon its comparative borrowing costs
relative to its competitors. See "Borrowing Operations."

The following lists information on new business volume for the Company's CFG
segment:

YEARS ENDED DECEMBER 31,
----------------------------------------------------
(Dollars in millions) 2000 1999 1998 1997 1996
- --------------------- -------- -------- -------- -------- --------

Finance leases...................................... $151.0 $194.1 $ 91.8 $109.5 $160.9
Operating leases.................................... 152.0 96.8 81.9 199.7 107.0
Notes receivable.................................... 407.7 374.0 317.3 105.6 124.1
------ ------ ------ ------ ------
$710.7 $664.9 $491.0 $414.8 $392.0
====== ====== ====== ====== ======

CROSS-BORDER OUTSTANDINGS

The extension of credit to borrowers located outside of the United States is
called "cross-border" credit. In addition to the credit risk associated with any
borrower, these particular credits are also subject to "country risk"--economic
and political risk factors specific to the country of the borrower which may
make the borrower unable or unwilling to pay principal and interest or otherwise
perform according to contractual terms. Other risks associated with these
credits include the possibility of insufficient foreign exchange and
restrictions on its availability.

Approximately 41.8% of the total Company portfolio at December 31, 2000,
consisted of amounts due from customers outside the United States. Substantially
all of these amounts are payable in U.S. dollars, and in management's opinion,
related risks are adequately covered by guaranties and allowance for losses.
Overall, the Company has not experienced materially adverse financial
consequences as a result of sales and financing activities outside the United
States. The countries in which the Company's

cross-border outstandings exceeded 1.0% of consolidated assets, net of domestic
guaranties, consisted of the following at December 31, 2000, 1999 and 1998:

DECEMBER 31,
---------------------------------------------------------
(Dollars in millions) FINANCE NOTES OPERATING % OF TOTAL
COUNTRY LEASES RECEIVABLE LEASES TOTAL PORTFOLIO
- ------- -------- ---------- --------- -------- ----------

2000
Mexico........................................ $118.1 $ 80.6 $ 38.4 $ 237.1 4.5%
Austria....................................... -- 76.6 153.9 230.5 4.3
Belgium....................................... -- -- 143.8 143.8 2.7
Brazil........................................ 51.5 16.3 71.6 139.4 2.6
Spain......................................... 70.1 24.7 25.3 120.1 2.3
South Korea................................... -- 67.2 41.0 108.2 2.0
United Kingdom................................ -- 26.4 37.5 63.9 1.2
India......................................... -- 18.1 43.9 62.0 1.2
------ ------ ------ -------- ----
$239.7 $309.9 $555.4 $1,105.0 20.8%
====== ====== ====== ======== ====
1999
Mexico........................................ $126.5 $ 34.2 $ -- $ 160.7 5.5%
India......................................... -- 18.1 46.2 64.3 2.2
Brazil........................................ 52.6 3.8 -- 56.4 1.9
Sweden........................................ -- -- 46.5 46.5 1.6
Spain......................................... -- -- 34.0 34.0 1.2
Italy......................................... -- 1.7 30.1 31.8 1.1
------ ------ ------ -------- ----
$179.1 $ 57.8 $156.8 $ 393.7 13.5%
====== ====== ====== ======== ====
1998
Mexico........................................ $132.8 $ 48.0 $ -- $ 180.8 6.5%
Sweden........................................ -- -- 50.1 50.1 1.8
India......................................... -- -- 48.6 48.6 1.7
Italy......................................... -- 2.6 34.9 37.5 1.3
Spain......................................... -- -- 36.4 36.4 1.3
------ ------ ------ -------- ----
$132.8 $ 50.6 $170.0 $ 353.4 12.6%
====== ====== ====== ======== ====

At December 31, 2000, the Company had customer outstandings between 0.75%
and 1.0% of the Company's total assets in Germany, Australia and Sweden, with
net carrying amounts of $56.3 million, $46.8 million and $44.2 million,
respectively. At December 31, 1999, the Company had customer outstandings
between 0.75% and 1.0% of the Company's total assets in Canada and the British
West Indies, with net carrying amounts of $23.6 million and $25.6 million,
respectively. At December 31, 1998, the Company had customer outstandings
between 0.75% and 1.0% of the Company's total assets in Canada and the United
Kingdom, with net carrying value amounts of $25.6 million and $25.1 million,
respectively.

MATURITIES AND SENSITIVITY TO INTEREST RATE CHANGES

The following table shows the maturity distribution and sensitivity to
changes in interest rates of the Company's domestic and foreign financing
receivables at December 31, 2000:

(Dollars in millions) DOMESTIC FOREIGN TOTAL
- --------------------- -------- -------- --------

MATURITY DISTRIBUTION
2001...................................................... $ 438.6 $ 352.8 $ 791.4
2002...................................................... 274.3 77.3 351.6
2003...................................................... 224.4 72.4 296.8
2004...................................................... 249.6 81.9 331.5
2005...................................................... 298.6 84.8 383.4
2006 and thereafter....................................... 1,097.3 276.1 1,373.4
-------- -------- --------
$2,582.8 $ 945.3 $3,528.1
======== ======== ========
FINANCING RECEIVABLES DUE 2002 AND THEREAFTER
Fixed interest rates...................................... $1,728.2 $ 186.7 $1,914.9
Variable interest rates................................... 416.0 405.8 821.8
-------- -------- --------
$2,144.2 $ 592.5 $2,736.7
======== ======== ========

ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES AND CREDIT LOSS EXPERIENCE
ANALYSIS OF ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES

DECEMBER 31,
----------------------------------------------------
(Dollars in millions) 2000 1999 1998 1997 1996
- --------------------- -------- -------- -------- -------- --------

Allowance for losses on financing receivables at
beginning of year..................................... $ 60.7 $62.1 $55.9 $48.6 $42.3
Provision for losses.................................... 10.2 7.4 7.4 11.5 14.2
Write-offs, net of recoveries........................... (12.4) (8.8) (2.5) (2.5) (6.0)
Allowance acquired from Boeing.......................... 77.9 -- -- -- --
Other................................................... -- -- 1.3 (1.7) (1.9)
------ ----- ----- ----- -----
Allowance for losses on financing receivables at end of
year.................................................. $136.4 $60.7 $62.1 $55.9 $48.6
====== ===== ===== ===== =====

Allowance as percent of total receivables............... 4.3% 2.9% 3.3% 3.1% 2.5%
Net write-offs as percent of average receivables........ 0.5% 0.4% 0.1% 0.1% 0.3%
More than 90 days delinquent:
Amount of delinquent installments..................... $ 8.7 $ 0.1 $ 0.1 $ 1.5 $ 1.6
Total receivables due from delinquent obligors........ $129.2 $ 0.8 $ 1.0 $ 5.8 $ 9.7
Total receivables due from delinquent obligors as a
percentage of total receivables..................... 4.1% 0.1% 0.1% 0.3% 0.5%

The portfolio at December 31, 2000 included three airline obligors to which
payment extensions had been granted. At December 31, 2000, payments so extended
amounted to $15.1 million, and the aggregate carrying amount of the related
receivables was $266.3 million.

RECEIVABLE WRITE-OFFS, NET OF RECOVERIES BY SEGMENT

The CFG segment had $12.4 million, $8.2 million and $2.3 million in net
write-offs (0.9%, 0.8% and 0.3% of CFG average receivables), while the CAF
segment had no net write-offs of receivables for the years ended December 31,
2000, 1999 and 1998, respectively.

In its analysis of the allowance for losses on financing receivables, the
Company has taken into consideration the current economic and market conditions
and provided for losses of $10.2 million for the year ended December 31, 2000,
and $7.4 million in each of the years ended December 31, 1999 and 1998. The
Company believes that the allowance for losses on financing receivables is
adequate at December 31, 2000 to cover potential losses in the Company's total
receivables. If, however, certain major customers defaulted and the Company was
forced to repossess and dispose of significant amounts of aircraft or equipment,
losses in excess of the allowance could be incurred, which would be charged
directly against earnings.

The Company's receivable write-offs, net of recoveries, increased in 2000,
as compared to 1999, primarily attributable to certain CFG customer defaults
which occurred in 2000.

NONACCRUAL AND PAST DUE FINANCING RECEIVABLES

Financing receivables accounted for on a nonaccrual basis consisted of the
following at December 31:

(Dollars in millions) 2000 1999
- --------------------- -------- --------

Domestic.................................................... $20.8 $26.1
Foreign..................................................... 10.1 --
----- -----
$30.9 $26.1
===== =====

Interest on receivables which are contractually past due 90 days or more as
to principal and interest payments is accrued as follows at December 31:

(Dollars in millions) 2000 1999
- --------------------- -------- --------

Domestic.................................................... $0.7 $0.2
Foreign..................................................... 0.2 --
---- ----
$0.9 $0.2
==== ====

BORROWING OPERATIONS

The Company principally relies on funds from operations and borrowings to
operate its business. Borrowings include commercial paper, secured and unsecured
senior and subordinated long-term debt and bank borrowings. The Company also
utilizes interest rate swap agreements to manage interest costs and risk
associated with changing interest rates. See Note 8 of "Notes to Consolidated
Financial Statements" included in Item 8.

As of September 27, 2000, $1.0 billion of Boeing's 364-day revolving credit
line was made available to the Company. This new credit facility replaces the
Company's $1.0 billion substantially similar credit arrangement, which
terminated in accordance with its terms on September 27, 2000, and which, in
turn, replaced the Company's former $240.0 million credit line that was
terminated on March 30, 2000. The agreements relating to the new credit line are
included with this Report on Form 10-K as Exhibits 10.8 and 10.9. At
December 31, 2000, there were no amounts outstanding under this agreement.

At December 31, 2000 and 1999, borrowings under commercial paper totaling
$652.9 million and $138.0 million, respectively, were supported by available
unused commitments under Boeing's 364-day agreement. At December 31, 2000 and
1999, the Company also had available approximately $60.0 million and
$90.0 million, respectively, in uncommitted, short-term bank credit facilities
whereby the Company may borrow, at interest rates which are negotiated at the
time of the borrowings, upon such terms as the Company and the banks may
mutually agree.

On October 10, 1997, the Company filed with the Securities and Exchange
Commission ("SEC") a Form S-3 Registration Statement for a public shelf
registration of $1.2 billion of its debt securities (SEC File No. 333-37635). On
October 31, 1997, the SEC declared such Registration Statement to be effective.
As of December 31, 2000, the Company had issued and sold $1,060.0 million in
aggregate principal amount of Series X medium-term notes under this shelf
registration, with a $51.6 million variable rate note being issued during 2000
with a maturity of one year.

On July 7, 1999, the Company filed with the SEC a Form S-3 Registration
Statement (SEC File No. 333-82391) for a public shelf registration of
$2.5 billion of its debt securities. In the third quarter of 2000, the Company
filed Amendments to its Form S-3 Registration Statement which would permit the
Company to offer the $2.5 billion together with the remaining $140.0 million
from the Company's prior Registration Statement (SEC File No. 333-37635),
pursuant to Rule 429. On August 31, 2000, the SEC declared the Registration
Statement (SEC File No. 333-82391) to be effective. On September 27, 2000, the
Company received proceeds from the issuance of $1.5 billion in senior global
notes consisting of three tranches: $500.0 million floating rate senior notes
due 2002, $500.0 million 7.10% senior notes due 2005 and $500.0 million 7.375%
senior notes due 2010. The remaining $1.14 billion was allocated to the
Company's Series XI medium-term note program. As of December 31, 2000, the
Company had issued and sold $500.0 million in aggregate principal amount of such
notes, at interest rates ranging from 6.35% to 6.68% and with maturities ranging
from three to seven years.

On February 16, 2001, the Company filed with the SEC a Form S-3 Registration
Statement for a public shelf registration of $5.0 billion of its debt securities
(SEC File No. 333-55846). On February 26, 2001, the SEC declared such
Registration Statement to be effective. On March 8, 2001, the Company received
proceeds from the issuance of $750.0 million in 6.10% senior notes due 2011.

The following table sets forth the average debt of the Company by borrowing
classification:

(Dollars in millions)

AVERAGE AVERAGE
YEARS ENDED SHORT-TERM LONG-TERM AVERAGE
DECEMBER 31, DEBT DEBT TOTAL DEBT
- --------------------- ---------- --------- ----------

2000 $410.8 $2,846.5 $3,257.3
1999 193.9 1,760.4 1,954.3
1998 134.6 1,646.2 1,780.8
1997 114.0 1,606.2 1,720.2
1996 49.5 1,501.0 1,550.5

The weighted average interest rates on all outstanding indebtedness computed
for the relevant period were as follows:

WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
YEARS ENDED SHORT-TERM LONG-TERM TOTAL DEBT
DECEMBER 31, INTEREST RATE INTEREST RATE INTEREST RATE
- --------------------- ---------------- ---------------- ----------------

2000 5.99% 7.19% 7.04%
1999 5.24 6.81 6.65
1998 5.83 7.21 7.12
1997 5.72 7.34 7.25
1996 5.66 7.60 7.56

The Company's access to capital at rates that allow for a reasonable return
on new business is affected by credit rating agencies' ratings of the Company's
debt.

On July 20, 2000, Moody's Investors Service ("Moody's") announced that it
upgraded the long-term ratings of the Company's senior unsecured debt to A2 from
A3 and subordinated debt to A3 from Baa1. Moody's said that, "This rating action
reflects Boeing Capital's increased strategic importance within the Boeing group
of companies."

On November 23, 1999, Standard & Poor's Corporation ("Standard & Poor's")
announced that it raised its credit ratings on the Company. The ratings of the
Company's senior unsecured debt, subordinated debt and commercial paper were
raised from A+ to AA-, A to A+ and A-1 to A-1+, respectively. Standard & Poor's
said, "the upgrade to the level of the parent, Boeing Co. is based on a
reorganization and consolidation of Boeing's product financing activities into a
newly restructured, wholly owned subsidiary, Boeing Capital."

Although security ratings impact the rate at which the Company can borrow
funds, a security rating is not a recommendation to buy, sell or hold
securities. In addition, a security rating is subject to revision or withdrawal
at any time by the assigning rating organization and each rating should be
evaluated independently of any other rating.

COMPETITION AND ECONOMIC FACTORS

The Company is subject to competition from other financial institutions,
including commercial banks, finance companies and leasing companies, some of
which are larger than the Company and have greater financial resources, greater
leverage ability and lower effective borrowing costs. These factors permit many
competitors to provide financing at lower rates than the Company. In its
commercial aircraft financing and commercial finance segments, the ability of
the Company to compete in the marketplace is principally based on rates which
the Company charges its customers, which rates are related to the Company's
access to and cost of funds and the ability of the Company to utilize tax
benefits attendant to leasing. See "Commercial Finance Segment--Factors
Affecting Commercial Finance Volume," "Relationship With Boeing, McDonnell
Douglas and BCSC" and "Borrowing Operations." Competitive factors also include,
among other things, the Company's ability to be relatively flexible in its
structuring arrangements with new and existing customers. Although the Company
is particularly subject to risks inherent in the airline and aircraft
manufacturing industries, the ability of the Company to generate new business is
also dependent upon, among other factors, the capital equipment requirements of
United States and foreign businesses and the availability of capital.

Aircraft owned or financed by the Company may become significantly less
valuable because of the discontinuation of existing aircraft models or the
introduction of new aircraft models which may be more economical to operate, the
aging of particular aircraft, technological obsolescence such as that caused by
legislation and regulations for noise abatement which now prohibit the use of
older, noisier (Stage 2) aircraft in the United States, or an oversupply of
aircraft for sale. Additionally, legislation and regulations may in the future
prohibit use in certain parts of the world (e.g., Europe) of certain types of
aircraft which have been upgraded by hushkits to meet the more stringent Stage 3
requirements. In any such event, carrying amounts on the Company's records may
be reduced if, in the judgment of management, such carrying amounts are greater
than market value (including estimated lease values). Such a reduction would
result in recognition of a loss to the Company. At December 31, 2000, the
Company carried on its records Stage 2 aircraft with an aggregate net asset
value of $16.1 million (0.5% of Company's total CAF portfolio, including any
aircraft held for sale or re-lease).

For the five-year period 1996 through 2000, the average annual growth rate
for worldwide passenger traffic was approximately 5.6%. Boeing's 20-year
forecast of the average long-term growth rate in passenger traffic is
approximately 4.8% annually, based on projected average worldwide annual
economic real growth of 3.0% over the 20-year period.

Based on global economic growth projections over the long term, and taking
into consideration increasing utilization levels of the worldwide aircraft fleet
and requirements to replace older aircraft,

Boeing projects the total commercial jet aircraft market over the next 20 years
at approximately $1.5 trillion in current dollars.

RELATIONSHIP WITH BOEING, MCDONNELL DOUGLAS AND BCSC

Boeing is principally engaged in the design, development and production of
government and commercial aerospace products. For the year ended December 31,
2000, Boeing recorded revenues of $51.3 billion and net earnings of
$2.1 billion. At December 31, 2000, Boeing had assets of $42.0 billion and
shareholders' equity of $11.0 billion.

At December 31, 2000, Boeing and McDonnell Douglas provided guaranties of
$321.6 million and $221.3 million, respectively, on the Company's aircraft
portfolio, including first loss guaranties. In addition, McDonnell Douglas is
the obligor in one of the Company's commercial aircraft transactions and as a
result thereof, at December 31, 2000, McDonnell Douglas was the lessee for
$21.5 million of the Company's CAF portfolio. If the financial well-being of
Boeing were to decline significantly, the Company's ability to enter into
significant amounts of new business in the future could be materially
constrained.

For a further description of significant factors which may affect Boeing,
see Boeing's Form 10-K for the year ended December 31, 2000 (SEC File
No. 01-00442).

- OPERATING AGREEMENT

An operating agreement (the "Operating Agreement") governs certain important
aspects of the relationship between the Company, BCSC and Boeing relating to the
purchase and sale of CAF receivables, the leasing of commercial aircraft, the
remarketing of such aircraft returned to, or repossessed by, the Company under
leases or secured loans and the allocation of federal income taxes between the
companies. The Operating Agreement between the Company, BCSC and Boeing was
executed on September 13, 2000 and replaces the previous operating agreement
between the Company and McDonnell Douglas. The Operating Agreement was filed
with the SEC on Form 8-K, dated September 13, 2000.

The Operating Agreement provides, subject to certain exceptions, that Boeing
will make available to the Company the opportunity to provide financing of
Boeing products including commercial aircraft. Additionally, under certain
limited circumstances, the Company is given the option to tender to Boeing
commercial aircraft it is attempting to remarket at a price equal to the fair
market value of the aircraft less 5%.

- FEDERAL INCOME TAXES

The Company and Boeing presently file a consolidated federal income tax
return with the consolidated tax payments, if any, being made by Boeing. The
Operating Agreement provides that so long as consolidated federal tax returns
are filed, payments shall be made, directly or indirectly, by Boeing to the
Company or by the Company to Boeing, as appropriate, equal to the difference
between the consolidated tax liability and Boeing's tax liability computed
without consolidation with the Company. If, subsequent to any such payments by
Boeing, it incurs tax losses which may be carried back to the year for which
such payments were made, the Company nevertheless will not be obligated to repay
to Boeing any portion of such payments.

The Company and McDonnell Douglas have been operating since 1975 under an
informal arrangement, which has entitled the Company to rely upon the
realization of tax benefits for the portion of projected taxable earnings of the
parent allocated to the Company. This has been important in planning the volume
of and pricing for the Company's leasing activities. This arrangement continues
with Boeing and, under the current arrangement, Boeing presently charges or
credits the Company for

the corresponding increase or decrease in Boeing's taxes (disregarding
alternative minimum taxes) resulting from the Company's inclusion in the
consolidated federal income tax return of Boeing. Intercompany payments are made
when such taxes are due or tax benefits are realized by Boeing based on the
assumption, pursuant to an informal arrangement, that taxes are due or tax
benefits are realized up to 100% of the amounts forecasted by the Company with
the amounts varying from such forecast settled in the year realized by Boeing.
There can be no assurance that this (and other) intercompany arrangements will
not change from time to time.

The Company's ability to price its business competitively and obtain new
business volume is significantly dependent on its ability to realize the tax
benefits generated by its leasing business. In some cases, the yields on
receivables, without regard to tax benefits, may be less than the Company's
related financing costs. To the extent that Boeing would be unable on a
long-term basis to utilize such tax benefits, or if the informal arrangement is
not continued in its present form, the Company would be required to restructure
its financing activities and to reprice its new financing transactions so as to
make them profitable without regard to Boeing's utilization of tax benefits
since there can be no assurance that the Company would be able to utilize such
benefits currently. See "Competition and Economic Factors."

- INTERCOMPANY SERVICES

Boeing provides to the Company certain payroll, employee benefit, facilities
and other services, for which the Company generally pays the actual cost. See
Note 11 of "Notes to Consolidated Financial Statements" included in Item 8.

- INTERCOMPANY CREDIT ARRANGEMENTS

The Company and Boeing entered into an arrangement on September 27, 2000,
permitting the Company access of up to $1.0 billion under Boeing's existing
364-day revolving credit agreement. The Company's borrowings, if any, under the
new arrangement are supported by Boeing.

The Company may borrow from Boeing, and Boeing and its subsidiaries may
borrow from the Company, funds for periods up to 30 days at the Company's cost
of funds for short-term borrowings. Under this arrangement, neither the Company
nor Boeing had borrowings outstanding at December 31, 2000 or 1999. During 2000,
the Company's highest level of borrowings from Boeing was $330.0 million under
this arrangement. During 2000, Boeing's highest level of borrowings from the
Company was $499.5 million.

The Company may borrow from BCSC, and BCSC and its subsidiaries may borrow
from the Company, funds for periods up to 30 days at the Company's cost of funds
for short-term borrowings. Under this arrangement, the Company had no borrowings
outstanding at December 31, 2000. The Company had borrowings of $43.0 million
outstanding at December 31, 1999. BCSC had borrowings of $11.7 million
outstanding from the Company at December 31, 2000. BCSC had no borrowings
outstanding from the Company at December 31, 1999. During 2000, the Company's
highest level of borrowings from BCSC was $48.6 million. During 2000, BCSC's
highest level of borrowings from the Company was $13.6 million.

ITEM 2. PROPERTIES

The Company leases all of its office space and other facilities under
operating leases. In connection with the implementation of the consolidation
within the Company of Boeing's customer financing activities, the headquarters
of the Company has been moved to Seattle, Washington, from Long Beach,
California, with a principal office remaining in Long Beach, California. The
Company also has seven regional marketing offices located throughout the United
States and one in Stockholm,

Sweden. The Company believes that its properties, including the equipment
located therein, are suitable and adequate to meet the requirements of its
business.

ITEM 3. LEGAL PROCEEDINGS

On November 1, 1996, The Allen Austin Harris Group, Inc. (the "Plaintiff")
filed a complaint in the Superior Court of the State of California, County of
Alameda, against the Company, McDonnell Douglas, McDonnell Douglas
Aerospace--Middle East Limited and the Selah Group, Inc. (the "Defendants"). The
Plaintiff, which had hoped to establish a manufacturing plant abroad with
various assistance from the Defendants, seeks more than $57.0 million in alleged
damages (primarily consisting of lost profits) based on various theories. The
Company believes it has meritorious defenses to all of the Plantiff's
allegations, but is unable to determine at this stage of the proceedings if the
litigation will have any future material adverse effect on the Company's
earnings, cash flow or financial position.

The Company was a party to litigation in the United States District Court,
Southern District of Florida, entitled McDonnell Douglas Finance Corporation
adv. Aviaco International Leasing, Inc., Aviaco Traders International, Inc. and
Craig L. Dobbin with Related Counter-Claims (collectively referred to as
"Aviaco"). In December 2000, the Company paid approximately $3.3 million to
Aviaco in full satisfaction of the judgment (including interest thereon).

A number of other legal proceedings and claims are pending or have been
asserted against the Company, many of which are covered by third parties,
including insurance companies. The Company believes that the final outcome of
such proceedings and claims will not have a material adverse effect on its
earnings, cash flow or financial position.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Omitted pursuant to General Instruction I.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

All of the Company's preferred and common stock is owned by BCSC.
Accordingly, there is no public trading market for the Company's stock. In 2000,
the Company did not declare or pay dividends on its common stock to BCSC. In
1999, the Company declared and paid dividends of $32.0 million on its common
stock to BCSC. The Company paid $3.5 million in dividends on its preferred stock
in both 2000 and 1999. Preferred stock dividends of $0.6 million payable to BCSC
were accrued at December 31, 2000.

The provisions of the most restrictive debt covenant prohibit the payment of
cash dividends by the Company to the extent that the Company's consolidated
assets would be less than 115% of its consolidated liabilities after dividend
payments. At December 31, 2000, the Company was in compliance with all its debt
covenants.

ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial data should be read in conjunction with
the Company's consolidated financial statements at December 31, 2000 and for the
year then ended and with "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations." The following table sets forth
selected consolidated financial data for the Company:

YEARS ENDED DECEMBER 31,
----------------------------------------------------
(Dollars in millions) 2000 1999 1998 1997 1996
- --------------------- -------- -------- -------- -------- --------

Financing volume................................... $1,712.4 $ 671.9 $ 692.6 $ 591.1 $ 867.3
======== ======== ======== ======== ========
Revenues:
Finance lease income............................. $ 144.1 $ 114.9 $ 119.5 $ 136.9 $ 118.6
Interest income on notes receivable.............. 122.7 52.3 36.6 26.3 24.4
Operating lease income, net...................... 135.4 64.2 67.7 56.7 55.1
Net gain on disposal or re-lease of assets....... 31.5 51.7 33.4 21.0 19.6
Other............................................ 14.2 2.1 2.9 5.5 3.8
-------- -------- -------- -------- --------
447.9 285.2 260.1 246.4 221.5
-------- -------- -------- -------- --------
Expenses:
Interest expense................................. 229.2 130.0 126.7 124.7 117.3
Provision for losses............................. 10.2 7.4 7.4 11.5 14.2
Operating expenses............................... 34.2 13.8 12.6 13.1 11.7
Other............................................ 6.4 7.3 8.8 9.3 3.4
-------- -------- -------- -------- --------
280.0 158.5 155.5 158.6 146.6
-------- -------- -------- -------- --------
Income before provision for income taxes........... 167.9 126.7 104.6 87.8 74.9
Provision for income taxes......................... 60.7 48.5 33.1 31.7 26.1
-------- -------- -------- -------- --------
Net income......................................... $ 107.2 $ 78.2 $ 71.5 $ 56.1 $ 48.8
======== ======== ======== ======== ========
Dividends declared................................. $ 3.5 $ 35.5 $ 43.9 $ 28.5 $ 3.5

Ratio of income to fixed charges(1)................ 1.72 1.95 1.80 1.68 1.62

Balance sheet data:
Total assets..................................... $5,655.9 $3,043.6 $2,861.4 $2,722.8 $2,653.6
Total debt....................................... 4,317.5 2,057.7 1,970.3 1,797.9 1,850.2
Shareholder's equity............................. 672.1 423.4 380.7 353.1 325.5

Dividends accrued on preferred stock at year end... $ 0.6 $ 0.6 $ 0.6 $ 0.6 $ 0.6

- ------------------------

(1) For the purpose of computing the ratio of income to fixed charges, income
consists of income before provision for income taxes and fixed charges; and
fixed charges consist of interest expense and preferred stock dividends.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following should be read in conjunction with the consolidated financial
statements included in Item 8.

From time to time, the Company may make certain statements that contain
projections or "forward-looking" information (as defined in the Private
Securities Litigation Reform Act of 1995) that involve risk and uncertainty.
Certain statements in this Form 10-K and particularly in Items 1, 3, 7, 7A and 8
may contain forward-looking information. The subject matter of such statements
may include, but not be limited to, the impact on the Company of strategic
decisions of Boeing, the level of new financing opportunities made available to
the Company by Boeing, future earnings, costs, expenditures,

losses, residual values and various business environment trends. In addition to
those contained herein, forward-looking statements and projections may be made
by management of the Company orally or in writing including, but not limited to,
various sections of the Company's filings with the Securities and Exchange
Commission under the Securities Act of 1933 and the Securities Exchange Act of
1934.

Actual results and trends in the future may differ materially from
projections depending on a variety of factors including, but not limited to, the
Company's relationship with Boeing, McDonnell Douglas and BCSC, as well as
strategic decisions of Boeing relating to the Company, the capital equipment
requirements of United States and foreign businesses, capital availability and
cost, changes in laws and tax benefits, the tax position of Boeing (including
the applicability of the alternative minimum tax), competition from other
financial institutions, the Company's successful execution of internal operating
plans, particularly including implementation of the Company's directive from
Boeing to lead the Boeing-wide customer financing efforts, defaults by
customers, regulatory uncertainties and legal proceedings.

IMPACT OF BOEING'S CUSTOMER FINANCING CONSOLIDATION

In 1999, the commercial aircraft financing group had negligible new business
volume largely due to the fact that the Company was awaiting the decision made
by Boeing in the fourth quarter of 1999 that the Company would have
responsibility for Boeing's customer financing efforts. Now that such decision
has been made, the Company received in 2000 and is expected to continue to
receive a large volume of new business opportunities.

As of March 31, 2000, the Company acquired certain tangible assets and
assumed certain liabilities of Boeing and certain subsidiaries of Boeing,
pursuant to a Term Sheet dated as of January 1, 2000, as well as the various
definitive asset transfer agreements dated as of March 31, 2000 (collectively
referred to as the "Transfer Agreements"). Under the terms of the Transfer
Agreements, the Company acquired, effective as of January 1, 2000, a significant
portion of Boeing's aircraft customer financing portfolio, including lease and
loan agreements and the related receivables and assets (the "Portfolio"). This
transfer was not accounted for as new business volume. The purchase price was
paid in the form of promissory notes, dated January 1, 2000, in the aggregate
principal amount of $1,261.9 million, together with an equity contribution to
the Company of $50.1 million. The Company recorded an intercompany receivable
for $17.3 million from Boeing in consideration for which the Company assumed
Boeing's deferred taxes with respect to the Portfolio. The promissory notes were
paid in full during the third quarter of 2000.

CAPITAL RESOURCES AND LIQUIDITY

The Company has significant liquidity requirements. The Company attempts to
fund its business such that scheduled receipts from its portfolio will generally
correspond to its expenses and debt payments as they become due. The Company
believes that, absent a severe or prolonged economic downturn which results in
defaults materially in excess of those provided for, receipts from the portfolio
will cover the payment of expenses and debt payments when due. If cash provided
by operations, issuance of commercial paper, borrowings under bank credit lines
and term borrowings do not provide the necessary liquidity, the Company would be
required to restrict its new business volume, unless it obtained access to other
sources of capital at rates that would allow for a reasonable return on new
business.

As of September 27, 2000, $1.0 billion of Boeing's 364-day revolving credit
line was made available to the Company. This new credit facility replaces the
Company's $1.0 billion substantially similar credit arrangement, which
terminated in accordance with its terms on September 27, 2000, and which, in
turn, replaced the Company's former $240.0 million credit line that was
terminated on March 30, 2000. The agreements relating to the new credit line are
included with this Report on Form 10-K as Exhibits 10.8 and 10.9. There were no
amounts outstanding under this agreement at December 31, 2000.

At December 31, 2000 and 1999, borrowings under commercial paper totaling
$652.9 million and $138.0 million, respectively, were supported by available
unused commitments under Boeing's 364-day agreement. At December 31, 2000 and
1999, the Company had available approximately $60.0 million and $90.0 million,
respectively, in uncommitted, short-term bank credit facilities whereby the
Company may borrow, at interest rates which are negotiated at the time of the
borrowings, upon such terms as the Company and the banks may mutually agree. At
December 31, 2000, the Company had no outstanding borrowings under such credit
facilities. At December 31, 1999, borrowings under these credit facilities
totaled $90.0 million.

The Company also accesses the public debt market and anticipates using
proceeds from the issuance of additional public debt to fund future growth. On
October 10, 1997, the Company filed with the Securities and Exchange Commission
("SEC") a Form S-3 Registration Statement for a public shelf registration of
$1.2 billion of its debt securities (SEC File No. 333-37635). On October 31,
1997, the SEC declared such Registration Statement to be effective. As of
December 31, 2000, the Company had issued and sold $1,060.0 million in aggregate
principal amount of Series X medium-term notes under this shelf registration,
with a $51.6 million variable rate note being issued during 2000 with a maturity
of one year.

In addition to Boeing and BCSC's unfunded commercial aircraft financing
commitments included in "Impact of Boeing's Customer Financing Consolidation,"
the Company had commitments to provide leasing and other financing totaling
$1,426.6 million, of which $1,020.0 million related to financing new Boeing
commercial aircraft at December 31, 2000. The Company anticipates that not all
of these commitments will be utilized and that it will be able to arrange for
third-party investors to assume a portion of the remaining commitments.

RESULTS OF OPERATIONS

2000 VS. 1999

Finance lease income increased $29.2 million (25.4%) from 1999, primarily
attributable to new volume of finance leases within the commercial finance
portfolio and an increase in finance leases as a result of the Portfolio
acquisition (see "Impact of Boeing's Customer Financing Consolidation").

Interest on notes receivable increased $70.4 million (134.6%) from 1999,
primarily attributable to new volume of commercial finance notes receivable and
an increase in notes receivable as a result of the Portfolio acquisition.

Net operating lease income increased $71.2 million (110.9%) from 1999,
primarily attributable to new volume of commercial aircraft operating leases and
an increase in operating leases as a result of the Portfolio acquisition.

Gain on disposal or re-lease of assets decreased $20.2 million (39.1%) from
1999, primarily attributable to $28.9 million of income from the early
termination of leases and the buyout of four MD-82 aircraft in December 1999,
offset with other sales within the commercial aircraft portfolio in 2000, as
compared to 1999.

Other income increased $12.1 million (576.2%) from 1999, primarily
attributable to $6.3 million of fee income, $1.2 million in intercompany
interest income earned on cash received by Boeing on the Company's behalf for
payments on leases and loans included in the Portfolio acquisition,
$1.1 million in intercompany interest income on a note between the Company and
BCSC, $2.2 million in intercompany interest income on a note between the Company
and Boeing and $0.8 million in interest income earned on short-term investments.

Interest expense increased $99.2 million (76.3%) from 1999, primarily
attributable to the debt incurred in connection with the Portfolio acquisition
and a higher level of borrowings in 2000 as a result of increased financing
activity.

Provision for losses increased $2.8 million (37.8%) from 1999, primarily
attributable to the increase in financing receivables as a result of the
Portfolio acquisition and the new volume of finance leases and notes receivable
within the commercial finance portfolio.

Operating expenses increased $20.4 million (147.8%) from 1999, primarily
attributable to the addition of employees and nonrecurring professional service
fees incurred in 2000 for assistance on various projects.

1999 VS. 1998

Interest on notes receivable increased $15.7 million (42.9%) from 1998,
primarily attributable to new volume of commercial finance notes receivable of
$374.0 million during 1999.

Gain on disposal or re-lease of assets increased $18.3 million (54.8%) from
1998, primarily attributable to $28.9 million of income from the early
termination of leases and the buyout of four MD-82 aircraft in December 1999.
The remaining offset is attributable to other sales within the commercial
aircraft and commercial finance leasing portfolios.

RECENT ACCOUNTING PRONOUNCEMENTS

As of January 1, 2001, the Company will adopt Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of SFAS
No. 133" and SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities." This standard requires that the statement of
financial position reflect

the current market price of derivatives. With the adoption of the SFAS No. 133,
the Company will record a cumulative effect type transition adjustment of
$5.9 million loss, net of tax, in accumulated other comprehensive income. During
the next twelve months, the Company expects to reclassify to expense
$2.2 million from the transition adjustment that will be recorded in accumulated
other comprehensive income and recognize income of $3.9 million related to the
basis adjustment of certain underlying liabilities.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has financial instruments that are subject to interest rate
risk, principally short-term investments, fixed-rate notes receivable
attributable to financing and debt obligations issued at a fixed rate.
Historically, the Company has not experienced material gains or losses due to
interest rate changes when selling fixed-rate notes receivable.

The Company manages its interest rate risk by using interest rate swaps. At
December 31, 2000, the notional amount of these interest rate swaps totaled
$948.5 million. The Company does not use derivative instruments for speculative
purposes or to generate earnings from changes in market conditions. See Note 8
of "Notes to Consolidated Financial Statements" included in Item 8 for
derivative financial instrument and interest rate swaps discussion and table.

The Company has used appropriate market information and valuation methods to
determine the fair value of financial instruments. Other financial instruments,
as defined by SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," are disclosed in Note 12 of "Notes to Consolidated Financial
Statements" included in Item 8.

Based on the current holdings of short-term investments, fixed-rate notes,
as well as underlying swaps, the exposure to interest rate risk is not
considered to be material. Fixed-rate debt obligations currently issued by the
Company are generally not callable until maturity. Foreign currency exposure
arising from changes in exchange rates is minimal for the Company as the
majority of foreign receivables are settled in U.S. dollars. In management's
opinion, guaranties and allowance for losses adequately cover foreign exchange
market risk exposures. For information regarding the Company's foreign based
receivables, see "Cross-Border Outstandings" in Item 1.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following pages include the consolidated financial statements of the
Company as described in Item 14 (a)1 and (a)2 of Part IV herein.

INDEPENDENT AUDITORS' REPORT

Shareholder and Board of Directors
Boeing Capital Corporation

We have audited the accompanying consolidated balance sheets of Boeing
Capital Corporation (a wholly owned subsidiary of Boeing Capital Services
Corporation) and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of income and income retained for growth, and cash flows
for each of the three years in the period ended December 31, 2000. Our audits
also included the financial statement schedule listed in Part IV Item 14 (a)2.
These financial statements and financial statement schedule are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Boeing
Capital Corporation and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, the
aforementioned financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

/s/ DELOITTE & TOUCHE LLP

Seattle, Washington
February 15, 2001
(March 8, 2001 as to Note 8)

BOEING CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

DECEMBER 31,
-------------------
(Dollars in millions, except stated value and par value) 2000 1999
- -------------------------------------------------------- -------- --------

ASSETS
Financing receivables:
Investment in finance leases............................ $1,670.7 $1,372.8
Notes receivable........................................ 1,481.7 708.0
-------- --------
3,152.4 2,080.8
Allowance for losses on financing receivables........... (136.4) (60.7)
-------- --------
3,016.0 2,020.1
Cash and cash equivalents................................. 48.6 26.9
Equipment under operating leases, net..................... 2,151.0 828.2
Equipment held for sale or re-lease....................... 101.2 66.0
Accounts due from Boeing and BCSC......................... 215.8 2.6
Other assets.............................................. 123.3 99.8
-------- --------
$5,655.9 $3,043.6
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Short-term notes payable.................................. $ 652.9 $ 271.0
Accounts payable and accrued expenses..................... 62.5 38.5
Other liabilities......................................... 135.0 96.5
Deferred income taxes..................................... 468.8 427.5
Long-term debt:
Senior.................................................. 3,635.4 1,741.8
Subordinated............................................ 29.2 44.9
-------- --------
4,983.8 2,620.2
-------- --------
Commitments and contingencies--Note 9

Shareholder's equity:
Preferred stock--no par value; authorized 100,000
shares: Series A; $5,000 stated value; authorized,
issued and outstanding 10,000 shares.................. 50.0 50.0
Common stock--$100 par value; authorized 100,000 shares;
issued and outstanding 50,000 shares.................. 5.0 5.0
Capital in excess of par value.......................... 234.5 89.5
Income retained for growth.............................. 382.6 278.9
-------- --------
672.1 423.4
-------- --------
$5,655.9 $3,043.6
======== ========

See Notes to Consolidated Financial Statements.

BOEING CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND INCOME RETAINED FOR GROWTH

YEARS ENDED DECEMBER 31,
------------------------------
(Dollars in millions) 2000 1999 1998
- --------------------- -------- -------- --------

REVENUES
Finance lease income...................................... $144.1 $114.9 $119.5
Interest income on notes receivable....................... 122.7 52.3 36.6
Operating lease income, net of depreciation expense of
$97.5, $72.0 and $70.6 in 2000, 1999 and 1998,
respectively............................................ 135.4 64.2 67.7
Net gain on disposal or re-lease of assets................ 31.5 51.7 33.4
Other..................................................... 14.2 2.1 2.9
------ ------ ------
447.9 285.2 260.1
------ ------ ------
EXPENSES
Interest expense.......................................... 229.2 130.0 126.7
Provision for losses...................................... 10.2 7.4 7.4
Operating expenses........................................ 34.2 13.8 12.6
Other..................................................... 6.4 7.3 8.8
------ ------ ------
280.0 158.5 155.5
------ ------ ------
Income before provision for income taxes.................... 167.9 126.7 104.6
Provision for income taxes.................................. 60.7 48.5 33.1
------ ------ ------
Net income.................................................. 107.2 78.2 71.5
Income retained for growth at beginning of year............. 278.9 236.2 208.6
Dividends................................................... (3.5) (35.5) (43.9)
------ ------ ------
Income retained for growth at end of year................... $382.6 $278.9 $236.2
====== ====== ======

See Notes to Consolidated Financial Statements.

BOEING CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,
-------------------------------
(Dollars in millions) 2000 1999 1998
- --------------------- --------- -------- --------

OPERATING ACTIVITIES
Net income................................................ $ 107.2 $ 78.2 $ 71.5
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation expense--equipment under operating
leases................................................. 97.5 72.0 70.6
Net gain on disposal or re-lease of assets.............. (31.5) (51.7) (33.4)
Provision for losses.................................... 10.2 7.4 7.4
Change in assets and liabilities:
Accounts with Boeing and BCSC......................... (197.9) (9.3) (30.5)
Other assets.......................................... (23.5) (58.8) (2.4)
Accounts payable and accrued expenses................. 22.6 2.9 (13.5)
Other liabilities..................................... 8.0 11.7 (12.4)
Deferred income taxes................................. 24.0 44.2 (5.0)
Other, net................................................ (27.9) (3.5) (1.0)
--------- ------- -------
(11.3) 93.1 51.3
--------- ------- -------
INVESTING ACTIVITIES
Net change in short-term notes and leases receivable...... (213.3) (20.6) (51.9)
Purchase of net assets from Boeing........................ (1,261.9) -- --
Purchase of equipment for operating leases................ (897.1) (96.8) (157.2)
Proceeds from disposition of equipment and leases
receivable.............................................. 164.6 211.5 323.7
Collection of notes and leases receivable................. 757.0 343.1 235.9
Acquisition of notes and leases receivable................ (815.3) (576.5) (548.9)
--------- ------- -------
(2,266.0) (139.3) (198.4)
========= ======= =======
FINANCING ACTIVITIES
Net change in short-term notes payable.................... 381.9 34.3 87.7
Long-term debt:
Intercompany issuance for purchase of net assets from
Boeing................................................. 1,261.9 -- --
Proceeds................................................ 2,102.4 437.0 436.8
Repayments.............................................. (1,538.7) (383.0) (352.3)
Payment of cash dividends................................. (3.5) (35.5) (43.9)
Capital contributions from Boeing......................... 95.0 -- --
--------- ------- -------
2,299.0 52.8 128.3
--------- ------- -------

Net increase (decrease) in cash and cash equivalents........ 21.7 6.6 (18.8)
Cash and cash equivalents at beginning of year.............. 26.9 20.3 39.1
--------- ------- -------
Cash and cash equivalents at end of year.................... $ 48.6 $ 26.9 $ 20.3
========= ======= =======

NON-CASH INVESTING AND FINANCING ACTIVITIES FOR STOCK
TRANSFER INCLUDED IN THE PORTFOLIO ACQUISITION (See Note
2):
Acquisition of leases receivable.......................... $ (170.0)
=========
Acquisition of accounts payable........................... $ 1.4
=========
Acquisition of intercompany payables...................... $ 60.1
=========
Acquisition of long-term debt............................. $ 58.4
=========
Capital contribution from Boeing for stock transfer....... $ 50.1
=========

There were no non-cash investing and financing activities for the years ended
December 31, 1999 or 1998.

See Notes to Consolidated Financial Statements.

BOEING CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000

NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION Boeing Capital Corporation (formerly McDonnell Douglas Finance
Corporation) (the "Company") is a wholly owned subsidiary of Boeing Capital
Services Corporation ("BCSC"), which is a wholly owned subsidiary of McDonnell
Douglas Corporation ("McDonnell Douglas"), which, in turn, is wholly owned by
The Boeing Company ("Boeing"). The Company was incorporated in Delaware in 1968
and provides equipment financing and leasing arrangements to a diversified range
of customers and industries. The Company's primary operations include two
financial reporting segments: commercial aircraft financing and commercial
finance (formerly commercial equipment leasing and financing). The Company's
strategy is to (1) generate and participate in finance transactions in which the
Company's structuring and analysis can provide high returns on its invested
equity and (2) assist in arranging financing for Boeing's customers and
participate in such financing if the Company's minimum investment requirements
are met.

PRINCIPLES OF CONSOLIDATION The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.

PORTFOLIO The Company's portfolio consists of finance leases, notes
receivable and equipment under operating leases.

USE OF ESTIMATES The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make assumptions and estimates that directly affect the
amounts reported in the consolidated financial statements. Significant estimates
for which changes in the near term are considered reasonably possible and that
may have a material impact on the financial statements are addressed in these
"Notes to Consolidated Financial Statements."

FINANCE LEASES At lease commencement, the Company records the lease
receivable, estimated residual value of the leased equipment and unearned lease
income. Income from leases is recognized over the terms of the leases so as to
approximate a level rate of return on the net investment. Residual values, which
are reviewed periodically, represent the estimated amount to be received at
lease termination from the disposition of leased equipment.

NOTES RECEIVABLE Notes receivable includes both short-term and long-term
loans. At note commencement, the Company records the note receivable and
unamortized discounts. Interest income is accrued and any related discounts are
amortized at a constant rate over the related terms of the loan.

INITIAL DIRECT COSTS Initial direct costs are deferred and amortized over
the related financing terms.

CASH EQUIVALENTS The Company considers all cash investments with original
maturities of three months or less to be cash equivalents. Cash equivalents at
December 31, 2000 and 1999 were $20.0 million and $25.8 million, respectively.
At December 31, 2000 and 1999, the Company has classified as other assets
restricted cash deposited with banks in interest bearing accounts of
$18.6 million and $37.2 million, respectively, for specific lease rents and
contractual purchase options related to certain aircraft leased by the Company
under capital lease obligations.

ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES The allowance for losses on
financing receivables includes consideration of such factors as the risk of
individual credits, economic and political conditions, guaranties, prior loss
experience, past-due amounts, collateral value of the underlying equipment and
results of periodic credit reviews.

EQUIPMENT HELD FOR SALE OR RE-LEASE Collateral that is repossessed in
satisfaction of a receivable is transferred to equipment held for sale or
re-lease at the lower of the former receivable amount or fair value. The Company
reviews these assets for impairment when events or circumstances indicate that
the carrying amount of these assets may not be recoverable. Equipment held for
re-lease is reviewed for impairment by comparing undiscounted cash flows over
remaining useful lives to net book value. When impairment is indicated for an
asset, the amount of impairment loss is the excess of net book value over fair
value.

EQUIPMENT UNDER OPERATING LEASES Rental equipment subject to operating
leases is recorded at cost and depreciated over its useful life or lease term to
an estimated salvage value, primarily on a straight-line basis. The Company
reviews these assets for impairment when events or circumstances indicate that
the carrying amount of these assets may not be recoverable. These assets are
reviewed for impairment by comparing undiscounted cash flows over remaining
useful lives to net book value. When impairment is indicated for an asset, the
amount of impairment loss is the excess of net book value over fair value.

INCOME TAXES The operations of the Company are included in the consolidated
federal income tax return of Boeing. Boeing presently charges or credits the
Company for the corresponding increase or decrease in taxes (disregarding
alternative minimum taxes) resulting from such inclusion. Intercompany payments
are made when such taxes are due or tax benefits are realized by Boeing based on
the assumption, pursuant to an informal arrangement, that taxes are due or tax
benefits are realized up to 100% of the amounts forecasted by the Company, with
the amounts varying from such forecast settled in the year realized by Boeing.

Federal, state and foreign income taxes are computed at current tax rates,
less tax credits. Taxes are adjusted both for items that do not have tax
consequences and for the cumulative effect of any changes in tax rates from
those previously used to determine deferred tax assets or liabilities. Tax
provisions include amounts that are currently payable, plus changes in deferred
tax assets and liabilities that arise because of temporary differences between
the time when items of income and expense are recognized for financial reporting
and income tax purposes. Under an informal arrangement, the current provision
for state income taxes based on an agreed upon rate is paid to Boeing, and the
state income tax deferred asset or liability is carried on Boeing's books.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS The Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," issued in June 1998, was amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of SFAS No. 133," issued in June 1999 and by SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities,"
issued in July 2000. SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138,
is effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000. The standard will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in fair value of derivatives will
either offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or be recognized in other
comprehensive income until the hedged item is recognized in earnings. The change
in a derivative's fair value related to the ineffective portion of a hedge, if
any, will generally be immediately recognized in earnings. The Company will
adopt these standards in fiscal year 2001 and has determined that the resulting
effect on

the Company's financial position is not material. See Note 14 for additional
discussion on the Company's derivative financial instruments.

NOTE 2--RELATIONSHIP WITH BOEING, MCDONNELL DOUGLAS AND BCSC AND IMPACT OF
BOEING'S CUSTOMER FINANCING CONSOLIDATION

An operating agreement (the "Operating Agreement") governs certain important
aspects of the relationship between the Company, BCSC and Boeing relating to the
purchase and sale of commercial aircraft financing receivables, the leasing of
commercial aircraft, the remarketing of such aircraft returned to, or
repossessed by, the Company under leases or secured loans and the allocation of
federal income taxes between the companies. The Operating Agreement between the
Company, BCSC and Boeing was executed on September 13, 2000 and replaces the
previous operating agreement between the Company and McDonnell Douglas. The
Operating Agreement was filed with the SEC on Form 8-K, dated September 13,
2000.

the corresponding increase or decrease in Boeing's taxes (disregarding
alternative minimum taxes) resulting from the Company's inclusion in the
consolidated federal income tax return of Boeing. Intercompany payments are made
when such taxes are due or tax benefits are realized by Boeing based on the
assumption, pursuant to an informal arrangement, that taxes are due or tax
benefits are realized up to 100% of the amounts forecasted by the Company, with
the amounts varying from such forecast settled in the year realized by Boeing.
There can be no assurances that this (and other) intercompany arrangements will
not change from time to time.

Boeing is no longer producing MD-80, MD-90 and MD-11 aircraft. The Company's
commercial aircraft portfolio as of December 31, 2000 included 29 MD-80s, six
MD-90s and 13 MD-11s, representing an aggregate of $1,451.2 million in net asset
value (27.4% of total Company portfolio). The Company's commercial aircraft
portfolio as of December 31, 1999 included 28 MD-80s, three MD-90s and five
MD-11s, representing an aggregate of $897.6 million in net asset value (30.9% of
total Company portfolio). The Company periodically reviews the carrying and
residual values of all aircraft in its portfolio. Such reviews include the
effects, if any, of the foregoing as they become known or can be reasonably
estimated. While management believes that currently recorded residual values are
conservative, significant declines in market value could impact the gain or loss
on disposition of these aircraft.

NOTE 3--INVESTMENT IN FINANCE LEASES

The following lists the components of the investment in finance leases at
December 31:

(Dollars in millions) 2000 1999
- --------------------- -------- --------

Minimum lease payments receivable........................... $2,062.3 $1,678.3
Estimated residual value of leased assets................... 532.0 420.2
Unearned income............................................. (929.3) (730.2)
Deferred initial direct costs............................... 5.7 4.5
-------- --------
$1,670.7 $1,372.8
======== ========

At December 31, 2000, finance lease receivables of $167.4 million serve as
collateral to senior long-term debt. Finance lease receivables of
$297.2 million at December 31, 2000 relate to commercial aircraft leased by the
Company under capital lease obligations.

At December 31, 2000, finance lease receivables are due in installments as
follows: 2001, $359.1 million; 2002, $269.0 million; 2003, $219.8 million; 2004,
$198.5 million; 2005, $172.9 million; 2006 and thereafter, $843.0 million.

Under a finance lease agreement, the Company leases a DC-10-30 aircraft to
McDonnell Douglas. This lease requires monthly rent payments of $0.4 million
through April 14, 2004. At December 31, 2000 and 1999, the carrying amount of
this aircraft was $21.5 million and $22.4 million, respectively.

NOTE 4--NOTES RECEIVABLE

The following lists the components of notes receivable at December 31:

(Dollars in millions) 2000 1999
- --------------------- -------- --------

Principal................................................... $1,465.8 $703.3
Accrued interest............................................ 19.6 5.2
Unamortized discount........................................ (5.5) (2.0)
Deferred initial direct costs............................... 1.8 1.5
-------- ------
$1,481.7 $708.0
======== ======

At December 31, 2000, notes receivables are due in installments as follows:
2001, $432.3 million; 2002, $82.6 million; 2003, $77.0 million; 2004,
$133.0 million; 2005, $210.5 million; 2006 and thereafter, $530.4 million.

NOTE 5--ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES

Changes in the allowance for losses on financing receivables were as follows
for the years ended December 31:

(Dollars in millions) 2000 1999
- --------------------- -------- --------

Allowance for losses on financing receivables at beginning
of year................................................... $ 60.7 $62.1
Provision for losses........................................ 10.2 7.4
Write-offs, net of recoveries............................... (12.4) (8.8)
Allowance acquired from Boeing.............................. 77.9 --
------ -----
Allowance for losses on financing receivables at end of
year...................................................... $136.4 $60.7
====== =====

NOTE 6--EQUIPMENT UNDER OPERATING LEASES

Equipment under operating leases consisted of the following at December 31:

(Dollars in millions) 2000 1999
- --------------------- -------- --------

Commercial aircraft......................................... $1,950.8 $ 622.8
Executive aircraft.......................................... 332.1 286.3
Machine tools and production equipment...................... 79.8 60.3
Highway vehicles............................................ 29.3 32.0
Container and chassis....................................... 20.0 17.0
Other....................................................... 18.2 22.3
-------- -------
2,430.2 1,040.7
Accumulated depreciation.................................... (290.0) (215.1)
Rentals receivable.......................................... 34.6 15.8
Deferred lease income....................................... (27.0) (15.8)
Deferred initial direct costs............................... 3.2 2.6
-------- -------
$2,151.0 $ 828.2
======== =======

At December 31, 2000, future minimum rentals scheduled to be received under
the noncancelable portion of operating leases are as follows: 2001,
$388.6 million; 2002, $268.1 million; 2003, $245.0 million; 2004,
$181.5 million; 2005, $157.4 million; 2006 and thereafter, $678.9 million.

At December 31, 2000, equipment under operating leases of $63.1 million is
assigned as collateral to senior long-term debt. Equipment under operating
leases of $165.2 million at December 31, 2000 relates to commercial aircraft
leased by the Company under capital lease obligations.

NOTE 7--INCOME TAXES

The components of the provision (benefit) for taxes on income for the years
ended December 31 were as follows:

(Dollars in millions) 2000 1999 1998
- --------------------- -------- -------- --------

Current:
Federal................................................... $13.0 $(3.2) $32.1
State..................................................... 6.4 7.5 6.0
----- ----- -----
19.4 4.3 38.1

Deferred:
Federal................................................... 41.3 44.2 (5.0)
----- ----- -----
$60.7 $48.5 $33.1
===== ===== =====

Temporary differences represent the cumulative taxable or deductible amounts
recorded in the financial statements in different years than recognized in the
tax returns. The components of the net deferred income tax liability consisted
of the following at December 31:

(Dollars in millions) 2000 1999
- --------------------- -------- --------

Deferred tax assets:
Allowance for losses...................................... $ 101.8 $ 21.3
Other..................................................... 11.2 7.3
------- -------
113.0 28.6
------- -------
Deferred tax liabilities:
Leased assets............................................. (574.3) (446.8)
Other..................................................... (7.5) (9.3)
------- -------
(581.8) (456.1)
------- -------
Net deferred tax liability.................................. $(468.8) $(427.5)
======= =======

Income taxes computed at the United States federal income tax rate and the
provision (benefit) for taxes on income differ as follows for the years ended
December 31:

(Dollars in millions) 2000 1999 1998
- --------------------- -------- -------- --------

Tax computed at federal statutory rate...................... $58.8 $44.3 $36.6
State income taxes, net of federal tax benefit.............. 4.1 4.9 3.9
Foreign sales corporation benefit........................... (1.9) (0.3) (6.9)
Effect of investment tax credits............................ (0.3) (0.4) (0.5)
----- ----- -----
$60.7 $48.5 $33.1
===== ===== =====

The Company is currently under examination by the Internal Revenue Service
("IRS") for the tax years 1996 through 1997. The results of the examination for
the years 1993 through 1995 are in administrative appeal. The outcome of the IRS
audit is not expected to have a material effect on the Company's financial
condition or results of operations.

The Company paid income tax payments to Boeing of $10.7 million,
$8.9 million and $46.6 million in 2000, 1999 and 1998, respectively. The Company
paid income tax payments to other federal and state tax agencies of
$2.5 million, $1.3 million and $1.4 million in 2000, 1999 and 1998,
respectively.

NOTE 8--INDEBTEDNESS

Short-term notes payable consisted of the following at December 31:

WEIGHTED AVERAGE
BALANCE AT END OF INTEREST RATE
YEAR AT END OF YEAR
------------------- -----------------------
(Dollars in millions) 2000 1999 2000 1999
- --------------------- -------- -------- -------- --------

Commercial paper..................................... $652.9 $138.0 6.54% 5.58%
Uncommitted credit facilities........................ -- 90.0 -- 6.06
BCSC................................................. -- 43.0 -- 6.57
------ ------
$652.9 $271.0
====== ======

As of September 27, 2000, $1.0 billion of Boeing's 364-day revolving credit
line was made available to the Company. This new credit facility replaces the
Company's $1.0 billion substantially similar credit arrangement, which
terminated in accordance with its terms on September 27, 2000, and which, in
turn, replaced the Company's former $240.0 million credit line that was
terminated on March 30, 2000. At December 31, 2000, there were no amounts
outstanding under this agreement.

At December 31, 2000 and 1999, borrowings under commercial paper totaling
$652.9 million and $138.0 million, respectively, were supported by available
unused commitments under Boeing's 364-day agreement. During 2000 and 1999, the
Company's highest outstanding balance of commercial paper at any month end was
$652.9 million and $181.0 million, respectively. The weighted average interest
rates on short-term indebtedness were 5.99% and 5.24% during 2000 and 1999,
respectively.

At December 31, 2000 and 1999, the Company had available approximately
$60.0 million and $90.0 million, respectively, in uncommitted, short-term bank
credit facilities whereby the Company may borrow, at interest rates which are
negotiated at the time of the borrowings, upon such terms as the Company and the
banks may mutually agree. At December 31, 2000, the Company had no outstanding
borrowings under these credit facilities. At December 31, 1999, borrowings under
these credit facilities totaled $90.0 million.

On February 16, 2001, the Company filed with the SEC a Form S-3 Registration
Statement for a public shelf registration of $5.0 billion of its debt securities
(SEC File No. 333-55846). On February 26,

2001, the SEC declared such Registration Statement to be effective. On March 8,
2001, the Company received proceeds from the issuance of $750.0 million in 6.10%
senior notes due 2011.

Senior long-term debt consisted of the following at December 31:

(Dollars in millions) 2000 1999
- --------------------- -------- --------

Floating rate (three-month LIBOR plus 0.09%) Global note due
2002...................................................... $ 499.0 $ --
7.10% Global note due 2005.................................. 498.1 --
7.375% Global note due 2010................................. 497.1 --
Variable rate (one-month LIBOR plus 1.1%) note due 2012..... 46.5 --
9.36% - 9.38% Secured notes due through 2001................ 2.0 10.0
13.84% - 14.28% Secured notes due through 2003, including a
premium based on an imputed interest rate of 6.1%......... 20.0 24.7
6.0% - 8.25% Retail medium-term notes due through 2011...... 6.6 11.0
5.56% - 7.64% Medium-term notes due through 2017............ 1,699.1 1,325.5
9.9% Secured notes due through 2010......................... 53.8 --
Capital lease obligations due through 2008.................. 313.2 370.6
-------- --------
$3,635.4 $1,741.8
======== ========

At December 31, 2000 and 1999, subordinated long-term debt consisted of
$29.2 million and $44.9 million, respectively. This debt consists of medium-term
notes due through 2004 with interest rates ranging from 6.41% to 8.31% and a
variable rate note due 2012 with an interest rate of one-month LIBOR plus 2.46%.

As of December 31, 2000, $75.8 million of senior long-term debt was
collateralized by equipment. This debt consists of the 13.84% to 14.28% notes
due through 2003, the 9.36% to 9.38% notes due through 2001 and the 9.9% notes
due through 2010.

Payments required on long-term debt and capital lease obligations during the
years ending December 31 are as follows:

LONG-TERM CAPITAL
(Dollars in millions) DEBT LEASES
- --------------------- --------- --------

2001........................................................ $ 319.2 $ 64.2
2002........................................................ 660.5 54.9
2003........................................................ 471.0 60.1
2004........................................................ 134.2 54.2
2005........................................................ 663.1 54.6
2006 and thereafter......................................... 1,115.2 109.7
-------- ------
3,363.2 397.7
Deferred debt expenses...................................... (11.8) (0.1)
Imputed interest............................................ -- (84.4)
-------- ------
$3,351.4 $313.2
======== ======

Interest payments totaled $211.5 million, of which $52.6 million was paid to
Boeing and BCSC, in 2000, $129.8 million in 1999 and $123.0 million in 1998.

The derivative financial instruments held by the Company at December 31,
2000, consisted of specifically tailored interest rate swaps. The Company does
not trade in derivatives for speculative purposes. See Note 14 for additional
discussion on the Company's derivative financial instruments.

The Company uses interest rate swap agreements to manage interest costs and
risks associated with changing interest rates. The differential to be paid or
received is accrued as interest rates change and is recognized in interest
expense over the life of the agreements. The Company believes that the
derivative instruments it holds present no market rate risk, as the interest
rate swaps are matched with specific debt and capital lease obligations.
Counterparties to the interest rate swap contracts are major financial
institutions, and credit loss from counterparty non-performance is not
anticipated. At December 31, 2000, the Company had interest rate swap agreements
outstanding as follows:

NOTIONAL
(Dollars in millions) CONTRACT MATURITY PRINCIPAL RECEIVE RATE PAY RATE
- --------------------- ----------------- --------- ------------ -------------

Capital lease obligations..... 2006 - 2010 $346.2 Floating(1) 6.65% - 9.90%
Capital lease obligations..... 2006 - 2008 292.4 8.0% - 8.50% Floating(1)
Medium-term notes............. 2001 30.0 6.83% Floating(1)
Medium-term notes............. 2003 30.0 Floating(1) 5.99%
Senior global notes........... 2010 250.0 7.38% Floating(1)

- ------------------------

(1) Floating rates are based on LIBOR.

NOTE 9--COMMITMENTS AND CONTINGENCIES

LITIGATION

On November 1, 1996, The Allen Austin Harris Group, Inc. ("Plaintiff") filed
a complaint in the Superior Court of the State of California, County of Alameda,
against the Company, McDonnell Douglas, McDonnell Douglas Aerospace--Middle East
Limited and the Selah Group, Inc. (the "Defendants"). The Plaintiff, which had
hoped to establish a manufacturing plant abroad with various assistance from the
Defendants, seeks more than $57.0 million in alleged damages (primarily
consisting of lost profits) based on various theories. The Company believes it
has meritorious defenses to all of the Plaintiff's allegations, but is unable to
determine at this stage of the proceedings if the litigation will have any
future material adverse effect on the Company's earnings, cash flow or financial
position.

OTHER

Viacao Aerea Rio-Grandense ("VARIG") accounted for $339.4 million (6.4% of
total Company portfolio) at December 31, 2000. VARIG has defaulted on its
obligations under leases within the Portfolio in recent years, which has
resulted in deferrals and restructurings. Taking into account collateral values,
as well as certain first loss deficiency and lease rental guaranties, which
Boeing has provided to the Company covering a portion of the VARIG obligations,
it is not expected that the

VARIG transactions will have a material adverse effect on the Company's
earnings, cash flow or financial position.

Trans World Airlines, Inc. ("TWA") accounted for $134.5 million (2.5% of
total Company portfolio) and $147.3 million (5.1% of total Company portfolio) at
December 31, 2000 and 1999, respectively. TWA filed for protection under Chapter
11 of the bankruptcy code on January 10, 2001. McDonnell Douglas provides first
loss deficiency guaranties to the Company for certain obligations of TWA under
the various lease agreements between the Company and TWA. At December 31, 2000,
the maximum aggregate coverage under such guaranties was $40.5 million. The
Company believes that the ultimate outcome of the TWA bankruptcy will not have a
material adverse effect on the Company's earnings, cash flow or financial
position. See Boeing's Form 10-K for the Year Ended December 31, 2000 (SEC File
No. 01-00442) for Boeing's discussion on TWA.

In addition to Boeing and BCSC's unfunded commercial aircraft financing
commitments included in Note 2, the Company had commitments to provide leasing
and other financing totaling $1,426.6 million at December 31, 2000. The Company
anticipates that not all of these commitments will be utilized and that it will
be able to arrange for third-party investors to assume a portion of the
remaining commitments.

In conjunction with prior asset dispositions and certain guaranties, at
December 31, 2000, the Company is subject to a maximum recourse of
$103.3 million; however, $7.4 million of such amount has been indemnified by
Boeing and is included in the amount guaranteed by Boeing in Note 11. Based on
trends to date, any losses related to such exposure are not expected to be
significant to the Company.

In connection with the implementation of the consolidation within the
Company of Boeing's customer financing activities, the headquarters of the
Company has been moved to Seattle, Washington, from Long Beach, California, with
a principal office remaining in Long Beach, California. Rent expense for all
office leases under operating lease agreements was $1.5 million, $0.8 million
and $0.8 million in the years ended December 31, 2000, 1999 and 1998,
respectively. At December 31, 2000, the minimum future rental commitments under
these noncancelable leases payable over the remaining lives of the leases
aggregated approximately $11.8 million.

NOTE 10--CAPITAL IN EXCESS OF PAR VALUE

During 2000, the Company received capital contributions of $145.0 million
from Boeing. No capital contributions were received during 1999.

NOTE 11--TRANSACTIONS WITH BOEING, MCDONNELL DOUGLAS AND BCSC

Accounts with Boeing and BCSC consisted of the following at December 31:

(Dollars in millions) 2000 1999
- --------------------- -------- --------

Notes receivable from Boeing and BCSC....................... $173.5 $ --
Federal income tax (payable)................................ (8.6) (2.7)
State income tax (payable).................................. (4.7) (6.4)
Other receivables........................................... 55.6 11.7
------ -----
$215.8 $ 2.6
====== =====

At December 31, 2000, the Company had outstanding loans of $161.8 million to
Boeing, which are included in the Notes with Boeing and BCSC in the preceding
table. It is expected that these loans will be paid off in early 2001, with an
interest rate of three-month LIBOR plus 0.875%, as of the funding date of each
loan.

In August 1998, the Company's lease agreements with P.T. Garuda ("Garuda")
relating to two MD-11 aircraft were terminated and the aircraft, which were
returned by Garuda in July 1998, were sold at estimated fair value to Boeing for
an aggregate sales price of $162.8 million. The Company recorded a pretax gain
of $3.3 million, which is included in net gain on disposal or re-lease of
assets.

During 2000, the Company purchased aircraft subject to leases and notes from
Boeing and McDonnell Douglas in the amount of $1,499.1 million. There were no
such aircraft purchases from Boeing or McDonnell Douglas in 1999 or 1998. During
2000, 1999 and 1998, the Company recorded revenues from Boeing and McDonnell
Douglas relating to financings aggregating $7.8 million, $4.2 million and
$7.1 million, respectively.

At December 31, 2000 and 1999, $221.3 million and $241.8 million,
respectively, was guaranteed by McDonnell Douglas for commercial aircraft
financing. At December 31, 2000, $321.6 million was guaranteed by Boeing for
commercial aircraft financing. Fees related to these guaranties that were paid
to Boeing and McDonnell Douglas totaled $0.4 million, $0.6 million and
$1.0 million in 2000, 1999 and 1998, respectively. During 2000, 1999 and 1998,
the Company collected $2.0 million, $10.9 million and $12.3 million,
respectively, under these guaranties.

The Company's Series A Preferred Stock, owned entirely by BCSC, is
redeemable at the Company's option at $5,000 per share, has no voting privileges
and is entitled to cumulative semi-annual dividends of $175 per share. Such
dividends have priority over cash dividends on the Company's common stock.
Accrued dividends on preferred stock amounted to $0.6 million at December 31,
2000 and 1999.

Substantially all employees of Boeing and its subsidiaries are members of
defined benefit pension plans and insurance plans. Boeing also provides eligible
employees the opportunity to participate in savings plans that permit both
pretax and after-tax contributions. Boeing generally charges the Company with
the actual costs of these plans attributable to the Company's employees, which
are included with other Boeing charges for support services and reflected in
operating expenses. Boeing charges for services provided during 2000, 1999 and
1998 totaled $1.9 million, $0.8 million and $1.6 million, respectively.
Additionally, the Company was compensated by certain affiliates for a number of
support services, which were netted against operating expenses and amounted to
$0.1 million, $0.2 million and $0.6 million in 2000, 1999 and 1998,
respectively.

NOTE 12--FAIR VALUE OF FINANCIAL INSTRUMENTS

The following information is required by SFAS No. 107, "Disclosures About
Fair Value of Financial Instruments." The estimated fair value amounts of the
Company's financial instruments have been determined by the Company, using
appropriate market information and valuation methodologies.

The estimates are not necessarily indicative of the amounts the Company could
realize in a current market exchange, and the use of different market
assumptions or methodologies could have a material effect on the estimated fair
value amounts. The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:

CASH AND CASH EQUIVALENTS The carrying amount reported in the balance sheet
for cash and cash equivalents approximates its fair value.

NOTES RECEIVABLE Fair values for variable rate notes that reprice
frequently with no significant change in credit risk are based on carrying
values. The fair values of fixed rate notes are estimated in discounted cash
flow analyses, with the use of interest rates currently offered on loans with
similar terms to borrowers of similar credit quality.

SHORT-TERM AND LONG-TERM DEBT Carrying amounts of borrowings include
prepaid and accrued interest and exclude netting of deferred debt costs.
Carrying amounts of borrowings under the short-term revolving credit agreements
approximate their fair value. The fair values of long-term debt, excluding
capital lease obligations, are estimated according to public quotations or
discounted cash flow analyses, which are based on current incremental borrowing
rates for similar types of borrowing arrangements.

FINANCING COMMITMENTS Risks associated with changes in interest rates are
minimized during the commitment term because the rates are set at the date of
funding based on current market conditions, the fair value of the underlying
collateral and the credit worthiness of the customers. As a result, the fair
value of these financings is expected to equal the amounts funded.

INTEREST RATE HEDGES The fair values of the Company's interest rate swaps
are based on quoted market prices of comparable instruments.

The notional amounts, carrying amounts and estimated fair values of the
Company's financial instruments at December 31 were as follows:

2000 1999
--------------------------------- --------------------------------
ASSETS (LIABILITIES) ASSETS (LIABILITIES)
--------------------- ---------------------
NOTIONAL CARRYING FAIR NOTIONAL CARRYING FAIR
(Dollars in millions) AMOUNT AMOUNT VALUE AMOUNT AMOUNT VALUE
- --------------------- --------- --------- --------- -------- --------- ---------

ASSETS
Cash and cash equivalents............ $ -- $ 48.6 $ 48.6 $ -- $ 26.9 $ 26.9
Notes receivable..................... -- 1,481.7 1,619.4 -- 708.0 728.4

LIABILITIES
Short-term notes payable to banks.... -- (651.0) (651.0) -- (271.6) (271.6)
Long-term debt:
Senior, excluding capital lease
obligations...................... -- (3,378.3) (3,515.9) -- (1,399.6) (1,394.8)
Subordinated....................... -- (30.2) (32.5) -- (46.5) (48.7)

OFF-BALANCE SHEET INSTRUMENTS
Commitments to extend credit......... (1,426.6) -- (1,426.6) (218.9) -- (218.9)
Interest rate swaps.................. 948.6 -- 22.5 725.1 -- 11.7

NOTE 13--SEGMENT INFORMATION AND CONCENTRATION OF CREDIT RISK

A substantial portion of the Company's total portfolio is concentrated among
a small number of the Company's largest commercial aircraft financing customers.
The single largest commercial aircraft financing customer accounted for
$339.4 million (6.4% of total Company portfolio) and $295.8 million (10.2% of
total Company portfolio) at December 31, 2000 and 1999, respectively. The second
largest commercial aircraft financing customer accounted for $288.8 million
(5.5% of total Company portfolio)

and $170.2 million (5.9% of total Company portfolio), at December 31, 2000 and
1999, respectively. The five largest commercial aircraft financing customers
accounted for $1,221.6 million (23.0% of total Company portfolio) and
$840.9 million (28.9% of total Company portfolio) at December 31, 2000 and 1999,
respectively. At December 31, 2000 and 1999, there were no significant
concentrations by customer within the commercial finance portfolio.

In 2000, no single aircraft customer accounted for more than 10% of the
Company's revenues. In 1999 and 1998, a single aircraft financing customer
accounted for 10.5% and 13.6%, respectively, of the Company's revenues. No other
customer accounted for more than 10% of the Company's revenues in 1999 or 1998.

The Company generally holds title to all leased equipment and generally has
a perfected security interest in the assets financed through note and loan
arrangements.

Information about the Company's operations in its different financial
reporting segments for the past three years ended December 31 is summarized as
follows:

(Dollars in millions) 2000 1999 1998
- --------------------- -------- -------- --------

Revenues:
Commercial aircraft financing............................. $ 270.4 $ 156.1 $ 145.8
Commercial finance........................................ 172.7 128.5 113.5
Corporate................................................. 4.8 0.5 0.5
Other..................................................... -- 0.1 0.3
-------- -------- --------
$ 447.9 $ 285.2 $ 260.1
======== ======== ========
Income (loss) before provision for income taxes:
Commercial aircraft financing............................. $ 122.0 $ 77.7 $ 58.9
Commercial finance........................................ 67.1 57.7 51.5
Corporate................................................. (21.1) (8.6) (8.0)
Other..................................................... (0.1) (0.1) 2.2
-------- -------- --------
$ 167.9 $ 126.7 $ 104.6
======== ======== ========
Identifiable assets at December 31:
Commercial aircraft financing............................. $3,508.6 $1,502.5 $1,632.5
Commercial finance........................................ 2,083.1 1,529.8 1,223.1
Corporate................................................. 61.0 8.9 4.7
Other..................................................... 3.2 2.4 1.1
-------- -------- --------
$5,655.9 $3,043.6 $2,861.4
======== ======== ========
Portfolio at December 31:
Commercial aircraft financing............................. $3,432.8 $1,410.8 $1,573.5
Commercial finance........................................ 1,870.1 1,497.6 1,225.0
Other..................................................... 0.5 0.6 1.4
-------- -------- --------
$5,303.4 $2,909.0 $2,799.9
======== ======== ========
Depreciation expense--equipment under operating leases:
Commercial aircraft financing............................. $ 69.2 $ 42.8 $ 40.2
Commercial finance........................................ 28.3 29.2 30.4
-------- -------- --------
$ 97.5 $ 72.0 $ 70.6
======== ======== ========
Equipment acquired for operating leases, at cost:
Commercial aircraft financing............................. $ 745.1 $ -- $ 75.3
Commercial finance........................................ 152.0 96.8 81.9
-------- -------- --------
$ 897.1 $ 96.8 $ 157.2
======== ======== ========

Revenues from financing of assets located outside the United States totaled
$142.0 million, $62.2 million and $64.5 million in 2000, 1999 and 1998,
respectively.

NOTE 14--DERIVATIVE FINANCIAL INSTRUMENTS

The derivative financial instruments held by the Company at December 31,
2000, primarily consisted of simple and specifically tailored interest rate
swaps.

The interest rate swaps, which are associated with certain financing
receivables and long-term debt, are designed to achieve a desired balance of
fixed and variable rate positions. These swaps are accounted for as integral
components of the associated receivable and debt, with interest accrued and
recognized based upon the effective rates.

As of January 1, 2001, the Company will adopt SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and
SFAS No. 138. This standard requires that the statement of financial position
reflect the current market price of derivatives. With the adoption of the SFAS
No. 133, the Company will record a cumulative effect type transition adjustment
of $5.9 million loss, net of tax, in accumulated other comprehensive income.
During the next twelve months, the Company expects to reclassify to expense
$2.2 million from the transition adjustment that will be recorded in accumulated
other comprehensive income and recognize income of $3.9 million related to the
basis adjustment of certain underlying liabilities.

The Company believes that there is no significant credit risk associated
with the potential failure of any counterparty to perform under the terms of
derivative financial instruments.

NOTE 15--QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

THREE MONTHS ENDED
------------------------------------------------
(Dollars in millions) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- --------------------- -------- -------- ------------ -----------

2000
Revenues........................................... $94.7 $104.7 $110.4 $138.1
Income before provision for income taxes........... 28.1 33.3 42.1 64.4
Net income......................................... 17.8 21.1 26.3 42.0
1999
Revenues........................................... $66.3 $ 65.1 $ 62.5 $ 91.3
Income before provision for income taxes........... 28.8 24.3 25.1 48.5
Net income......................................... 17.7 15.2 15.5 29.8

BOEING CAPITAL CORPORATION AND SUBSIDIARIES
Schedule II--Valuation and Qualifying Accounts

(Dollars in millions)

ALLOWANCE FOR
LOSSES ON BALANCE AT CHARGED TO ALLOWANCE
FINANCING BEGINNING COSTS AND ACQUIRED FROM BALANCE AT END
RECEIVABLES OF YEAR EXPENSES BOEING OTHER DEDUCTIONS(1) OF YEAR
- ------------- ---------- ---------- ------------- -------- ------------- --------------

2000 $60.7 $10.2 $77.9 $ -- $(12.4) $136.4
1999 62.1 7.4 -- -- (8.8) 60.7
1998 55.9 7.4 -- 1.3 (2.5) 62.1

- ------------------------

(1) Write-offs, net of recoveries

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICES OF THE REGISTRANT

Omitted pursuant to General Instruction I.

ITEM 11. EXECUTIVE COMPENSATION

Omitted pursuant to General Instruction I.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Omitted pursuant to General Instruction I.

ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Omitted pursuant to General Instruction I.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

PAGE NUMBER IN
FORM 10-K
--------------

(a) 1. Financial Statements:

Independent Auditors' Report................................ 23

Consolidated Balance Sheets at December 31, 2000 and 1999... 24

Consolidated Statements of Income and Income Retained for
Growth for the Years Ended December 31, 2000, 1999 and
1998........................................................ 25

Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998............................ 26

Notes to Consolidated Financial Statements.................. 27

2. Financial Statement Schedules:

Schedule II--Valuation and Qualifying Accounts.............. 41

Schedules for which provision is made in the applicable
regulation of the Securities and Exchange Commission (the
"SEC"), except Schedule II, which is included herein, have
been omitted because they are not required, or the
information is set forth in the Financial Statements or
Notes thereto.

3. Exhibits:

3.1 Restated Certificate of Incorporation of the Company dated June 29, 1989,
incorporated herein by reference to Exhibit 3.1 to the Company's Form 10-K
for the year ended December 31, 1993.

3.2 Amendment to Certificate of Incorporation of the Company dated August 11,
1997, incorporated herein by reference to Exhibit 3(i) to the Company's
Form 10-Q, for the period ended June 30, 1997.

3.3 By-Laws of the Company, as amended to date, incorporated herein by reference
to Exhibit 3.2 to the Company's Form 10-K for the year ended December 31,
1993.

4.1 Indenture, dated as of April 1, 1983, between the Company and Bankers Trust
Company, incorporated herein by reference to Exhibit 4(a) to the Company's
Form S-3 Registration Statement (File No. 2-83007).

4.2 First Supplemental Indenture, dated as of June 12, 1995, between the Company
and Bankers Trust Company, incorporated herein by reference to Exhibit 4(b)
to the Company's Form S-3 Registration Statement (File No. 33-58989).

4.3 Subordinated Indenture, dated as of June 15, 1988, by and between the
Company and Bankers Trust Company of California, N.A., as Subordinated
Indenture Trustee, incorporated by reference to Exhibit 4(b) to the
Company's Form S-3 Registration Statement (File No. 33-26674).

4.4 First Supplemental Subordinated Indenture, dated as of June 12, 1995,
between the Company and Bankers Trust Company, as successor Trustee to
Bankers Trust Company of California, N.A., incorporated herein by reference
to Exhibit 4(d) to the Company's Form S-3 Registration Statement (File
No. 33-58989).

4.5 Indenture, dated as of April 15, 1987, incorporated herein by reference to
Exhibit 4 to the Company's Form S-3 Registration Statement (File
No. 33-26674).

4.6 Senior Indenture, dated as of August 31, 2000, incorporated by reference to
Exhibit 4(a) to the Company's Amendment No. 2 to Form S-3 Registration
Statement, dated August 30, 2000 (File No. 333-82391)

4.7 Subordinated Indenture, dated as of August 31, 2000, incorporated by
reference to Exhibit 4(b) to the Company's Amendment No. 2 to Form S-3
Registration Statement, dated August 30, 2000 (File No. 333-82391)

4.8 Form of Series II Medium-term Note, incorporated by reference to
Exhibit 4(c) to the Form 8-K of the Company dated as of August 22, 1983.

4.9 Form of Series III Medium-term Note, incorporated herein by reference to
Exhibit 4(b) to the Company's Form S-3 Registration Statement (File
No. 2-98001).

4.10 Form of Series V Medium-term Note, incorporated herein by reference to
Exhibit 4(b) to the Company's Form S-3 Registration (File No. 33-13735).

4.11 Form of Series VI Medium-term Note, incorporated by reference to Exhibit 4
to the Form S-3 Registration Statement of the Company, as filed with the SEC
on April 24, 1987.

4.12 Form of Series VII Medium-term Note, incorporated by reference to Exhibit 4
to the Form S-3 Registration Statement of the Company, as filed with the SEC
on April 24, 1987.

4.13 Form of Series VIII Senior Medium-term Note, incorporated herein by
reference to Exhibit 4(c) to the Company's Form S-3 Registration Statement
(File No. 33-26674).

4.14 Form of Series VIII Subordinated Medium-term Note, incorporated herein by
reference to Exhibit 4(d) to the Company's Form S-3 Registration Statement
(File No. 33-26674).

4.15 Form of Series IX Senior Medium-term Note, incorporated herein by reference
to Exhibit 4(c) to the Company's Form S-3 Registration Statement (File
No. 33-31419).

4.16 Form of Series IX Senior Federal Funds Medium-term Note, incorporated herein
by reference to Exhibit 4(d) of the Company's Form 8-K dated May 16, 1995.

4.17 Form of Series IX Subordinated Medium-term Note, incorporated herein by
reference to Exhibit 4(d) to the Company's Form S-3 Registration (File
No. 33-31419).

4.18 Form of General Term Note-Registered Trademark-, incorporated herein by
reference to Exhibit 4(c) to the Company's Form 8-K dated May 26, 1993.

4.19 Form of Series X Senior Fixed Rate Medium-term Note, incorporated herein by
reference to Exhibit 4(e) to the Company's Form S-3 Registration Statement
(File No. 33-58989).

4.20 Form of Series X Senior Floating Rate Medium-term Note, incorporated herein
by reference to Exhibit 4(h) to the Company's Form S-3 Registration
Statement (File No. 33-58989).

4.21 Form of Series X Subordinated Fixed Rate Medium-term Note, incorporated
herein by reference to Exhibit 4(f) to the Company's Form S-3 Registration
Statement (File No. 33-58989).

4.22 Form of Series X Subordinated Floating Rate Medium-term Note, incorporated
herein by reference to Exhibit 4(g) to the Company's Form S-3 Registration
Statement (File No. 33-58989).

4.23 Form of Series X Senior Fixed Rate Medium-Term Note, incorporated by
reference to Exhibit 4(e) to the Company's Form S-3 Registration Statement
(File No. 333-37635).

4.24 Form of Series X Subordinated Fixed Rate Medium-Term Note, incorporated by
reference to Exhibit 4(f) to the Company's Form S-3 Registration Statement
(File No. 333-37635).

4.25 Form of Series X Senior Floating Rate Medium-Term Note, incorporated by
reference to Exhibit 4(g) to the Company's Form S-3 Registration Statement
(File No. 333-37635).

4.26 Form of Series X Subordinated Floating Rate Medium-Term Note, incorporated
by reference to Exhibit 4(h) to the Company's Form S-3 Registration
Statement (File No. 333-37635).

4.27 Form of Series XI Senior Fixed Rate Medium-Term Note, incorporated by
reference to Exhibit 4(c) to the Company's Form S-3 Registration Statement
(File No. 333-82391).

4.28 Form of Series XI Subordinated Fixed Rate Medium-Term Note, incorporated by
reference to Exhibit 4(d) to the Company's Form S-3 Registration Statement
(File No. 333-82391).

4.29 Form of Series XI Senior Floating Rate Medium-Term Note, incorporated by
reference to Exhibit 4(e) to the Company's Form S-3 Registration Statement
(File No. 333-82391).

4.30 Form of Series XI Subordinated Floating Rate Medium-Term Note, incorporated
by reference to Exhibit 4(f) to the Company's Form S-3 Registration
Statement (File No. 333-82391).

Pursuant to Item 601 (b)(4)(iii) of Regulation S-K, the Company is not filing certain instruments with respect
to its long-term debt because the total amount of securities currently provided for under each of such
instruments does not exceed 10 percent of the total assets of the Company and its subsidiaries on a
consolidated basis. The Company hereby agrees to furnish a copy of any such instrument to the SEC upon request.

10.1 Revolving Credit Agreement, dated September 27, 2000, among Boeing and the
banks listed therein, incorporated by reference to Exhibit 10.1 to the
Company's Form 10-Q for the quarterly period ended September 30, 2000.

10.2 Borrower Subsidiary Letter, dated September 27, 2000, among Boeing and the
banks listed therein, incorporated by reference to Exhibit 10.2 to the
Company's Form 10-Q for the quarterly period ended September 30, 2000.

10.3 Operating Agreement, dated as of September 13, 2000, by and among the
Company, BCSC and Boeing, incorporated herein by reference to Exhibit 10.1
to the Company's Form 8-K filed September 19, 2000.

10.4 Operating Agreement, dated as of September 13, 2000, by and among BCSC and
Boeing, incorporated herein by reference to Exhibit 10.2 to the Company's
Form 8-K filed September 19, 2000.

12. Computation of Ratio of Earnings to Fixed Charges.

23.1 Independent Auditors' Consent.

(b) Reports on Form 8-K

No Reports on Form 8-K were filed during the fourth quarter of 2000.

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.

BOEING CAPITAL CORPORATION

By: /s/ STEVEN W. VOGEDING
-----------------------------------------
Steven W. Vogeding
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
March 20, 2001

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ MICHAEL M. SEARS
------------------------------------------- Chairman and Director March 20, 2001
Michael M. Sears

/s/ JAMES F. PALMER
-------------------------------------------
James F. Palmer President and Director March 20, 2001
(Principal Executive Officer)

/s/ DOUGLAS G. BAIN
------------------------------------------- Director March 20, 2001
Douglas G. Bain

/s/ ALAN R. MULALLY
------------------------------------------- Director March 20, 2001
Alan R. Mulally

/s/ WALTER E. SKOWRONSKI
------------------------------------------- Director March 20, 2001
Walter E. Skowronski

/s/ STEVEN W. VOGEDING
------------------------------------------- Vice President and Chief
Steven W. Vogeding Financial Officer March 20, 2001
(Principal Financial Officer)

/s/ MAURA R. MIZUGUCHI
------------------------------------------- Controller and Chief
Maura R. Mizuguchi Operations Officer March 20, 2001
(Principal Accounting Officer)