Exhibit 99.2
Lease Investment Flight Trust
Asset Backed Notes, Series 2001-1
Quarterly Report to Noteholders
June 30, 2002
I. Management's Discussion and Analysis
Any statements contained herein that are not historical facts, or that might be
considered opinions or projections, whether expressed or implied, are meant as,
and should be considered, forward-looking statements as that term is defined in
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements include, among others, statements relating to Lease Investment Flight
Trust's future plans, objectives, expectations and intentions and the
assumptions underlying or relating to such plans, objectives, expectations and
intentions, and may be identified by the use of words such as "expect," "may,"
"anticipate," "intend," "plan," "should," "believe," "estimate," "predict,"
"potential," "continue," or similar terms that relate to the future or express
uncertainty. Forward-looking statements are based on assumptions and opinions
concerning a variety of known and unknown risks. If any assumptions or opinions
prove incorrect, any forward-looking statements made on that basis may also
prove materially incorrect. Lease Investment Flight Trust and its subsidiaries
(collectively, "LIFT") assume no obligation to update any forward-looking
statements to reflect actual results or changes in the factors affecting such
forward-looking statements.
Background and General
On June 26, 2001 (the "Closing Date"), LIFT issued $1,429.0 million of Asset
Backed Notes (the "Initial Notes"). The Initial Notes were issued in nine
classes: Class A-1, Class A-2, Class A-3, Class B-1, Class B-2, Class C-1, Class
C-2, Class D-1 and Class D-2. LIFT used the proceeds from the sale of the
Initial Notes to fund cash reserves, pay transaction expenses and make the
payments described in the following paragraph. Also on the Closing Date, LIFT
Trust-Sub 1 ("LIFT 1") issued $1,310.5 million of bridge notes (the "Bridge
Notes") to Credit Suisse First Boston Corporation, the proceeds of which were
used by LIFT 1 to pay General Electric Capital Corporation (the "Seller") the
full aircraft purchase price for the 39 commercial jet aircraft (the "Initial
Aircraft").
Also on the Closing Date, Lease Investment Flight Trust agreed with Automatic
LIFT I, LP ("Automatic LIFT I") to purchase LIFT 1 and its subsidiaries under a
beneficial interest purchase agreement, to pay to Automatic the cash purchase
price of approximately $5.5 million and to repay the Bridge Notes on behalf of
LIFT 1. As a result, LIFT 1 became a wholly-owned subsidiary of LIFT on the
Closing Date.
On December 18, 2001, LIFT completed an exchange offer whereby it issued seven
classes of new notes, also designated Class A-1, Class A-2, Class A-3, Class
B-1, Class B-2, Class C-1, and Class C-2 (the "Exchange Notes" and, together
with the Initial Notes, the "Notes"), in exchange for the seven corresponding
classes of the Initial Notes. The terms of the Exchange Notes are identical in
all material respects to the Initial Notes, except that the Exchange Notes are
registered under the Securities Act of 1933, as amended. The Class D-1 and Class
D-2 Notes were not exchanged and remained unregistered. $10 million of the Class
A-2 and $34 million of the Class A-3 Initial Notes were not tendered in the
exchange offer and remain outstanding.
LIFT consists of special-purpose entities, a number of which own aircraft
subject to operating leases. LIFT's business consists of aircraft leasing
activities. LIFT may also engage in acquisitions of additional aircraft and
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sales of aircraft. Any acquisitions of additional aircraft and the related
issuance of additional notes will require confirmation by the rating agencies
rating the Notes that they will not lower, qualify or withdraw their ratings on
the outstanding Notes as a result. LIFT's cash flows from its leasing activities
will be used to service the interest and principal on the outstanding Notes and
to distribute any remaining amounts to the holders of the beneficial interest
certificates, after the payment of expenses incurred by LIFT.
LIFT's ability to generate sufficient cash from its aircraft assets to service
the outstanding Notes and any additional notes will depend primarily on the
rental rates it can achieve on leases, the lessees' ability to perform according
to the terms of the leases and the prices it can achieve on any aircraft sales.
LIFT's ability to service the outstanding Notes and any additional notes will
also depend on the level of LIFT's operating expenses, including maintenance
obligations that are expected to increase as the aircraft age, and any
unforeseen liabilities. The timing and amount of maintenance related
expenditures can fluctuate significantly from period to period, which may affect
the cash availability to service the outstanding Notes. The indenture, dated
June 26, 2001, under which the Notes were issued (the "Indenture") requires that
LIFT maintain a cash reserve balance on deposit in a collections account and
permits LIFT to establish a credit facility in order to provide a source of
liquidity for its obligations.
LIFT, may, under certain circumstances, issue additional notes to acquire
additional aircraft.
Interest incurred by LIFT on the Notes and the rental and other income received
by LIFT under operating leases are based on combinations of variable and fixed
measures of interest rates. LIFT is exposed to interest rate risk to the extent
that the mix of variable and fixed interest obligations under the Notes do not
correlate to the mix of variable and fixed rents under operating leases. LIFT
has engaged advisors to monitor interest rates in order to mitigate its exposure
to unfavorable variations. LIFT utilizes an interest rate swap that shifts the
risk of fluctuations in floating rates to the counterparty in exchange for fixed
payments by LIFT. Risks in the use of these instruments arise from the possible
inability of the counterparties to meet the terms of their contracts and from
market movements in securities values and interest rates.
As of June 30, 2002, LIFT was a party to an interest rate swap agreement which
it entered into on June 13, 2001 and which became effective on the Closing Date.
On June 30, 2002, the notional principal amount of the interest rate swap was
$1,179.6 million. Under the agreement, LIFT receives monthly payments based on
one-month LIBOR and makes monthly payments based on a fixed rate, each measured
against an amortizing notional balance based on the expected payment schedule of
the floating notes. On June 30, 2002, the estimated fair value of the interest
rate swap was a liability of approximately $63.7 million compared to a liability
of approximately $23.5 million on December 31, 2001, a decrease in value of the
derivative of $40.2 million.
Additional financial information regarding LIFT, including the form S-4
Registration Statement of LIFT (Registration No. 333-69864) as amended, relating
to the issuance of the Exchange Notes (the "Registration Statement"), quarterly
report on Form 10-Q and annual report on Form 10-K, have been filed with the
Securities and Exchange Commission. These reports can be viewed at the SEC's
website (http://www.sec.gov).
The Indenture and other governing documents impose restrictions on how LIFT
operates its business. These restrictions may limit the ability to compete
effectively in the aircraft leasing market under certain circumstances. For
example, there are concentration limits contained in the indenture that restrict
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LIFT's ability to lease a certain percentage of aircraft to any individual
lessee, to lessees in particular countries, or to lessees in particular
geographical regions. Most of LIFT's competitors do not operate under such
restrictions. The tables included in the section "Description of the Aircraft
and Leases" illustrate such concentrations as of June 30, 2002.
References in this Quarterly to Noteholders to the initial appraised value at
April 30, 2002 mean the average of the three appraisals of the Initial Aircraft
as of April 30, 2002. For a further discussion of the appraisals, see "Recent
Developments - Other Developments."
Recent Developments
The Aircraft and Lessees
In January 2002, LIFT entered into a restructuring agreement with a lessee based
in the United States with respect to a B737-300 aircraft. This agreement reduces
the rent for the remaining lease term commencing in December 2001. The aircraft
with respect to this lessee represents approximately 1.2% of the aggregate
appraised value at April 30, 2002.
In January 2002, LIFT issued a notice of default to a Brazilian lessee with
respect to a B737-500 aircraft after this lessee failed to make payments to
LIFT. In July 2002, LIFT entered into a restructured lease agreement with this
lessee, to defer a portion of the rent for six months commencing with October
2001 and to extend the lease for fifteen months beyond the current lease
expiration. The deferral will be repaid with interest over a 36-month period
beginning March 2003. The aircraft with respect to this lessee represents
approximately 1.8% of the aggregate appraised value at April 30, 2002.
In February 2002, LIFT signed an early termination agreement, in exchange for an
early termination fee, with a lessee based in Portugal with respect to a
B737-300 aircraft. This early termination fee, which is to be paid by this
lessee in twelve equal monthly installments commencing April 2002, was
recognized as other income. The aircraft was returned in March 2002 and
subsequently delivered to a British lessee on a five-year lease in March 2002.
This aircraft represents approximately 2.0% of the aggregate appraised value at
April 30, 2002.
In February 2002, LIFT entered into an agreement with a lessee based in Spain
for a three-year lease of a B737-800 aircraft. This aircraft was delivered in
April 2002 upon its early return from the previous lessee based in Morocco. The
aircraft with respect to this lessee represents approximately 2.9% of the
aggregate appraised value at April 30, 2002.
In March 2002, LIFT entered into a restructured lease agreement with a Brazilian
lessee for a B737-300 and a B737-700 aircraft, which reduced rents starting from
September 2001 and extended the leases for 24 months. The aircraft with respect
to this lessee represent approximately 4.3% of the aggregate appraised value at
April 30, 2002.
In March 2002, an MD-82 aircraft owned by LIFT was delivered to a lessee based
in Singapore on a two-year lease following redelivery from the previous lessee
based in Tunisia. This lessee based in Singapore signed another contract with
LIFT for a two-year lease of an MD-82 aircraft. In May 2002, the lessee
terminated both lease agreements and the leases were simultaneously novated to a
lessee based in Indonesia. This current Indonesian lessee previously subleased
one of these aircraft from the original lessee based in Singapore. This second
aircraft was previously off-lease and was delivered in June 2002. The two
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aircraft with respect to this Indonesian lessee represent approximately 2.3% of
the aggregate appraised value at April 30, 2002.
In April 2002, LIFT signed letters of intent with a lessee based in China for a
three-year extension with respect to three MD-82 aircraft. These aircraft
represent approximately 3.2% of the aggregate initial appraised value of the
Initial Aircraft.
In May 2002, a British lessee exercised its early termination option under the
lease agreement entered into with LIFT, with respect to a B767-300ER aircraft.
The lease will now end in May 2003. The aircraft with respect to this lessee
represents approximately 5.9% of the aggregate appraised value at April 30,
2002.
In June 2002, LIFT repossessed both of its aircraft, a B737-300 and a B737-700,
from a lessee based in Brazil due to the lessee's non-compliance with the
restructuring agreement signed in March 2002. The total amount of rent and
maintenance reserve payments outstanding under the leases for the two aircraft
with respect to this lessee was approximately $0.7 million at June 30, 2002.
LIFT holds security deposits in the amount of $1.1 million against the
arrearages of this lessee. The aircraft with respect to this lessee represent
approximately 4.3% of the aggregate appraised value at April 30, 2002.
In June 2002, LIFT signed a letter of intent with a lessee based in Norway for a
three-year lease with respect to a B737-300 aircraft that was returned early
from a Brazilian lessee. The aircraft is expected to be delivered in August
2002. This aircraft represents approximately 2.0% of the aggregate appraised
value at April 30, 2002.
The lease restructuring events discussed above and in LIFT's Annual Report to
the Noteholders caused a reduction in LIFT's revenues for the six months ended
June 30, 2002 and could result in a permanent reduction in LIFT's revenues as
well. These events and any similar future events may give rise to the
possibility that LIFT may not be able to pay scheduled interest on certain Note
classes on a monthly basis or may not be able to repay in full the principal of
certain Note classes by the final maturity dates of those classes. For a
description of the impact of assumed increased levels of delinquency on gross
revenues and of permanent changes in gross revenues on the expected maturities,
weighted average lives and yields of the respective classes of Notes, see pages
93 to 100 of the Registration Statement.
Current Market Conditions
On September 11, 2001, terrorists hijacked and crashed four United States
commercial aircraft, with attendant significant loss of life, property damage
and economic disruption. Any additional terrorist attacks, the anti-terrorist
activity in Afghanistan and throughout the world, any further military or
economic responses by the United States, including any changes to the United
States aircraft industry by way of law, regulation or otherwise, may increase
airline costs or cause declines in air travel demand. In addition to the
September 11, 2001 events, the decline in the United States and the worldwide
economy has adversely affected both LIFT and its lessees. Revenues and expenses
of LIFT's lessees are also likely to be affected by the lessees' ability to
operate in the current competitive environment and worsening economic
conditions. These and other factors have led to increased bankruptcies and
consolidations of airlines. Higher costs (including increased costs for security
measures, insurance and fuel) are expected to adversely impact their financial
position.
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Uncertainty with respect to the short to medium term future prospects of the
aircraft industry following the current general world economic downturn, which
was exacerbated by the terrorist attacks of September 11, 2001 has affected the
ability of LIFT's lessees to comply with the terms of their leases, causing
restructuring of lease agreements. Such restructurings have included reduced
rental rates, deferred payments or early returns of aircraft.
The events discussed above have also contributed to an excess of aircraft in the
market place, which has resulted in a significant number of aircraft being
parked. These excess aircraft impact the market by causing decreases in the
market value of the aircraft, a more competitive leasing market, reductions in
lease rates, increased storage costs and increased downtime. These events have
impaired the ability of LIFT to re-lease aircraft on a timely basis and at
favorable rates and may reduce the value of the aircraft for possible sale. In
addition, market values of some aircraft types have declined significantly
following the terrorist attacks of September 11, 2001, and it is possible that
the market values of certain aircraft types may never recover. These factors
have had and will likely continue to have an adverse effect on the cash flow
generated from LIFT's aircraft. Such reductions in cash flows will have a
negative impact on the amount and timing of payments that will be made by LIFT
on the Notes. There can be no assurances as to if and when the aircraft leasing
market, and subsequently cash flows to LIFT, will improve.
Other Developments
Under the terms of the Indenture, LIFT is required to obtain annual appraisals
of its aircraft. In May 2002, LIFT received appraisals of the adjusted base
values of the aircraft as of April 30, 2002 from three independent appraisers
that are members of the International Society of Transport Aircraft Trading, as
required by the Indenture. The average of the aggregate of the three appraisals
of the aircraft at April 30, 2002 was $1,392.7 million.
Under current conditions, future annual appraisals of the aircraft to reflect
further reductions, and in some cases significant reductions, of the adjusted
base values of the aircraft as a result of sales or dispositions of aircraft,
changes in the composition of the aircraft types, geographical concentrations
and lessees of the aircraft portfolio, the aging of the aircraft and related
increased maintenance expenses, economic or other events affecting the
commercial aviation industry, and other factors.
The annual appraisals are based on the assumptions and methodologies utilized by
each appraiser and are prepared without physical inspection of the aircraft.
Appraisals that are based on other assumptions and methodologies may result in
valuations that are materially different from those contained in such
appraisals. In addition, the appraisals assume an "open, unrestricted stable
market environment with a reasonable balance of supply and demand" and other
factors common for like appraisals. Short-term fluctuations in the marketplace
are disregarded and it is assumed that there is no necessity either to dispose
of a significant number of aircraft simultaneously or to dispose of aircraft
quickly. At any point in the aircraft leasing cycle, however, there will be
imbalances of aircraft supply and demand and there may be particularly
pronounced imbalances for specific aircraft types. Although some aircraft may
have market values approximating or exceeding the appraised values given them,
others, such as the older aircraft or aircraft that are no longer in production,
may have market values below, and in some cases significantly below, those
appraised base values as a result of such aircraft supply and demand imbalances,
the condition of the aircraft, market and economic conditions and other factors.
At a cyclical low, the market value of most aircraft types is likely to be less
than, and in some cases significantly less than, the appraised base values.
Accordingly, you should not place undue reliance on the indicated appraised
5
values as an accurate depiction of current market or realizable values at any
one point in time, and you should realize that actual current market or
realizable values at any point in time may be substantially less than appraisal
values.
In addition, market values of some aircraft types have declined significantly
following the terrorist attacks of September 11, 2001, and it is possible that
the market values of certain aircraft types may never recover. As discussed in
the previous paragraph, the appraised values set forth in the appraisals
generally assume a stable market environment and certain other market
conditions, and the extent to which the events of September 11, 2001 have been
taken into account in determining these appraised values varies among the
appraisals. Each of the appraisals notes that current market values of aircraft
have been adversely affected by such events and indicates that the long-term
impact on aircraft values of those events is uncertain.
The book value of LIFT's aircraft may differ from the base value of the aircraft
determined by the appraisals in accordance with the Indenture.
Aircraft are periodically reviewed for impairment in accordance with Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". An impairment loss is recognized when the fair
value of the undiscounted future cash flows of the aircraft is less than their
net book value. The fair value of the aircraft is based on the independent
appraisals of the aircraft described in this section and estimates of
undiscounted future cash flows. The appraisals assume, among other things, that
the aircraft are utilized normally in an open, unrestricted and stable market.
Short-term fluctuations in the market place are disregarded and it is assumed
that there is no necessity either to dispose of a significant number of aircraft
simultaneously or to dispose of aircraft quickly.
As a result of the recession, the terrorist attacks of September 11, 2001 and
the significant adverse financial impact that these events have had on the
airline industry, the rating agencies that rate the Notes have re-evaluated
their ratings of securities issued by aircraft lease securitization vehicles. On
October 30, 2001, Moody's placed the Class D Notes on review for possible
downgrade. On March 18, 2002, Moody's downgraded the Class D Notes from Ba2 to
Ba3. On September 27, 2001, Standard & Poor's placed the Class D Notes on credit
watch with negative implications. On September 20, 2001, Fitch placed the Class
A, B, C and D Notes on rating watch negative, but on December 21, 2001 they
removed the Class A, B and C Notes from this placement without any change to the
ratings of these classes. On May 7, 2002, Fitch removed the Class D Notes from
rating watch negative without any change to the ratings of that class.
As of June 30, 2002, LIFT had repaid aggregate principal on the Notes of $47.9
million, as compared to an estimate of $48.7 million that, based on revenue and
expense assumptions found in pages 93 to 95 of the Registration Statement, was
projected to have been repaid by June 30, 2002.
Automatic LIFT I, an affiliate of Automatic LLC, owns 49.9% of the beneficial
interests of LIFT and four affiliates of Automatic LIFT I (together with
Automatic LIFT I, the "Automatic LIFT LPs") each own 12.525% of the beneficial
interests of LIFT. Prior to July 31, 2002, 99.9% of the limited partnership
interests of each of the Automatic LIFT LPs was owned by Automatic Aircraft, LP,
an affiliate of Automatic LLC ("Automatic Aircraft"). On July 31, 2002,
Automatic Aircraft reorganized its ownership of the Automatic LIFT LPs by
organizing Flight Lift LLC, a Delaware limited liability company ("Flight
Lift"), and contributing to Flight Lift the percentage of limited partnership
interests of the Automatic LIFT LPs indicated below:
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Automatic LIFT I, LP 99.9%
Automatic LIFT II, LP 49.9998%
Automatic LIFT III, LP 49.9998%
Automatic LIFT IV, LP 49.9998%
Automatic LIFT V, LP 49.9998%
Flight Lift is managed and controlled by Automatic Aircraft. In exchange for a
contribution of cash and treasury securities, Flight Lift issued to an
institutional investor a preferred membership interest in Flight Lift resulting
in such institutional investor holding an indirect 60% economic interest in
LIFT. This institutional investor has no rights to affect the management or
control of LIFT. Following such transaction, the Automatic LIFT LPs continue to
hold and control, collectively, 100% of the beneficial interests of LIFT.
II. Analysis of Activity in the Collections Account and Comparison of actual
verses Expected Payment Results
LIFT makes payments on the notes monthly on the 15th of each month, beginning
July 2001, or the next business day if the 15th is not a business day (the
"Payment Date"). The amount of cash available for payment is determined on the
Calculation Date, which is defined as being four business days prior to the
Payment Date. For the purposes of this report, the "Three Month Period"
comprises information from the three Monthly Reports to Noteholders through June
17, 2002 and the "Cumulative to Date" comprises information from all of the
Monthly Reports to Noteholders since June 13, 2001, ("Inception") through June
17, 2002. The Registration Statement contains assumptions in respect of LIFT's
future cash flows, expenses and expected payments results (the "Assumed Case").
The following report contains an analysis of the actual cash flows versus the
Assumed Case for the Cumulative to Date.
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Lease Investment Flight Trust
Asset Backed Notes, Series 2001-1
Actual Cash Flows versus Assumed Case
Three Month Period - March 16, 2002 to June 17, 2002
(unaudited)
Three Month Period ended June 17, 2002 As % of Assumed Gross Lease Revenue
-------------------------------------------- -------------------------------------------
Actual Assumed Variance Actual Assumed Variance
CASH COLLECTIONS
Gross Lease Revenue 38,192,838 38,192,838 0 100.00% 100.00% 0.00%
- - Rental resets (2,127,361) 0 (2,127,361) -5.57% 0.00% -5.57%
-------------------------------------------- -------------------------------------------
Contracted lease rentals 36,065,477 38,192,838 (2,127,361) 94.43% 100.00% -5.57%
Movement in current arrears
balance (1,887,289) 0 (1,887,289) -4.94% 0.00% -4.94%
Less net stress related costs
- - Bad debts 0 (381,929) 381,929 0.00% -1.00% 1.00%
- - AOG (749,641) (1,336,749) 587,108 -1.96% -3.50% 1.54%
- - Other leasing income 253,000 0 253,000 0.66% 0.00% 0.66%
-------------------------------------------- -------------------------------------------
Sub-total (496,641) (1,718,678) 1,222,037 -1.30% -4.50% 3.20%
-------------------------------------------- -------------------------------------------
Net lease revenues 33,681,547 36,474,160 (2,792,613) 88.19% 95.50% -7.31%
Investment income 474,228 1,232,883 (758,655) 1.24% 3.23% -1.99%
Maintenance receipts 3,494,236 3,494,236 9.15% 0.00% 9.15%
Maintenance disbursements (376,604) (376,604) -0.99% 0.00% -0.99%
-------------------------------------------- -------------------------------------------
Net maintenance 3,117,632 0 3,117,632 8.16% 0.00% 8.16%
-------------------------------------------- -------------------------------------------
Total cash collections 37,273,407 37,707,043 (433,636) 97.59% 98.73% -1.14%
-------------------------------------------- -------------------------------------------
CASH EXPENSES
Aircraft operating expenses (1,738,120) (1,336,749) (401,371) -4.55% -3.50% -1.05%
SG&A expenses
Aircraft servicer fees (1,129,577) (1,183,303) 53,726 -2.96% -3.10% 0.14%
Other (434,297) (525,000) 90,703 -1.14% -3.50% 0.24%
-------------------------------------------- -------------------------------------------
Sub-total (1,563,874) (1,708,303) 144,429 -4.09% -4.47% 0.38%
-------------------------------------------- -------------------------------------------
Total cash expenses (3,301,994) (3,045,052) (256,942) -8.65% -7.97% -0.67%
-------------------------------------------- -------------------------------------------
NET CASH COLLECTIONS
Total cash collections 37,273,407 37,707,043 (433,636) 97.59% 98.73% -1.14%
Total cash expenses (3,301,994) (3,045,052) (256,942) -8.65% -7.97% -0.67%
Movement in expense account 8,753 0 8,753 0.02% 0.00% 0.02%
Interest payments (11,163,365) (23,178,930) 12,015,565 -29.23% -60.69% 31.46%
Swap receipts (payments) (12,166,082) 412,284 (12,578,366) -31.85% 1.08% -32.93%
-------------------------------------------- -------------------------------------------
Total 10,650,719 11,895,345 (1,244,626) 27.89% 31.15% -3.26%
-------------------------------------------- -------------------------------------------
Principal payments
A1 0 0 0 0.00% 0.00% 0.00%
A2 0 0 0 0.00% 0.00% 0.00%
A3 (9,605,279) (10,510,137) 904,858 -25.15% -27.52% 2.37%
B1 (438,646) (581,206) 142,560 -1.15% -1.52% 0.37%
B2 (606,794) (804,002) 197,208 -1.59% -2.11% 0.52%
C1 0 0 0 0.00% 0.00% 0.00%
C2 0 0 0 0.00% 0.00% 0.00%
D1 0 0 0 0.00% 0.00% 0.00%
D2 0 0 0 0.00% 0.00% 0.00%
-------------------------------------------- -------------------------------------------
Total (10,650,719) (11,895,345) 1,244,626 -27.89% -31.15% 3.26%
-------------------------------------------- -------------------------------------------
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Lease Investment Flight Trust
Asset Backed Notes, Series 2001-1
Actual Cash Flows versus Assumed Case
Cumulative to Date - June 13, 2001 to June 17, 2002
(unaudited)
Cumulative to Date As % of Assumed Gross Lease Revenue
-------------------------------------------- -------------------------------------------
Actual Assumed Variance Actual Assumed Variance
CASH COLLECTIONS
Gross Lease Revenue 151,230,736 151,230,736 0 100.00% 100.00% 0.00%
- - Rental resets (7,872,390) 0 (7,872,390) -5.21% 0.00% -5.21%
-------------------------------------------- -------------------------------------------
Contracted lease rentals 143,358,346 151,230,736 (7,872,390) 94.79% 100.00% -5.21%
Movement in current arrears
balance (4,671,771) 0 (4,671,771) -3.09% 0.00% -3.09%
Less net stress related costs
- - Bad debts 0 (1,445,019) 1,445,019 0.00% -0.96% 0.96%
- - AOG (2,721,064) (5,057,565) 2,336,501 -1.80% -3.34% 1.54%
- - Other leasing income 253,000 0 253,000 0.17% 0.00% 0.17%
-------------------------------------------- -------------------------------------------
Sub-total (2,468,064) (6,502,584) 4,034,520 -1.63% -4.30% 2.67%
-------------------------------------------- -------------------------------------------
Net lease revenues 136,218,511 144,728,152 (8,509,641) 90.07% 95.70% -5.63%
Investment income 2,444,469 4,929,488 (2,485,019) 1.62% 3.26% -1.64%
Maintenance receipts 12,472,373 12,472,373 8.25% 0.00% 8.25%
Maintenance disbursements (376,604) (376,604) -0.25% 0.00% -0.25%
-------------------------------------------- -------------------------------------------
Net maintenance 12,095,769 0 12,095,769 8.00% 0.00% 8.00%
-------------------------------------------- -------------------------------------------
Total cash collections 150,758,749 149,657,640 1,101,109 99.69% 98.96% 0.73%
-------------------------------------------- -------------------------------------------
CASH EXPENSES
Aircraft operating expenses (2,270,551) (5,057,565) 2,787,014 -1.50% -3.34% 1.84%
SG&A expenses
Aircraft servicer fees (4,369,088) (4,574,436) 205,348 -2.89% -3.02% 0.14%
Other (1,139,911) (2,100,000) 960,089 -0.75% -3.34% 0.63%
-------------------------------------------- -------------------------------------------
Sub-total (5,508,999) (6,674,436) 1,165,437 -3.64% -4.41% 0.77%
-------------------------------------------- -------------------------------------------
Total cash expenses (7,779,550) (11,732,001) 3,952,451 -5.14% -7.76% 2.61%
-------------------------------------------- -------------------------------------------
NET CASH COLLECTIONS
Total cash collections 150,758,749 149,657,640 1,101,109 99.69% 98.96% 0.73%
Total cash expenses (7,779,550) (11,732,001) 3,952,451 -5.14% -7.76% 2.61%
Movement in expense account (5,178,871) 0 (5,178,871) -3.42% 0.00% -3.42%
Interest payments (50,891,614) (90,302,909) 39,411,295 -33.65% -59.71% 26.06%
Swap receipts (payments) (38,973,348) 1,087,217 (40,060,565) -25.77% 0.72% -26.49%
-------------------------------------------- -------------------------------------------
Total 47,935,366 48,709,947 (774,581) 31.70% 32.21% -0.51%
-------------------------------------------- -------------------------------------------
Principal payments
A1 0 0 0 0.00% 0.00% 0.00%
A2 0 0 0 0.00% 0.00% 0.00%
A3 (42,602,884) (43,037,697) 434,813 -28.17% -28.46% 0.29%
B1 (2,237,405) (2,379,965) 142,560 -1.48% -1.57% 0.09%
B2 (3,095,077) (3,292,285) 197,208 -2.05% -2.18% 0.13%
C1 0 0 0 0.00% 0.00% 0.00%
C2 0 0 0 0.00% 0.00% 0.00%
D1 0 0 0 0.00% 0.00% 0.00%
D2 0 0 0 0.00% 0.00% 0.00%
-------------------------------------------- -------------------------------------------
Total (47,935,366) (48,709,947) 774,581 -31.70% -32.21% 0.51%
-------------------------------------------- -------------------------------------------
9
Notes:
The line item descriptions below should be read in conjunction with the actual
cash flows versus Assumed Case report provided above.
Gross lease revenue. Gross lease revenue refers to gross revenue based on the
assumptions in the Registration Statement.
Rental resets. Rental resets are a measure of the gain or loss in rental revenue
when the lease rates are different from those assumed in the Assumed Case,
including lease rate adjustments for changes in interest rates on floating rate
leases, seasonal adjustments in the monthly rental amount, lease extensions,
renewals with current lessees at the end of the lease term, or timing
differences between the Assumed Case and the actual rent payment due dates.
Contracted lease rentals. Contracted lease rentals represent the current
contracted lease rental rollout which equates to the Assumed Case Gross lease
revenue less adjustments for Rental resets.
Movement in current arrears balance. Movement in current arrears balance is the
total contracted lease rentals outstanding from current lessees at a given date
and excludes any amounts classified as bad debts.
Net stress-related costs. Net stress-related costs are a combination of all the
factors which can cause actual lease rentals received to differ from the
contracted lease rentals. The Assumed Case estimated net stress-related costs
based on a percentage of the sum of the Assumed Case Gross lease revenue and the
interest on the Gross lease revenue.
Bad debts. Bad debts are total contracted lease rentals in arrears, net of
security deposits drawn down, owed by lessees who have defaulted and which are
deemed irrecoverable. Rental arrears from non-accrual lessees are reclassified
to Bad Debts when the aircraft is redelivered from the lessee.
Aircraft on ground ("AOG"). AOG is defined as the Assumed Case Gross lease
revenue lost when an aircraft is off-lease and non-revenue earning.
Other leasing income. Other leasing income consists of miscellaneous income
received in connection with a lease other than contracted rentals, maintenance
receipts and security deposits, such as early termination payments or default
interest.
Net lease rentals. Net lease rentals are contracted lease rentals less any
movement in current arrears balance and net stress-related costs.
Investment income. Interest earned mainly relates to interest received on cash
balances held in the collection, expense, and certain lessee funded accounts.
Cash held in the collection account consists of the cash liquidity reserve
amount of $83 million, in addition to the intra-month cash balances for all the
rentals and maintenance payments collected prior to the monthly payment date.
The expense account contains cash set aside to pay for expenses which are
expected to be payable over the next five months. Lessee funded accounts consist
of cash security deposits.
10
Net maintenance. Net maintenance refers to maintenance reserve revenue received
less any maintenance reimbursements paid. The Assumed Case assumes that, over
time, maintenance revenue will equal maintenance expenditures. However, it is
unlikely that in any particular note payment period, maintenance revenue will
exactly equal maintenance expenses.
Aircraft operating expenses. Aircraft operating expenses include all operational
costs related to the leasing of an aircraft including costs of re-leasing,
repossession and other overhead costs.
Aircraft servicer fees. Aircraft servicer fees are amounts paid to the aircraft
servicer, GE Capital Aviation Services, Limited, in accordance with the terms of
the servicing agreement.
Other. Other relates to fees and expenses paid to and for other service
providers, including the administrative agent, capital markets advisor,
financial advisor, legal advisors, auditors, rating agencies and the trustees,
and other selling, general and administrative expenses.
Movement in expense account. Movement in expense account relates to increases or
decreases in the accrued expense amounts transferred into or out of the expense
account.
Interest payments. Interest payments represent the amount of interest paid on
LIFT's outstanding classes of Notes.
Swap receipts (payments). According to the terms of the interest rate swap
agreement, LIFT pays a fixed rate of interest on the notional amount of the swap
to the counterparty and in turn the counterparty pays LIFT a rate of interest on
the notional amount based on one-month LIBOR, which results in monthly net swap
payments paid or received.
11
III. Description of the Aircraft and Leases
The following tables set forth details of the 39 Initial Aircraft as of June 30,
2002. See "Management's Discussion and Analysis - Recent Developments" for
further information about events that have occurred subsequent to June 30, 2002.
The following table identifies the 39 aircraft by type of aircraft.
% of Portfolio by
Type of Number of Appraised Value as of
Manufacturer Aircraft Aircraft Body Type April 30, 2002
- ------------ -------- -------- --------- --------------
Boeing B767-300ER 5 Widebody 27.3%
B737-300 10 Narrowbody 18.8
B747-400 1 Widebody 9.0
B737-800 3 Narrowbody 8.9
B737-700 2 Narrowbody 4.8
B737-400 2 Narrowbody 3.0
B737-500 1 Narrowbody 1.8
Airbus A320-200 4 Narrowbody 11.2
McDonnell Douglas MD-82 9 Narrowbody 9.5
MD-11F 1 Freighter 4.6
MD-83 1 Narrowbody 1.1
-- -----
Total 39 100.0 %
All of the aircraft hold or are capable of holding a noise certificate issued
under Chapter 3 of Volume I, Part II of Annex 16 of the Chicago Convention or
have been shown to comply with the Stage 3 noise levels set out in Section 36.5
of Appendix C of Part 36 of the United States Federal Aviation Regulations.
The following table identifies the countries in which the lessees of the 39
aircraft are based, calculated as of June 30, 2002.
% of Portfolio by
Number of Appraised Value as of
Country Aircraft April 30, 2002
- ------- -------- --------------
United Kingdom.............................. 5 14.4%
Canada...................................... 2 11.4
Spain....................................... 7 10.7
Malaysia.................................... 1 9.0
China....................................... 5 8.8
United States............................... 3 6.6
South Korea................................. 2 6.1
France...................................... 3 6.0
Turkey...................................... 2 6.0
Russia...................................... 1 5.7
Indonesia................................... 3 3.8
Italy....................................... 1 2.9
India....................................... 1 2.5
Brazil...................................... 1 1.8
Off-Lease................................... 2 4.3
-- -----
Total....................................... 39 100.0%
12
The following table identifies the regions in which the 39 aircraft are based,
calculated as of June 30, 2002.
% of Portfolio by
Number of Appraised Value as of
Region Aircraft April 30, 2002
- ------ -------- --------------
Developed Markets
Europe................................. 16 34.0%
North America.......................... 5 18.0
Emerging Markets
Asia................................... 12 30.2
Africa, Europe & Other ................ 3 11.7
Latin America.......................... 1 1.8
Off-Lease................................... 2 4.3
-- -----
Total....................................... 39 100.0%
The following table identifies the lessees of the 39 aircraft, calculated as of
June 30, 2002.
% of Portfolio by
Number of Appraised Value as of
Lessee Aircraft April 30, 2002
- ------ -------- --------------
Air Canada Capital Ltd..................... 2 11.4%
Malaysian Airline System Berhad............ 1 9.0
China Eastern Airlines. ................... 5 8.8
Go Fly Limited............................. 3 6.4
Societe Air France......................... 3 6.0
Pegasus Hava Tasimaciligi A.S.............. 2 6.0
Air 2000 Limited........................... 1 5.9
Aeroflot - Russian Internatilna Airlines... 1 5.7
Spanair S.A................................ 5 5.1
Korean Airlines............................ 1 4.6
American Airlines.......................... 1 4.3
Volare Airelines SpA....................... 1 2.9
Futura..................................... 1 2.9
Iberworld Airlines, S.A.................... 1 2.7
Jet Airways................................ 1 2.5
P.T. Lion Mentari Airlines................. 2 2.3
easyJet Airline Co. Ltd.................... 1 2.1
Rio Sul, Servicos Aereso Regionais S.A..... 1 1.8
Asiana Airlines............................ 1 1.5
P.T. Garuda Indonesia...................... 1 1.5
America West Airlines, Inc. ............... 1 1.2
Delta Air Lines............................ 1 1.1
Off-Lease.................................. 2 4.3
-- -----
Total...................................... 39 100.0%
Total Number of Lessees: 22
13
The following table identifies the 39 Initial Aircraft by year of aircraft
manufacture. The average age of the 39 Initial Aircraft and the average age
weighted by value of the 39 Initial Aircraft as of June 30, 2002 were
approximately 7.12 and 5.25 years, respectively.
% of Portfolio by
Number of Appraised Value as of
Year of Manufacture Aircraft April 30, 2002
- ------------------- -------- --------------
1986....................................... 1 1.1%
1987....................................... 4 4.0
1988....................................... 1 1.1
1989....................................... 3 4.1
1990....................................... 4 4.3
1992....................................... 1 4.6
1993....................................... 1 1.3
1994....................................... 1 4.3
1997....................................... 2 3.8
1998....................................... 7 22.0
1999....................................... 11 37.5
2000....................................... 3 11.9
-- -----
Total...................................... 39 100.0%
14
Further particulars of the 39 aircraft, as of June 30, 2002 are contained in the
table below:
Appraised
Value as of
Country in which Aircraft Engine Serial Date of April 30, % of
Region Aircraft is Based Lessee Type Type No. Manufacture 2002 Total
- ------ ----------------- ------ ---- ---- --- ----------- ---- -----
Europe (Developed) ($000)
United Kingdom Air 2000 B767-300ER CF6-80C2-B7F 29618 5/00 $ 81,943 5.9%
France Air France B737-300 CFM56-3C1 28672 1/98 28,047 2.0
France Air France B737-300 CFM56-3C1 28673 2/98 27,993 2.0
France Air France B737-300 CFM56-3C1 28569 2/98 28,017 2.0
United Kingdom easyJet Airline B737-300 CFM56-3CI 29338 7/99 29,550 2.1
Spain Futura B737-800 CFM56-7B26 28592 5/99 40,837 2.9
United Kingdom Go Fly Limited B737-300 CFM56-3C1 28602 8/99 29,827 2.2
United Kingdom Go Fly Limited B737-300 CFM56-3C1 28606 10/99 30,150 2.2
United Kingdom Go Fly Limited B737-300 CFM56-3C1 28570 3/98 28,320 2.0
Spain Iberworld A320-200 CFM56-5B4 879 12/98 36,813 2.7
Spain Spanair MD82 JT8D-217A 49501 10/87 12,847 0.9
Spain Spanair MD82 JT8D-217A 49509 8/89 14,803 1.1
Spain Spanair MD82 JT8D-217A 49519 12/90 15,783 1.1
Spain Spanair MD83 JT8D-219 49578 3/88 14,947 1.1
Spain Spanair MD82 JT8D-217A 49507 10/87 12,910 0.9
Italy Volare A320-200 CFM56-5B4 1152 2/00 40,713 2.9
North America (Developed)
Canada Air Canada B767-300ER CF6-80C2-B6F 30108 11/99 79,763 5.7
Canada Air Canada B767-300ER CF6-80C2-B6F 30112 9/99 78,657 5.7
United States America West B737-300 CFM56-3B2 23384 8/87 15,920 1.2
United States American B767-300ER PW4060 26208 9/94 60,457 4.3
Airlines
United States Delta Air Lines B737-300 CFM56-3B2 23376 11/86 15,403 1.1
Asia (Emerging)
South Korea Asiana Airlines B737-400 CFM56-3C1 24469 7/89 20,904 1.5
China China Eastern MD82 JT8D-217A 49513 4/90 14,483 1.0
China China Eastern MD82 JT8D-217A 49515 10/90 14,603 1.1
China China Eastern MD82 JT8D-217A 49511 3/90 15,763 1.1
China China Eastern A320-200 CFM56-5B4 1093 10/99 39,087 2.8
China China Eastern A320-200 CFM56-5B4 1108 11/99 39,204 2.8
Indonesia Garuda Indonesia B737-400 CFM56-3C1 24512 9/89 20,990 1.5
India Jet Airways B737-700 CFM56-7B24 28609 11/99 34,160 2.5
South Korea Korean Airlines MD11F PW4460 48523 9/92 64,423 4.6
Indonesia Lion Mentari MD82 JT8D-217A 49419 8/87 13,250 1.0
Airlines
Indonesia Lion Mentari MD82 JT8D-217C 53147 8/93 18,387 1.3
Airlines
Malaysia Malaysian B747-400 PW4056 28427 3/98 125,753 9.0
Airlines System
Africa, Europe & Other (Emerging)
Russia Aeroflot B767-300ER CF6-80C2-B7F 30110 12/99 79,850 5.7
Turkey Pegasus B737-800 CFM56-7B26 28591 4/99 40,473 2.9
Turkey Pegasus B737-800 CFM56-7B26 28628 6/00 43,530 3.1
Latin America (Emerging)
Brazil Rio Sul B737-500 CFM56-3C1 28565 11/97 24,257 1.8
Off-Lease B737-300 CFM56-3C1 28671 11/97 27,430 2.0
Off-Lease B737-700 CFM56-7B24 28584 12/98 32,500 2.3
Total $ 1,392,747 100%
15
Aircraft on Ground
As of June 30, 2002 a B737-300 and a B737-700 aircraft with manufacture serial
number 28671 and 28584 were on the ground. The B737-700 aircraft is expected to
be delivered to a lessee based in Norway in August 2002. The B737-300 aircraft
is being remarketed for lease.
16