SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number 33-99970-01
---------
Airplanes Limited Airplanes U.S. Trust
Exact Name of Registrants as specified in memorandum of
association or trust agreement
Jersey, Channel Islands Delaware
(State or other jurisdiction of incorporation or organization)
7359 13-3521640
SIC Code (I.R.S. Employer Identification No.)
Airplanes Limited Airplanes U.S. Trust
22 Grenville Street 1100 North Market Street,
St. Helier Rodney Square North
Jersey, JE4 8PX Wilmington, Delaware
Channel Islands 19890-0001
(011 44 1534 609 000) (302-651-1000)
(Addresses and telephone numbers, including area codes,
of Registrants' principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Issuer Class December 31, 2001
Airplanes Limited Common Stock, $1.00 par value 30
Airplanes Limited and Airplanes U.S. Trust
Form 10-Q for the Three Month Period Ended December 31, 2001
Index
Part I. Financial Information Page No.
Item 1. Financial Statements (Unaudited) 3
- Unaudited Condensed Balance Sheets -
December 31, 2001 and March 31, 2001
- Unaudited Condensed Statements of Operations -
Three Months Ended December 31, 2001 and December 31, 2000
- Unaudited Condensed Statements of Operations -
Nine Months Ended December 31, 2001 and December 31, 2000
- Unaudited Condensed Statement of Comprehensive Income -
Three Months Ended December 31, 2001 and December 31, 2000
- Unaudited Condensed Statement of Comprehensive Income -
Nine Months Ended December 31, 2001 and December 31, 2000
- Unaudited Statements of Changes in Shareholders Deficit/Net
Liabilities - Nine Months Ended December 31, 2001 and
December 31, 2000
- Unaudited Condensed Statements of Cash Flows - Nine Months
Ended December 31, 2001 and December 31, 2000
- Notes to the Unaudited Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial 15
Condition and Results of Operations
- Introduction
- Results of Operations - Three Months Ended
December 31, 2001 compared with Three Months
Ended December 31, 2000
- Results of Operations - Nine Months Ended
December 31, 2001 Compared with
Nine Months Ended December 31, 2000
- Comparison of Actual Cashflows Versus
The 2001 Base Case for the Three Month
Period Ended January 15, 2002
Item 3. Quantitative and Qualitative Disclosures about Market Risks 50
Part II. Other Information
Item 1. Legal Proceedings 55
Item 6. Exhibits and Reports on Form 8 - K 55
Signatures
Index to Exhibits
Appendix 1 Airplanes Group Portfolio
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
AIRPLANES GROUP
UNAUDITED CONDENSED BALANCE SHEETS
March 31, December 31,
--------------------------------- --------------------------------
2001 2001
--------------------------------- --------------------------------
Airplanes Airplanes Airplanes Airplanes
Limited Trust Combined Limited Trust Combined
--------- ---------- -------- --------- --------- --------
($millions) ($millions)
ASSETS
Cash 191 6 197 136 6 142
Accounts receivable
Trade receivables 19 11 30 23 9 32
Allowance for doubtful debts (12) (7) (19) (13) (7) (20)
Amounts due from Airplanes Limited - 46 46 - 38 38
Net investment in capital and sales
type leases 7 - 7 - - -
Aircraft, net 2,543 209 2,752 2,182 152 2,334
Other assets 6 4 10 2 - 2
--------- --------- -------- --------- --------- --------
Total assets 2,754 269 3,023 2,330 198 2,528
========= ========= ======== ========= ========= ========
LIABILITIES
Accrued expenses and other liabilities 1,111 104 1,215 1,440 134 1,574
Amounts due from Airplanes Trust 46 - 46 38 - 38
Indebtedness 3,185 310 3,495 3,033 296 3,329
Provision for maintenance 233 13 246 245 13 258
Deferred income taxes 58 40 98 53 34 87
--------- --------- -------- --------- --------- --------
Total liabilities 4,633 467 5,100 4,809 477 5,286
--------- --------- -------- --------- --------- --------
Net liabilities (1,879) (198) (2,077) (2,479) (279) (2,758)
--------- --------- -------- --------- --------- --------
2,754 269 3,023 2,330 198 2,528
========= ========= ======== ========= ========= ========
See notes to unaudited Condensed Financial Statements
3
AIRPLANES GROUP
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended December 31,
----------------------------------------------------------------------
2000 2001
--------------------------------- --------------------------------
Airplanes Airplanes Airplanes Airplanes
Limited Trust Combined Limited Trust Combined
--------- ---------- -------- --------- --------- --------
($millions) ($millions)
Revenues
Aircraft leasing 107 11 118 89 7 96
Aircraft sales 7 6 13 1 - 1
Expenses
Cost of Aircraft sold (3) (5) (8) - - -
Impairment Provision - - - (244) (47) (291)
Depreciation and amortisation (39) (3) (42) (37) (4) (41)
Net interest expense (125) (12) (137) (142) (14) (156)
Provision for maintenance - - - - - -
Bad and doubtful debts - (1) (1) 2 - 2
Provision for loss making leases, net (4) - (4) 5 (1) 4
Other lease costs (19) - (19) (17) (1) (18)
Selling, general and administrative
expenses (8) (1) (9) (9) (1) (10)
--------- --------- -------- --------- --------- --------
Operating (loss) before
provision for income taxes (84) (5) (89) (352) (61) (413)
Income tax benefit/(charge) 1 - 1 1 6 7
--------- --------- -------- --------- --------- --------
Net (loss) (83) (5) (88) (351) (55) (406)
========= ========= ======== ========= ========= ========
See notes to unaudited Condensed Financial Statements
4
AIRPLANES GROUP
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
Nine Months Ended December 31,
----------------------------------------------------------------------
2000 2001
--------------------------------- --------------------------------
Airplanes Airplanes Airplanes Airplanes
Limited Trust Combined Limited Trust Combined
--------- ---------- -------- --------- --------- --------
($millions) ($millions)
Revenues
Aircraft leasing 324 32 356 298 24 322
Aircraft sales 8 6 14 4 - 4
Expenses
Cost of Aircraft sold (4) (5) (9) (3) - (3)
Impairment Provision - - - (244) (47) (291)
Depreciation and amortisation (116) (12) (128) (113) (11) (124)
Net interest expense (360) (36) (396) (409) (41) (450)
Provision for maintenance - - - - - -
Bad and doubtful debts (5) (3) (8) - (1) (1)
Provision for loss making leases, net (11) - (11) (10) (1) (11)
Other lease costs (58) (2) (60) (53) (4) (57)
Selling, general and administrative
expenses (24) (2) (26) (25) (2) (27)
--------- ---------- -------- -------- -------- --------
Operating (loss) before
provision for income taxes (246) (22) (268) (555) (83) (638)
Income tax benefit/(charge) 3 1 4 3 7 10
--------- ---------- -------- -------- -------- --------
Net (loss) (243) (21) (264) (552) (76) (628)
========= ========== ======== ======== ======== ========
See notes to unaudited Condensed Financial Statements
5
AIRPLANES GROUP
UNAUDITED CONDENSED STATEMENT OF COMPREHENSIVE INCOME/(LOSS)
Three Months Ended December 31,
----------------------------------------------------------------------
2000 2001
--------------------------------- --------------------------------
Airplanes Airplanes Airplanes Airplanes
Limited Trust Combined Limited Trust Combined
--------- ---------- -------- --------- --------- --------
($millions) ($millions)
Loss for the period (83) (5) (88) (351) (55) (406)
Other Comprehensive Loss
- Net change in cashflow hedges - - - 8 1 9
--------- ---------- --------- --------- -------- --------
Comprehensive Loss (83) (5) (88) (343) (54) (397)
========= ========== ========= ========= ======== ========
See notes to unaudited Condensed Financial Statements
6
AIRPLANES GROUP
UNAUDITED CONDENSED STATEMENT OF COMPREHENSIVE INCOME/(LOSS)
Nine Months Ended December 31,
----------------------------------------------------------------------
2000 2001
--------------------------------- --------------------------------
Airplanes Airplanes Airplanes Airplanes
Limited Trust Combined Limited Trust Combined
--------- ---------- -------- --------- --------- --------
($millions) ($millions)
Loss for the period (243) (21) (264) (552) (76) (628)
Other Comprehensive Loss
- Cumulative effect of accounting changes - - - (30) (3) (33)
- Net change in cashflow hedges - - - (18) (2) (20)
---------- ---------- --------- --------- --------- --------
Comprehensive Loss (243) (21) (264) (600) (81) (681)
========== ========== ========= ========= ========= ========
See notes to unaudited Condensed Financial Statements
7
AIRPLANES GROUP
UNAUDITED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT/NET LIABILITIES
Nine Months Ended December 31, 2001 and December 31, 2000
Airplanes
Airplanes Limited Trust Combined
----------------------------------------- ----------- -------------
Shareholders
Share Net Shareholders' Net Deficit/Net
Capital Liabilities Deficit Liabilities Liabilities
----------------------------------------- ----------- ------------
($millions) ($millions) ($millions) ($millions) ($millions)
Balance at March 31, 2000 - 1,546 1,546 181 1,727
Net loss for the period 243 243 21 264
------- --------- ---------- ---------- ---------
Balance at December 31, 2000 - 1,789 1,789 202 1,991
======= ========= ========== ========== =========
Balance at March 31, 2001 - 1,879 1,879 198 2,077
Net loss for the period - 552 552 76 628
Other Comprehensive Loss - 48 48 5 53
------- --------- ---------- ---------- ---------
Balance at December 31, 2001 - 2,479 2,479 279 2,758
======= ========= ========== ========== =========
See notes to unaudited Condensed Financial Statements
8
AIRPLANES GROUP
UNAUDITED CONDENSED STATEMENTS OF CASHFLOWS
Nine Months Ended December 31,
----------------------------------------------------------------------
2000 2001
--------------------------------- --------------------------------
Airplanes Airplanes Airplanes Airplanes
Limited Trust Combined Limited Trust Combined
--------- ---------- -------- --------- --------- --------
($millions) ($millions)
Cash flows from operating activities
Net loss (243) (21) (264) (552) (76) (628)
Adjustment to reconcile (net loss)
to net cash provided by operating
activities:
Depreciation and impairment 116 12 128 357 58 415
Aircraft maintenance, net (14) (2) (16) 13 - 13
Profit on disposal of aircraft (4) (1) (5) (1) - (1)
Deferred income taxes (3) (1) (4) (3) (7) (10)
Provision for loss making leases 11 - 11 10 1 11
Provision for bad debts 5 3 8 - 1 1
Accrued and deferred interest expense 212 21 233 282 28 310
Changes in operating assets & liabilities:
Accounts receivable - (6) (6) (5) 2 (3)
Intercompany account movements 11 (11) - (7) 7 -
Other accruals and liabilities (9) 1 (8) (10) (3) (13)
Other assets - 8 8 4 4 8
-------- --------- -------- --------- -------- --------
Net cash provided by operating activities 82 3 85 88 15 103
======== ========= ======== ========= ======== ========
Cash flows from investing activities
Purchase/Sale of aircraft 4 7 11 2 - 2
Capital and sales type leases 4 - 4 7 - 7
Net cash provided by
-------- --------- -------- --------- -------- --------
investing activities 8 7 15 9 - 9
======== ========= ======== ========= ======== ========
Cash flows from financing activities
Decrease in indebtedness (103) (10) (113) (152) (15) (167)
-------- --------- -------- --------- -------- --------
Net cash used in financing activities (103) (10) (113) (152) (15) (167)
======== ========= ======== ========= ======== ========
Net decrease in cash (13) - (13) (55) - (55)
Cash at beginning of period 197 6 203 191 6 197
-------- --------- -------- --------- -------- --------
Cash at end of period 184 6 190 136 6 142
======== ========= ======== ========= ======== ========
Cash paid in respect of:
Interest 151 15 166 128 14 142
======== ========= ======== ========= ======== ========
See notes to unaudited Condensed Financial Statements
9
Airplanes Group
Notes to the Unaudited Condensed Financial Statements
1. Basis of Preparation
The accompanying unaudited condensed financial statements of Airplanes Limited,
a special purpose company formed under the laws of Jersey, Channel Islands
("Airplanes Limited"), and Airplanes U.S. Trust, a trust formed under the laws
of Delaware ("Airplanes Trust" and together with Airplanes Limited, "Airplanes
Group") and the combined unaudited condensed balance sheets, statements of
operations, statements of comprehensive income, statement of changes in
shareholders deficit/net liabilities and statements of cash flows of Airplanes
Group (together the "financial statements") have been prepared on a going
concern basis in conformity with United States generally accepted accounting
principles. The financial statements are presented on a historical cost basis.
The accompanying financial statements for Airplanes Limited and Airplanes Trust
reflect all adjustments which in the opinion of management are necessary to
present a fair statement of the information presented as of December 31, 2001
and for the three and nine month periods ending December 31, 2001 and December
31, 2000. Such adjustments are of a normal, recurring nature. The results of
operations for the three and nine month periods ended December 31, 2001 are not
necessarily indicative of the results to be expected for the full year.
References to Airplanes Group in these notes to the unaudited condensed
financial statements relate to Airplanes Limited and Airplanes Trust on a
combined or individual basis as applicable and in this respect, we use "we",
"us" and "our" to refer to Airplanes Group and its subsidiaries and Airplanes
Pass Through Trust.
Recent Events
The effects of the events of September 11, 2001 together with the downturn in
the world economic conditions which was already evident, have included, among
other things, a reduction in demand for air travel leading to a contraction of
operations by airlines including, grounding of aircraft by airlines, bankruptcy
and/or consolidation of airlines, fluctuations in the price of fuel, increased
costs due to new security measures adopted by the relevant aviation
authorities, and increased insurance premiums required by the insurance
markets. In particular, many of our lessees have made requests for amongst
other things, rental reductions and deferrals, early return of aircraft and
other cashflow alleviation measures. In particular, there has been a sharp
increase in the availability of aircraft for lease leading to significant over
capacity, increased downtime, a decline in lease rates and a fall in the
realisable value for aircraft in open market sale transactions. The effect of
these events has been reflected in our results to December 31, 2001 by way of
significant impairment provisions with respect to the carrying value of certain
of our aircraft and reduced rental income. Future results will be affected by
the restructurings recently agreed by the servicer as well as those which are
currently being negotiated by the servicer, increased downtime and decreased
lease rates and sales prices achievable for aircraft as a result of the
oversupply of aircraft.
10
We have reviewed our fleet for impairment in accordance with Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long Lived Assets ("SFAS 144"). Under SFAS 144, Airplanes Group's
policy is to recognize an impairment charge when an asset's carrying value is
greater than its net undiscounted expected future cash flows. The amount of the
charge is the difference between the asset's carrying value and its fair market
value. We have determined that the estimated net future cash flows to be
generated by certain of our aircraft, in particular our B767, F100 and DC8-71F
fleets, will be less than their carrying value. These aircraft have been
written down to their fair value, as estimated based on the expected net
discounted future cash flows to be generated by the aircraft over their
estimated remaining lives. Accordingly an impairment charge of $291 million
(Airplanes Limited $244 million; Airplanes Trust $47 million) has been
recognized during the quarter.
At December 31, 2001 Airplanes Group had contracted to receive the following
operating lease rentals:
Period ending March 31, Airplanes Airplanes
Limited Trust
$M $M
2002 74 5
2003 265 17
2004 171 14
2005 106 7
2006 67 4
Thereafter 53 13
--- --
726 60
=== ==
The above represents a significant reduction in the contracted operating lease
rentals disclosed in our Report on Form 10K for the year ended 31 March, 2001.
The combined total has reduced by a total of $193 million. However, the
servicer continues to re-negotiate with certain lessees and the above minimum
contracted rentals will change further.
As a result of the significant downturn in the market, causing a significant
reduction in our cashflows and the decline in our appraised values, there will
be further redirection of available cashflows towards the senior note classes,
both in the near term and possibly also in the long term. These factors will
give rise to the possibility of us not being able to pay scheduled interest on
certain note classes on a monthly basis and not being able to repay in full,
the principal on certain note classes by the legal final maturity date.
On December 12, 2001 Moody's announced a downgrade of our class C notes from
rating Baa2 to Ba3, and a downgrade of the class D notes from Ba2 to B2. The
notes are no longer on credit watch negative by Moodys. On December 21, 2001
Fitch downgraded the class C notes from BBB to BB and the class D notes from BB
to B. They have also left all classes on credit watch negative.
11
New Accounting Pronouncement
Derivative Instruments and Hedging Activities:
On April 1, 2001 we adopted Statement of Financial Accounting Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Certain Hedging Activities"
and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an amendment of SFAS No. 133". As a result, all derivatives
are now recognized on the balance sheet at their fair value. All derivatives
are designated as either a hedge of the fair value of a recognized asset or
liability or of an unrecognized firm commitment ("fair value" hedge), a hedge
of a forecasted transaction or of the variability of cash flows to be received
or paid related to a recognized asset or liability ("cash flow" hedge), a
foreign-currency fair-value or cash-flow hedge ("foreign currency" hedge) or a
"held for trading" instrument. All of our interest rate swaps are currently
designated as cashflow hedges while our swaptions are designated as trading
instruments.
We have a detailed hedging policy, which has been approved by the Board of
Directors and Controlling Trustees and the Rating Agencies. As part of this
hedging policy we have formally documented all relationships between hedging
instruments and hedged items as well as our risk-management objective and
strategy for undertaking various hedge transactions.
This process includes linking all derivatives that are designated as cashflow
hedges to specific liabilities on the balance sheet. We formally assess, both
at the hedge's inception and on an ongoing basis, whether the derivatives that
are used in hedging transactions are highly effective in offsetting changes in
cash flows of hedged items.
Changes in the fair value of a derivative that is highly effective and that is
designated and qualifies as a cash-flow hedge are included in the "Net change
in cashflow hedges" on page 7, until earnings are affected by the variability
in cash flows of the designated hedged item.
Hedge accounting is discontinued prospectively when it is determined that the
derivative is no longer highly effective in offsetting changes in the cash
flows of the hedged item, the derivative expires or is sold, terminated, or
exercised, or it is determined that designation of the derivative as a hedging
instrument is no longer appropriate. In all situations in which hedge
accounting is discontinued, we continue to carry the derivative at its fair
value on the balance sheet, and recognize any changes in its fair value in
earnings. In all situations where derivatives are designated as trading
instruments, they are carried at fair value on the balance sheet and any
changes in fair value are recognized in earnings.
The Statement of Comprehensive Income shows the opening effect as at April 1,
2001 of the adoption of FAS 133 being $(33) million i.e. if sold would result
in a loss of $33 million. The net change in the value of cashflow hedges for
the nine months ended December 31, 2001 was a further decrease of $20 million.
12
In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-lived Assets," which
supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-lived Assets to be disposed of". SFAS 144 established additional
criteria to determine when a long-lived asset is held for sale. It also
broadens the definition of "discontinued operations", but does not allow for
the accrual of future operating losses, as was previously permitted. SFAS 144
is effective for fiscal years beginning after December 15, 2001, and interim
periods within those fiscal years, with early application encouraged. The
provisions of SFAS 144 are generally to be applied prospectively. We have
adopted SFAS 144 as of the beginning of the year ending March 31, 2002 and the
provisions of SFAS 144 were applied in the determination of the impairment
charge we incurred in the third quarter.
2. Securitization Transaction
On March 28, 1996 (the "Closing Date"), debis AirFinance Ireland plc ("debis
AirFinance Ireland") (formerly AerFi Group plc) and its subsidiary undertakings
(collectively "debis AirFinance") refinanced on a long-term basis certain
indebtedness due to commercial banks and other senior secured lenders. The
refinancing was effected through a major aircraft securitization transaction
(the "Transaction").
Under the terms of the Transaction, the following special purpose vehicles were
formed: Airplanes Limited, a special purpose company formed under the laws of
Jersey, Channel Islands, and Airplanes U.S. Trust, a trust formed under the
laws of Delaware. Airplanes Group acquired directly or indirectly from debis
AirFinance a portfolio of 229 commercial aircraft and related leases. The
Transaction was effected by a sale to Airplanes Limited and Airplanes Trust of
100% of the stock of the existing subsidiaries of debis AirFinance that owned
and leased the aircraft.
Simultaneously with such transfers, we issued notes of $4,048 million in
aggregate principal amount in four classes: class A, class B, class C and class
D, with approximately 90% of the principal amount of the notes in each class
being issued by Airplanes Limited and approximately 10% by Airplanes Trust. We
also issued class E notes of $604 million which are subordinate to the A - D
notes and these class E notes were acquired by debis AirFinance as part
consideration for the transfer to us of the aircraft and certain related lease
receivables. Of the $604 million class E notes issued, approximately $13
million were subsequently cancelled on July 30, 1996 under the terms of the
Transaction.
On March 16, 1998, we completed a refinancing of $2,437 million of class A and
class B notes. On November 20, 1998, debis AirFinance Ireland and its
subsidiary, debis AirFinance Inc (formerly AerFi, Inc.) transferred their class
E notes to General Electric Capital Corporation.
On March 15, 2001, we completed a refinancing of $750 million of class A notes.
Indebtedness at December 31, 2001 represents the aggregate of the outstanding
class A - D notes and class E notes (net of approximately $0.2 million of
discounts on issue and net of $13 million of class E notes subsequently
canceled as referred to above). Airplanes Limited and Airplanes Trust have each
fully and unconditionally guaranteed each others' obligations under the
relevant notes (the "Guarantees").
13
The accompanying financial statements of Airplanes Limited and Airplanes Trust
(pages 3 to 14) have been prepared in accordance with United States generally
accepted accounting principles for interim financial information and in
accordance with the requirements of the Report on Form 10-Q. Consequently, they
do not include all the disclosure normally required by United States generally
accepted accounting principles. For further information regarding Airplanes
Group and its financial condition, results of operations and cash flows, refer
to the audited financial statements and notes thereto included in Airplanes
Group's annual Report on Form 10-K for the year ended March 31, 2001,
previously filed with the Securities and Exchange Commission.
14
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
Airplanes Limited is a limited liability company formed under the laws of
Jersey, Channel Islands. Airplanes U.S. Trust is a Delaware business trust.
"Airplanes Group" refers to Airplanes Limited and Airplanes Trust, and in this
report, we use "we", "us" and "our" to refer to Airplanes Group and its
subsidiaries and Airplanes Pass Through Trust. We are in the business of
leasing aircraft to aircraft operators around the world. At December 31, 2001,
we owned 188 aircraft, 182 of which were on lease to 64 lessees in 35
countries.
On March 28, 1996, we established eight separate pass through trusts to issue
and sell $4,048 million in aggregate principal amount of subclass A-1, A-2,
A-3, A-4 and A-5 and class B, C and D pass through certificates in an
underwritten offering. We used the proceeds from this offering, together with
the proceeds from the sale of the class E notes of Airplanes Limited and
Airplanes Trust to debis AirFinance Ireland plc (then known as GPA Group plc)
to acquire a portfolio of 229 aircraft from debis AirFinance Ireland and its
subsidiaries. We use the rental payments that we receive from leasing the
aircraft to pay interest and principal on this debt. On March 16, 1998, we
established four additional pass through trusts to issue and sell $2,437
million in aggregate principal amount of subclass A-6, A-7 and A-8 and class B
certificates in connection with the refinancing of our subclass A-1, A-2 and
A-3 and class B certificates. On November 20, 1998, GE Capital acquired a
majority of the class E notes from debis AirFinance Ireland (then known as
AerFi Group) and its subsidiaries. On that date, a subsidiary of debis
AirFinance Ireland also granted GE Capital an option to acquire the residual
interest in Airplanes Trust. The subclass A-5 certificates were fully repaid as
of May 15, 1998.
We established a new pass through trust on March 15, 2001 to issue and sell
$750 million in aggregate principal amount of subclass A-9 certificates which
rank equally in right of payment with our outstanding subclass A-6 and A-8
certificates. We used the proceeds from this offering to refinance our subclass
A-4 and A-7 certificates and the corresponding subclass A-4 and A-7 notes. On
May 30, 2001 we consummated an exchange offer under which the subclass A-9
certificates were exchanged for certificates which are registered with the
Securities and Exchange Commission. The registration statement filed by us in
connection with the exchange offer went effective on April 26, 2001.
The discussion and analysis which follows is based primarily on the combined
operating results of Airplanes Limited and Airplanes Trust and not on their
results reported as individual entities. It should be noted, however, that the
notes and the Guarantees comprise obligations of two different legal entities
owning different assets. The Directors of Airplanes Limited and the Controlling
Trustees of Airplanes Trust believe that a combined discussion is the most
appropriate basis of presentation because:
o Airplanes Limited and Airplanes Trust are not intended to be regarded
as separate businesses but rather on the basis of one combined
aircraft fleet.
o Each of Airplanes Limited and Airplanes Trust has fully and
unconditionally guaranteed the performance of the other under their
respective notes.
15
The notes and Guarantees have been structured to ensure that no payments are
made on a junior class of notes of Airplanes Limited or Airplanes Trust, as the
case may be, before any amounts due and payable on a more senior class of notes
of Airplanes Limited or Airplanes Trust, respectively, are paid pursuant to the
Guarantees.
General
Substantially all of our business consists of aircraft operating lease
activities. However, we may also engage in aircraft sales subject to certain
limitations and guidelines. Our revenues and operating results are determined
by a number of significant factors including (i) trading conditions in the
civil aviation industry, and in particular, the market for aircraft on
operating leases, (ii) the mix, relative age and popularity of the various
aircraft types in the portfolio of aircraft owned by us and (iii) our financial
resources and liquidity position relative to our competitors who may possess
substantially greater financial resources.
This quarterly Report on Form 10Q contains forward looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. These
statements involve risks and uncertainties. Statements in this document which
are not historical facts are hereby identified as "forward-looking statements"
for the purpose of the safe harbour provided by Section 21E of the Securities
Exchange Act of 1934. In most cases, you can identify these forward looking
statements by such terms as "may", "should", "expect", "plan", "believe",
"estimate", "potential", "continue" or similar terms that relate to the future
or express uncertainty. Our actual results and business experience could differ
materially from those anticipated in these forward looking statements. In
evaluating these statements, you should specifically consider various factors,
including risk factors disclosed in our Annual Report on Form 10-K for the
fiscal year ended March 31, 2001.
Recent Developments
During the current financial year there has been a downturn in the world
economic climate with a consequential negative impact on the operating
conditions in the world aviation industry. On September 11, 2001, terrorists
hijacked and crashed four United States commercial aircraft causing significant
loss of life, property damage and economic disruption. As a result, air travel
in the United States was suspended for several days. The full effect that these
terrorist attacks, the fallout since then and the subsequent military action in
Afghanistan may have for the aviation industry over the longer term is not yet
fully known. The pre-existing economic downturn has been exacerbated by the
events of September 11 in the U.S. and the economic and political fall out
since then. Subsequent to these events, two significant European carriers
(Swissair and Sabena) filed for bankruptcy and major American carriers
announced very large financial losses.
The effects of the events of September 11, together with the downturn in the
world economic conditions which was already evident, have included, among other
things, a reduction in demand for air travel, leading to a contraction of
operations by airlines including grounding of aircraft by airlines, bankruptcy
and/or consolidation of airlines, fluctuations in the price of fuel, increased
costs due to new security measures adopted by the relevant aviation
authorities, and increased insurance premiums required by the insurance
markets. In particular, airlines worldwide are currently experiencing
difficulties in maintaining war insurance cover in the amounts required under
their leases with us and other lessors. While these insurance issues have been
mitigated in certain jurisdictions by a number of temporary government schemes,
in
16
the absence of longer term satisfactory solutions on this matter, it may be
necessary for certain aircraft to be grounded.
These events have been reflected in our results for the three and nine month
periods ended December 31, 2001, by way of reduced lease rentals and impairment
provisions in respect of the carrying value of certain of our aircraft. The
impairment provision of $291 million relates primarily to three aircraft types
(B767s, F100s and DC8-71Fs) and reflects poor perceived future lease prospects
for these aircraft. The reduced rentals are a result of a number of our lessees
experiencing financial difficulties and having made approaches to the servicer
requesting, amongst other things, rental holidays, rental restructurings, the
early return of aircraft and a number of other measures, all of which are
designed to ensure the continued survival of these lessees in this extremely
difficult business environment.
Rental restructurings typically involve the rescheduling of rental payments
over a specified period and/or the reduction of current rentals usually in
return for extensions of the relevant leases. These arrangements can also
include forgiveness of amounts in respect of past due rents. While the servicer
attempts to limit concessions, the current worldwide commercial aircraft market
is characterized not only by a large number of weak lessees, but also by
overcapacity of available aircraft in every aircraft category and restructuring
of leases is often the only way to keep our aircraft in use and earning
revenues.
These conditions, the scope and the duration of which cannot be predicted at
this time, are having a material adverse impact on the financial condition of
certain of our lessees and their ability to perform their obligations under
their leases. There has been reduced demand for our aircraft which is impacting
our ability to re-lease aircraft on a timely basis at favorable rates. These
factors are also causing a significant reduction in our cashflows which will
adversely affect our ability to make payments on the notes, including the
timing of principal and interest payments. In addition, as a result of the
significant downturn in the aviation market, there has been a decline of
10.15%, being $143m greater than the decline assumed under the terms of the
notes, in the appraised value of our fleet in the year to January 31, 2002 (see
Item 2 - Comparison of Actual Cashflows versus the 2001 Base Case) and this
will cause the further redirection of available cashflows towards the senior
note classes, both in the near term and possibly also in the longer term. This
combined with the reduction in operating cashflows will give rise to the
possibility of us not being able to pay scheduled interest on certain note
classes on a monthly basis and not being able to repay in full, the principal
on certain note classes by the legal final maturity date. As a consequence of
these adverse economic, political and trading conditions, we expect to perform
worse than the 2001 Base Case assumptions as set out in the offering memorandum
issued by Airplanes Group on March 8, 2001. In addition, in light of the age of
our fleet, should the oversupply of aircraft continue in the longer term,
certain of our aircraft may become obsolete significantly earlier than the
useful life expectancy assumed in the 2001 Base Case assumptions.
The events of September 11, 2001 and the subsequent fallout since then have led
to a number of announcements by the rating agencies. On September 20, 2001,
Fitch announced that it was placing all structured aircraft securities
including the Airplanes Group notes on ratings watch negative following the
terrorist attacks of September 11, 2001. Standard & Poor's, in a release dated
September 27, 2001, placed the Airplanes Group class C and class D notes on
credit watch with negative implications. On September 21, 2001 Moody's placed
the Airplanes
17
Group class D notes on watch for possible downgrade and on October 30, 2001
Moody's announced that it was also placing the Airplanes Group class C notes on
watch for possible downgrade.
On December 12, 2001 Moody's announced a downgrade of our class C notes from
rating Baa2 to Ba3 and a downgrade of the class D notes from Ba2 to B2. The
Airplanes Group notes are no longer on credit watch negative by Moodys. On
December 21, 2001 Fitch downgraded the class C notes from BBB to BB and the
class D notes from BB to B. They have also left all classes on credit watch
negative.
At December 31, 2001, we had fifty six aircraft scheduled to be remarketed
before December 31, 2002. These comprise seven B737 400s / 500s, six
B727/B737-200As, eleven DHC8s, six MD83s, one MD11, five DC8s, two B767s, one
A300, one A320, three Metro IIIs, ten DC9s, two ATR42s and one B757-200.
Furthermore, in light of existing negotiations with certain lessees, we expect
we will also experience early redeliveries of aircraft. As a result of the
current over supply of aircraft in the market place, we will experience
difficulties in placing certain of these aircraft. To the extent that we suffer
significant delays in placing these aircraft, we will incur substantial
downtime and new lease rates are likely to be lower, and in some cases
materially lower, than lease rates applicable to the current lease.
The Lessees
Europe:
At December 31, 2001 we leased 53 aircraft which represented 32.02% of our
portfolio by appraised value at January 31, 2002 to operators in Europe.
In the three months ended December 31, 2001, a Czech Republic lessee of one
B737-400 aircraft, representing 0.84% of our portfolio by apprised value at
January 31, 2002 was granted rental concessions under its lease agreement. The
rental was changed from a fixed rental to a power by the hour (PBTH) rental for
six months with a minimum rental 60% below the previous fixed rental.
One Dutch lessee of seven DHC8-300 aircraft, representing 1.68% of our
portfolio by appraised value at January 31, 2002, following the cancellation of
certain contracts, has grounded four of the aircraft. The lessee continues to
meet its obligations under the leases and the servicer is in discussions
regarding the possible extension of some of the aircraft.
During the three month period ended December 31, 2001 a Turkish lessee of five
B737-400 aircraft and two B737-500 aircraft, representing 5.56% of our
portfolio by appraised value at January 31, 2002, signed a letter of intent to
extend the leases in respect of six of the aircraft, for an average of 23
months from lease expiry at rates approximately 30% below the current rentals.
One Italian lessee of two B737-300 aircraft and two B737-400 aircraft at
December 31, 2001 representing 3.08% of our portfolio by appraised value at
January 31, 2002, took delivery of the two B737-400 aircraft during the three
month period ended December 31, 2001. In conjunction with this delivery the
lease rentals on the B737-300 aircraft were reduced by 14% for the remaining
period of the leases.
18
As of December 31, 2001, one Spanish lessee, representing 3.33% of our
portfolio by appraised value at January 31, 2002, following negotiations with
the servicer had signed a restructuring of its payment obligations under its
leases with us, which includes an extension of certain of the leases to
compensate for a reduction in lease rentals of approximately 15%. Further
amendments to this restructuring, including further rental reductions for the
winter period, have also been agreed.
At December 31, 2001, one French lessee representing 0.62% of our portfolio by
appraised value as of January 31, 2002, following a filing for protection from
its creditors, was in arrears. The servicer is discussing a potential
restructuring of the lease with the lessee.
One Macedonian former lessee of one MD83 aircraft representing 0.48% of our
portfolio by appraised value as of January 31, 2002, agreed to the early
redelivery of the aircraft during the three month period ended December 31,
2001.
One lessee of two B737-200A aircraft in Kazakhstan, representing 0.23% of our
portfolio by appraised value as of January 31, 2002, was in arrears at December
31, 2001. The servicer is in discussions with the lessee regarding the possible
early redelivery of one aircraft and the extension of the lease on the second
aircraft.
At December 31, 2001 the servicer had concluded discussions with one Turkish
lessee of one A300 aircraft, representing 0.41% of our portfolio by appraised
value as of January 31, 2002, regarding payment arrears, which resulted in a
deferral of obligations which is to be repaid over a period of 10 months and a
change from a fixed rental to a rental based on aircraft usage.
United States
At December 31, 2001 we leased 26 aircraft representing 11.96% of our portfolio
by appraised value as of January 31, 2002, to operators in the United States.
One US lessee leases ten DC8-71F aircraft, representing 4.12% of our portfolio
by appraised value at January 31, 2002. The servicer, following discussions
with the lessee, has negotiated an extension of the leases in respect of seven
of the aircraft for an average period of 21 months with a reduction of
approximately 32% in lease rentals. Two aircraft will be returned, 15 months
before the original expiry and one lease remains unchanged.
On August 13, 2001, a US lessee of three DC8-71F freighter aircraft,
representing 1.45% of our portfolio by appraised value as of January 31, 2002
announced that it was suspending flight operations as a result of safety
concerns with the aircraft. The airline has continued to meet its obligations
under the leases.
At December 31, 2001 the servicer was in discussions with one US lessee of two
B737-200A aircraft, representing 0.3% of our portfolio by appraised value at
January 31, 2002, regarding the lessee's arrears. The lessee has sought a
deferral of repayments and a reduction in rentals. The assessment of the
lessee's ability to perform under a restructuring may lead to the early
redelivery of these aircraft.
19
Latin America
At December 31, 2001, we leased 60 aircraft representing 32.02% of our
portfolio by appraised value as of January 31, 2002, to operators in Latin
America, of which 16 aircraft representing 11.82% of the portfolio by appraised
value were leased to operators in Brazil. Since 1999, Brazil experienced
significant downturns in its economy and financial markets, including large
decreases in financial asset prices and dramatic decreases in the value of its
currency. General deterioration in the Latin American economy, especially in
Brazil, will mean that lessees may be unable to generate sufficient revenues to
make rental payments under the leases.
The Brazilian Real and Colombian Peso may weaken further resulting in
difficulties for lessees to make rental payments in US dollars, which would
lead to a material decrease in our leasing revenues, and an increase in default
related costs.
Economic volatility may increase in these and other emerging markets in the
aftermath of the events of September 11, 2001, which may cause further
difficulties for our lessees.
The servicer is currently in discussions with a Brazilian lessee regarding its
obligations under its leases. The lessee of three MD11 aircraft, representing
5.70% of our portfolio by appraised value as of January 31, 2002, due to
trading difficulties, is currently paying 50% of its obligations as they fall
due. Discussions are being held regarding a restructuring which is likely to
include rental reductions (including some forgiveness of past due amounts)
coupled with extensions of the leases.
A second Brazilian lessee of eight F100 aircraft representing 2.74% of our
portfolio by appraised value as of January 31, 2002, has signed a letter of
intent which provides for rental deferrals of 35% to 50% for the period to
December 2002, with repayment before the expiry of the current leases.
One Mexican lessee of eight F100 aircraft representing 2.89% of our portfolio
by appraised value as of January 31, 2002 has signed a letter of intent to
extend the leases for an average period of 24 months from current expiry with a
reduction in rentals of approximately 41% with effect from October 2001.
The servicer is currently in discussions with a Mexican lessee of six DC9
aircraft, two MD82 aircraft and one MD87 aircraft, representing 1.75% of our
portfolio by appraised value as of January 31, 2002 with regard to extending
the leases in respect of such aircraft at reduced rentals which would become
effective immediately.
An Argentinean lessee of two B737-200A aircraft representing 0.24% of our
portfolio by appraised value as of January 31, 2002, filed for protection from
its creditors on May 17, 2001. The lessee is suffering significant competitive
pressures and is also being impacted by the wider problems affecting the
Argentinean economy. The servicer has issued default notices and is pursuing
early return of the aircraft through the local courts.
At December 31, 2001, we leased ten aircraft, representing 6.55% of our
portfolio by appraised value at January 31, 2002 to three Colombian lessees.
Colombia has recently suffered as a result of the deterioration in the value of
the Colombian Peso and the resulting negative impact
20
on the Colombian economy. Continued weakness in the value of the Colombian
Peso, as well as general deterioration in the Colombian economy, may mean that
these lessees will be unable to generate sufficient revenues in the Colombian
currency to pay the US dollar denominated rental payments under the leases.
We lease six aircraft to one Colombian lessee, representing 5.05% of our
portfolio by appraised value at January 31, 2002. On June 27, 2001, the
Servicer signed a restructuring agreement with the lessee including lease
extensions, rental reductions and deferrals. The lessee has continued to
perform in line with this agreement.
One Colombian lessee of three DC8-71F aircraft representing 1.30% of our
portfolio by appraised value at January 31, 2002 has signed a letter of intent
to extend two of the aircraft for a period of 18 months with a reduction of
approximately 27% in lease rentals effective immediately.
Asia and the Far East
At December 31, 2001, we leased 23 aircraft, representing 12.20% of our
portfolio by appraised value as of January 31, 2002 to operators in Asia and
the Far East. Since 1998/1999, the economies of Indonesia, Thailand, South
Korea, Malaysia and the Philippines have experienced particularly acute
difficulties resulting in many business failures, significant depreciation of
local currencies against the US dollar (the currency in which lease payments
are payable), sovereign and corporate credit ratings downgrades and defaults,
and in certain cases, internationally organized financial stability measures.
Several airlines in the region rescheduled their aircraft purchase obligations,
reduced headcount and eliminated certain routes. These conditions have been
further exacerbated by the events of September 11, 2001.
Commercial Opportunities for our MD-11 Aircraft
We currently lease three MD-11 aircraft, representing 5.70% of our fleet by
appraised value as of January 31, 2002, to a Latin American lessee. The leases
originally had expiry dates between December 2001 and September 2002 and
following discussions the lessee entered into a contract to extend the leases
of two of the aircraft for 18 months from these dates. However, the monthly
lease rentals in respect of these aircraft have been reduced by 38%. The
servicer is currently in discussions with the lessee regarding a further
extension of all three aircraft with the corresponding reduction in lease
rentals on the third aircraft. Because the market for these aircraft in their
current passenger configuration is currently, and is expected to remain, very
weak, we are examining all possibilities in respect of the remarketing of the
third MD-11 aircraft, including, subject to the restrictions in our Indentures,
the possibility of selling the aircraft or of converting it to a freighter
aircraft.
The current market value of these aircraft is such that we would not be able to
sell the aircraft at prices that would meet the Indenture requirements.
Conversion into freighter aircraft would involve substantial cash expenditures
by us.
Compliance with Governmental and Technical Regulation
The U.S. Federal Aviation Administration (the "FAA") issued an Airworthiness
Directive ("AD") concerning insulation for the purpose of increasing fire
safety on MD80 and MD-11
21
aircraft. At December 31, 2002, 29 aircraft representing 20.26% of the
portfolio by appraised value as of January 31, 2002, were MD-11s and MD-80s. We
will incur significant costs in ensuring these aircraft comply with these
standards. It is estimated that the necessary modification of the 29 aircraft
will cost approximately $15 million. The modification of 10 of the 29 aircraft
is expected to be completed in the period to March 2002 at an estimated cost of
approximately $5 million. The remaining 19 aircraft are expected to be modified
in the period to December 2005.
The FAA has recently issued an AD mandating the modification of affected lap
joints on Boeing 737 aircraft when the aircraft has completed 50,000 cycles.
The estimated cost to implement those modifications for each aircraft is
approximately $239,000 per aircraft. Based on the current cycles completed to
date by our 61 Boeing 737 aircraft, representing 34.17% of our portfolio by
appraised value at January 31, 2002, our Boeing 737 aircraft are not likely to
require these modifications prior to 2007. However, we could incur significant
costs in the future in ensuring our Boeing 737 aircraft comply with these
standards, which could impact adversely our results of operations.
The FAA is also expected to issue an AD within 12 months mandating a re-design
of the rudder systems of Boeing 737 aircraft. The average cost per aircraft of
these modifications is expected to be approximately $50,000. Depending on the
time period within which the modifications are required to be made, the costs
may be the responsibility of existing lessees. However, if the costs are not
the responsibility of some or all existing lessees, we could incur significant
cost in ensuring that our Boeing 737 aircraft comply with these modifications,
which could impact adversely our results of operations.
At this time we do not know if or when the FAA may issue additional ADs in
response to the terrorist attacks of September 11, 2001. To the extent that
compliance with any such ADs is not the obligation of lessees under the leases,
we may incur significant costs, which could impact adversely our results of
operations.
22
Results of Operations - Three Months Ended December 31, 2001 Compared with
Three Months Ended December 31, 2000.
Airplanes Group's results for the three months ended December 31, 2001
reflected a continuation of the already apparent difficult trading conditions
for the aviation industry. The events of September 11, 2001 as discussed above
at "Recent Developments", exacerbated an already difficult situation, giving
rise to the requirement for impairment provisions and to lessees seeking a
variety of rental restructurings including rental reductions and deferrals.
These factors will continue to have a significant adverse impact in future
periods.
Overall, Airplanes Group generated $34 million in cash from operations in the
three months to December 31, 2001 compared to $21 million in the same period of
the previous year. The increase in cash generated from operations in the three
month period ended December 31, 2001 is primarily attributable to no
significant increase in the level of receivables, as compared to the three
months ended December 31, 2000 when there was a significant increase in
receivables and a net inflow of maintenance reserves compared to the three
months ended December 31, 2000 when there was a net outflow. In the three
months ended December 31, 2001 there was also a reduction in lease revenues due
primarily to an increased level of lease restructurings and to a lesser extent
to greater aircraft downtime and previous aircraft sales. In the three month
period ended December 31, 2001 we received $11.36 million as a result of the
sale of our swaption portfolio. There was a net loss after taxation for the
three months ended December 31, 2001 of $406 million (Airplanes Limited: $351
million; Airplanes Trust: $55 million) compared to a net loss after taxation
for the three months ended December 31, 2000 of $88 million (Airplanes Limited:
$83 million; Airplanes Trust: $5 million). The increase in the net loss for the
period was primarily attributable to impairment provisions, interest being
charged on additional accrued but unpaid class E note interest and a reduction
in revenue due to rental restructurings.
Leasing Revenues
Leasing revenues (which include maintenance reserve receipts which we receive
from certain of our lessees) for the three months ended December 31, 2001 were
$96 million (Airplanes Limited: $89 million; Airplanes Trust: $7 million)
compared with $118 million (Airplanes Limited: $107 million; Airplanes Trust:
$11 million) for the three months ended December 31, 2000. The decrease in 2001
was primarily attributable to a reduction in lease revenues due to a number of
lease restructurings including rental reductions, a number of aircraft being
off lease during the three months ended December 31, 2001 and to the reduction
in the number of aircraft on lease in the period ended December 31, 2001 as a
consequence of previous aircraft sales. At December 31, 2001, we had 182 of our
188 aircraft on lease (Airplanes Limited: 168 aircraft; Airplanes Trust: 14
aircraft) compared to 193 of our 197 aircraft on lease (Airplanes Limited: 176
aircraft; Airplanes Trust: 17 aircraft) at December 31, 2000.
23
Impairment Provision
Aircraft carrying values are periodically assessed for impairment in accordance
with Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets ("SFAS 144"). The statement
requires the recognition of an impairment when an assets carrying value is
greater than its net undiscounted expected future cash flows. Following receipt
of the January 2002 appraised values (see Item 2 - Comparison of Actual
Cashflows versus the 2001 Base Case) and consideration of the estimated future
cashflows to be generated by our aircraft, a SFAS 144 assessment resulted in
the requirement for an impairment provision of $291 million (Airplanes Limited:
$244 million; Airplanes Trust: $47 million).
Depreciation and Amortization
The charge for depreciation and amortization in the three months ended December
31, 2001 amounted to $41 million (Airplanes Limited: $37 million; Airplanes
Trust: $4 million) as compared with $42 million (Airplanes Limited: $39
million; Airplanes Trust: $3 million) for the comparative period in 2000.
Aircraft Sales
Aircraft sales revenues of $1 million (Airplanes Limited: $1 million, Airplanes
Trust: $Nil) in respect of the sale of one B737-200A aircraft were received in
the three months ended December 31, 2001. The net book value of the aircraft
sold was $Nil (Airplanes Limited: $Nil, Airplanes Trust: $Nil). Sales revenues
of $13 million (Airplanes Limited: $7 million, Airplanes Trust: $6 million), in
respect of the sale of three engines from two A300 aircraft, the airframes of
which had been sold separately and the sale of one B737-200A aircraft, were
received in the three months ended December 31, 2000. The net book value of the
aircraft sold was $8 million (Airplanes Limited: $3 million, Airplanes Trust:
$5 million) in the period ended December 31, 2000).
Net Interest Expense
Net interest expense was $156 million (Airplanes Limited: $142 million;
Airplanes Trust: $14 million) in the three month period ended December 31, 2001
compared to $137 million (Airplanes Limited: $125 million; Airplanes Trust: $12
million) in the three month period ended December 31, 2000. The increase in the
amount of interest charged was primarily due to a combination of offsetting
factors: additional interest charged on accrued but unpaid class E note
interest of $25 million and lower average debt and interest rates in the three
months ended December 31, 2001.
The weighted average interest rate on the class A - D notes during the three
months ended December 31, 2001 was 7.02% and the average debt in respect of the
class A - D notes outstanding during the period was $2,768 million. The class E
notes accrue interest at a rate of 20% per annum (as adjusted by reference to
the U.S. consumer price index, effective March 28, 1996).
The weighted average interest rate on the class A - D notes during the three
months to December 31, 2000 was 7.69% and the average debt in respect of the
class A - D notes outstanding during the period was $2,961 million.
24
The difference for the three months ended December 31, 2001 in Airplanes
Group's net interest expense of $156 million (Airplanes Limited: $142 million;
Airplanes Trust: $14 million) and cash paid in respect of interest of $39
million (Airplanes Limited: $34 million; Airplanes Trust: $5 million) is
substantially accounted for by the fact that interest on the class E notes is
accrued but unpaid.
Net interest expense is stated after deducting interest income earned during
the relevant period. In the three months ended December 31, 2001, Airplanes
Group earned interest income (including lessee default interest) of $1 million
(Airplanes Limited: $1 million; Airplanes Trust: $Nil) compared with $3 million
in the three months ended December 31, 2000 (Airplanes Limited: $3 million;
Airplanes Trust: $Nil).
Bad Debt and Loss-Making Lease Provisions
Airplanes Group's practice is to provide specifically for any amounts due but
unpaid by lessees based primarily on the amount due in excess of security held
and also taking into account the financial strength and condition of a lessee
and the economic conditions existing in the lessee's operating environment.
While a number of Airplanes Group's lessees failed to meet their contractual
obligations in the three month period ended December 31, 2001, resulting in the
requirement for additional provisions in respect of bad and doubtful debts in
respect of these lessees, the credit exposure with regard to certain other
carriers improved in the period. Overall, there was a net release of provisions
of $2 million in respect of bad and doubtful debts (Airplanes Limited: $2
million; Airplanes Trust: $Nil) in the three months ended December 31, 2001,
compared with an overall net charge of $1 million for the three months ended
December 31, 2000 (Airplanes Limited: $Nil; Airplanes Trust: $1 million). The
net release of provisions in the three months ended December 31, 2001 was
primarily as a result of the decrease in provisions required in respect of one
Colombian lessee and one Brazilian lessee.
A lease agreement is deemed to be 'loss making' in circumstances where the
contracted rental payments are insufficient to cover the depreciation and
allocated interest attributable to the aircraft plus certain direct costs, such
as legal fees and registration costs, attributable to the lease over its term.
For these purposes, interest is allocated to individual aircraft based on the
weighted average interest cost of the principal balance of the notes and the
class E notes (excluding, in the case of the class E notes, the element of
interest (9% per annum) which is payable only in the event that the principal
amount of all the notes is repaid). This results in a significant number of
leases being 'loss making' while still being cash positive.
There was an overall net credit of $4 million (Airplanes Limited: $5 million;
Airplanes Trust: charge of $1 million) in respect of loss making' leases in
the three months ended December 31, 2001, compared with the three month period
to December 31, 2000, where there was an overall net credit of $4 million
(Airplanes Limited: $4 million; Airplanes Trust: $Nil). The credit in the three
months ended December 31, 2001 includes a reduction in the requirement for
provisions in relation to certain aircraft, following the impairment review
under FAS144 and the subsequent change in depreciation and allocated interest.
This was partially offset by "loss making" leases signed in relation to eight
DC8-71F aircraft on lease to one US lessee and three B737-400 aircraft on lease
to two European operators.
25
Other Lease Costs
Other lease costs, comprising mainly a transfer to the provision for
maintenance and aircraft related technical expenditure associated with
remarketing the aircraft, in the three months ended December 31, 2001 amounted
to $18 million (Airplanes Limited: $17 million; Airplanes Trust: $1 million)
compared to other lease costs of $19 million (Airplanes Limited: $19 million;
Airplanes Trust: $Nil) in the three months ended December 31, 2000. The
decrease in lease costs during the three months ended December 31, 2001 was as
a result of a decrease in the number of aircraft delivered to new lessees
during the period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three month period ended
December 31, 2001 amounted to $10 million (Airplanes Limited: $9 million;
Airplanes Trust: $1 million). This is a comparable expense to that incurred in
the three months ended December 31, 2000 of $9 million (Airplanes Limited: $8
million; Airplanes Trust: $1 million).
The most significant element of selling, general and administrative expenses is
the aircraft servicing fees paid to GECAS. Substantially all of these amounts
represent asset based fees calculated as an annual percentage of agreed values
of aircraft under management pursuant to a servicing agreement. Selling,
general and administrative expenses in the three months ended December 31, 2001
and the three months ended December 31, 2000 include $6 million (Airplanes
Limited: $6 million; Airplanes Trust: $Nil) relating to GECAS servicing fees.
A further significant element of Airplanes Group's actual selling, general and
administrative expenses reported in the period ended December 31, 2001 was $2
million (Airplanes Limited: $2 million; Airplanes Trust: $Nil) in respect of
administrative agency and cash management fees payable to subsidiaries of debis
AirFinance Ireland, similar to the charge of $2 million for the period ended
December 31, 2000.
Operating Loss
The operating loss for the three months ended December 31, 2001 was $413
million (Airplanes Limited: $352 million; Airplanes Trust: $61 million)
compared with an operating loss of $89 million for the three months ended
December 31, 2000 (Airplanes Limited: $84 million; Airplanes Trust: $5
million). Airplanes Limited and Airplanes Trust are expected to continue to
report substantial losses in the future.
Taxes
There was a tax benefit of $7 million (Airplanes Limited: of $1 million;
Airplanes Trust : $6 million) required in the three months ended December 31,
2001, as compared with a tax benefit of $1 million (Airplanes Limited: $1
million, Airplanes Trust: $Nil) for the three months ended December 31, 2000.
26
Net Loss
The net loss after taxation for the three months ended December 31, 2001 was
$406 million (Airplanes Limited: $351 million; Airplanes Trust: $55 million)
compared with a net loss after taxation for the three months ended December 31,
2000 of $88 million (Airplanes Limited: $83 million; Airplanes Trust: $5
million). This principal change in the three months ended December 31, 2001 is
the inclusion of an impairment provision of $291 million.
27
Financial Resources and Liquidity
Commentary on Statement of Cashflows
The various factors as discussed above at "Recent Developments" are causing a
significant reduction in our cashflows.
There was a net decrease in the cash balance of $2 million for the three
months ended December 31, 2001, compared with a decrease in the cash balance of
$3 million for the three months ended December 31, 2000.
Liquidity
The cash balances at December 31, 2001 amounted to $142 million (Airplanes
Limited: $136 million; Airplanes Trust: $6 million) compared to cash balances
at December 31, 2000 of $190 million (Airplanes Limited: $184 million;
Airplanes Trust: $6 million.)
Operating Activities
Net cash provided by operating activities in the three months ended December
31, 2001 amounted to $34 million (Airplanes Limited: $31 million; Airplanes
Trust: $3 million) compared with $21 million in the three months ended December
31, 2000 (Airplanes Limited: $25 million; Airplanes Trust: ($4) million). This
includes cash paid in respect of interest of $48 million in the three months
ended December 31, 2001 (Airplanes Limited: $44 million; Airplanes Trust: $4
million) compared with $52 million in the three months ended December 31, 2000
(Airplanes Limited: $47 million; Airplanes Trust: $5 million). The increase in
cash provided by operating activities in the three month period ended December
31, 2001 is primarily attributable to a reduction in the level of receivables
and net inflows of maintenance reserves, offset somewhat by a greater number of
off lease aircraft during the three months ended December 31, 2001 and a
reduction in lease revenues due to prior aircraft sales.
Investing and Financing Activities
Cash flows used in investing activities in the three months ended December 31,
2001 included the receipt of $1 million (Airplanes Limited: $1 million;
Airplanes Trust: $Nil) in relation to the sale of one B737-200A aircraft. Cash
provided by capital and sales type leases was $1 million in the three months
ended December 31, 2000 (Airplanes Limited: $1 million; Airplanes Trust: $Nil).
The three months ended December 31, 2000 also included the receipt of $13
million (Airplanes Limited: $6 million; Airplanes Trust: $7 million) in
relation to the sale of one B737-200A aircraft and three engines in respect of
two A300 aircraft, the airframes of which had previously been sold.
Cash flows used in financing activities in the three months ended December 31,
2001 primarily reflect the repayment of $36 million of principal on subclass
A-6 notes and class B notes by Airplanes Group (Airplanes Limited: $33 million;
Airplanes Trust: $3 million) compared with $36 million of principal repaid on
subclass A-6 and class B notes by Airplanes Group (Airplanes Limited: $33
million; Airplanes Trust: $3 million) in the three months ended December 31,
2000.
28
Indebtedness
Airplanes Group's indebtedness consisted of class A-E notes in the amount of
$3,329 million (Airplanes Limited: $3,033 million; Airplanes Trust: $296
million) at December 31, 2001 and $3,525 million (Airplanes Limited: $3,212
million; Airplanes Trust: $313 million) at December 31, 2000. Airplanes Group's
publicly traded A-D notes consists of $2,735 million (Airplanes Limited: $2,489
million; Airplanes Trust : $246 million) at December 31, 2001 and $2,934
million (Airplanes Limited : $2,670 million); Airplanes Trust : $264 million at
December 31, 2000. Airplanes Group had $591 million class E notes outstanding
at December 31, 2001 and December 31, 2000. Within the publicly traded notes,
Airplanes Group has $700 million outstanding in subclass A-8 notes which have
an expected final payment date of March 15, 2003. In current market conditions
it is unlikely that a refinancing of this subclass would be achievable. If
these market conditions persist at March 2003, interest due on the notes will
step up by 0.5% with effect from March 16, 2003.
29
Results of Operations - Nine Months Ended December 31, 2001 Compared with Nine
Months Ended December 31, 2000.
Airplanes Group's results for the nine months ended December 31, 2001 reflected
a continuation of the already apparent difficult trading conditions in the
aviation industry. The events of September 11, 2001 as discussed above at
"Recent Developments", exacerbated an already difficult situation and have had
a marked impact on the results for the three months to December 31, 2001 in
particular giving rise to the requirement for impairment provisions and to
lessees seeking a variety of rental restructurings including rental reductions
and deferrals. These factors are expected to have a continuing significant
impact in future periods.
Overall, Airplanes Group generated $103 million in cash from operations in the
nine months to December 31, 2001 compared to $85 million in the same period of
the previous year. The increase in cash generated from operations in the nine
month period ended December 31, 2001 is primarily attributable to a net inflow
of maintenance reserves compared to a net outflow in the nine months ended
December 31, 2000, a reduction in cash paid on interest due to lower Libor
rates and a cash inflow as a result of the sale of our swaption portfolio. This
was offset by a reduction in lease revenues due primarily to an increased level
of lease restructurings and to a lesser extent, to greater aircraft downtime,
lower interest rates on floating rate leases and previous aircraft sales. There
was a net loss after taxation for the nine months ended December 31, 2001 of
$359 million (Airplanes Limited: $316 million; Airplanes Trust: $43 million)
compared to a net loss after taxation for the nine months ended December 31,
2000 of $264 million (Airplanes Limited: $243 million; Airplanes Trust: $21
million). The increase in the net loss for the period was primarily
attributable to impairment provisions, a decrease in lease revenue, additional
interest being charged on accrued but unpaid class E note interest, increased
provisions for loss making leases and partially offset by a reduced requirement
for provisions for bad debts.
Leasing Revenues
Leasing revenues (which include maintenance reserve receipts which Airplanes
Group receives from certain of its lessees) for the nine months ended December
31, 2001 were $322 million (Airplanes Limited: $298 million; Airplanes Trust:
$24 million) compared with $356 million (Airplanes Limited: $324 million;
Airplanes Trust: $32 million) for the nine months ended December 31, 2000. The
decrease in 2001 was primarily attributable to a reduction in lease revenues
due to an increased level of lease restructurings and to a lesser extent a
greater number of off lease aircraft during the nine months ended December 31,
2001 and to the reduction in the number of aircraft on lease in the period
ended December 31, 2001 as a consequence of previous aircraft sales. At
December 31, 2001, Airplanes Group had 182 of its 188 aircraft on lease
(Airplanes Limited: 168 aircraft; Airplanes Trust: 14 aircraft) compared to 193
of its 197 aircraft on lease (Airplanes Limited: 176 aircraft; Airplanes Trust:
17 aircraft) at December 31, 2000.
30
Impairment Provision
Aircraft carrying values are periodically assessed for impairment in accordance
with Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets ("SFAS 144"). The statement
requires the recognition of an impairment when an assets carrying value is
greater than its net undiscounted expected future cash flows. Following receipt
of the January 2002 appraised values (see Item 2 - Comparison of Actual
Cashflows versus the 2001 Base Case) and consideration of the estimated future
cashflows to be generated by our aircraft, a SFAS 144 assessment resulted in
the requirement for an impairment provision of $291 million (Airplanes Limited:
$244 million; Airplanes Trust: $47 million).
Depreciation and Amortization
The charge for depreciation and amortization in the nine months ended December
31, 2001 amounted to $124 million (Airplanes Limited: $113 million; Airplanes
Trust: $11 million) which is comparable with $128 million (Airplanes Limited:
$116 million; Airplanes Trust: $12 million) for the comparative period in 2000.
Aircraft Sales
Sales revenues of $4 million (Airplanes Limited: $4 million; Airplanes Trust;
$Nil) in respect of the sale of two B737-200A aircraft were received in the
nine months ended December 31, 2001. The net book value of the aircraft sold
was $3 million (Airplanes Limited: $3 million, Airplanes Trust $Nil) in the
nine months ended December 31, 2001. Sales revenues of $14 million (Airplanes
Limited: $8 million, Airplanes Trust: $6 million) in respect of the sale of the
airframe from an A300 aircraft, the sale of three engines from two A300
aircraft, the airframes of which had been sold separately and the sale of one
B737-200A aircraft were received in the nine months ended December 31, 2000.
The net book value of the aircraft sold was $9 million (Airplanes Limited: $4
million, Airplanes Trust: $5 million) in the period ended December 31, 2000.
Net Interest Expense
Net interest expense was $450 million (Airplanes Limited: $409 million;
Airplanes Trust: $41 million) in the nine month period ended December 31, 2001
compared to $396 million (Airplanes Limited: $360 million; Airplanes Trust: $36
million) in the nine month period ended December 31, 2000. The increase in the
amount of interest charged was primarily due to a combination of offsetting
factors: additional interest charged on accrued but unpaid class E note
interest of $75 million, a gain on the sale of Swaptions of $9 million and
lower average debt and interest rates in the nine months ended December 31,
2001.
The weighted average interest rate on the class A - D notes during the nine
months ended December 31, 2001 was 7.22% and the average debt in respect of the
class A - D notes outstanding during the period was $2,815 million. The class E
notes accrue interest at a rate of 20% per annum (as adjusted by reference to
the U.S. consumer price index, effective March 28, 1996). The weighted average
interest rate on the class A - D notes during the nine months ended December
31, 2000 was 7.67% and the average debt in respect of the class A - D notes
outstanding during the period was $3,002 million.
31
The difference for the nine months ended December 31, 2001 in Airplanes Group's
net interest expense of $450 million (Airplanes Limited: $409 million;
Airplanes Trust: $41 million) and cash paid in respect of interest of $142
million (Airplanes Limited: $128 million; Airplanes Trust: $14 million) is
substantially accounted for by the fact that interest on the class E notes is
accrued but unpaid.
Net interest expense is stated after deducting interest income earned during
the relevant period. In the nine months ended December 31, 2001, Airplanes
Group earned interest income (including lessee default interest) of $5 million
(Airplanes Limited: $5 million; Airplanes Trust: $Nil) compared with $8 million
in the nine months ended December 31, 2000 (Airplanes Limited: $8 million;
Airplanes Trust: $Nil).
Bad Debt and Loss-Making Lease Provisions
Airplanes Group's practice is to provide specifically for any amounts due but
unpaid by lessees based primarily on the amount due in excess of security held
and also taking into account the financial strength and condition of a lessee
and the economic conditions existing in the lessee's operating environment.
While a number of Airplanes Group's lessees failed to meet their contractual
obligations in the nine month period ended December 31, 2001, resulting in the
requirement for additional provisions in respect of bad and doubtful debts in
respect of these lessees, the credit exposure with regard to certain other
carriers improved in the period. Overall, there was a net charge of $1 million
in respect of bad and doubtful debts (Airplanes Limited: $Nil; Airplanes Trust:
$1 million) in the nine months ended December 31, 2001, compared with a net
charge of $8 million for the nine months ended December 31, 2000 (Airplanes
Limited: $5 million; Airplanes Trust: $3 million). The net charge in the nine
months ended December 31, 2001 was primarily as a result of provisions required
in respect of two Colombian lessees, one Brazilian lessee and one US lessee.
A lease agreement is deemed to be 'loss making' in circumstances where the
contracted rental payments are insufficient to cover the depreciation and
allocated interest attributable to the aircraft plus certain direct costs, such
as legal fees and registration costs, attributable to the lease over its term.
For these purposes, interest is allocated to individual aircraft based on the
weighted average interest cost of the principal balance of the notes and the
class E notes (excluding, in the case of the class E notes, the element of
interest (9% per annum) which is payable only in the event that the principal
amount of all the notes is repaid). This results in a significant number of
leases being 'loss making' while still being cash positive.
There was an overall net charge of $11 million (Airplanes Limited: $10 million;
Airplanes Trust: $1 million) in respect of 'loss making' leases in the nine
months ended December 31, 2001, compared with the nine month period ended
December 31, 2000, where there was a net charge of $11 million (Airplanes
Limited: $11 million; Airplanes Trust: $Nil). In the nine months ended December
31, 2001, the significant "loss making" leases signed related to two MD11
aircraft on lease to a Brazilian lessee; four MD83 aircraft on lease to a
Colombian lessee; three B737-300 aircraft on lease to two European lessees; a
B757-200 aircraft on lease to a different European lessee; one B737-300
aircraft on lease to a US lessee; eight DC8-71F aircraft on lease to a US
lessee, three B737-400 aircraft on lease to two European lessees and two DHC8
aircraft on lease to a Latin American lessee. The charge is net of a reduction
in the requirement for provisions in relation to certain aircraft, following
the impairment review under FAS144 and the subsequent change in depreciation
and allocated interest.
32
Other Lease Costs
Other lease costs, comprising mainly a transfer to the provision for
maintenance and aircraft related technical expenditure associated with
remarketing the aircraft, in the nine months ended December 31, 2001 amounted
to $57 million (Airplanes Limited: $53 million; Airplanes Trust: $4 million)
compared to other lease costs of $60 million (Airplanes Limited: $58 million;
Airplanes Trust: $2 million) in the nine months ended December 31, 2000.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the nine month period ended
December 31, 2001 amounted to $27 million (Airplanes Limited: $25 million;
Airplanes Trust: $2 million). This is a comparable expense to that incurred in
the nine months ended December 31, 2000 of $26 million (Airplanes Limited: $24
million; Airplanes Trust: $2 million).
The most significant element of selling, general and administrative expenses is
the aircraft servicing fees paid to GECAS. Substantially all of these amounts
represent asset based fees calculated as an annual percentage of agreed values
of aircraft under management pursuant to a servicing agreement. Selling,
general and administrative expenses in the nine months ended December 31, 2001
and the nine months ended December 31, 2000 include $18 million (Airplanes
Limited: $17 million; Airplanes Trust: $1 million) relating to GECAS servicing
fees.
A further significant element of Airplanes Group's actual selling, general and
administrative expenses reported in the period ended December 31, 2001 is $5
million (Airplanes Limited: $5 million; Airplanes Trust: $Nil) in respect of
administrative agency and cash management fees payable to subsidiaries of debis
AirFinance Ireland, similar to the charge of $7 million for the period ended
December 31, 2000.
Operating Loss
The operating loss for the nine months ended December 31, 2001 was $638 million
(Airplanes Limited: $555 million; Airplanes Trust: $83 million) compared with
an operating loss of $268 million for the nine months ended December 31, 2000
(Airplanes Limited: $246 million; Airplanes Trust: $22 million). Airplanes
Limited and Airplanes Trust are expected to continue to report substantial
losses in the future.
33
Taxes
There was a tax benefit of $10 million (Airplanes Limited: $3 million;
Airplanes Trust: $7 million) in the nine months ended December 31, 2001, as
compared with a tax benefit of $4 million (Airplanes Limited: $3 million,
Airplanes Trust: $1 million) for the nine months ended December 31, 2000.
Net Loss
The net loss after taxation for the nine months ended December 31, 2001 was
$628 million (Airplanes Limited: $552 million; Airplanes Trust: $76 million)
compared with a net loss after taxation for the nine months ended December 31,
2000 of $264 million (Airplanes Limited: $243 million; Airplanes Trust: $21
million). The principal change in the three months ended December 31, 2001 is
the inclusion of an impairment provision of $291 million.
34
Financial Resources and Liquidity
Commentary on Statement of Cashflows
The various factors as discussed above at "Recent Developments" are causing a
significant reduction in our cashflows.
There was a net decrease in the cash balance of $55 million for the nine months
ended December 31, 2001, compared with a net decrease in cash of $13 million
for the nine months ended December 31, 2000.
The decrease in the nine months ended December 31, 2001 is primarily as a
result of the $40 million reduction in the liquidity reserve on April 17, 2001.
Liquidity
The cash balances at December 31, 2001 amounted to $142 million (Airplanes
Limited: $136 million; Airplanes Trust: $6 million) compared to cash balances
at December 31, 2000 of $190 million (Airplanes Limited: $184 million;
Airplanes Trust: $6 million.)
Operating Activities
Net cash provided by operating activities in the nine months ended December 31,
2001 amounted to $103 million (Airplanes Limited: $88 million; Airplanes Trust:
$15 million) compared with $85 million in the nine months ended December 31,
2000 (Airplanes Limited: $82 million; Airplanes Trust: $3 million). This
includes cash paid in respect of interest of $142 million in the nine months
ended December 31, 2001 (Airplanes Limited: $128 million; Airplanes Trust: $14
million) compared with $166 million in the nine months ended December 31, 2000
(Airplanes Limited: $151 million; Airplanes Trust: $15 million). The increase
in cash provided by operating activities in the nine month period ended
December 31, 2001 is primarily attributable to net inflows of maintenance
reserves and reduced cash payments for interest, offset somewhat by a greater
number of off lease aircraft during the nine months ended December 31, 2001 and
a reduction in lease revenues due to lease restructurings, prior aircraft sales
and lower interest rates.
Investing and Financing Activities
Cash flows from investing activities in the nine months ended December 31, 2001
reflect the cash provided by capital and sales type leases which was $7
million, which included the final bullet payments under nine leases (Airplanes
Limited: $7 million; Airplanes Trust: $Nil) as compared with $4 million in the
nine months ended December 31, 2000 (Airplanes Limited: $4 million; Airplanes
Trust: $Nil).
The nine months ended December 31, 2001 also included receipt of $4 million
(Airplanes Limited: $4 million; Airplanes Trust: $Nil) in relation to the sale
of two B737-200A aircraft. In the nine months ended December 31, 2000,
Airplanes Group also received sales proceeds of $14 million (Airplanes Limited:
$8 million, Airplanes Trust : $6 million).
35
Cash flows used in financing activities in the nine months ended December 31,
2001 primarily reflect the repayment of $167 million of principal on subclass
A-6 notes and class B notes by Airplanes Group (Airplanes Limited: $152
million; Airplanes Trust: $15 million) compared with $113 million of principal
repaid on subclass A-6, class B and class C notes by Airplanes Group (Airplanes
Limited: $103 million; Airplanes Trust: $10 million) in the nine months ended
December 31, 2000.
The increase in principal repayments in the nine months ended December 31, 2001
as compared to the nine months ended December 31, 2000, is due to an increase
in cash provided by operating activities as discussed above and the release of
$40 million of the liquidity reserve on April 17, 2001.
Indebtedness
Airplanes Group's indebtedness consisted of class A-E notes in the amount of
$3,329 million (Airplanes Limited: $3,033 million; Airplanes Trust: $296
million) at December 31, 2001 and $3,525 million (Airplanes Limited: $3,212
million; Airplanes Trust: $313 million) at December 31, 2000. Airplanes Group's
publicly traded A-D notes consists of $2,735 million (Airplanes Limited: $2,489
million; Airplanes Trust : $246 million) at December 31, 2001 and $2,934
million (Airplanes Limited : $2,670 million); Airplanes Trust : $264 million at
December 31, 2000. Airplanes Group had $591 million class E notes outstanding
at December 31, 2001 and December 31, 2000. Within the publicly traded notes,
Airplanes Group has $700 million outstanding in subclass A-8 notes which have
an expected final payment date of March 15, 2003. In current market conditions
it is unlikely that a refinancing of this subclass would be achievable. If
these market conditions persist at March 2003, interest due on the notes will
step up by 0.5% with effect from March 16, 2003.
36
Comparison of Actual Cash Flows versus the 2001 Base Case for the Three Month
Period from October 10, 2001 to January 15, 2002.
The discussion and analysis which follows is based on the results of Airplanes
Limited and Airplanes Trust and their subsidiaries as a single entity
(collectively "Airplanes Group").
The financial information set forth below was not prepared in accordance with
generally accepted accounting principles of the United States. This information
should be read in conjunction with Airplanes Group's most recent financial
information prepared in accordance with generally accepted accounting
principles of the United States. For this you should refer to Airplanes Group's
Form 10-K for the year ended March 31, 2001 which is on file at the Securities
and Exchange Commission and pages 3 to 9 of this Form 10-Q Report.
For the purposes of this report, the "Three Month Period" comprises information
from the monthly cash reports as filed at the Securities and Exchange
Commission as Forms 8-K for the relevant months dated November 15, 2001,
December 17, 2001 and January 15, 2002. The financial data in these reports
includes cash receipts from October 10, 2001 (first day of the Calculation
Period for the November 2001 Report) up to January 9, 2002 (last day of the
Calculation Period for the January 2002 Report). Page 45 presents the
cumulative cashflow information from March 2001 to the January 2002 Payment
Date. This report, however, limits its commentary to the Three Month Period.
As discussed above under "Item 2. Management Discussion and Analysis of
Financial Condition and Results of Operations - Recent Developments", in light
of current adverse economic, political and trading conditions, we have
performed and expect to continue to perform behind the 2001 Base Case
assumptions as set forth in the Airplanes Group Offering Memorandum dated March
8, 2001 (the "Offering Memorandum").
The Offering Memorandum for the 2001 Refinancing Certificates contains
assumptions in respect of Airplanes Group's future cash flows and expenses (the
"2001 Base Case"). Since these assumptions were developed, worldwide economic
conditions and particularly conditions in the commercial aviation industry,
have worsened significantly. Particularly since September 11, 2001 there has
been a sharp increase in the availability of aircraft for sale or lease.
Current market values have decreased significantly resulting in reduced
estimates of realizable value for many aircraft types but more so for older and
less fuel-efficient aircraft types, and those no longer in production, which
constitutes the majority of our portfolio. Demand for freighter aircraft has
also fallen sharply. Many of the world's airlines, including many of our
lessees, are now in financial difficulties and are in discussions with their
creditors including lessors seeking amongst other things rental reductions,
early return of aircraft and rental holidays, in an effort to alleviate their
operating cashflow difficulties. Accordingly the performance of Airplanes Group
has been and is likely to continue to be worse than the 2001 Base Case, with
particular reference to those assumptions in the Offering Memorandum relating
to aircraft re-lease rates, aircraft values, aircraft downtime and lessee
defaults.
37
The following is a discussion of the Total Cash Collections, Total Cash
Expenses, Interest Payments and Principal Payments in the Three Month Period
and should be read in conjunction with the analysis on page 46.
Cash Collections
"Total Cash Collections" include Net Lease Rentals, Interest Earned, Aircraft
Sales, Net Maintenance and Other Receipts (each as defined below). In the Three
Month Period, Airplanes Group generated approximately $80.4 million in Total
Cash Collections, $20.6 million less than the 2001 Base Case. This difference
is due to a combination of the factors set out below (the numbers in square
brackets below refer to the line item number shown on page 46).
[2] Renegotiated Leases
"Renegotiated Leases" refers to the loss in rental revenue caused by a
lessee negotiating a reduction in the lease rental. Typically, this can be
a permanent reduction over the remaining lease term in exchange for other
contractual concessions from the lessee. In the Three Month Period, the
amount of revenue loss attributed to Renegotiated Leases was $5.8m, as
compared to $Nil assumed in the 2001 Base Case. This related primarily to
renegotiations with two Latin American lessees representing 9 aircraft in
total and 5.10% and 5.96% of our portfolio by appraised value at January
31, 2001 respectively. It also includes renegotiations of 7 other aircraft
lessees: these aircraft were on lease to one North American, two Turkish,
two Colombian, one Italian, one Argentinean and one Czech Republic lessee
together, representing a total of 10.11% of the portfolio by appraised
value at January 31, 2001.
For details of current lessee restructuring negotiations please refer to
"Item 2 - The Lessees".
[3] Rental Resets Including Interest Rate Adjustments for Floating Rate Leases
"Rental Resets" is a measure of the difference in rental revenue when new
lease rates are different to those assumed in the 2001 Base Case,
including lease rate adjustments for changes in interest rates on floating
rate leases and lease rates achieved where revenues are dependent on
aircraft usage. Rental Resets amounted to $9.2 million in the Three Month
Period, as compared to $Nil assumed in the 2001 Base Case. $3.9m of this
variance is attributable to leases where revenues are dependent on
aircraft usage.
[5] Contracted Lease Rentals
"Contracted Lease Rentals" represents the current contracted lease rental
rollout which is equal to the 2001 Base Case Lease Rentals less
adjustments for Renegotiated Leases and Rental Resets. For the Three Month
Period, Contracted Lease Rentals were $90 million, which was $15 million
less than assumed in the 2001 Base Case. The difference is due to losses
from Renegotiated Leases and Rental Resets as discussed above.
38
[6] Movement in Current Arrears Balance
"Current Arrears" is the total Contracted Lease Rentals outstanding from
current lessees at a given date but excluding any amounts classified as
Bad Debts. There was a net increase of $11.7 million in the Current
Arrears balance over the Three Month Period, as compared to $Nil assumed
in the 2001 Base Case.
Net Stress-Related Costs
"Net Stress-Related Costs" is a combination of all the factors which can
cause actual lease rentals to vary from the Contracted Lease Rentals. The
2001 Base Case assumed gross stress-related costs equal to 6.0% of the
2001 Base Case Lease Rentals. However, the 2001 Base Case also assumed the
recovery of certain deferred arrears equal to 0.5% of the 2001 Base Case
Lease Rentals in the Three Month Period, resulting in an overall Net
Stress-Related Costs assumption of 5.5% of the 2001 Base Case Lease
Rentals. For the Three Month Period, Net Stress-Related Costs incurred
amounted to a net cash outflow of $4.3 million (4.1% of Lease Rentals)
compared to $5.8 million outflow assumed in the 2001 Base Case, a variance
of $1.5 million that is due to the five factors described in items [8] to
[12] below.
[8] Bad Debts
"Bad Debts" are arrears owed by lessees who have defaulted and which are
deemed irrecoverable. Bad Debts were $Nil for the Three Month Period, $1.1
million less than the 2001 Base Case assumption of $1.1 million (1.0% of
Lease Rentals).
[9] Deferred Arrears Balance
"Deferred Arrears Balance" refers to current arrears that have been
capitalized and restructured into a deferred balance. In the Three Month
Period, Airplanes Group received payments totaling $0.8 million in
accordance with these restructurings. $0.5 million was received from one
Colombian lessee as an advance payment on its restructured balance of $10
million. The balance was received from one Turkish, one Philippine and one
Latin American lessee, owing $0.9 million, $0.5 million and $0.1 million
respectively. Payments totaling $0.5 million were assumed to be received
in accordance with restructurings included in the 2001 Base Case.
[10] Aircraft on Ground ("AOG")
"AOG" is defined as the 2001 Base Case Lease Rentals lost when an aircraft
is off-lease or deemed non-revenue earning. Airplanes Group had fourteen
aircraft AOG at various times during the Three Month Period and at
December 31, 2001, twelve aircraft were AOG, two of which are subject to a
lease contract. In the Three Month Period, the 2001 Base Case Lease
Rentals loss attributed to AOG was $5.1 million (4.9% of Lease Rentals),
as compared to $4.4 million (4.2% of Lease Rentals) assumed under the 2001
Base Case.
39
[11] Other Leasing Income
"Other Leasing Income" consists of miscellaneous income received in
connection with a lease other than contracted rentals, maintenance
receipts and security deposits, such as early termination payments or
default interest. In the Three Month Period, Other Leasing Income amounted
to $0.9 million, as compared to $Nil assumed under the 2001 Base Case.
[12] Repossession Costs
"Repossession Costs" cover legal and aircraft technical costs incurred as
a result of repossessing an aircraft. In the Three Month Period,
Repossession Costs amounted to $0.9 million on the return of two B737-300
aircraft from Balkan Bulgarian Airlines, as compared to $0.8 million
assumed under the 2001 Base Case.
[14] Net Lease Rentals
"Net Lease Rentals" is Contracted Lease Rentals less any movement in
Current Arrears balance and Net Stress-Related Costs. In the Three Month
Period, Net Lease Rentals amounted to $74.0 million, $25.2 million less
than that assumed in the 2001 Base Case. The variance was attributable to
the combined effect of the factors outlined in items [2] and [3] and in
items [6] to [12] above.
[15] Interest Earned
"Interest Earned" relates to interest received on cash balances held in
the Collection and Expense Accounts. Cash held in the Collection Account
consists of the cash liquidity reserve amount of $80 million plus the
security deposit amount, in addition to the intra-month cash balances for
all the rentals and maintenance payments collected prior to the monthly
payment date. The Expense Account contains cash set aside to pay for
expenses which are expected to be payable over the next month. In the
Three Month Period, interest earned amounted to $0.9 million, $0.8 million
less than that assumed in the 2001 Base Case. The difference is due to a
lower average reinvestment rate than assumed in the 2001 Base Case. The
average actual reinvestment rate for the Three Month Period was 2.1%
(excluding a $5 million guaranteed investment contract) as compared to the
5.2% assumed in the 2001 Base Case.
[16] Aircraft Sales
Aircraft sales proceeds totalling $1.0 million were received in the Three
Month Period in respect of the sale of one B727-200A aircraft assumed in
the 2001 Base Case in March 2001 at the end of the useful economic life of
the aircraft.
40
[17] Net Maintenance
"Net Maintenance" refers to maintenance reserve revenue received less any
maintenance reimbursements paid to lessees. In the Three Month Period,
positive net maintenance cashflows of $4.5 million were received. The 2001
Base Case makes no assumptions for Net Maintenance as it assumes that,
over time, maintenance revenue will equal maintenance expenditure.
However, it is unlikely that in any particular three month reporting
period, maintenance revenue will exactly equal maintenance expenses.
CASH EXPENSES
"Total Cash Expenses" include Aircraft Operating Expenses and Selling, General
and Administrative ("SG&A") Expenses. In the Three Month Period, Total Cash
Expenses were $13.4 million compared to $13.7 million assumed in the 2001 Base
Case, a positive variance of $0.3 million. A number of offsetting factors
discussed below have given rise to this.
"Aircraft Operating Expenses" includes all operational costs related to the
leasing of aircraft including costs of insurance, re-leasing and other overhead
costs.
[20] Re-Leasing and Other Overhead Costs
"Re-Leasing and Other Overhead Costs" consist of miscellaneous re-delivery
and leasing costs associated with re-leasing events, costs of insurance
and other lessee-related overhead costs. In the Three Month Period, these
costs amounted to $5.7 million (or 5.4% of Lease Rentals) compared to $5.4
million (or 5.0% of Lease Rentals) assumed in the 2001 Base Case.
Actual Re-Leasing and Other Overhead Costs were higher than the 2001 Base
Case assumption primarily due to higher than assumed transition costs on
aircraft delivering to new lessees and higher payments made in the form of
lessor contributions to defray certain technical costs during the term of
certain leases.
SG&A Expenses relate to fees paid to the servicer and to other service
providers.
[21] Aircraft Servicer Fees
The "Aircraft Servicer Fees" are defined as amounts paid to the servicer
in accordance with the terms of the servicing agreement. In the Three
Month Period, the total Aircraft Servicer Fees paid were $5.5 million,
$0.5 million less than that assumed in the 2001 Base Case.
41
[21] Aircraft Servicer Fees (contd)
Aircraft Servicer Fees consist of:
$M
--
Retainer Fee................................ 5.5
Minimum Incentive Fee....................... 0.0
Core Cashflow/Sales Incentive Fee........... 0.0
---
Total Aircraft Servicer Fee................. 5.5
===
The Retainer Fee is a fixed amount per month per aircraft and changes only
as aircraft are sold.
[23] Other Servicer Fees and Other Overheads
"Other Servicer Fees and Other Overheads" relate to fees and expenses paid
to other service providers including the administrative agent, the cash
manager, financial advisers, legal advisers and accountants and to the
directors/controlling trustees. In the Three Month Period, Other Servicer
Fees and Other Overheads amounted to $2.2 million, $0.2 million less than
an assumed expense of $2.4 million in the 2001 Base Case.
The Board of Directors of Airplanes Limited and the Controlling Trustees
of Airplanes Trust have negotiated a reduction in the level of
Administrative Agency and Cash Management Fees from the current level of
$9.98 million to $6.25 million per annum. This new level of fees will take
effect on April 1, 2002 and will be adjusted annually for inflation,
commencing April 1, 2003.
[30] Interest Payments
In the Three Month Period, interest payments to the holders of the class
A, B, C and D notes amounted to $31.6 million which is $15.7 million lower
than the 2001 Base Case. The variance reflects lower actual amounts
outstanding on the subclass A-6 notes than assumed under the 2001 Base
Case and a lower than expected level of average interest rates. The 2001
Base Case assumed LIBOR to be 5.2% whereas the average monthly LIBOR rate
was 2.1%.
In the Three Month Period, there was a continued suspension of payments of
the class E minimum interest amount of 1% (refer to item 33 below). No
payments of class E minimum interest were anticipated in the 2001 Base
Case.
[31] Swap and Swaption Cashflows
Airplanes Group's net swap payments during the Three Month Period were
$12.7 million higher than the $3.3 million assumed in the 2001 Base Case
due to lower than anticipated interest rates.
42
[33] Principal Payments
In the ten month period from March 10, 2001 to January 15, 2002, total
principal payments amounted to $170.4 million, (comprising $155.8 million
on the class A notes and $14.6 million on the class B notes), $0.8 million
more than assumed in the 2001 Base Case. The breakdown of the $0.8 million
variance is set out on page 45. In the Three Month Period, total principal
payments amounted to $21.4 million, (comprising of $16.8 million on the
class A notes and $4.6 million on the class B notes), $13.2 million less
than assumed in the 2001 Base Case. The breakdown of the $13.2 million
variance is set out on page 44.
Applying the declining value assumptions to the original March 1996 fleet
appraisals and adjusting for aircraft sales, the total appraised value of
the aircraft was assumed to be $3,263.9 million at January 15, 2002. Our
portfolio is appraised annually and the most recent appraisal as of
January 15, 2002 was obtained on January 31, 2001 and valued the current
portfolio at $3,119.8 million. Applying the declining value assumptions to
this appraisal, the total appraised value was $2,949.5 million at January
15, 2002.
As a consequence of the cumulative excess decline in appraised values
experienced since March 1996, combined with overall cash performance in
that period, Airplanes Group's available cashflows after payment of
expenses, interest and class A and B minimum principal amounts, have been
redirected in accordance with the priority of payments to pay class A
principal adjustment amounts in April and May 1998 and from February 1999
to January 2002. Since the principal adjustment amounts on the class A
notes rank ahead of the scheduled principal payments on the class C and D
notes, and since available cash flows were not sufficient to pay all of
the class A principal adjustment amounts, some of the scheduled principal
payments on the class C and D notes have been deferred on some payment
dates during these periods. In particular, an adverse movement in cashflow
performance in the twenty one month period since the April 2000 Payment
Date which arose due to some of the factors described above and in
Airplanes Group's Form 10-K for the financial year to March 31, 2001,
together with the cumulative decline in appraised values to date, resulted
in available cashflows not being sufficient to pay all of the class A
principal adjustment amounts in the twenty one month period. As a result,
no payments of the class C and D scheduled principal amounts were made in
the twenty one month period. Consequently, total deferrals of class C and
class D scheduled principal amounts amounted to $29.4 million and $15.2
million respectively as of January 15, 2002. The class E minimum interest
amount has also been suspended since April 2000. The principal adjustment
amount outstanding on the class A notes was $21.5 million as of January
15, 2002.
Based on the most recent annual appraisal dated January 31, 2002, the
decline in the aircraft valuations in the period to the February 2002
Payment Date was approximately $156 million more than the decrease assumed
in the aircraft depreciation schedules assumed in the Base Case.
43
[33] Principal Payments (contd)
The decline in appraised values in this period, combined with the overall
decline in appraised values since March 1996 and overall cash performance
in that period, resulted in an increase in the Principal Adjustment Amount
on the Class A Notes at February 15, 2002 from $36.1 million to $117.7
million.
The continued payment of Class A Principal Adjustment Amount will result
in the continued reallocation of cashflows in favour of the class A notes
until such time as the Class A target loan to value ratios provided by the
terms of the Notes have been restored. Accordingly, payments of the Class
C and D Scheduled Principal Amounts will continue to be deferred and the
current suspension of payments of the class E Minimum Interest Amount will
also continue. At the February 2002 Payment Date, total deferrals of class
C and class D Scheduled Principal Amounts are $31.1 million and $16.2
million respectively. As discussed above at "Recent Developments", there
is likely to be a reduction in the value of our aircraft in the longer
term. The factors outlined are also causing a significant reduction in our
cashflows which will adversely affect our ability to make payments on the
notes, including the timing of principal and interest payments, and will
cause the further redirection of available cashflows towards the senior
note classes, both in the near term, and possibly also in the longer term.
Accordingly, payments of the class C and D scheduled principal amounts
will continue to be deferred and the current suspension of payments of the
class E minimum interest amount will also continue. The factors outlined
will give rise to the possibility of us not being able to pay scheduled
interest on certain note classes on a monthly basis and not being able to
repay in full, the principal on certain note classes by the legal final
maturity date.
44
Note Report Line Name Description
- ---- ---------------- -----------
CASH COLLECTIONS
[1] Lease Rentals....................... Assumptions as per the 2001 Base Case
[2] - Renegotiated Leases............... Change in contracted rental cash flow caused by a renegotiated lease
[3] - Rental Resets..................... Re-leasing events where new lease rate deviated from the 2001 Base Case
[4] - Other.............................
[5] S [1]...[4] Contracted Lease Rentals............ Current Contracted Lease Rentals due as at the latest Calculation Date
[6] Movement in Current Arrears Balance. Current Contracted Lease Rentals not received as at the latest
Calculation Date, excluding Bad Debts
[7] Less Net Stress related Costs
[8] - Bad Debts......................... Arrears owed by former lessees and deemed irrecoverable
[9] - Deferred Arrears Balance.......... Current arrears that have been capitalised and restructured as a Note
Payable
[10] - AOG............................... Loss of rental due to an aircraft being off-lease and non-revenue earning
[11] - Other Leasing Income.............. Includes lease termination payments, rental guarantees and late payments
charges
[12] - Repossession...................... Legal and technical costs incurred in repossessing aircraft.
[13] S [8]...[12] Sub-total
[14] [5]+[6]+[13] Net Lease Rentals................... Contracted Lease Rentals less Movement in Current Arrears Balance and Net
Stress related costs
[15] Interest Earned..................... Interest earned on monthly cash balances
[16] Aircraft Sales...................... Proceeds, net of fees and expenses, from the sale of aircraft.
[17] Net Maintenance..................... Maintenance Revenue Reserve received less reimbursements to lessees
[18] Other Receipts......................
[19] S [14]...[18] Total Cash Collections............ Net Lease Rentals + Interest Earned + Aircraft Sales + Net Maintenance +
Other Receipts
CASH EXPENSES
Aircraft Operating Expenses......... All operational costs related to the leasing of aircraft.
[20] - Releasing and Other Overheads..... Costs associated with transferring an aircraft from one lessee to
another, costs of insurance and other lessee-related overheads
SG&A Expenses
[21] Aircraft Servicer Fees.............. Monthly and annual fees paid to servicer
- Retainer Fee...................... Fixed amount per month per aircraft
- Minimum Incentive Fee............. Minimum annual fee paid to servicer for performance above an annually
agreed target.
- Core Cashflow/Sales Incentive Fee. Fees (in excess of Minimum Incentive Fee above) paid to servicer for
performance above an annually agreed target/on sale of an aircraft.
[22] [21] Sub-total
[23] Other Servicer Fees and Other
Overheads.......................... Administrative Agent, trustee and professional fees paid to other service
providers and other overheads
[24] [22]+[23] Sub-total
[25] [20]+[24] Total Cash Expenses................. Aircraft Operating Expenses + SG&A Expenses
NET CASH COLLECTIONS
[26] [19] Total Cash Collections.............. Line 19 above
[27] [25] Total Cash Expenses................. Line 25 above
[28] Movement in Expense Account......... Relates to reduction in accrued expense amounts
[29] Reduction in Liquidity Reserve...... Reduction of the miscellaneous reserve amount from $40m to $Nil in April
2001
[30] Interest Payments................... Interest paid on all outstanding debt
[31] Swap payments ...................... Net swap payments (paid)/received
[32] S [26]...[31] Total
[33] PRINCIPAL PAYMENTS Principal payments on debt
45
Airplanes Cash Flow Performance for the Period from October 10, 2001 to January 15, 2002 (3 Months)
Comparison of Actual Cash Flows versus 2001 Base Case Cash Flows
% of Lease Rentals under
the 2001 Base Case
2001 2001
Actual Base Case Variance Actual Base Case Variance
------ --------- -------- ------ --------- --------
CASH COLLECTIONS $M $M $M
1 Lease Rentals 105.0 105.0 0.0 100.0% 100.0% 0.0%
2 - Renegotiated Leases (7.9) 0.0 (7.9) (7.5%) 0.0% (7.5%)
3 - Rental Resets (8.4) 0.0 (8.4) (8.0%) 0.0% (8.0%)
4 - Other 0.0 0.0 0.0 0.0% 0.0% 0.0%
---- ---- --- --- --- ---
5 S 1 - 4 Contracted Lease Rentals 88.7 105.0 (16.3) 84.5% 100.0% (15.5%)
6 Movement in Current Arrears Balance (10.4) 0.0 (10.4) (9.9%) 0.0% (9.9%)
7 less Net Stress Related Costs
8 - Bad Debts 0.0 (1.1) 1.1 0.0% (1.0%) 1.0%
9 - Deferred Arrears Balance 0.8 0.5 0.3 0.8% 0.5% 0.3%
10 - AOG (5.1) (4.4) (0.7) (4.9%) (4.2%) (0.7%)
11 - Other Leasing Income 0.9 0.0 0.9 0.9% 0.0% 0.9%
12 - Repossession (0.9) (0.8) (0.1) (0.9%) (0.8%) (0.1%)
---- ---- ---- --- --- ---
13 S 8 - 12 Sub-total (4.3) (5.8) 1.5 (4.1%) (5.5%) 1.4%
14 5+6+13 Net Lease Rental 74.0 99.2 (25.2) 70.5% 94.5% (24.0%)
15 Interest Earned 0.9 1.7 (0.8) 0.8% 1.6% (0.8%)
16 Aircraft Sales 1.0 0.0 1.0 1.0% 0.0% 1.0%
17 Net Maintenance 4.5 0.0 4.5 4.3% 0.0% 4.3%
18 Other Receipts 0.0 0.0 0.0 0.0% 0.0% 0.0%
---- ---- --- --- ---- ---
19 S 14 - 18 Total Cash Collections 80.4 100.9 (20.6) 76.6% 96.1% (19.5%)
==== ===== ==== ==== ==== ====
CASH EXPENSES
Aircraft Operating Expenses
20 - Re-leasing and other overheads (5.7) (5.4) (0.3) (5.4%) (5.1%) (0.3%)
SG&A Expenses
21 Aircraft Servicer Fees
- Retainer Fee (5.5) (5.6) 0.1 (5.2%) (5.3%) 0.1%
- Minimum Incentive Fee 0.0 (0.4) 0.4 0.0% (0.4%) 0.4%
- Core Cashflow/Sales Incentive Fee 0.0 0.0 0.0 0.0% 0.0% 0.0%
---- --- --- --- --- ---
22 21 Sub-total (5.5) (6.0) 0.5 (5.2%) (5.7%) 0.5%
23 Other Servicer Fees and (2.2) (2.4) 0.2 (2.1%) (2.2%) 0.1%
---- ---- --- ---- --- ---
Other Overheads
24 22+23 Sub-total (7.7) (8.3) 0.6 (7.3%) (7.9%) 0.6%
---- ---- --- ---- --- ---
25 24+20 Total Cash Expenses (13.4) (13.7) 0.3 (12.7%) (13.0%) 0.3%
==== ==== === ==== ==== ===
NET CASH COLLECTIONS
26 19 Total Cash Collections 80.4 100.9 (20.6) 76.6% 96.1% (19.5%)
27 25 Total Cash Expenses (13.4) (13.7) 0.3 (12.7%) (13.0%) 0.3%
28 Movement in Expense Account 2.0 (1.9) 3.9 1.9% (1.8%) 3.7%
29 Reduction in Liquidity Reserve 0.0 0.0 0.0 0.0% 0.0% 0.0%
30 Interest Payments (31.6) (47.3) 15.7 (30.1%) (45.0%) 15.0%
31 Swap Payments (16.0) (3.3) (12.7) (15.2%) (3.1%) (12.1%)
---- ---- ---- ---- ---- ----
32 S 26 - 31 TOTAL 21.4 34.7 (13.2) 20.4% 33.1% 12.7%
==== ==== ==== ==== ==== ====
33 PRINCIPAL PAYMENTS
Subclass A-6 16.8 30.1 (13.3) 16.0% 28.7% (12.6%)
Class B 4.6 4.6 0.1 4.4% 4.4% 0.0%
---- --- --- --- ---- ---
Total 21.4 34.7 (13.2) 20.4% 33.0% (12.6)%
==== ==== ==== ==== ==== ====
Debt Balances at January 15, 2002
Subclass A-6 289.6 290.1
Subclass A-8 700.0 700.0
Subclass A-9 750.0 750.0
Class B 263.7 264.0
Class C 349.8 349.8
Class D 395.1 395.1
----- -----
2,748.2 2,749.0
======= =======
46
Airplanes Cash Flow Performance for the Period from March 10, 2001 to January 15, 2002 (10 Months)
Comparison of Actual Cash Flows versus 2001 Base Case Cash Flows
% of Lease Rentals under
the 2001 Base Case
2001 2001
Actual Base Case Variance Actual Base Case Variance
------ --------- -------- ------ --------- --------
CASH COLLECTIONS $M $M $M
1 Lease Rentals 354.2 354.2 0.0 100.0% 100.0% 0.0%
2 - Renegotiated Leases (12.9) 0.0 (12.9) (3.7%) 0.0% (3.7%)
3 - Rental Resets (17.3) 0.0 (17.3) (4.9%) 0.0% (4.9%)
4 - Other 0.0 0.0 0.0 0.0% 0.0% 0.0%
----- ----- --- ---- ---- ---
5 S 1 - 4 Contracted Lease Rentals 323.9 354.2 (30.3) 91.5% 100.0% (8.5%)
6 Movement in Current Arrears Balance (5.7) 0.0 (5.7) (1.6%) 0.0% (1.6%)
7 less Net Stress Related Costs
8 - Bad Debts (2.7) (3.6) 0.8 (0.8%) (1.0%) 0.2%
9 - Deferred Arrears Balance 3.3 1.9 1.4 0.9% 0.5% 0.4%
10 - AOG (9.8) (15.0) 5.2 (2.8%) (4.2%) 1.5%
11 - Other Leasing Income 1.8 0.0 1.8 0.5% 0.0% 0.5%
12 - Repossession (3.0) (2.8) (0.2) (0.9%) (0.8%) (0.0%)
---- ----- ---- ---- ---- ---
13 S 8 - 12 Sub-total (10.4) (19.5) 9.0 (2.9%) (5.5%) 2.5%
14 5+6+13 Net Lease Rental 307.8 334.7 (27.0) 86.9% 94.5% (7.6%)
15 Interest Earned 5.0 5.9 (1.0) 1.4% 1.7% (0.3%)
16 Aircraft Sales 10.7 8.8 1.9 3.0% 2.5% 0.5%
17 Net Maintenance 8.2 0.0 8.2 2.3% 0.0% 2.3%
18 Other Receipts 4.3 0.0 4.3 1.2% 0.0% 1.2%
----- ----- --- ---- ---- ---
19 S 14 - 18 Total Cash Collections 336.0 349.5 (13.5) 94.9% 98.7% (3.8%)
===== ===== ====== ==== ==== ===
CASH EXPENSES
Aircraft Operating Expenses
20 - Re-leasing and other overheads (15.1) (17.9) 2.8 (4.3%) (5.1%) 0.8%
SG&A Expenses
21 Aircraft Servicer Fees
- Retainer Fee (18.4) (18.7) 0.3 (5.2%) (5.3%) 0.1%
- Minimum Incentive Fee (1.5) (1.3) (0.3) (0.4%) (0.4%) (0.1%)
- Core Cashflow/Sales Incentive Fee (0.2) 0.0 (0.2) (0.0%) 0.0% (0.0%)
---- ---- ---- ---- --- ---
22 21 Sub-total (20.0) (19.9) (0.1) (5.7%) (5.6%) (0.0%)
23 Other Servicer Fees and Other Overheads (8.9) (7.9) (1.0) (2.5%) (2.2%) (0.3%)
---- ---- ----- ---- --- ---
24 22+23 Sub-total (28.9) (27.8) (1.1) (8.2%) (7.9%) (0.3%)
---- ---- ---- ---- --- ---
25 24+20 Total Cash Expenses (44.0) (45.7) 1.7 (12.4%) (12.9%) 0.5%
==== ==== === ==== ==== ===
NET CASH COLLECTIONS
26 19 Total Cash Collections 336.0 349.5 (13.5) 94.9% 98.7% (3.8%)
27 25 Total Cash Expenses (44.0) (45.7) 1.7 (12.4%) (12.9%) 0.5%
28 Movement in Expense Account (5.5) (1.9) (3.6) (1.6%) (0.5%) (1.0%)
29 Reduction in Liquidity Reserve 40.0 40.0 0.0 11.3% 11.3% 0.0%
30 Interest Payments (131.5) (159.8) 28.3 (37.1%) (45.1%) 8.0%
31 Swap Payments (24.5) (12.4) (12.1) (6.9%) (3.5%) (3.4%)
----- ----- ----- ---- ---- ---
32 S 26 - 31 TOTAL 170.4 169.6 0.8 48.1% 47.9% 0.2%
===== ===== === ==== ==== ===
33 PRINCIPAL PAYMENTS
Subclass A-6 155.8 155.3 0.5 44.0% 43.9% 0.1%
Class B 14.6 14.3 0.3 4.1% 4.0% 0.1%
---- ----- --- ---- ---- ---
Total 170.4 169.6 0.8 48.1% 47.9% 0.2%
===== ===== === ===== ===== ===
Debt Balances at January 15, 2002
Subclass A-6 289.6 290.1 (0.5)
Subclass A-8 700.0 700.0 0.0
Subclass A-9 750.0 750.0 0.0
Class B 263.7 264.0 (0.3)
Class C 349.8 349.8 0.0
Class D 395.1 395.1 0.0
----- ----- ---
2,748.2 2,749.0 (0.8)
======= ======= ====
47
Mar-01 2001
Closing Actual Base Case
------- ------ ---------
$m $m $m
Net Cash Collections 170.4 169.6
Add Back Interest and Swap Payments 156.0 172.3
----- -----
a Net Cash Collections 326.4 341.9
===== =====
(excl. interest and swap payments)
b Swaps 24.5 12.4
c Class A Interest 61.8 86.5
d Class A Minimum 0.0 0.0
e Class B Interest 10.0 13.8
f Class B Minimum 14.6 14.3
g Class C Interest 23.8 23.8
h Class D Interest 35.8 35.8
i Class A Principal Adjustment 155.8 155.3
i Class C Scheduled 0.0 0.0
k Class D Scheduled 0.0 0.0
l Permitted Aircraft Modifications 0.0 0.0
m Step-up Interest 0.0 0.0
n Class E Minimum Interest 0.0 0.0
o Class B Supplemental 0.0 0.0
p Class A Supplemental 0.0 0.0
--- ---
Total 326.4 341.9
===== =====
[1] Interest Coverage Ratio
Class A 3.8 3.5 = a/(b+c)
Class B 3.4 3.0 = a/(b+c+d+e)
Class C 2.4 2.3 = a/(b+c+d+e+f+g)
Class D 1.9 1.8 = a/(b+c+d+e+f+g+h)
[2] Debt Coverage Ratio
Class A 3.8 3.5 = a/(b+c+d)
Class B 2.9 2.7 = a/(b+c+d+e+f)
Class C 1.0 1.0 = a/(b+c+d+e+f+g+h+i+j)
Class D 1.0 1.0 = a/(b+c+d+e+f+g+h+i+j+k)
Loan to Value Ratios (in US dollars)
[3] Expected Portfolio Value
[4] Adjusted Portfolio Value 3,108.6 2,949.5 2,952.7
Liquidity Reserve Amount
Of which - Cash 156.9 111.2 116.0
- Accrued Expenses 12.6 10.0 0.0
---- ---- ---
Subtotal 169.5 121.2 116.0
Less Lessee Security Deposits 36.9 31.2 36.0
---- ---- ----
Subtotal 132.6 90.0 80.0
----- ---- ----
[5] Total Asset Value 3,241.2 3,039.5 3,032.7
======= ======= =======
Note Balances as at: March 15, 2001 January 15, 2002 January 15, 2002
-------------- ---------------- ----------------
Class A 1,895.4 58.5% 1,739.6 57.2% 1,740.1 57.4%
Class B 278.3 67.1% 263.7 65.9% 264.0 66.1%
Class C 349.8 77.9% 349.8 77.4% 349.8 77.6%
Class D 395.1 90.0% 395.1 90.4% 395.1 90.6%
----- ----- ------
2,918.6 2,748.2 2,749.0
======= ======= =======
48
[1] "Interest Coverage Ratio" is equal to Net Cash Collections (excluding
interest and swap payments) expressed as a ratio of the interest
payable on each subclass of Notes plus the interest and minimum
principal payments payable on each subclass of Notes that rank senior
in priority of payment to the relevant subclass of Notes.
[2] "Debt Service Ratio" is equal to Net Cash Collections (excluding
interest and swap payments) expressed as a ratio of the interest and
minimum/scheduled principal payments payable on each subclass of
Notes plus the interest and minimum/scheduled principal payments
payable on each subclass of Notes that ranks equally with or senior
to the relevant subclass of Notes in the priority of payments. In
respect of the Class A Notes, Principal Adjustment Amount payments
have been excluded as they are a function of aircraft values.
[3] "Expected Portfolio Value" represents the Initial Appraised Value of
each Aircraft in the Portfolio multiplied by the Depreciation Factor
at Payment Date divided by the Depreciation Factor at March 1996
Closing Date.
[4] "Adjusted Portfolio Value" represents the Base Value of each Aircraft
in the Portfolio as determined by the most recent Appraisal
multiplied by the Depreciation Factor at Payment Date divided by the
Depreciation Factor as of the relevant Appraisal date.
[5] "Total Asset Value" is equal to Total Expected/Adjusted Portfolio
Value Liquidity Reserve Amount minus Lessee Security Deposits.
49
Item 3. Quantitative and Qualitative Disclosures about Market Risks
Interest Rate Sensitivity
Airplanes Group's principal market risk exposure is to changes in interest
rates. This exposure arises from its notes and the derivative instruments used
by Airplanes Group to manage its interest rate risk.
The terms of each subclass of notes, including the outstanding principal amount
as of December 31, 2001 and estimated fair value as of December 31, 2001, are
as follows:
Annual Interest Estimated
Rate Principal Amount *Expected Final Final Fair Value at
Subclass of Notes (Payable Monthly) at quarter end Payment Date Maturity Date December 31, 2001
- ----------------- ----------------- ---------------- --------------- ------------- -----------------
$ Millions $ Millions
Subclass A-6 (LIBOR+.34%) 291 January 15, 2004 March 15, 2019 288
Subclass A-8 (LIBOR+.375%) 700 March 15, 2003 March 15, 2019 665
Subclass A-9 (LIBOR+.55%) 750 November 15, 2008 March 15, 2019 690
Class B (LIBOR+.75%) 265 March 15, 2009 March 15, 2019 212
Class C (8.15%) 350 December 15, 2013 March 15, 2019 199
Class D (10.875%) 395 February 15, 2017 March 15, 2019 119
----- -----
2,751 2,173
===== =====
* Per 2001 Offering Memorandum
Interest Rate Management
The leasing revenues of Airplanes Group are generated primarily from lease
rental payments which are either fixed or floating. In the case of floating
rate leases, an element of the rental varies in line with changes in LIBOR,
generally six-month LIBOR. Some leases carry fixed and floating rental payments
for different rental periods. There has been an increasing tendency for fixed
rate leases to be written and approximately 75% of the leases are fixed rate
leases.
In general, an interest rate exposure arises to the extent that Airplanes
Group's fixed and floating interest obligations in respect of the class A-D
notes do not correlate to the mix of fixed and floating rental payments for
different rental periods. This interest rate exposure can be managed through
the use of interest rate swaps. The class A and B notes bear floating rates of
interest and the class C and D notes bear fixed rates of interest. The mix of
fixed and floating rental payments contains a higher percentage of fixed rate
payments than the percentage of fixed rate interest payments on the notes. One
reason for this is the fact that the reset periods on floating rental payments
are generally longer than the monthly reset periods on the floating rate notes.
In order to correlate the contracted fixed and floating rental payments to the
fixed and floating interest payments on the notes, Airplanes Group enters into
interest rate swaps (the 'Swaps'). Under the Swaps, Airplanes Group pays fixed
amounts and receives floating amounts on a monthly basis. The Swaps amortize
having regard to the expected paydown schedule of the class A and B notes, the
expiry dates of the leases under which lessees are contracted to make fixed
rate rental payments and the LIBOR reset dates under the floating rates leases.
At least every three months, and in practice more frequently, debis AirFinance
Financial Services (Ireland) Limited, a subsidiary of debis AirFinance Ireland,
as Airplanes Group's administrative agent (the "Administrative Agent"), seeks
to enter into additional swaps or sell at market value or unwind part or all of
the Swaps and any future swaps in order
50
to rebalance the fixed and floating mix of interest obligations and the fixed
and floating mix of rental payments. At December 31, 2001, Airplanes Group had
unamortized Swaps with an aggregate notional principal balance of $1,915
million. The aggregate notional principal of these Swaps will be reduced to
$1,645 million by the end of the fiscal year ended March 31, 2002. These Swaps
will be further reduced to an aggregate notional principal balance of $1,025
million by the year ended March 31, 2003, to an aggregate notional principal
balance of $605 million by the year ended March 31, 2004 and to an aggregate
notional principal balance of $180 million by March 31, 2005. None of the Swaps
have maturity dates extending beyond February 2006. The aggregate estimated
fair market value of the Swaps at December 31, 2001 was $(55.5) million, that
is the Swaps were "out-of-the-money", such that if sold, it would result in a
loss as detailed below:
Airplanes Group Swap Book at December 31, 2001
Notional Final Fixed Estimated Fair
Swap No. Amount (i) Effective Maturity Rate Market Value as
($Millions) Date Date Payable (ii) at December 31, 2001
----------- ---- ---- ------------ --------------------
1 60 29-Jun-01 15-Jan-02 3.6625% (85,333)
2 120 30-Jul-01 15-Jan-02 3.6675% (171,150)
3 20 15-Apr-01 15-Mar-02 4.5500% (131,975)
4 80 15-Oct-01 15-Mar-02 2.4200% (103,259)
5 20 27-May-98 15-Apr-02 6.2800% (292,664)
6 35 16-Aug-99 15-Apr-02 6.2250% (444,995)
7 10 15-Dec-99 15-Apr-02 6.3100% (145,325)
8 10 27-Oct-98 15-May-02 6.2900% (182,799)
9 10 17-Apr-00 15-May-02 6.7150% (200,320)
10 80 15-Nov-99 15-Jun-02 6.1200% (1,048,639)
11 15 16-Feb-99 15-Jul-02 6.2700% (299,636)
12 5 15-Sep-98 15-Aug-02 6.1700% (137,047)
13 115 15-Jul-98 15-Dec-02 6.2400% (4,067,249)
14 90 15-Jun-00 15-Dec-02 7.1125% (2,942,833)
15 30 25-Aug-98 15-Feb-03 6.3900% (1,589,961)
16 25 15-Oct-98 15-Feb-03 6.3800% (952,014)
17 10 16-Nov-98 15-Feb-03 6.3900% (602,355)
18 50 15-Dec-98 15-Feb-03 6.2840% (1,757,338)
19 10 15-Feb-00 15-Mar-03 6.3965% (955,976)
20 20 18-Jan-00 15-Mar-03 6.3850% (836,715)
21 40 01-Jun-99 15-Mar-03 6.2200% (1,064,459)
22 30 21-Dec-99 15-Mar-03 6.5875% (820,204)
23 20 15-Apr-01 15-Apr-03 7.1850% (1,193,881)
24 50 21-Jun-99 15-Jun-03 6.3100% (2,896,029)
25 55 15-Jul-99 15-Aug-03 6.2900% (2,720,745)
26 15 18-Jan-00 15-Oct-03 6.4650% (791,611)
27 30 17-Aug-99 15-Nov-03 6.3300% (1,647,053)
28 30 15-Dec-00 15-Nov-03 7.3625% (2,306,220)
29 15 26-Apr-00 15-Nov-03 6.6875% (640,404)
30 40 20-Sep-00 15-Nov-03 6.5625% (2,375,791)
31 15 15-Nov-00 15-Nov-03 6.5775% (701,251)
32 25 15-Feb-01 15-Nov-03 5.2750% (909,591)
33 10 24-Mar-00 15-Dec-03 6.8450% (1,543,753)
34 30 15-May-00 15-Jan-04 7.2995% (2,081,498)
35 20 26-Jun-00 15-Feb-04 6.9775% (1,027,313)
36 45 15-Aug-00 15-Feb-04 6.7700% (2,840,987)
37 15 18-Aug-00 15-Apr-04 6.7700% (998,871)
38 20 15-Nov-01 15-Apr-04 4.8900% (497,673)
39 25 17-Apr-01 15-May-04 6.8290% (2,158,137)
40 10 12-Oct-00 15-Jul-04 6.5850% (961,780)
41 40 17-Sep-01 15-Sep-04 5.7125% (1,739,699)
42 0 15-Jul-03 15-Nov-04 5.7650% 19,820
43 0 15-Apr-02 15-Dec-04 5.3975% (909,836)
51
44 50 15-May-01 15-Jan-05 4.7950% (826,953)
45 180 21-Aug-01 15-Feb-05 4.4195% (3,125,786)
46 50 17-Oct-01 15-Nov-05 3.9475% 408,574
47 80 24-Jul-01 15-Dec-05 5.2850% (1,558,002)
48 0 17-Nov-03 17-Jan-06 5.1150% 318,563
49 160 20-Dec-01 15-Feb-06 4.6350% (916,611)
---- ----------
1,915 (55,454,764)
===== ==========
(i) While some of the above Swaps may have a fixed notional amount, many
amortise over the period to the final maturity date.
(ii) Each of the above Swaps is calculated on a monthly fixed actual/360
adjusted basis.
(iii) Under all Swaps, Airplanes Group receives floating at one month LIBOR,
which resets monthly.
Pursuant to a decision of the Directors of Airplanes Limited and the
Controlling Trustees of Airplanes Trust on November 8, 1999, Airplanes Group
either re-couponed or unwound and replaced thirty of its portfolio of forty
four Swaps. Twenty of these Swaps were adjusted so that Airplanes Group's fixed
payment rate more closely reflected current market rates. Airplanes Group
received a net cash payment of $9.33 million with respect to these twenty
Swaps. In addition, ten of the thirty Swaps were terminated, in return for a
net payment to Airplanes Group of $1.92 million. In aggregate therefore,
Airplanes Group received a net cash inflow of $11.25 million, but will now have
higher ongoing swap costs as a result of re-calibrating the Swaps to current
market rates. Simultaneously with these terminations, Airplanes Group put in
place a replacement Swap to maintain a fully hedged position. These adjustments
and terminations released the positive value in Airplanes Group's Swaps and
allowed that value to be available to be applied to additional payments of the
class A Principal Adjustment Amount. These transactions were conducted in
accordance with Airplanes Group's interest rate risk management policies.
The realized gain on the termination of these Swaps had been deferred and is
being recognized over the life of the hedged transaction in accordance with the
guidance provided in ET Issue No. 84-7, "Termination of Interest Rate Swaps".
Effective April 1, 2001, the remaining realized gain has been recorded in the
Statement of Other Comprehensive Income and will be recognized in the Statement
of Operations over the life of the hedged transaction in accordance with FAS
138.
52
Additional interest rate exposure will arise to the extent that lessees owing
fixed rate rental payments default and interest rates have declined between the
contract date of the lease and the date of default. This exposure is managed
through the purchase of Swaptions. Airplanes Group purchases Swaptions which,
if exercised, will allow Airplanes Group to enter into interest rate swap
transactions under which it will pay floating amounts and received fixed
amounts. These Swaptions can be exercised in the event of defaults by lessees
owing fixed rate rental payments in circumstances where interest rates have
declined since the contract date of such leases. Because not all lessees making
fixed rate rental payments are expected to default and not all lessee defaults
are expected to occur following a decline in interest rates, Airplanes Group
purchases Swaptions in aggregate in a notional amount less than the full extent
of the exposure associated with the lessees making fixed rate rental payments.
This notional amount (the 'Target Hedge') will be varied from time to time to
reflect, inter alia, changes in the mix of payment bases under future leases
and in the prevailing level of interest rates. From time to time the
Administrative Agent may also sell at market value or unwind part or all of the
outstanding Swaptions, for example, to reflect any decreases in the Target
Hedge. In the period from March 28, 1996 to December 31, 2001, Airplanes Group
purchased Swaptions for interest rate swaps with an aggregate notional
principal balance of $659 million and sold Swaptions with an aggregate notional
principal balance of $589 million and Swaptions with an aggregate notional
principal of $70 million matured. The net aggregate notional principal balance
of Swaptions at December 31, 2001 therefore amounted to $Nil million.
On September 28, 2001 Airplanes Group sold its portfolio of sixteen Swaptions
with a notional principal balance of $315 million. The cash receipt from the
sale totaled $11.36 million. This sale released the positive value in our
Swaption portfolio and allowed that value to be applied to make additional
payments of the class A Principal Adjustment Amount. Rating Agency approval was
obtained in relation to the transaction prior to executing the sale. It is not
currently proposed to purchase any Swaptions given the low interest rate
environment.
The realized gain on the value of the Swaptions of $8.9 million, i.e. the sale
proceeds of $11.36 million less the carrying value at June 30, 2001 of $2.5
million has been included as a credit against interest expense in the period to
December 31, 2001.
Through the use of the Swaps, Swaptions (when applicable) and other interest
rate hedging products, it is Airplanes Group's policy not to be adversely
exposed to material movements in interest rates. There can be no assurance,
however, that Airplanes Group's interest rate risk management strategies will
be effective in this regard.
The Directors of Airplanes Limited and the Controlling Trustees of Airplanes
Trust are responsible for reviewing and approving the overall interest rate
management policy and transaction authority limits. Specific hedging contracts
are approved by officers of the Administrative Agent acting within the overall
policies and limits. Counterparty risk is monitored on an ongoing basis.
Counterparties are subject to the prior approval of the Directors of Airplanes
Limited and the Controlling Trustees of Airplanes Trust. Airplanes Group's
counterparties consist of the affiliates of major U.S. and European financial
institutions which have credit ratings, or which provide collateralisation
arrangements, consistent with maintaining the ratings of the class A notes.
53
The quantitative disclosure and other statements in this section are
forward-looking statements that involve risks and uncertainties. Although
Airplanes Group's policy is to limit its exposure to changes in interest rates,
it could suffer higher cashflow losses as a result of actual future changes in
interest rates. It should also be noted that Airplanes Group's future exposure
to interest rate movements will change as the composition of its lease
portfolio changes or if it issues new subclasses of additional notes or
refinancing notes with different interest rate provisions from the notes.
Please refer to "Risk Factors" in the Airplanes Group Report on Form 10-K filed
with the SEC on June 28, 2001 for more information about risks, especially
lessee credit risk, that could intensify Airplanes Group's exposure to changes
in interest rates.
54
Part II. Other Information
Item 1. Legal Proceedings
VASP
Following the default by the Brazilian airline VASP under its leases, GPA Group
(now known as debis AirFinance Ireland) sought and obtained in November 1992 a
preliminary injunction for repossession of 13 aircraft and three engines, and
subsequently repossessed these aircraft and engines. Airplanes Group acquired
seven of these aircraft from GPA Group in March 1996, four of which remain in
our portfolio and represented 1.8% of our portfolio by appraised value as of
January 31, 2002. In December 1996, the High Court in Sao Paolo, Brazil, found
in favor of VASP on appeal and granted it the right to the return of the
aircraft and engines or the right to seek damages against debis AirFinance
Ireland. debis AirFinance Ireland has challenged this decision and in January
2000, the High Court granted a stay of the 1996 judgment while it considers
debis AirFinance Ireland's rescission action. The risk of repossession only
arises where VASP is successful in seeking repossession of the aircraft and
where the aircraft are located in Brazil. Although none of our lessees which
lease any of the relevant aircraft is based in Brazil, some of them may operate
those aircraft into Brazil from time to time. debis AirFinance Ireland has
informed Airplanes Group that it has been advised by its Brazilian counsel that
the December 1996 High Court decision was incorrect as a matter of Brazilian
law and that it is actively pursuing all available courses of action, including
appeals to superior courts to overturn the High Court decision.
Other Matters
AeroUSA and AeroUSA 3 have in the past filed U.S. federal consolidated tax
returns and certain state and local tax returns with debis AirFinance, Inc.
(then known as AerFi, Inc.) and its subsidiaries. There are ongoing tax audits
by certain state and local tax authorities with respect to tax returns
previously reported by debis AirFinance, Inc. and its subsidiaries. debis
AirFinance believes that none of these audits will have a material adverse
impact upon the liquidity, results of operations or the financial conditions of
AeroUSA.
Subsequent to November 20, 1998, AeroUSA, Inc. and AeroUSA 3, Inc. now file
consolidated United States federal tax returns and certain state and local tax
returns with General Electric Capital Corporation ("GE"), such returns being
filed on a calendar basis. In addition, on November 20, 1998, Airplanes Trust
entered into a tax sharing agreement with GE.
Item 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K: Filed for event dates October 15, 2001, November 15, 2001
and December 17, 2001 (relating to the monthly report to holders of the
certificates).
55
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 15, 2002 AIRPLANES LIMITED
By: /s/ WILLIAM M. MCCANN
--------------------------------
William M. McCann
Director and Principal Accounting
Officer
Date: February 15, 2002 AIRPLANES U.S. TRUST
By: /s/ WILLIAM M. MCCANN
--------------------------------
William M. McCann
Controlling Trustee and Principal
Accounting Officer
FORM 10Q Dec 2001
56
Appendix 1
Particulars of the Portfolio as of December 31, 2001
by reference to Appraised Value at January 31, 2002 are contained in the table below.
Appraised
Date of Value at
Aircraft Serial Manufacture/ January 31, 2002
Region Country Lessee Type Number Conversion (US$000's)
- ------ ------- ------ ---- ------ ---------- ----------
Africa Tunisia Nouvelair Tunisie MD83 49631 14-Jun-89 16,203
Tunisia Nouvelair Tunisie MD83 49672 1-Jul-88 14,622
Tunisia Tuninter B737-300 24905 1-Feb-91 20,678
Asia & Far East Bangladesh GMG Airlines DHC8-300 307 1-Dec-91 6,988
China China Southern B737-500 24897 26-Feb-91 17,779
China China Southern B737-500 25182 3-Feb-92 18,906
China China Southern B737-500 25183 14-Feb-92 19,580
China China Southern B737-500 25188 12-Mar-92 19,451
China Xinjiang B757-200 26156 25-Nov-92 35,383
Indonesia Merpati Nusantara Airlines B737-200A 22368 1-Sep-80 2,730
Indonesia Merpati Nusantara Airlines B737-200A 22369 1-Sep-80 2,939
Indonesia PT Garuda Indonesia B737-400 24683 7-Aug-90 22,470
Indonesia PT Garuda Indonesia B737-400 24691 9-Aug-90 22,731
Indonesia PT Mandala Airlines B737-200A 22278 19-Mar-80 3,726
Indonesia PT Mandala Airlines B737-200A 21685 1-Jan-79 3,281
Indonesia PT Mandala Airlines B737-200A 22803 14-Feb-83 4,408
Indonesia PT Mandala Airlines B737-200A 22804 1-Feb-83 4,968
Indonesia PT Mandala Airlines B737-200A 23023 30-Mar-83 4,068
Malaysia Air Asia Sdn. Bhd. B737-300 24907 1-Mar-91 20,797
Pakistan Pakistan Int Airline A300-B4-200 269 11-Aug-83 7,491
Philippines Philippine Airlines B737-300 24770 1-Oct-90 19,040
Philippines Philippine Airlines B737-400 24684 1-Apr-90 21,898
Philippines Philippine Airlines B737-400 26081 10-Mar-93 25,149
South Korea Asiana Airlines B737-400 24493 14-Jul-89 20,273
South Korea Asiana Airlines B737-400 24520 21-Dec-89 20,502
Taiwan Far Eastern Air Transport MD83 49950 1-Nov-91 17,454
Australia &
New Zealand Australia National Jet Systems DHC8-100 229 1-Sep-90 5,273
New Zealand New Zealand International
Airlines METRO-III 705 1-Aug-88 1,010
New Zealand New Zealand International
Airlines METRO-III 711 1-Mar-88 986
New Zealand New Zealand International
Airlines METRO-III 712 1-Jun-88 902
Europe Czech Republic Travel Servis B737-400 24911 1-Apr-91 23,439
France Air France A320-200 220 1-Sep-91 25,164
France Air France A320-200 203 1-Sep-91 25,214
France Air Liberte S.A. MD83 49943 1-Jul-91 17,477
Hungary Malev B737-400 25190 7-Apr-92 23,630
Hungary Malev B737-400 26069 2-Nov-92 24,524
Hungary Malev B737-400 26071 13-Nov-92 23,994
Italy Air One SpA B737-300 25179 12-Feb-92 21,645
Italy Air One SpA B737-300 25187 14-Mar-92 21,373
Italy Air One SpA B737-400 24906 24-Feb-91 21,528
Italy Air One SpA B737-400 24912 14-Jun-91 21,908
Italy Eurofly S.P.A MD83 49390 1-Apr-86 12,986
Italy Meridiana SpA MD83 49792 1-Nov-89 16,811
Italy Meridiana SpA MD83 49935 26-Sep-90 16,690
Italy Meridiana SpA MD83 49951 25-Aug-91 17,625
Netherlands Schreiner Airways DHC8-300 232 20-Oct-90 6,140
Netherlands Schreiner Airways DHC8-300 244 1-Dec-90 6,290
Netherlands Schreiner Airways DHC8-300 266 20-Mar-91 6,992
Netherlands Schreiner Airways DHC8-300 276 13-May-91 6,752
Netherlands Schreiner Airways DHC8-300 283 1-Sep-91 6,701
Netherlands Schreiner Airways DHC8-300 298 1-Apr-92 7,124
Netherlands Schreiner Airways DHC8-300 300 1-Apr-92 7,206
Norway Wideroe's Flyveselskap a/s DHC8-300 293 1-Oct-91 6,848
Norway Wideroe's Flyveselskap a/s DHC8-300 342 1-Dec-92 7,541
Spain Futura B737-400 24689 3-Jul-90 21,786
Spain Futura B737-400 24690 1-Jul-90 21,961
Spain Futura B737-400 25180 21-Jan-92 23,686
Spain Spanair MD83 49620 1-Jul-88 15,332
Spain Spanair MD83 49624 1-Aug-88 14,889
Spain Spanair MD83 49626 22-Oct-88 14,675
Spain Spanair MD83 49709 1-Dec-88 14,617
Spain Spanair MD83 49936 6-Oct-90 16,560
Spain Spanair MD83 49938 1-Dec-90 17,306
Turkey MNG Airlines Cargo A300-C4-200 83 1-May-79 11,617
Turkey Pegasus B737-400 24345 1-Jun-89 20,040
Turkey Pegasus B737-400 24687 25-May-90 20,815
Turkey Turk Hava Yollari B737-400 24917 24-Jun-91 22,479
Turkey Turk Hava Yollari B737-400 25181 3-Feb-92 23,284
Turkey Turk Hava Yollari B737-400 25184 2-Mar-92 24,210
Turkey Turk Hava Yollari B737-400 25261 9-Apr-92 23,761
Turkey Turk Hava Yollari B737-400 26065 1-May-92 23,764
Turkey Turk Hava Yollari B737-500 25288 16-Jun-92 19,359
Turkey Turk Hava Yollari B737-500 25289 12-Jun-92 18,988
United Kingdom Airtours International A320-200 294 2-Apr-92 26,464
United Kingdom Airtours International A320-200 301 22-Apr-92 26,493
United Kingdom Airtours International A320-200 348 17-Jun-92 26,494
United Kingdom Airtours International A320-200 349 30-Oct-92 26,985
United Kingdom Brymon Airways DHC8-300 296 1-Oct-91 6,674
United Kingdom Brymon Airways DHC8-300 334 8-Oct-92 7,305
United Kingdom Go Fly Limited B737-300 23923 1-Apr-88 17,878
United Kingdom Heavylift Aviation Holdings
Limited A300-B4-200 131 7-Feb-81 6,004
United Kingdom Titan Airways Limited ATR42-300 109 14-Oct-88 4,250
Appraised
Date of Value at
Aircraft Serial Manufacture/ January 31, 2002
Region Country Lessee Type Number Conversion (US$000's)
- ------ ------- ------ ---- ------ ---------- ----------
United Kingdom Titan Airways Limited ATR42-300 113 18-Nov-88 4,329
Latin America Antigua Caribbean Star DHC8-300 267 4-Apr-91 7,088
Antigua Liat DHC8-100 113 1-Sep-88 3,829
Antigua Liat DHC8-100 140 1-Mar-89 3,745
Antigua Liat DHC8-100 144 1-Mar-89 4,062
Antigua Liat DHC8-100 270 1-May-91 4,602
Argentina LAPA B737-200A 22633 1-Mar-81 3,622
Argentina LAPA B737-200A 21193 1-Jul-76 3,165
Brazil Rio Sul B737-500 25185 18-Feb-92 18,239
Brazil Rio Sul B737-500 25186 11-Mar-92 18,860
Brazil Rio Sul B737-500 25191 10-Apr-92 20,072
Brazil Rio Sul B737-500 25192 14-Apr-92 18,378
Brazil Rio Sul B737-500 26075 23-Oct-92 19,271
Brazil TAM F100 11284 31-Jul-90 8,911
Brazil TAM F100 11285 1-Aug-90 9,196
Brazil TAM F100 11304 27-Feb-91 9,774
Brazil TAM F100 11305 19-Apr-91 9,470
Brazil TAM F100 11336 5-Jun-91 9,864
Brazil TAM F100 11347 1-Oct-91 9,748
Brazil TAM F100 11348 6-Aug-91 9,909
Brazil TAM F100 11371 19-Dec-91 9,902
Brazil VARIG MD11 48499 31-Dec-91 52,167
Brazil VARIG MD11 48500 1-Mar-92 54,029
Brazil VARIG MD11 48501 1-Sep-92 53,471
Chile Fast Air DC8-71F 45810 9-Apr-92 11,373
Chile Fast Air DC8-71F 45970 15-Oct-92 12,058
Chile Fast Air DC8-71F 45976 10-Aug-91 11,853
Chile Lan Chile Airlines B737-200A 22397 1-Feb-81 2,704
Chile Lan Chile Airlines B737-200A 23024 1-May-83 4,248
Chile Lan Chile Airlines B737-200A 22407 1-Sep-80 2,975
Chile Lan Chile Airlines B767-300ER 26204 1-Oct-92 52,737
Colombia ACES ATR42-300 284 1-Jan-92 5,808
Colombia Avianca B757-200 26154 22-Sep-92 33,955
Colombia Avianca B767-200ER 25421 14-Jan-92 40,645
Colombia Avianca MD83 49939 26-Oct-90 15,702
Colombia Avianca MD83 49946 18-Jul-91 16,160
Colombia Avianca MD83 53120 29-Jul-92 17,509
Colombia Avianca MD83 53125 2-Apr-92 17,470
Colombia Tampa DC8-71F 45849 9-Mar-91 12,315
Colombia Tampa DC8-71F 45945 19-May-92 12,033
Colombia Tampa DC8-71F 46066 24-Apr-91 12,128
Mexico Aeromexico DC9-32 48125 1-Apr-80 1,709
Mexico Aeromexico DC9-32 48126 1-Apr-80 1,831
Mexico Aeromexico DC9-32 48127 1-Jul-80 1,345
Mexico Aeromexico DC9-32 48128 1-Aug-80 1,668
Mexico Aeromexico DC9-32 48129 1-Nov-80 1,768
Mexico Aeromexico DC9-32 48130 1-Dec-80 1,710
Mexico Aeromexico MD82 49660 1-Mar-88 13,366
Mexico Aeromexico MD82 49667 21-Jan-88 13,182
Mexico Aeromexico MD87 49673 1-Dec-88 12,410
Mexico Mexicana F100 11266 17-Aug-90 9,513
Mexico Mexicana F100 11309 16-May-91 9,842
Mexico Mexicana F100 11319 5-Apr-91 9,854
Mexico Mexicana F100 11339 1-Jul-91 10,260
Mexico Mexicana F100 11374 20-Jan-92 10,363
Mexico Mexicana F100 11375 1-Dec-92 10,421
Mexico Mexicana F100 11382 1-Jan-93 10,478
Mexico Mexicana F100 11384 1-Jan-93 10,373
Netherlands Antilles ALM DHC8-300C 230 1-Feb-91 6,584
Netherlands Antilles ALM DHC8-300C 242 1-Nov-90 6,645
Trinidad & Tobago BWIA International MD83 49789 23-Sep-89 16,246
Middle East Israel Arkia Israeli Airlines B757-200 26151 23-Jul-92 36,033
North America Canada Air Canada A320-200 174 1-Apr-91 25,910
Canada Air Canada A320-200 175 1-Apr-91 25,755
Canada Air Canada A320-200 232 1-Oct-91 25,150
Canada Air Canada A320-200 284 9-Mar-92 25,411
Canada Air Canada A320-200 309 13-May-92 26,687
Canada Air Canada A320-200 404 1-Jan-94 29,157
Canada Air Canada B767-300ER 24948 19-Jul-91 49,338
Canada Air Canada B767-300ER 26200 1-Sep-92 53,328
United States of America Allegheny Airlines DHC8-100 258 1-Jan-91 4,614
United States of America America West B737-300QC 23499 1-Jun-86 16,480
United States of America America West B737-300QC 23500 1-Jun-86 16,213
United States of America BAX Global DC8-71F 45811 30-May-91 11,951
United States of America BAX Global DC8-71F 45813 28-Apr-92 11,583
United States of America BAX Global DC8-71F 45946 23-Apr-92 11,335
United States of America BAX Global DC8-71F 45971 13-Feb-92 10,392
United States of America BAX Global DC8-71F 45973 27-Feb-92 12,750
United States of America BAX Global DC8-71F 45978 23-Apr-93 11,404
United States of America BAX Global DC8-71F 45993 23-Jun-93 11,163
United States of America BAX Global DC8-71F 45994 1-Sep-94 11,221
United States of America BAX Global DC8-71F 45998 21-May-93 11,611
United States of America BAX Global DC8-71F 46065 12-Jan-92 12,059
Appraised
Date of Value at
Aircraft Serial Manufacture/ January 31, 2002
Region Country Lessee Type Number Conversion (US$000's)
- ------ ------- ------ ---- ------ ---------- ----------
United States of America Emery Worldwide DC8-71F 45996 29-Oct-92 12,427
United States of America Emery Worldwide DC8-71F 45997 7-Dec-93 12,717
United States of America Emery Worldwide DC8-73CF 46091 1-Dec-89 15,607
United States of America Frontier Airlines, Inc. B737-300 23177 1-Apr-86 15,075
United States of America Hawaiian Airlines DC9-51 47742 1-Jun-77 1,667
United States of America Hawaiian Airlines DC9-51 48122 26-Jan-81 2,300
United States of America Hawaiian Airlines DC9-51 47784 1-May-79 1,852
United States of America Idefix ATR42-300 249 1-Jun-91 5,428
United States of America Pace Airlines B737-300 23749 1-May-87 16,908
United States of America Polar Air Cargo B747-200SF 21730 7-Jun-79 25,018
United States of America TWA B767-300ER 25411 15-Jan-92 53,249
United States of America TWA MD83 49575 1-Oct-87 14,044
United States of America Vanguard Airlines B737-200A 21735 1-Jun-79 4,264
United States of America Vanguard Airlines B737-200A 22979 1-Mar-83 4,272
Off Lease Off Lease B727-200A 21600 1-Nov-80 2,537
Off Lease B737-200A 21196 1-Jul-76 2,451
Off Lease DC9-51 47796 1-Apr-79 1,649
Off Lease MD83 49442 29-Apr-87 13,430
Off Lease MD83 49941 1-Dec-90 17,327
Off Lease MD83 49949 5-Aug-91 18,197
Others Kazakstan Air Kazakstan B737-200A 22090 1-May-80 2,903
Kazakstan Air Kazakstan B737-200A 22453 1-Mar-81 3,617
Ukraine Ukraine International B737-200A 22802 1-Feb-83 4,801
-------------
2,803,193
-------------