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 September 30, 2004
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) (1-302-651-1000)
(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 [ ]
Indicated by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2)
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 September 30, 2004
- ------ ----- ------------------
Airplanes Limited Ordinary Shares, $1.00 par value 30
Airplanes Limited and Airplanes U.S. Trust
Form 10-Q for the Three and Six Month Periods Ended September 30, 2004
Index
Part I. Financial Information Page No.
Item 1. Financial Statements (Unaudited) 3
- Unaudited Condensed Balance Sheets - September 30, 2004
and March 31, 2004
- Unaudited Condensed Statements of Operations - Three Months Ended
September 30, 2004 and September 30, 2003
- Unaudited Condensed Statements of Operations - Six Months Ended
September 30, 2004 and September 30, 2003
- Unaudited Condensed Statements of Comprehensive Income/(Loss) -
Three Months Ended September 30, 2004 and September 30, 2003
- Unaudited Condensed Statements of Comprehensive Income/(Loss) -
Six Months Ended September 30, 2004 and September 30, 2003
- Unaudited Statements of Changes in Shareholders Deficit/Net
Liabilities - Six Months Ended September 30, 2004 and September 30,
2003
- Unaudited Condensed Statement of Cashflows - Six Months Ended
September 30, 2004 and September 30, 2003
- Notes to the Unaudited Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
- Introduction
- Results of Operations - Three Months Ended September 30, 2004
compared with Three Months Ended September 30, 2003
- Results of Operations - Six Months Ended September 30, 2004
compared with Six Months Ended September 30, 2003
- Comparison of Actual Cashflows versus the 2001 Base Case for the
Three Month Period from July 10, 2004 to October 15, 2004
Item 3. Quantitative and Qualitative Disclosures about Market Risks 42
Item 4. Controls and Procedures 47
Part II. Other Information
Item 1. Legal Proceedings 48
Item 2. Changes in Securities and use of Proceeds 49
Item 3. Defaults Upon Senior Securities 49
Item 4. Submission of Matters to a Vote of Security Holders 49
Item 6. Exhibits and Reports on Form 8-K 49
Signatures
Appendix 1 Portfolio Information as at September 30, 2004
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
AIRPLANES GROUP
UNAUDITED CONDENSED BALANCE SHEETS
March 31, September 30,
--------------------------------------- ------------------------------------------
2004 2004
--------------------------------------- ------------------------------------------
Airplanes Airplanes Airplanes Airplanes
Limited Trust Combined Limited Trust Combined
------------ ------------ ------------------------- ----------- --------------
($millions) ($millions)
ASSETS
Cash 77 6 83 133 6 139
Accounts receivable
Trade receivables 19 4 23 7 4 11
Allowance for doubtful debts (8) (1) (9) (3) - (3)
Amounts due from Airplanes Limited - 45 45 - 45 45
Prepaid expenses 3 - 3 3 - 3
Other Current Assets 1 5 6 1 - 1
------------ ------------ ----------- ----------- ----------- --------------
Total Current Assets 92 59 151 141 55 196
------------ ------------ ----------- ----------- ----------- --------------
Net investment in capital and sales
type leases 1 - 1 - - -
Aircraft, Held for Use 1,393 59 1,452 1,331 57 1,388
Aircraft, Held for Sale 98 8 106 27 - 27
------------ ------------ ----------- ----------- ----------- --------------
Total assets 1,584 126 1,710 1,499 112 1,611
============ ============ =========== =========== =========== ==============
LIABILITIES
Accrued expenses and other liabilities 2,639 255 2,894 3,037 288 3,325
Amounts due to Airplanes Trust 45 - 45 45 - 45
------------ ------------ ----------- ----------- ----------- --------------
Total Current Liabilities 2,684 255 2,939 3,082 288 3,370
------------ ------------ ----------- ----------- ----------- --------------
Indebtedness 2,828 275 3,103 2,774 270 3,044
Provision for maintenance 274 13 287 241 8 249
Deferred income taxes - 19 19 - 20 20
------------ ------------ ----------- ----------- ----------- --------------
Total liabilities 5,786 562 6,348 6,097 586 6,683
------------ ------------ ----------- ----------- ----------- --------------
Common Stock, $1 par value per share,
Authorised 10,000 shares; issued and
outstanding 30 shares. - - - - - -
------------ ------------ ----------- ----------- ----------- --------------
Net liabilities (4,202) (436) (4,638) (4,598) (474) (5,072)
------------ ------------ ----------- ----------- ----------- --------------
1,584 126 1,710 1,499 112 1,611
============ ============ =========== =========== =========== ==============
The accompanying notes are an integral part of the unaudited condensed financial statements
3
AIRPLANES GROUP
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended September 30,
---------------------------------------------------------------------------
2003 2004
----------------------------------- -------------------------------------
Airplanes Airplanes Airplanes Airplanes
Limited Trust Combined Limited Trust Combined
---------- ----------- ---------- ---------- ----------- ------------
($millions) ($millions)
Revenues
Aircraft leasing 46 3 49 44 3 47
Expenses
Impairment Provision (166) (8) (174) - - -
Depreciation and amortisation (26) (1) (27) (20) - (20)
Net interest expense (190) (19) (209) (236) (23) (259)
Bad and doubtful debts - - - 3 - 3
Other lease costs (5) - (5) (1) (2) (3)
Selling, general and administrative
expenses (8) - (8) (7) (1) (8)
---------- ----------- ---------- ---------- ----------- ------------
Operating loss before
provision for income taxes (349) (25) (374) (217) (23) (240)
Income tax benefit - 2 2 - - -
---------- ----------- ---------- ---------- ----------- ------------
Net loss on continuing operations (349) (23) (372) (217) (23) (240)
Discontinued Operations
(Loss)/ Profit on aircraft disposals - - - 21 - 21
(Loss)/Profit on discontinued operations (53) (13) (66) 1 - 1
Income tax on discontinued operations - - - - - -
---------- ----------- ---------- ---------- ----------- ------------
Net Loss (402) (36) (438) (195) (23) (218)
========== =========== ========== ========== =========== ============
The accompanying notes are an integral part of the unaudited condensed financial statements
4
AIRPLANES GROUP
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
Six Months Ended September 30,
---------------------------------------------------------------------------
2003 2004
------------------------------------ -------------------------------------
Airplanes Airplanes Airplanes Airplanes
Limited Trust Combined Limited Trust Combined
---------- ---------- ----------------------- ----------- ------------
($millions) ($millions)
Revenues
Aircraft leasing 96 6 102 90 5 95
Expenses
Impairment Provision (166) (8) (174) (19) - (19)
Depreciation and amortisation (53) (3) (56) (40) (1) (41)
Net interest expense (372) (37) (409) (456) (45) (501)
Bad and doubtful debts (2) (1) (3) 5 - 5
Other lease costs (15) - (15) (4) - (4)
Selling, general and administrative
expenses (15) (1) (16) (15) (1) (16)
---------- ---------- ----------- ---------- ----------- ------------
Operating loss before
provision for income taxes (527) (44) (571) (439) (42) (481)
Income tax benefit / Charge 13 4 17 - (1) (1)
---------- ---------- ----------- ---------- ----------- ------------
Net loss on continuing operations (514) (40) (554) (439) (43) (482)
Discontinued Operations
(Loss)/ Profit on aircraft disposals (1) (1) 25 3 28
Loss on discontinued operations (51) (13) (64) (4) - (4)
Income tax on discontinued operations - - - - - -
---------- ---------- ----------- ---------- ----------- ------------
Net Loss (566) (53) (619) (418) (40) (458)
========== ========== =========== ========== =========== ============
The accompanying notes are an integral part of the unaudited condensed financial statements
5
AIRPLANES GROUP
UNAUDITED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
Three Months Ended September 30,
---------------------------------------------------------------------------
2003 2004
----------------------------------- --------------------------------------
Airplanes Airplanes Airplanes Airplanes
Limited Trust Combined Limited Trust Combined
---------- ----------- ---------- ----------- ---------- ------------
($millions) ($millions)
Loss for the period (349) (23) (372) (195) (23) (218)
Other Comprehensive (Loss) / Gain
- Net change in cashflow hedges 16 1 17 - - -
---------- ----------- ---------- ----------- ---------- ------------
Total Comprehensive loss (333) (22) (355) (195) (23) (218)
========== =========== ========== =========== ========== ============
The accompanying notes are an integral part of the unaudited condensed financial statements
6
AIRPLANES GROUP
UNAUDITED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
Six Months Ended September 30,
----------------------------------------------------------------------------
2003 2004
------------------------------------ --------------------------------------
Airplanes Airplanes Airplanes Airplanes
Limited Trust Combined Limited Trust Combined
----------- ---------- ---------- ----------- ----------- ------------
($millions) ($millions)
Loss for the period (514) (40) (554) (418) (40) (458)
Other Comprehensive (Loss) / Gain
- Net change in cashflow hedges 15 1 16 22 2 24
----------- ---------- ---------- ----------- ---------- -------------
Total Comprehensive loss (499) (39) (538) (396) (38) (434)
=========== ========== ========== =========== ========== =============
The accompanying notes are an integral part of the unaudited condensed financial statements
6
AIRPLANES GROUP
UNAUDITED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT/NET LIABILITIES
Six Months Ended September 30, 2004 and September 30, 2003
Airplanes Limited Airplanes Trust Combined
------------------------------------------------- -------------------------------------- -------------
Share Accumulated Other Shareholders' Accumulated Other Shareholders Shareholders
Capital Loss Comprehensive Deficit Loss Comprehensive Deficit Deficit/ Net
Loss Loss Liabilities
------------------------------------------------- ------------------------- ------------ -------------
($million)( $millions) ($millions) ($millions) ($millions) ($millions) ($millions) ($millions)
Balance at March 31, 2003 - 3,090 71 3,161 326 7 333 3,494
Net loss for the period - 514 - 514 40 - 40 554
Other Comprehensive Loss - - (15) (15) - (1) (1) (16)
------ ----------- ------------- ----------- ------------ ---------- -------- -------------
Balance at September 30, 2003 - 3,604 56 3,660 366 6 372 4,032
====== =========== ============= =========== ============ ========== ======== =============
Balance at March 31, 2004 - 4,156 46 4,202 431 5 436 4,638
Net loss for the period - 418 - 418 40 - 40 458
Other Comprehensive Loss - - (22) (22) - (2) (2) (24)
------ ----------- ------------- ----------- ------------ ---------- -------- -------------
Balance at September 30, 2004 - 4,574 24 4,598 471 3 474 5,072
====== =========== ============= =========== ============ ========== ======== =============
The accompanying notes are an integral part of the unaudited condensed financial statements
8
AIRPLANES GROUP
UNAUDITED CONDENSED STATEMENTS OF CASHFLOWS
Six Months Ended September 30,
---------------------------------------------------------------------------
2003 2004
----------------------------------- -------------------------------------
Airplanes Airplanes Airplanes Airplanes
Limited Trust Combined Limited Trust Combined
---------- ----------- ----------- ----------- ----------- ----------
($millions) ($millions)
Cash flows from operating activities
Net loss (566) (53) (619) (418) (40) (458)
Adjustment to reconcile (net loss)
to net cash provided by operating activities:
Depreciation 62 3 65 40 1 41
Impairment Charge 218 21 239 26 - 26
Aircraft maintenance, net 7 - 7 13 - 13
Loss/ (Profit) on disposal of aircraft 1 - 1 (25) (3) (28)
Deferred income taxes (13) (4) (17) - 1 1
Provision for bad debts 2 1 3 (5) - (5)
Accrued and deferred interest expense 302 30 332 430 42 472
Changes in operating assets & liabilities:
Accounts receivable 5 (2) 3 11 - 11
Intercompany account movements (7) 7 - - - -
Other accruals and liabilities (3) - (3) (10) (7) (17)
Other assets (1) - (1) - 6 6
---------- ----------- ---------- ---------- ---------- -----------
Net cash provided by operating activities 7 3 10 62 - 62
========== =========== ========== ========== ========== ===========
Cash flows from investing activities
Purchase/Sale of aircraft (1) - (1) 47 5 52
Capital and sales type leases 1 - 1 1 - 1
Net cash provided by
investing activities ---------- ----------- ---------- ---------- ---------- -----------
- - - 48 5 53
========== =========== ========== ========== ========== ===========
Cash flows from financing activities
Repayment of indebtedness (27) (3) (30) (54) (5) (59)
---------- ----------- ---------- ---------- ---------- -----------
Net cash used in financing activities (27) (3) (30) (54) (5) (59)
========== =========== ========== ========== ========== ===========
Net (decrease) / increase in cash (20) - (20) 56 - 56
Cash at beginning of period 135 6 141 77 6 83
---------- ----------- ---------- ---------- ---------- -----------
Cash at end of period 115 6 121 133 6 139
========== =========== ========== ========== ========== ===========
Cash paid in respect of:
Interest 71 7 78 28 2 30
========== =========== ========== ========== ========== ===========
The accompanying notes are an integral part of the 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/(loss), statement of changes in
shareholders deficit/net liabilities and statements of cashflows 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 September 30, 2004
and for the three and six month periods ended September 30, 2004. Such
adjustments are of a normal, recurring nature. The results of operations for the
three and six month periods ended September 30, 2004 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
We have been unable to meet all of the base case assumptions either in our
original prospectus dated March 28, 1996 (the "1996 Base Case") or in our
prospectus dated March 8, 2001 (the "2001 Base Case"). In light of continued
lease restructurings and a weak leasing market generally we are generating
revenues at significantly lower levels than we had assumed and at levels which
have been inadequate to pay minimum principal on the class A notes in full, or
to pay any interest or minimum principal on the class B notes or any interest on
the class C and class D notes, since the December 15, 2003 payment date. Even
though, as a result of the consent solicitation in 2003 we are now able to sell
aircraft where it is in our best economic interest, and which we may not have
been able to sell previously, such sales in the current market are difficult to
achieve and where sales have been completed, they have not yielded sales
proceeds sufficient to repay a proportionate amount of the notes and
certificates or even to make a significant difference to our cashflow. In
addition, although we are seeing some small improvement in lease rates for
certain aircraft types, this improvement has not made nor do we expect it to
make, a significant difference to our cashflow. On each payment date we are
currently only paying in full our administrative and lease expenses and certain
other payments in the ordinary course of business, interest on the class A notes
and swap payments, and the "First Collection Account Top-Up". We use any
remaining cashflows towards payment of minimum principal on the class A notes
which at October 15, 2004
10
was $119.6 million in arrears. We do not anticipate that we will ever be able to
resume making payments of interest or principal on the class B, C and D notes.
Impairment
Aircraft are periodically reviewed for impairment in accordance with Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long Lived Assets ("SFAS 144"). An impairment review is required
whenever events or changes in circumstances indicate that the asset's carrying
amount may not be recoverable. An impairment loss is evaluated when the
undiscounted estimated future cashflows of the aircraft are less than its
carrying value and the loss is measured as the excess of the carrying value over
the fair value.
The fair value of the aircraft is generally based on independent appraisals of
aircraft. The appraised values are determined based on the assumption that there
is an "open unrestricted stable market environment with a reasonable balance of
supply and demand". On the basis of past experience including actual lease rates
and sales prices achievable and the servicer's experience of the market,
estimated discounted future cashflows are used as a more accurate indication of
fair value. The estimated discounted future cashflows assume, among other
things, market lease rates at the end of the existing lease term, other lease
costs, downtime and the risk inherent in the cashflows. Following consideration
of the estimated future cashflows from rentals or sales proceeds, to be
generated by our aircraft, which have decreased significantly, a SFAS 144
assessment resulted in the requirement for an impairment provision of $26
million (Airplanes Limited: $26 million; Airplanes Trust: $Nil) in the six month
period ended September 30, 2004, $7 million (Airplanes Limited: $7 million,
Airplanes Trust: $Nil ) of which has been included under discontinued
operations.
Discontinued Operations
We separately disclose results relating to discontinued operations which refer
to aircraft which have been sold or are held for sale. At September 30, 2004,
eleven aircraft with a net book value of $27 million are classified as held for
sale. We disclose profit/(loss) on sale, lease revenue, impairment charges and
depreciation for these aircraft and the comparative prior period is re-stated
accordingly.
Debt Maturity
The terms of each subclass or class of notes, including the outstanding
principal amount as of September 30, 2004 and estimated fair value as of
September 30, 2004, are as follows:
Principal Estimated
Annual Interest Amount Fair Value
Rate at Final at
(Payable September Maturity September
Class of Notes* Monthly) 30, 2004 Date 30, 2004**
$ Million $ Million
Subclass A-8 (LIBOR+.375%) 678 March 15, 2019 576
Subclass A-9 (LIBOR+.55%) 750 March 15, 2019 375
Class B (LIBOR+.75%) 227 March 15, 2019 36
Class C (8.15%) 350 March 15, 2019 12
Class D (10.875%) 395 March 15, 2019 -
------- ------
2,400 999
_____________________
11
* The subclass A-6 notes were repaid on October 15, 2004.
** Although the estimated fair values of the class A to D notes outstanding have
been determined by reference to prices as at September 30, 2004 provided by an
independent third party, these fair values do not reflect the market value of
these notes at a specific time and should not be relied upon as a measure of the
value that could be realized by a noteholder upon sale.
2. Securitization Transaction
On March 28, 1996 (the "Closing Date"), debis AirFinance Ireland plc ("debis
AirFinance Ireland") (then known as GPA Group plc) and its subsidiaries
(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, Airplanes Limited and Airplanes Trust were
formed to purchase from debis AirFinance, a portfolio of 229 commercial aircraft
and related leases through a purchase of 100% of the stock of the existing
subsidiaries of debis AirFinance that owned and leased the aircraft.
Simultaneously with these 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 91% of the principal amount of the notes in each class
being issued by Airplanes Limited and approximately 9% by Airplanes Trust. We
also issued class E notes of $604 million which are subordinate to the class A
to 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. Approximately $13 million of the class E notes originally issued
were subsequently cancelled on July 30, 1996 under the terms of the Transaction,
leaving $591 million outstanding principal of class E notes.
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 ("GE Capital").
On March 15, 2001, we completed a refinancing of $750 million of class A notes.
Indebtedness at September 30, 2004 represents the aggregate of the outstanding
class A to D notes and class E notes as set out in more detail in "Item 3.
Quantitative and Qualitative Disclosures about Market Risks" (net of
approximately $0.2 million of discounts on issue and net of $13 million of class
E notes subsequently cancelled as referred to above). Airplanes Limited and
Airplanes Trust have each fully and unconditionally guaranteed each others'
obligations under the relevant notes (the "Guarantees").
12
3. Contingent Liabilities
Guarantees
Airplanes Limited and Airplanes Trust have unconditionally guaranteed each
others' obligations under all classes of notes issued by Airplanes Trust and
Airplanes Limited, respectively, pursuant to the Transaction, details of which
are set out in Note 2.
Foreign Taxation
The international character of Airplanes Group's operations gives rise to some
uncertainties with regard to the impact of taxation in certain countries. The
position is kept under continuous review and Airplanes Group provides for all
known liabilities.
The preparation of the financial statements requires the use of management
estimates.
The accompanying unaudited condensed interim financial statements of Airplanes
Limited and Airplanes Trust (pages 3 to 12) have been prepared in accordance
with United States generally accepted accounting principles for interim
financial information and in accordance with the requirements of this 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 cashflows, you should 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, 2004 previously filed with the Securities and Exchange
Commission.
13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
We are in the business of leasing aircraft to aircraft operators around the
world. At September 30, 2004, we owned 156 aircraft, 143 of which were on lease
to 54 lessees in 34 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 and
the subclass A-6 certificates were fully repaid as of October 15, 2004.
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. We used the
proceeds from this offering to refinance our subclass A-4 and A-7 certificates.
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; and
o each of Airplanes Limited and Airplanes Trust has fully and
unconditionally guaranteed the performance of the other under their
respective notes.
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.
14
General
Substantially all of our business consists of aircraft operating lease
activities. We may also engage in aircraft sales subject to certain 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 our portfolio and (iii) our
financial resources and liquidity position relative to our competitors.
This quarterly Report on Form 10-Q 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 ("Exchange Act"). 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 year ended March 31, 2004.
Recent Developments
Overview
We have been unable to meet all of the 1996 Base Case assumptions or the 2001
Base Case assumptions. In light of continued lease restructurings and a weak
leasing market generally, we are generating revenues at significantly lower
levels than we had assumed and at levels which have been inadequate to pay
minimum principal on the class A notes in full, or to pay any interest or
minimum principal on the class B notes or any interest on the class C and D
notes, since the December 15, 2003 payment date. Even though, as a result of the
consent solicitation in 2003 we are now able to sell aircraft which we may not
have been able to sell previously, such sales in the current market are
difficult to achieve and where sales have been completed, they have not yielded
sales proceeds sufficient to repay a proportionate amount of the notes and
certificates or even to make a significant difference to our cashflow. In
addition, although we are seeing some small improvement in lease rates for
certain aircraft types, this improvement has not made, nor do we expect it to
make a significant difference to our cashflow. On each payment date we are
currently only paying in full our administrative and lease expenses and certain
other payments in the ordinary course of business, interest on the class A notes
and swap payments, and the "First Collection Account Top-Up". We use any
remaining cashflows towards payment of minimum principal on the class A notes
which at October 15, 2004 was $119.6 million in arrears. We do not anticipate
that we will ever be able to resume making payments of interest or principal on
the class B, C and D notes.
Background
Class A principal adjustment amount
As a result of our low revenues and a greater than assumed decline in the
appraised value of the aircraft in our portfolio, we have been required to pay
class A principal adjustment amount to the
15
extent of available cashflows in order to maintain certain loan to current
appraised value ratios on the class A notes. We have not always had sufficient
cashflows to pay class A principal adjustment amount in full and since the April
15, 2003 payment date, we have not had sufficient cashflows to pay any class A
principal adjustment amount, resulting in accumulating arrears.
Class A principal adjustment amount ranks ahead of scheduled principal payments
on the class C and D notes. If, on any payment date, we were unable to make
payment in full of class A principal adjustment amount, then by definition we
were unable to make any scheduled principal payments on the class C and D notes.
Between February 1999 and March 2000, we were unable to make some scheduled
principal payments on the class C and D notes and since April 2000 we have not
paid any scheduled principal on the class C and D notes (or paid any minimum
interest on the class E notes) which continues to be deferred.
Class A minimum principal amount
To the extent that we have sufficient available funds, we are also required to
pay a minimum principal amount on the class A notes in order to maintain certain
loan to initial appraised value ratios. (Since class A minimum principal amount
is determined by reference to initial appraised values, it is unaffected by the
annual appraisals.) As a result of earlier payments of class A principal
adjustment amount described above we remained ahead of the required class A
minimum principal payment schedule. However as described above, we have not
always had sufficient cashflows to pay class A principal adjustment amount in
full and since the April 15, 2003 payment date, we have not had sufficient
cashflows to pay any class A principal adjustment amount. As a result, since the
August 15, 2003 payment date we have no longer been ahead of the required class
A minimum principal payment schedule. Therefore on that date we had to
recommence payments of minimum principal on the class A notes to the extent of
available cashflows and we were unable to fund the "Second Collection Account
Top-up" in full. Beginning on the December 15, 2003 payment date our cashflows
were insufficient to allocate any funds at all to the "Second Collection Account
Top-up" or to pay minimum principal on the class A notes in full. Minimum
principal arrears on the class A notes were $119.6 million on the October 15,
2004 payment date. Since minimum principal on the class A notes ranks ahead of
interest and minimum principal on the class B notes and interest on the class C
and D notes in the priority of payments, our cashflows have been inadequate to
pay any interest or minimum principal on the class B notes or any interest on
the class C and D notes, since the December 15, 2003 payment date. Our failure
to make payments on a class of notes results in failure to make payments on a
corresponding class of certificates.
Class B, C and D notes
We do not anticipate that we will ever be able to resume payments of interest or
principal on the class B, C and D notes. Given our failure to pay interest when
due on these notes beginning on the December 15, 2003 payment date, interest has
begun to accrue on the unpaid interest in accordance with the terms of the notes
and will continue to accrue until all interest arrears are paid in full. Since
interest (and minimum principal) on the class A notes is payable prior to
payment of interest and minimum/scheduled principal on the class B, C and D
notes (and all other amounts of principal on the class B, C and D notes),
available cashflows are used first to service interest and, to the extent
possible, minimum principal on the class A notes. The minimum principal arrears
on the class A notes on each payment date have been and will continue to be
carried over to the next payment date causing the amount payable to increase
over time, making it more difficult to make payments in full. Even if cash were
available at any subsequent time to make payments ranking
16
below class A minimum principal, cashflows would first be used to pay interest
on the class B notes, which would then include all the accrued interest from the
period when no payments were made on these notes, thus rendering remote any
likelihood of payments ranking below this in the order of priority of payments.
Ratings
This vulnerability of the various classes of notes has been reflected in actions
taken by the rating agencies which continue to re-evaluate structured aircraft
financings.
Set out in the table below are the ratings of our certificates at October 15,
2004:-
Outstanding
Principal
Balance as
at October Moody's (S&P
Certificate 15, 2004 S & P Fitch equivalent)
- ----------- -------- ----- ----- -----------
Subclass A-8 $677.8m A BB Baa3 (BBB-)
Subclass A-9 $750.0m BB+ BB B1 (B+)
Class B $226.8m D CCC Ca (CC)
Class C $349.8m D CCC Ca (CC)
Class D $395.1m D CC C (C)
Given the continuing difficulties in the aircraft industry and their impact on
the factors which determine our revenues, there can be no assurance that the
rating agencies will not further downgrade any class of our certificates.
The ratings of the certificates address the likelihood of the timely payment of
interest and the ultimate payment of principal and premium, if any, on the
certificates. A rating is not a recommendation to buy, sell or hold certificates
because ratings do not comment as to market price or suitability for a
particular investor. A rating may be subject to revision, suspension or
withdrawal at any time by the assigning rating agency.
Commercial Opportunities for Certain Types of our Aircraft
The market for certain aircraft models is currently very weak and is expected to
remain so. We are examining all possibilities in respect of the remarketing of
the aircraft, including leasing, selling or where appropriate, converting them
to freighter aircraft.
The price of aviation fuel has increased dramatically in recent months. This has
caused financial difficulties for airlines since, as a result of competitive
pressures, not all of this cost is being passed back to customers. It also has a
negative effect on operators of older, less fuel efficient aircraft which
comprise a majority of the aircraft in our portfolio. Continued high fuel prices
may make it more difficult for us to remarket our aircraft favourably.
Prior to the successful completion of the consent solicitation as outlined in
our most recent Report on Form 10-K as previously filed with the SEC, our
indentures restricted our ability to sell aircraft. During September 2003, we
successfully completed a solicitation of consents from certificate holders, as
announced in our Consent Solicitation Statement dated September 5, 2003, and as
explained in more detail in our most recent Report on Form 10-K. We are now able
to sell aircraft below specified target prices where we have unanimously
determined that a sale is in the best interests of Airplanes Group and the
noteholders and certain other conditions are met.
17
We continue to evaluate sales opportunities for aircraft with little or no
re-lease prospects and which require expenditure for storage, maintenance and
insurance.
As disclosed in our press release dated September 30, 2004 we completed the sale
of our three MD-11 aircraft for $39 million on September 29, 2004. Following a
thorough review of the proposal to sell these aircraft, we concluded that it was
in the best economic interest of Airplanes Group and the certificate holders to
proceed with the sale. In arriving at this decision we had extensive
consultations with the servicer and sought the opinion of an outside firm of
appraisers. In the three month period to September 30, 2004, we also disposed of
2 x DC8-71F, 3 x DC9-32, 1 x A300C4-200 and 1 x DHC8-300Cand title to two
B737-200A aircraft was transferred to the lessee under the terms of the finance
leases in respect of such aircraft. At September 30, 2004 four aircraft
B737-200Ax1, DHC8-100x1, MD-83x2) were subject to letters of intent or contract
for sale.
As of the date of this Form 10Q, one further aircraft (MD83x1) has become
subject to a letter of intent for sale and one of the MD83 aircraft listed above
has been delivered to the purchaser.
Remarketing
At September 30, 2004, we had 25 aircraft scheduled to be remarketed before
September 30, 2005. These comprise 3 B737-200As, 2 B737-400s, 1 A300-B4-200, 1
B747-200SF, 1 B767-300ER, 4 DHC8s, 3 MD-83s, 6 DC8s, 2 DC9s, 1 ATR42 and 1
B737-500. Furthermore, in light of negotiations with certain lessees, we may
also experience early redeliveries of aircraft prior to their contractual lease
expiries. 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 also likely to be lower, and
in some cases materially lower, than lease rates which have not been reset in
the last three years.
The Lessees:
Europe
At September 30, 2004 we leased 49 aircraft which represented 40.17% of our
portfolio by appraised value at January 31, 2004 to operators in Europe.
During the three month period to September 30, 2004 a Turkish lessee of one A300
aircraft was in arrears. Following discussions between the servicer and the
lessee, the aircraft was sold and all arrears have been cleared.
North America
At September 30, 2004 we leased 19 aircraft representing 13.16% of our portfolio
by appraised value as of January 31, 2004, to operators in North America. The
large US airlines have all recently announced significant losses and a number of
these airlines are in, or considering entering, Chapter 11 bankruptcy
protection.
At September 30, 2004, we leased six aircraft, representing 6.88% of our
portfolio by appraised value as of January 31, 2004 to one Canadian lessee. The
lessee, which has emerged from the protection of the Companies Creditors
Arrangement Act (Canada) resumed making payments in
18
July 2003 and continues to do so. The servicer had agreed a restructuring of the
leases resulting in a reduction in lease rentals. During the three months to
September 30, 2004, all amounts outstanding were settled.
At September 30, 2004 a lessee of one aircraft representing 0.87% of our
portfolio by appraised value as of January 31, 2004 had filed for Chapter 11
bankruptcy protection. The airline has subsequently emerged from this
protection. The aircraft was rejected as part of the Chapter 11 proceedings and
was redelivered during the three months ended June 30, 2004. The servicer has
agreed a settlement amount with the lessee in respect of its obligations.
Latin America
At September 30, 2004, lessees of 40 aircraft with respect to 17.28% of our
portfolio by appraised value as of January 31, 2004 operated in Latin America,
principally Brazil, Mexico and Colombia. The prospects for lessee operations in
these countries depend in part on the general level of political stability and
economic activity and policies in those countries. Further developments in the
political systems or economies of these countries or the implementation of
future governmental policies in these countries may materially affect these
lessees' operations.
Economic volatility may increase in these and other emerging markets which may
cause further difficulties for our lessees.
A former Brazilian lessee of three MD-11 aircraft, due to trading difficulties
was in arrears. The servicer, following discussions with the lessee agreed to
the early return of the aircraft during 2003. The servicer signed a settlement
agreement in respect of the lessee's obligations and the lessee is current in
respect of these obligations.
A second Brazilian lessee of eight F-100 aircraft representing 2.87% of our
portfolio by appraised value as of January 31, 2004, has signed a restructuring
agreement, which provided for rental deferrals of 35% to 50% for the period to
December 2002, with repayment before the expiry of the current leases in 2007
and 2008. The lessee has to date continued to meet its obligations under the
agreement.
At September 30, 2004, a former Brazilian lessee of three B737-500 aircraft,
representing 2.15% of our portfolio by appraised value at January 31, 2004 was
in arrears. The servicer agreed to the early return of the aircraft prior to
March 31, 2003 and has signed a settlement agreement in respect of the lessee's
obligations. The lessee is current in respect of these obligations.
At September 30, 2004 a Brazilian lessee of one DC8-71F aircraft, representing
0.43% of our portfolio by appraised value at January 31, 2004, was experiencing
trading difficulties. The servicer has issued default notices following the
airline's failure to meet its obligations under the lease.
At September 30, 2004, we leased nine aircraft, representing 6.86% of our
portfolio by appraised value at January 31, 2004 to two Colombian lessees.
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 U.S.
dollar denominated rental payments under the leases.
19
At September 30, 2004, we leased six aircraft (included in the nine aircraft
mentioned in the preceding paragraph) to one Colombian lessee, representing
5.62% of our portfolio by appraised value at January 31, 2004. The lessee, which
is still under Chapter 11 bankruptcy protection in the U.S., recommenced making
payments in May 2003 and is current in respect of its obligations which were
restructured during the year ended March 31, 2004.
At September 30, 2004, an Antiguan lessee of five aircraft representing 0.90% of
our portfolio by appraised value as of January 31, 2004 had agreed with the
servicer to a restructuring in which the lessee would pay its arrears over a 24
month period.
Asia and the Far East
As at September 30, 2004, we leased 28 aircraft representing 17.39% of our
portfolio by appraised value as of January 31, 2004 to 14 lessees in this
region. Since 1999, there has been some stabilization and recovery in the
economies of this region.
A decline in tourism in this area may adversely affect demand for aircraft in
the region. For example, in the final quarter of the year ended March 31, 2003,
this region in particular, was subject to the outbreak of SARS. This led to
widespread disruption in travel within and from outside the region. Airlines
suffered substantial cutbacks in the number of passengers travelling and many
flight schedules were reduced. These factors adversely affected the ability of
lessees in the region to make payments under their leases. Current indications
are that the region has recovered and is experiencing traffic growth.
At September 30, 2004 an Indonesian lessee of two aircraft representing 0.21% of
our portfolio by appraised value as of January 31, 2004 was in arrears. Since
September 30, 2004 these two aircraft have been redelivered. The servicer is
currently in discussions regarding outstanding amounts.
Africa
At September 30, 2004 we leased six aircraft representing 5.91% of our portfolio
by appraised value at January 31, 2004 to lessees in Africa.
During the three month period ended September 30, 2004, a lessee of one
B767-300ER aircraft representing 2.07% of our portfolio by appraised value at
January 31, 2004, returned the aircraft early.
Other
We also leased three aircraft representing 2.52% of our portfolio by appraised
value as of January 31, 2004 to a lessee in Ukraine and one aircraft
representing 0.19% of our portfolio by appraised value as of January 31, 2004 to
a lessee in Australia.
Compliance with Governmental and Technical Regulation
In addition to the general requirements regarding maintenance of the aircraft,
aviation authorities from time to time issue ADs requiring the operators of
aircraft to take particular maintenance actions or make particular modifications
with respect to all aircraft of a particular type.
20
Manufacturer recommendations may also be issued. To the extent that a lessee
fails to perform ADs that are required to maintain its certificate of
airworthiness or other manufacturer requirements in respect of an aircraft (or
if the aircraft is not currently subject to a lease), Airplanes Group may have
to bear or share (if the lease requires it) the cost of compliance. Other
governmental regulations relating to noise and emissions levels may be imposed
not only by the jurisdictions in which the aircraft are registered, including as
part of the airworthiness requirements, but also in other jurisdictions where
the aircraft operate. A number of jurisdictions including the United States have
adopted, or are in the process of adopting, noise regulations which ultimately
will require all aircraft to comply with the most restrictive currently
applicable standards. Some of the jurisdictions that impose these regulations
restrict the future operation of aircraft that do not meet Stage 3 noise
requirements and prohibit the operation of those aircraft in those
jurisdictions. As 1.42% of our portfolio by appraised value as of January 31,
2004 did not meet the Stage 3 requirements as of March 31, 2004, these
regulations may adversely affect Airplanes Group because our non-compliant
aircraft will not be able to operate in those jurisdictions and we may incur
substantial costs to comply with the Stage 3 requirements.
Moreover new ADs or noise or emissions reduction requirements may be adopted in
the future and these could result in significant costs to Airplanes Group or
adversely affect the value of, or our ability to re-lease, Stage 2 or Stage 3
aircraft. In particular, certain organizations and jurisdictions are currently
considering "Stage 4" requirements which would tighten noise and emissions
certification requirements for newly manufactured aircraft. If these more
restrictive requirements are adopted or applied to existing aircraft types, it
could result in significant costs to Airplanes Group or adversely affect the
value of, or our ability to re-lease, aircraft in our portfolio.
Volume 2 of Annex 16 of the Chicago Convention also contains standards and
recommendations regarding limitations on vented fuel and smoke and gaseous
emissions for aircraft. While a number of countries have adopted regulations
implementing these recommendations, these regulations generally have been
prospective in nature, requiring only that newly manufactured engines meet
particular standards after a particular date. To the extent that these
regulations require modifications to the engines owned by Airplanes Group, they
would be treated similarly to ADs under the leases.
Aviation authorities in Europe and North America have adopted regulations
requiring the installation of traffic collision avoidance systems, automatic
emergency locator transmitters and various other systems. Depending on whether
the costs of complying with these regulations are borne by us or the lessees,
installation of these systems could result in significant cash capital
expenditures by Airplanes Group in the future. In addition to the ADs discussed
below, we currently expect that the FAA and other aviation authorities may issue
further ADs to improve security on aircraft.
One requirement is the installation of enhanced Ground Proximity Warning System
("GPWS") in all aircraft by 2005, which has been mandated by the FAA and the
European Joint Airworthiness Authorities. GPWS is an avionics system which
detects an aircraft's proximity to the earth. The enhanced version enables the
system to correlate the aircraft's current position with a database of
obstructions in the horizontal plane (high mountain peaks, buildings, antennae
etc). All new generation Airbus and Boeing aircraft have GPWS and require only a
software upgrade. For the majority of our aircraft, installation of GPWS will
require the full modification, some of which we expect will be completed under
cost sharing arrangements with lessees. The estimated cost to implement this
modification is $120,000 per aircraft. To the extent that compliance with this
or
21
any further such ADs is not the responsibility of lessees under their leases,
or if the aircraft are not on lease, we may incur significant costs.
The FAA issued an AD concerning insulation for the purpose of increasing fire
safety on MD-80 and MD-11 aircraft. At September 30, 2004, 26 aircraft
representing 14.95% of the portfolio by appraised value as of January 31, 2004,
were MD-80s. We will incur significant costs in ensuring these aircraft comply
with these standards. It is estimated that the necessary modification of the 26
aircraft will cost approximately $10.9 million. To date, we have completed the
modification of fourteen aircraft at a cost of $6.1 million. We expect to
complete the modification of the remaining aircraft by September 30, 2005 at an
estimated cost of $4.8 million.
The FAA has issued an AD mandating the modification of affected lap joints on
Boeing 737 aircraft when an aircraft has completed 50,000 cycles. The estimated
cost to implement those modifications for each aircraft is approximately
$230,000. Based on the current cycles completed to date, our 53 Boeing 737
aircraft, representing 37.98% of our portfolio by appraised value at January 31,
2004, are not likely to require these modifications prior to 2007. However,
after that date we will incur significant costs in ensuring our Boeing 737
aircraft comply with these standards.
In early 2004 Boeing discovered cracks at the lap joint areas on a number of
B737-200/300/400/500 aircraft which were caused by scribe marks from sharp
instruments used in paint, sealant and de-cal removal. Boeing is expected to
release a Service Bulletin ("SB") in December 2004 which may be mandated by the
FAA. This SB will provide inspection criteria and repair guidelines for all
aircraft based on total aircraft cycles versus scribing risk (assessed on paint
stripping frequency). If the SB is mandated by the FAA the servicer will assess
our portfolio of B737 aircraft to determine what cost and remedial action is
necessary.
The FAA has issued an AD affecting all Boeing 737 aircraft, mandating the
installation of a new rudder power control unit and changes to adjacent systems
in order to rectify an unsafe condition which has led to a jammed or restricted
control of the rudder in the past. The majority of the cost of these
modifications is expected to be covered by the manufacturer, with the operators
only being responsible for the labour costs of the modifications, estimated at
$20,000 per aircraft and is to be completed before November 2008. If the costs
are not the responsibility of some or all lessees under their leases, or if the
aircraft are not on lease, we could incur significant costs in ensuring that our
53 Boeing 737 aircraft comply with these modifications.
In light of the events of September 11, 2001, the FAA issued Special Federal
Aviation Regulation Amendments mandating the installation of ballistic and blunt
impact resistance flight doors allowing for controlled cockpit access as well as
emergency ingress and egress to and from the cockpit. Other aviation authorities
subsequently mandated similar requirements. All of our aircraft which are on
lease and subject to these requirements, either have been, or are expected to be
modified in accordance with the relevant requirements. The estimated cost varies
across aircraft type depending on the current door configuration but averaging
approximately $40,000. There may be further requirements in this area relating
to transponder upgrades and on board video surveillance systems in the near
future. As regulations currently stand the majority of aircraft have been
modified by the lessee with no cost to us. However, such requirements may
increase remarketing costs for aircraft currently off lease or which are
returned to us over the next twelve months.
22
The incurrence of any of the foregoing costs will further adversely impact our
results of operations.
23
Results of Operations - Three Months Ended September 30, 2004 Compared with
Three Months Ended September 30, 2003.
Airplanes Group's results for the three months ended September 30, 2004
reflected a continuation of the difficult trading conditions for the aviation
industry which gave rise to lessees seeking a variety of rental restructurings
including rental reductions and deferrals. These restructurings will continue to
have a significant adverse impact in future periods, although various factors,
including the timing of receipts and expenditures and non-recurring items, can
result in short term swings in any particular reporting period.
Airplanes Group generated $27 million in cash from operations in the three
months ended September 30, 2004 compared to $10 million in the same period of
the previous year. The increase in cash generated from operations in the three
month period ended September 30, 2004 is primarily attributable to positive
maintenance cashflows and lower interest payments, offset by a reduction in
lease revenues due to an increased level of lease restructurings and to a lesser
extent, to greater aircraft downtime and reduced rentals as a result of aircraft
sales in previous periods. Cashflow will continue to be adversely affected by
the factors outlined above.
There was a net loss after taxation for the three months ended September 30,
2004 of $218 million (Airplanes Limited: $195 million; Airplanes Trust: $23
million) compared to a net loss after taxation for the three months ended
September 30, 2003 of $438 million (Airplanes Limited: $402 million; Airplanes
Trust: $36 million). Excluding accrued but unpaid class E note interest and
impairment charges, the movement from a loss of $30 million to a profit of $4
million for the three months ended September 30, 2004 was primarily attributable
to an increase in profit from aircraft sales and decreased interest expense
offset by decrease in lease revenues as discussed below.
Leasing Revenues
Leasing revenues for the three months ended September 30, 2004 were $47 million
(Airplanes Limited: $44 million; Airplanes Trust: $3 million) compared with $49
million (Airplanes Limited: $46 million; Airplanes Trust: $3 million) for the
three months ended September 30, 2003. The decrease in 2004 was primarily
attributable to a number of lease restructurings including rental reductions and
the number of aircraft which were off lease during the three months ended
September 30, 2004. At September 30, 2004, we had 143 of our 156 aircraft on
lease (Airplanes Limited: 133 aircraft; Airplanes Trust: 10 aircraft) compared
to 155 of our 176 aircraft on lease (Airplanes Limited: 145 aircraft; Airplanes
Trust: 10 aircraft) at September 30, 2003.
Impairment Provisions
Aircraft carrying values are periodically assessed for impairment in accordance
with SFAS 144. An impairment review is required whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. The
statement requires an assessment for impairment when an asset's carrying value
is greater than its fair value as measured by net undiscounted estimated future
cashflows. Impairments are measured by the excess of carrying value over fair
value. Following consideration of the estimated future cashflows from rentals or
sales proceeds, to be generated by our aircraft a SFAS 144 assessment resulted
in the
24
requirement for an impairment provision of $Nil (Airplanes Limited: $Nil;
Airplanes Trust: $Nil) in the three month period ended September 30, 2004.
Depreciation and Amortization
The charge for depreciation and amortization in the three months ended September
30, 2004 amounted to $20 million (Airplanes Limited: $20 million; Airplanes
Trust: $Nil million) as compared with $27 million (Airplanes Limited:
$26million; Airplanes Trust: $1 million) for the three months ended September
30, 2003. The reduction in the charge in the three month period ended September
30, 2004 resulted primarily from the reduced depreciable value of the fleet
following the impairment provisions made in the year ended March 31, 2004 and to
a lesser extent, aircraft sales in previous periods.
Net Interest Expense
Net interest expense was $259 million (Airplanes Limited: $236 million;
Airplanes Trust: $23 million), of which $37 million related to interest on the
class A to D notes and swaps and $222 million related to interest on the class E
notes, in the three month period ended September 30, 2004 compared to $209
million (Airplanes Limited: $190 million; Airplanes Trust: $19 million), of
which $40 million related to interest on the class A to D notes and swaps and
$169 million related to interest on the class E notes, in the three month period
ended September 30, 2003. The increase in the amount of interest charged was
primarily due to additional interest charged on accrued but unpaid class E note
interest of $53 million, partially offset by lower average debt and interest
rates in the three months ended September 30, 2004.
The weighted average interest rate on the class A to D notes during the three
months ended September 30, 2004 was 5.59% and the average debt in respect of the
class A to D notes outstanding during the period was $2,473 million. The class E
notes together with the accrued but unpaid class E note interest, accrue
interest at a rate of 20% per annum, (as adjusted by reference to the U.S.
consumer price index with effect from March 28, 1996).
The weighted average interest rate on the class A to D notes during the three
months to September 30, 2003 was 6.09% and the average debt in respect of the
class A to D notes outstanding during the period was $2,614 million.
The difference for the three months ended September 30, 2004 in Airplanes
Group's net interest expense of $259 million (Airplanes Limited: $236 million;
Airplanes Trust: $23 million) and cash paid in respect of interest of $15
million (Airplanes Limited: $14 million; Airplanes Trust: $1 million) is
substantially accounted for by the fact that interest on the class E notes is
accrued but unpaid and that the interest on the class B, C and D notes is now
also being accrued and not paid.
Net interest expense is stated after deducting interest income earned during the
relevant period. In the three months ended September 30, 2004, Airplanes Group
earned interest income (including lessee default interest) of $Nil compared with
$1 million in the three months ended September 30, 2003 (Airplanes Limited: $1
million; Airplanes Trust: $Nil).
Bad Debt 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
25
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 September 30, 2004, 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 $3 million (Airplanes Limited:
$3 million; Airplanes Trust: $Nil) in respect of bad and doubtful debts in the
three months ended September 30, 2004 compared with no change in the level of
provisions for the three months ended September 30, 2003.
Other Lease Costs
Other lease costs, comprising aircraft related technical expenditure associated
with remarketing the aircraft, in the three months ended September 30, 2004
amounted to $3 million (Airplanes Limited: $1 million; Airplanes Trust: $2
million) compared with other lease costs of $5 million (Airplanes Limited: $5
million; Airplanes Trust: $Nil) in the three months ended September 30, 2003.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three month period ended
September 30, 2004 amounted to $8 million (Airplanes Limited: $7 million;
Airplanes Trust: $1 million) as compared to the expense that was incurred in the
three months ended September 30, 2003 of $8 million (Airplanes Limited: $8
million; Airplanes Trust: $Nil).
The most significant element of selling, general and administrative expenses is
the aircraft servicing fees paid to the servicer. 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 September 30, 2004
and the three months ended September 30, 2003 include $6 million (Airplanes
Limited: $6 million; Airplanes Trust: $Nil) relating to servicing fees.
A further significant element of Airplanes Group's actual selling, general and
administrative expenses reported in the three month period ended September 30,
2004 was $1 million (Airplanes Limited: $1 million; Airplanes Trust: $Nil) in
respect of administrative agency and cash management fees payable to
subsidiaries of debis AirFinance Ireland, compared to the charge of $1 million
(Airplanes Limited: $1 million; Airplanes Trust $Nil) for the three month period
ended September 30, 2003.
Operating Loss on Continuing Operations
The operating loss on continuing operations for the three month period ended
September 30, 2004 was $240 million (Airplanes Limited: $217 million; Airplanes
Trust: $23 million) compared with an operating loss of $374 million for the
three month period ended September 30, 2003 (Airplanes Limited: $349 million;
Airplanes Trust: $25 million). Airplanes Limited and Airplanes Trust are
expected to continue to report substantial losses in the future.
Taxes
There was a tax charge of $Nil (Airplanes Limited: $Nil; Airplanes Trust: $Nil)
in the three month period ended September 30, 2004, as compared with a tax
benefit of $2 million
26
(Airplanes Limited: $Nil; Airplanes Trust: $2 million) for the three month
period ended September 30, 2003.
Net Loss on Continuing Operations
The net loss after taxation on continuing operations for the three months ended
September 30, 2004 was $240 million (Airplanes Limited: $217 million; Airplanes
Trust: $23 million) compared with a net loss after taxation on continuing
operations for the three months ended September 30, 2003 of $372 million
(Airplanes Limited: $349 million; Airplanes Trust: $23 million).
Discontinued Operations
Sales proceeds of $47 million (Airplanes Limited: $47 million; Airplanes Trust:
$Nil) in respect of the sale of three MD11 aircraft, three DC9-32 aircraft, two
DC8-71F aircraft, one DHC8-300C and one A300C4-200, were received in the three
month period ended September 30, 2004. The net book value of the aircraft sold
was $26 million (Airplanes Limited: $26 million; Airplanes Trust: $Nil). Lease
rentals of $1 million (Airplanes Limited: $1 million, Airplanes Trust: $Nil) has
been included in discontinued operations. In the three month period ended
September 30, 2003, the ten aircraft sold in the three month period ended
September 30, 2004 along with the aircraft classified as "held for sale" had
generated lease revenue of $4 million (Airplanes Limited: $4 million; Airplanes
Trust: $Nil) and had incurred impairment charges of $65 million (Airplanes
Limited: $52 million; Airplanes Trust: $13 million) and depreciation of $5
million (Airplanes Limited: $5 million; Airplanes Trust: $Nil). The net loss of
$66 million (Airplanes Limited: $53 million;, Airplanes Trust: $13 million) has
been included in discontinued operations in the three month period ended
September 30, 2003.
Net Loss after Taxation and Discontinued Operations
The net loss after taxation and discounted operations for the three month period
ended September 30, 2004 was $218 million (Airplanes Limited: $195 million;
Airplanes Trust: $23 million) compared with a net loss after taxation for the
three month period ended September 30, 2003 of $438 million (Airplanes Limited:
$402 million; Airplanes Trust: $36 million).
27
Financial Resources and Liquidity
Commentary on Statement of Cashflows
The factors discussed above at "Recent Developments" continue to impair our
cashflows.
Liquidity
Cash balances at September 30, 2004 amounted to $139 million (Airplanes Limited:
$133 million; Airplanes Trust: $6 million) compared to cash balances at
September 30, 2003 of $121 million (Airplanes Limited: $115 million; Airplanes
Trust: $6 million). The principal reason for the increase in cash balances is
due to the receipt of sales proceeds following the September 15, 2004 payment
date which were subsequently distributed on October 15, 2004.
Operating Activities
Net cash provided by operating activities in the three months ended September
30, 2004 amounted to $27 million (Airplanes Limited: $25 million; Airplanes
Trust: $2 million) compared with $10 million in the three months ended September
30, 2003 (Airplanes Limited: $7 million; Airplanes Trust: $3 million). This
includes cash paid in respect of interest of $15 million in the three months
ended September 30, 2004 (Airplanes Limited: $14 million; Airplanes Trust: $1
million) compared with $39 million in the three months ended September 30, 2003
(Airplanes Limited: $35 million; Airplanes Trust: $4 million). The increase in
cash provided by operating activities in the three month period ended September
30, 2004 is primarily attributable to aircraft sales proceeds, positive
maintenance cashflows, offset by a reduction in lease revenues due to lease
restructurings and, to a lesser extent, greater aircraft downtime.
Investing and Financing Activities
Cashflows provided by investing activities in the three months ended September
30, 2004 were $47 million (Airplanes Limited: $47 million; Airplanes Trust: $Nil
million). This includes proceeds of $47 million (Airplanes Limited: $47 million;
Airplanes Trust: $Nil) from the sale of two DC8-71F aircraft, three MD11
aircraft, three DC9-32 aircraft, one A300C4-200 aircraft and one DHC8 aircraft.
In the three months ended September 30, 2003, cashflows provided by investing
activities were $Nil (Airplanes Limited: $Nil; Airplanes Trust: $Nil).
Cashflows used in financing activities in the three months ended September 30,
2004 primarily reflect the repayment of $27 million of principal on subclass A-6
notes by Airplanes Group (Airplanes Limited: $24 million; Airplanes Trust: $3
million) compared with $23 million of principal repaid on subclass A-6 notes and
class B notes by Airplanes Group (Airplanes Limited: $21 million; Airplanes
Trust: $2 million) in the three months ended September 30, 2003.
28
Indebtedness
Airplanes Group's indebtedness consisted of class A to E notes in the amount of
$3,044 million (Airplanes Limited: $2,774 million; Airplanes Trust: $270
million) at September 30, 2004 and $3,188 million (Airplanes Limited: $2,901
million; Airplanes Trust: $287 million) at September 30, 2003. Airplanes Group's
outstanding publicly traded class A to D notes amounted to $2,453 million
(Airplanes Limited: $2,232 million; Airplanes Trust: $221 million) at September
30, 2004 and $2,597 million (Airplanes Limited: $2,363 million; Airplanes Trust:
$234 million) at September 30, 2003. Airplanes Group had $591 million class E
notes outstanding at September 30, 2004 and September 30, 2003.
Airplanes Group was due to refinance the subclass A-8 certificates and notes on
March 15, 2003. Given market conditions and the impact these conditions have had
on our performance as compared to the 2001 Base Case, a refinancing at that time
was not economically viable. Step-up interest has therefore accrued on the
subclass A-8 certificates and notes since March 15, 2003. However, due to
insufficient cashflows and the low priority of step-up interest in the priority
of payments, no step-up interest has been paid.
Prior to March 15, 2003, on each payment date the priority of the principal
amounts outstanding in respect of the various subclasses of class A certificates
and notes was subclass A-6, subclass A-9 and subclass A-8 in that order. Because
there was no refinancing of the subclass A-8 notes by March 15, 2003, the
priority of the principal amounts outstanding in respect of the various
subclasses of class A certificates and notes is now subclass A-8 and subclass
A-9 in that order (the subclass A-6 notes having been repaid on October 15,
2004).
29
Results of Operations - Six Months Ended September 30, 2004 Compared with Six
Months Ended September 30, 2003.
Airplanes Group's results for the six months ended September 30, 2004 reflected
a continuation of the difficult trading conditions for the aviation industry
which gave rise to lessees seeking a variety of rental restructurings including
rental reductions and deferrals. These restructurings will continue to have a
significant adverse impact in future periods, although various factors,
including the timing of receipts and expenditures and non-recurring items, can
result in short term swings in any particular reporting period.
Airplanes Group generated $62 million in cash from operations in the six months
ended September 30, 2004 compared to $10 million in the same period of the
previous year. The increase in cash generated from operations in the six month
period ended September 30, 2004 is primarily attributable to positive
maintenance cashflows and lower interest payments, offset by a reduction in
lease revenues due to an increased level of lease restructurings and to a lesser
extent, to greater aircraft downtime and reduced rentals as a result of aircraft
sales in previous periods. Cashflow will continue to be adversely affected by
the factors outlined above.
There was a net loss after taxation for the six months ended September 30, 2004
of $458 million (Airplanes Limited: $418 million; Airplanes Trust: $40 million)
compared to a net loss after taxation for the six months ended September 30,
2003 of $619 million (Airplanes Limited: $566 million; Airplanes Trust: $53
million). Excluding accrued but unpaid class E note interest and impairment
charges, the movement from a loss of $51 million to a loss of $3 million for the
six months ended September 30, 2004 was primarily attributable to an increase in
profit from aircraft sales and decreased interest expense offset by decrease in
lease revenues as discussed below.
Leasing Revenues
Leasing revenues for the six months ended September 30, 2004 were $95 million
(Airplanes Limited: $90 million; Airplanes Trust: $5 million) compared with $102
million (Airplanes Limited: $96 million; Airplanes Trust: $6 million) for the
six months ended September 30, 2003. The decrease in 2004 was primarily
attributable to a number of lease restructurings including rental reductions and
the number of aircraft which were off lease during the six months ended
September 30, 2004. At September 30, 2004, we had 143 of our 156 aircraft on
lease (Airplanes Limited: 133 aircraft; Airplanes Trust: 10 aircraft) compared
to 155 of our 176 aircraft on lease (Airplanes Limited: 145 aircraft; Airplanes
Trust: 10 aircraft) at September 30, 2003.
Impairment Provisions
Aircraft carrying values are periodically assessed for impairment in accordance
with SFAS 144. An impairment review is required whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. The
statement requires an assessment for impairment when an asset's carrying value
is greater than its fair value as measured by net undiscounted estimated future
cashflows. Impairments are measured by the excess of carrying value over fair
value. Following consideration of the estimated future cashflows from rentals or
sales proceeds, to be generated by our aircraft a SFAS 144 assessment resulted
in the
30
requirement for an impairment provision of $19 million (Airplanes Limited: $19
million; Airplanes Trust: $Nil) in the six month period ended September 30,
2004.
Depreciation and Amortization
The charge for depreciation and amortization in the six months ended September
30, 2004 amounted to $41 million (Airplanes Limited: $40 million; Airplanes
Trust: $1 million) as compared with $56 million (Airplanes Limited: $53 million;
Airplanes Trust: $3million) for the six months ended September 30, 2003. The
reduction in the charge in the six month period ended September 30, 2004
resulted primarily from the reduced depreciable value of the fleet following the
impairment provisions made in the year ended March 31, 2004 and to a lesser
extent, aircraft sales in previous periods.
Net Interest Expense
Net interest expense was $501 million (Airplanes Limited: $456 million;
Airplanes Trust: $45 million), of which $72 million related to interest on the
class A to D notes and swaps and $429 million related to interest on the class E
notes, in the six month period ended September 30, 2004 compared to $409 million
(Airplanes Limited: $372 million; Airplanes Trust: $37 million), of which $80
million related to interest on the class A to D notes and swaps and $329 million
related to interest on the class E notes, in the six month period ended
September 30, 2003. The increase in the amount of interest charged was primarily
due to additional interest charged on accrued but unpaid class E note interest
of $100 million, partially offset by lower average debt and interest rates in
the six months ended September 30, 2004.
The weighted average interest rate on the class A to D notes during the six
months ended September 30, 2004 was 5.54% and the average debt in respect of the
class A to D notes outstanding during the period was $2,490 million. The class E
notes together with the accrued but unpaid class E note interest, accrue
interest at a rate of 20% per annum, (as adjusted by reference to the U.S.
consumer price index with effect from March 28, 1996).
The weighted average interest rate on the class A to D notes during the six
months to September 30, 2003 was 6.15% and the average debt in respect of the
class A to D notes outstanding during the period was $2,619 million.
The difference for the six months ended September 30, 2004 in Airplanes Group's
net interest expense of $501 million (Airplanes Limited: $456 million; Airplanes
Trust: $45 million) and cash paid in respect of interest of $30 million
(Airplanes Limited: $28 million; Airplanes Trust: $2 million) is substantially
accounted for by the fact that interest on the class E notes is accrued but
unpaid and that the interest on the class B, C and D notes is now also being
accrued and not paid.
Net interest expense is stated after deducting interest income earned during the
relevant period. In the six months ended September 30, 2004, Airplanes Group
earned interest income (including lessee default interest) of $1 million
(Airplanes Limited: $1 million; Airplanes Trust $Nil), compared with $1 million
in the six months ended September 30, 2003 (Airplanes Limited: $1 million;
Airplanes Trust: $Nil).
31
Bad Debt 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 six month period ended September 30, 2004, 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 $5 million (Airplanes Limited: $5 million; Airplanes Trust: $Nil) in respect
of bad and doubtful debts in the six months ended September 30, 2004 compared
with a net provision of $3 million (Airplanes Limited: $2 million; Airplanes
Trust: $1 million) for the six months ended September 30, 2003.
Other Lease Costs
Other lease costs comprising aircraft related technical expenditure associated
with remarketing the aircraft, in the six months ended September 30, 2004
amounted to $4 million (Airplanes Limited: $4 million; Airplanes Trust: $Nil)
compared with other lease costs of $15 million (Airplanes Limited: $15 million;
Airplanes Trust: $Nil) in the six months ended September 30, 2003.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the six month period ended
September 30, 2004 amounted to $16 million (Airplanes Limited: $15 million;
Airplanes Trust: $1 million) as compared to the expense that was incurred in the
six months ended September 30, 2003 of $16 million (Airplanes Limited: $15
million; Airplanes Trust: $1 million).
The most significant element of selling, general and administrative expenses is
the aircraft servicing fees paid to the servicer. 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 six months ended September 30, 2004
and the six months ended September 30, 2003 include $12 million (Airplanes
Limited: $12 million; Airplanes Trust: $Nil) relating to servicing fees.
A further significant element of Airplanes Group's actual selling, general and
administrative expenses reported in the six month period ended September 30,
2004 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, compared to the charge of $2 million
(Airplanes Limited: $2 million; Airplanes Trust: $Nil) for the six month period
ended September 30, 2003.
Operating Loss on Continuing Operations
The operating loss on continuing operations for the six months ended September
30, 2004 was $481 million (Airplanes Limited: $439 million; Airplanes Trust: $42
million) compared with an operating loss of $571 million for the six months
ended September 30, 2003 (Airplanes Limited: $527 million; Airplanes Trust: $44
million). Airplanes Limited and Airplanes Trust are expected to continue to
report substantial losses in the future.
32
Taxes
There was a tax charge of $1 million (Airplanes Limited: $Nil; Airplanes Trust:
$1 million) in the six months ended September 30, 2004, as compared with a tax
benefit of $17 million (Airplanes Limited: $13 million; Airplanes Trust: $4
million) for the six months ended September 30, 2003. The benefit in the six
months ended September 30, 2003 relates primarily to a release of deferred tax
provisions in the Irish Subsidiary companies which were deemed unnecessary due
to the level of losses forward.
Net Loss on continuing operations
The net loss on continuing operations after taxation for the six months ended
September 30, 2004 was $482 million (Airplanes Limited: $439 million; Airplanes
Trust: $43 million) compared with a net loss on continuing operations after
taxation for the six months ended September 30, 2003 of $554 million (Airplanes
Limited: $514 million; Airplanes Trust: $40 million).
Discontinued Operations
Sales proceeds of $53 million (Airplanes Limited: $48 million; Airplanes Trust:
$5 million) in respect of the sale of three MD11 aircraft, three DC9-32
aircraft, five DC8-71F aircraft, one DHC8-300C, one B737-200A and one
A300C4-200, were received in the six month period ended September 30, 2004. The
net book value of the aircraft sold was $25 million (Airplanes Limited: $23
million; Airplanes Trust: $2 million). These aircraft along with the aircraft
currently classified as "held for sale", had also generated lease rentals of $3
million (Airplanes Limited: $3 million; Airplanes Trust: $Nil) and incurred
impairment charges of $7 million (Airplanes Limited: $7 million; Airplanes
Trust: $Nil) in the six month period ended September 30, 2004. The net loss of
$4 million (Airplanes Limited: $4 million; Airplanes Trust $Nil) has been
included in discontinued operations. In the six month period ended September 30,
2003, the ten aircraft sold in the six month period ended September 30, 2004
along with the aircraft currently classified as "held for sale", had generated
lease revenue of $10 million (Airplanes Limited: $10 million; Airplanes Trust:
$Nil) and had incurred impairment charges of $65 million (Airplanes Limited: $52
million; Airplanes Trust: $13 million) and depreciation of $9 million (Airplanes
Limited: $9 million; Airplanes Trust: $Nil). Sales proceeds of $1 million
(Airplanes Limited: $1 million; Airplanes Trust: $Nil) in respect of the sale of
one DC9-51 and two Metro III aircraft were received in the six month period
ended September 30, 2003. The net book value of the aircraft sold was $2 million
(Airplanes Limited: $2 million; Airplanes Trust: $Nil). The net loss of $65
million relating to all thirteen aircraft sold, and the aircraft held for sale,
(Airplanes Limited: $52 million; Airplanes Trust: $13 million) has been included
in discontinued operations in the six month period ended September 30, 2003.
Net Loss after Taxation and Discontinued Operations
The net loss after taxation and discontinued operations for the six months ended
September 30, 2004 was $458 million (Airplanes Limited: $418 million; Airplanes
Trust: $40 million) compared with a net loss after taxation for the six month
period ended September 30, 2003 of $619 million (Airplanes Limited: $566
million; Airplanes Trust: $53 million).
33
Financial Resources and Liquidity
Commentary on Statement of Cashflows
The factors discussed above at "Recent Developments" continue to impair our
cashflows.
Liquidity
Cash balances at September 30, 2004 amounted to $139 million (Airplanes Limited:
$133 million; Airplanes Trust: $6 million) compared to cash balances at
September 30, 2003 of $121 million (Airplanes Limited: $115 million; Airplanes
Trust: $6 million). The principal reason for the increase in cash balances is
due to the receipt of sales proceeds following the September 15, 2004 payment
date which were subsequently distributed on October 15, 2004.
Operating Activities
Net cash provided by operating activities in the six months ended September 30,
2004 amounted to $62 million (Airplanes Limited: $62 million; Airplanes Trust:
$Nil million) compared with $10 million in the six months ended September 30,
2003 (Airplanes Limited: $7 million; Airplanes Trust: $3 million). This includes
cash paid in respect of interest of $30 million in the six months ended
September 30, 2004 (Airplanes Limited: $28 million; Airplanes Trust: $2 million)
compared with $78 million in the six months ended September 30, 2003 (Airplanes
Limited: $71 million; Airplanes Trust: $7 million). The increase in cash
provided by operating activities in the six month period ended September 30,
2004 is primarily attributable to aircraft sales proceeds, positive maintenance
cashflows, offset by a reduction in lease revenues due to lease restructurings
and, to a lesser extent, greater aircraft downtime.
Investing and Financing Activities
Cashflows provided by investing activities in the six months ended September 30,
2004 were $53 million (Airplanes Limited: $48 million; Airplanes Trust: $5
million). This includes proceeds of $53 million (Airplanes Limited: $48 million;
Airplanes Trust: $5 million) from the sale of five DC8-71F aircraft, one
B737-200A aircraft, three MD11 aircraft, three DC9-32 aircraft, one A300C4-200
aircraft and one DHC8 aircraft. In the six months ended September 30, 2003,
cashflows provided by investing activities included the receipt of $1 million
(Airplanes Limited: $1 million; Airplanes Trust: $Nil) in relation to the sale
of one DC9-51 aircraft and two Metro III aircraft.
Cashflows used in financing activities in the six months ended September 30,
2004 primarily reflect the repayment of $60 million of principal on subclass A-6
notes by Airplanes Group (Airplanes Limited: $55 million; Airplanes Trust: $5
million) compared with $30 million of principal repaid on subclass A-6 notes and
class B notes by Airplanes Group (Airplanes Limited: $27 million; Airplanes
Trust: $3 million) in the six months ended September 30, 2003.
Indebtedness
Airplanes Group's indebtedness consisted of class A to E notes in the amount of
$3,044 million (Airplanes Limited: $2,774 million; Airplanes Trust: $270
million) at September 30, 2004 and $3,188 million (Airplanes Limited: $2,901
million; Airplanes Trust: $287 million) at
34
September 30, 2003. Airplanes Group's outstanding publicly traded class A to D
notes amounted to $2,453 million (Airplanes Limited: $2,232 million; Airplanes
Trust: $221 million) at September 30, 2004 and $2,363 million (Airplanes
Limited: $2,363 million; Airplanes Trust: $234 million) at September 30, 2003.
Airplanes Group had $591 million class E notes outstanding at September 30, 2004
and September 30, 2003.
Airplanes Group was due to refinance the subclass A-8 certificates and notes on
March 15, 2003. Given market conditions and the impact these conditions have had
on our performance as compared to the 2001 Base Case, a refinancing at that time
was not economically viable. Step-up interest has therefore accrued on the
subclass A-8 certificates and notes since March 15, 2003. However, due to
insufficient cashflows and the low priority of step-up interest in the priority
of payments, no step-up interest has been paid.
Prior to March 15, 2003, on each payment date the priority of the principal
amounts outstanding in respect of the various subclasses of class A certificates
and notes was subclass A-6, subclass A-9 and subclass A-8 in that order. Because
there was no refinancing of the subclass A-8 notes by March 15, 2003, the
priority of the principal amounts outstanding in respect of the various
subclasses of class A certificates and notes is now subclass A-8 and subclass
A-9 in that order (the subclass A-6 notes having been repaid on October 15,
2004).
35
Comparison of Actual Cashflows versus the 2001 Base Case for the Three Month
Period from July 10, 2004 to October 15, 2004.
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 cashflow information set forth below was not prepared in accordance with
generally accepted accounting principles of the United States. This information
must 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 Annual
Report on Form 10-K for the year ended March 31, 2004 and Report on Form 10-Q
for the quarter ended June 30, 2004 which are filed with the Securities and
Exchange Commission and available from http://www.sec.gov and "Item 1. Financial
Statements (Unaudited)" of this Report on Form 10-Q.
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 ended August 16, 2004, September 15, 2004
and October 15, 2004. The financial data in these reports includes cash receipts
from July 10, 2004 (first day of the Calculation Period for the August 2004
Report) up to October 8, 2004 (last day of the Calculation Period for the
October 2004 Report). Page 41 presents the cumulative cashflow information from
March 2001 to the October 2004 payment date. This report, however, limits its
commentary to the Three Month Period.
The 2001 Base Case contained assumptions in respect of Airplanes Group's future
cashflows and expenses. Since these assumptions were developed, global economic
conditions, and particularly conditions in the commercial aviation industry,
have worsened significantly, particularly since September 11, 2001, as discussed
above under "Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Recent Developments". Accordingly the performance of
Airplanes Group has been and we expect it to continue to be worse than the 2001
Base Case, with particular reference to those assumptions relating to aircraft
re-lease rates, aircraft values, aircraft downtime and lessee defaults.
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 Rental, Interest Earned, Aircraft
Sales, Net Maintenance and Other Receipts (each as defined below). In the Three
Month Period, Airplanes Group generated approximately $110.7 million in Total
Cash Collections, $12.9 million greater 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 [45].
36
[2] Renegotiated Leases
"Renegotiated Leases" is a measure of the loss in rental revenue caused by
a lessee negotiating a reduction in the lease rental, in the period to the
original contracted expiry date of the lease prior to the renegotiation of
the terms of that lease. In the Three Month Period, the amount of revenue
loss attributed to Renegotiated Leases was $1.6 million, as compared to
$Nil assumed in the 2001 Base Case. This related to renegotiations with two
Latin American lessees, one North American lessee and two Asian lessees
representing 7 aircraft in total on lease to these lessees at September 30,
2004.
For details of current lessee restructurings please refer to "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - The Lessees".
[3] Rental Resets - Re-leasing Events Where New Lease Rate Deviated from the
2001 Base Case
"Rental Resets" is a measure of the difference in rental revenue when new
lease rates are different from 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. The loss of rental revenue as a result of Rental Resets
amounted to $35.8 million in the Three Month Period, as compared to $Nil
assumed in the 2001 Base Case. This reflects current market conditions
where an oversupply of aircraft has resulted in lower lease rates upon
re-leasing or extension of leases than assumed in the 2001 Base Case.
[4] Lease Rentals - Aircraft Sales
"Lease Rentals - Aircraft Sales" represents rental revenue foregone in
respect of aircraft sold prior to their assumed sale date in the 2001 Base
Case, net of rental revenue received in respect of aircraft remaining on
lease after their assumed sale date in the 2001 Base Case. In the 2001 Base
Case, all aircraft are assumed to be sold either at the end of their useful
economic life or, where an aircraft was subject to a lease with the lease
expiry date falling after the end of its useful economic life, on the
contracted lease expiry date. Since March 2001, three MD11 aircraft, three
DC9-51 aircraft, one DC9-32 aircraft, six DC8-71F aircraft, one DHC8-300C
aircraft, two B727-200A aircraft, seven B737-200A aircraft, three Metro-III
aircraft and one A300B4-200 aircraft have been sold prior to their assumed
sale date in the 2001 Base Case, resulting in a negative variance of $7.7
million in lease rentals compared to the 2001 Base Case in the Three Month
Period. Lease rentals totaling $0.1 million were received in the Three
Month Period in respect of one A300C4-200 aircraft which has remained on
lease after its assumed sale date in the 2001 Base Case.
37
[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, Rental Resets and Lease Rentals - Aircraft Sales.
For the Three Month Period, Contracted Lease Rentals were $57.2 million,
which was $45.0 million less than assumed in the 2001 Base Case. The
difference is due to losses from Renegotiated Leases, Rental Resets and
Lease Rentals - Aircraft Sales as discussed above.
[6] Movement in Current Arrears Balance
"Current Arrears" is the total Contracted Lease Rentals outstanding from
current lessees at a given date but excluding any amounts classified as Bad
Debts. There was a net increase of $2.5 million in the Current Arrears
balance over the Three Month Period, as compared to $Nil assumed in the
2001 Base Case.
[7] 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 Net Stress-Related Costs equal to 6.0% of the 2001
Base Case Lease Rentals in the Three Month Period. Net Stress-Related Costs
incurred in the Three Month Period amounted to a net cash outflow of $6.2
million (6.1% of Lease Rentals) compared to $6.1 million outflow assumed in
the 2001 Base Case, a variance of $0.1 million that is due to the five
factors described in items [8] to [12] below.
[8] Bad Debts
"Bad Debts" are lease rental arrears owed by lessees which have defaulted
and which are deemed irrecoverable. Bad Debts were $Nil for the Three Month
Period as compared to the 2001 Base Case assumption of $1.0 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 $3.4 million in
accordance with these restructurings. Payments assumed to be received in
accordance with restructurings included in the 2001 Base Case were $Nil for
the Three Month Period.
[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 seventeen
aircraft AOG at various times during the Three Month Period and at
September 30, 2004, thirteen aircraft were AOG, four of which were subject
to a letter of intent for sale and one of which was subject to a letter of
intent for lease. In the Three Month Period, the 2001 Base Case Lease
Rentals loss attributed to AOG was $10.1 million (9.9% of Lease Rentals),
as compared to $4.3 million (4.2% of Lease Rentals) assumed under the 2001
Base Case.
38
[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 $0.5
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 $Nil, as compared to $0.8 million (0.8% of Lease Rentals)
assumed under the 2001 Base Case.
[14] Net Lease Rental
"Net Lease Rental" is Contracted Lease Rentals less any movement in Current
Arrears balance and Net Stress-Related Costs. In the Three Month Period,
Net Lease Rental amounted to $48.5 million, $47.6 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] to [4] 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 ($80 million plus the
security deposit amount, subject to available cashflows), 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 $0.3
million, $1.4 million less than that assumed in the 2001 Base Case. The
difference is due to a lower cash balance in the Collection Account as
available cashflows were adequate to allocate only $60 million to the cash
liquidity reserve amount on each payment date in the Three Month Period
(refer to item 29A below), and a lower average reinvestment rate than
assumed in the 2001 Base Case. The average actual reinvestment rate for the
Three Month Period was 1.5% (excluding a $5 million guaranteed investment
contract) as compared to the 5.2% assumed in the 2001 Base Case.
39
[16] Aircraft Sales
Aircraft sales proceeds totalling $47.5 million were received in the Three
Month Period in respect of the sale of three MD11 aircraft, two DC8-71F
aircraft, three DC9-32 aircraft, one DHC8-300C aircraft and one A300C4-200
aircraft. Sale deposits totalling $0.6 million were received in the Three
Month Period in respect of one MD83 aircraft which was subsequently sold on
October 14, 2004 and one DHC8-100 aircraft which is subject to a letter of
intent for sale. In the 2001 Base Case, aircraft sales proceeds were
assumed to be $Nil in the Three Month Period. In the 2001 Base Case all
aircraft are assumed to be sold either at the end of their useful economic
life or, where an aircraft was subject to a lease with the lease expiry
date falling after the end of its useful economic life, on the contracted
lease expiry date.
[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 $8.4 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 reporting period, maintenance revenue
will exactly equal maintenance expenses.
[18] Other Receipts
"Other Receipts" consist of $5.4 million received in the Three Month Period
from GE Capital under the Tax Sharing Agreement in respect of utilisation
by GE Capital of tax losses of Airplanes Group US companies for the year
ended December 31, 2003.
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 $13.6 million compared to $13.3 million assumed in the 2001 Base
Case, a negative variance of $0.3 million. A number of 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 $4.8 million (or 4.7% of Lease Rentals) compared to $5.1
million (or 5.0% of Lease Rentals) assumed in the 2001 Base Case. Actual
Re-Leasing and Other Overhead Costs were lower than the 2001 Base Case
assumption primarily due to lower than assumed transition costs on aircraft
delivering to new lessees and lower payments made in the form of lessor
contributions to defray certain technical costs during the term of certain
leases.
40
"SG&A Expenses" relate to fees paid to the servicer and to other service
providers.
[21] Aircraft Servicer Fees
"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 $5.6 million, as
compared to $5.9 million assumed in the 2001 Base Case.
Aircraft Servicer Fees consist of:
$M
----
Retainer Fee................................................. 5.6
Minimum Incentive Fee ....................................... 0.0
Core Cashflow/Sales Incentive Fee ........................... 0.0
----
Total Aircraft Servicer Fee.................................. 5.6
====
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 $3.2 million, $0.9 million higher than
an assumed expense of $2.3 million in the 2001 Base Case.
[29A] Shortfall in Liquidity Reserve
Airplanes Group is required to maintain a cash balance in the collection
account under
the indentures, subject to available cashflows, in an amount equal to the
sum of:
- the maintenance reserve amount ($80 million); and
- a security deposit reserve amount.
Under the priority of payments applicable to Airplanes Group, this cash
balance is retained at point (iii) "First Collection Account Top-up"
(maintenance reserve amount - $60 million) and at point (x) "Second
Collection Account Top-up" (maintenance reserve amount - $20 million plus
security deposit reserve amount).
"Shortfall in Liquidity Reserve" relates to any shortfall in the funds
allocated to the "First Collection Account Top-up" and "Second Collection
Account Top-up" as a result of Airplanes Group not having sufficient
balance of funds after payment of expenses and all required payments on the
notes which rank prior to the applicable liquidity reserve amount under the
priority of payments applicable to Airplanes Group. Since the May 2003
payment date there has been a depletion of the "Second Collection Account
Top-up" and beginning on the December 15, 2003 payment date cashflows have
been insufficient to allocate any funds to the "Second Collection Account
Top-up". On the October 15, 2004 payment date, there was a shortfall in the
liquidity reserve amount of
41
$43.5 million as compared to a shortfall of $45.4 million on the July 15,
2004 payment date, representing an overall decrease of $1.9 million in the
Shortfall in Liquidity Reserve for the Three Month Period. This decrease in
the Shortfall in Liquidity Reserve is explained by a net reduction of $1.9
million in the security deposit reserve amount in the Three Month Period.
Under the 2001 Base Case, a Shortfall in Liquidity Reserve was not
anticipated.
[30] Interest Payments
In the Three Month Period, interest payments to the holders of the class A,
B, C and D notes amounted to $7.8 million which is $32.7 million lower than
assumed under the 2001 Base Case.
Interest payments on the floating rate class A notes amounted to $7.8
million, $11.6 million lower than assumed under the 2001 Base Case,
reflecting a lower than expected level of average interest rates on the
floating rate notes, the impact of which was partly offset by a higher
principal balance outstanding on these notes than assumed in the 2001 Base
Case. The 2001 Base Case assumed LIBOR to be 5.2% whereas the average
monthly LIBOR rate in the Three Month Period was 1.7%. Our cashflows have
been inadequate to pay any interest on the class B, C and D notes in the
Three Month Period. Interest payments assumed under the 2001 Base Case in
the Three Month Period amounted to $3.2 million, $7.1 million and $10.8
million respectively on the class B, C and D notes. Interest has begun to
accrue on the unpaid interest on the class B, C and D notes in accordance
with the terms of these notes and will continue to accrue until the arrears
of interest are paid in full. Accrued and unpaid interest (including
interest accrued on unpaid interest) amounted to $4.2 million, $27.0
million and $41.2 million respectively on the class B, C and D notes
following the October 15, 2004 payment date.
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.
Airplanes Group's $700 million subclass A-8 notes had an expected final
payment date of March 15, 2003. Given current market conditions and the
impact these conditions have had on our performance, we believed that such
a refinancing at that time was not economically viable and therefore it did
not proceed as scheduled. In accordance with the terms of the subclass A-8
notes, step-up interest of 0.5% per annum began to accrue on these notes
from March 17, 2003 (the first business day following the expected final
payment date) and will continue to accrue until they are repaid in full or
refinanced. Under the priority of payments applicable to Airplanes Group,
step-up interest is payable after payment of expenses, interest, minimum
principal and scheduled principal on class A, B, C and D notes and any
aircraft modification payments. To the extent that step-up interest is not
paid, it will accrue in accordance with the terms of the subclass A-8
notes. Available cashflows have not been sufficient to allow payment of
step-up interest on any of the payment dates since March 2003 and this is
expected to continue to be the case. Total step-up interest (including
interest accrued on unpaid step-up interest) accrued and unpaid on the
subclass A-8 notes at October 15, 2004 was $5.7 million.
42
[31] Swap and Swaption Cashflows
Airplanes Group's net swap payments during the Three Month Period, which
included a payment of $1.0 million relating to the purchase of an interest
rate cap, were $9.0 million compared to $Nil assumed in the 2001 Base Case.
[33] Principal Payments
In the forty-three month period from March 10, 2001 to October 15, 2004,
total principal payments amounted to $519.1 million (comprising $467.6
million on the class A notes and $51.5 million on the class B notes),
$131.8 million less than assumed in the 2001 Base Case. The breakdown of
the $131.8 million variance is set out on page [47]. In the Three Month
Period, total principal payments amounted to $78.4 million, (comprising
$78.4 million on the class A notes), $34.4 million greater than assumed in
the 2001 Base Case. The breakdown of the $34.4 million variance is set out
on page [46].
Applying the declining value assumptions in the 1996 Base Case to the
original March 1996 fleet appraisals and adjusting for aircraft sales, the
total appraised value of the aircraft was assumed to be $2,459.9 million at
October 15, 2004. Our portfolio is appraised annually and the most recent
appraisal was obtained on January 31, 2004 and valued the current portfolio
at $1,866.1 million. Applying the declining value assumptions to this
appraisal, the total appraised value was $1,763.0 million at October 15,
2004.
As a consequence of the cumulative excess decline in appraised values
experienced since March 1996, combined with overall cash performance in
that period, we have been required to pay class A principal adjustment
amount to the extent of available cashflows throughout the forty-three
month period since the 2001 refinancing. However, we have not always had
sufficient cashflows to pay class A principal adjustment amount in full and
since the April 15, 2003 payment date, we have not had sufficient cashflows
to pay any class A principal adjustment amount. Class A principal
adjustment amount is intended to accelerate the principal amortization
schedule of the class A notes when the appraised value of the aircraft
declines at a greater rate than the decline in appraised values assumed in
the 1996 Base Case by reference to certain loan to current appraised value
ratios. Since the class A principal adjustment amount ranks ahead of the
scheduled principal payments on the class C and D notes, and since
available cashflows were not sufficient to pay all of the class A principal
adjustment amount, scheduled principal payments on the class C and D notes
have been deferred on each payment date during the forty-three month period
since the 2001 refinancing. Total deferrals of class C and class D
scheduled principal amounts amounted to $92.4 million and $60.3 million
respectively as of October 15, 2004.
Based on the most recent annual appraisal dated January 31, 2004, the
decline in appraised values in the year to the February 2004 payment date
was approximately $176 million more than the decline assumed in the 1996
Base Case. The decline in appraised values in this period has resulted in
an increase in the arrears of class A principal adjustment amount at the
February 17, 2004 payment date from $343.5 million to $451.2 million. The
class A principal adjustment amount outstanding was $490.2 million as at
October 15, 2004.
43
To the extent that we have sufficient available funds, we are required to
pay a minimum principal amount on the class A and B notes in order to
maintain certain loan to initial appraised value ratios. (Since class A
minimum principal amount is determined by reference to initial appraised
values, it is unaffected by the annual appraisals referred to above). As a
result of earlier payments of class A principal adjustment amounts,
described above, we remained ahead of the required class A minimum
principal payment schedule. However, as described above, we have not always
had sufficient cashflows to pay class A principal adjustment amounts in
full and since the April 15, 2003 payment date, we have not had sufficient
cashflows to pay any class A principal adjustment amount. As a result,
since the August 15, 2003 payment date we have no longer been ahead of the
required class A minimum principal payment schedule. Therefore we had to
recommence payments of minimum principal on the class A notes to the extent
of available cashflows on that date. Our cashflows were insufficient to pay
minimum principal on the class A notes in full beginning on the December
15, 2003 payment date and minimum principal arrears on the class A notes
were $119.6 million following the October 15, 2004 payment date. Since
minimum principal on the class A notes ranks ahead of interest and minimum
principal on the class B notes and interest on the class C and D notes in
the priority of payments, our cashflows have been inadequate to pay any
interest or minimum principal on the class B notes or any interest on the
class C and D notes, beginning on the December 15, 2003 payment date.
Minimum principal arrears on the class B notes were $37.9 million following
the October 15, 2004 payment date.
The appraised values are based upon the value of the aircraft at normal
utilization rates in an open, unrestricted and stable market, and take into
account long-term trends, including current expectations of particular
models becoming obsolete more quickly, as a result of airlines switching to
different models, manufacturers ceasing production or lease values for
aircraft declining more rapidly than previous predictions. As a theoretical
value, the appraised value is not indicative of market value and thus there
is no guarantee that we would obtain the appraised value upon sale of any
aircraft. The current market value of each of our aircraft is less than,
and in some cases significantly less than the appraised value. If the
current oversupply of aircraft continues longer term, given the age of our
fleet, certain of our aircraft may become obsolete significantly earlier
than the useful life expectancy assumed in the 2001 Base Case assumptions,
which would negatively impact appraised values further. However, since we
are no longer able to pay class A principal adjustment amount and since, as
a result of our consent solicitation, we are no longer required to sell our
aircraft at or above the note target price, the appraised values of our
aircraft are now of little significance except as a basis for providing
statistical information on the portfolio and for complying with certain
technical provisions in the indentures.
OTHER ISSUES
For a discussion of our current expectations as to our future ability to
make payments on our notes and certificates in light of our weaker than
expected performance as well as a discussion of rating actions on the
certificates, see "Recent Developments" above.
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] - Lease Rentals - Aircraft
Sales.......................... Revenue foregone on aircraft sold prior to their assumed sale
date in the 2001 Base Case net of revenue received on aircraft
remaining on lease after their assumed sale date in the 2001
Base Case
[5] SUM [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 capitalized 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] SUM [8]...[12] Sub-total
[14] [5]+[6]+[13] Net Lease Rental............... 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................. Receipts from GE Capital under the Tax Sharing Agreement
[19] SUM [14]...[18] Total Cash Collections......... Net Lease Rental + 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 Fees (in excess of Minimum Incentive Fee above) paid to servicer
Incentive Fee 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
[23A] Other SG&A Expenses............ Costs relating to the assumed refinancing of the subclass A-8
notes in March 2003, as assumed under the 2001 Base Case and
costs relating to the 2003 consent solicitation for Indenture
amendment
[24] [22]+[23]+[23A] 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 $Nil
in April 2001
[29A] Shortfall in Liquidity Reserve. Shortfall in the balance of funds on deposit in the collection
account below the liquidity reserve amount
[30] Interest Payments.............. Interest paid on all outstanding debt
[31] Swap payments.................. Net swap payments (paid)/received
[32] SUM [26]...[31]
Total
[33] Principal payments............. Principal payments on debt
45
Airplanes Group Cashflow Performance for the Period from July 10, 2004 to
October 15, 2004 (3 Months)
Comparison of Actual Cashflows versus 2001 Base Case Cashflows
% of Lease Rentals under
the 2001 Base Case
2001 2001
---- ----
Actual Base Case Variance Actual Base Case Variance
------ --------- -------- ------ --------- --------
CASH COLLECTIONS ($ Millions)
1 Lease Rentals 102.2 102.2 0.0 100.0% 100.0% 0.0%
2 - Renegotiated Leases (1.6) 0.0 (1.6) (1.6%) 0.0% (1.6%)
3 - Rental Resets (35.8) 0.0 (35.8) (35.0%) 0.0% (35.0%)
4 - Lease Rentals - Aircraft Sales (7.6) 0.0 (7.6) (7.4%) 0.0% (7.4%)
------- ------- ----- ------- ------- ------
5 SUM 1 - 4 Contracted Lease Rentals 57.2 102.2 (45.0) 56.0% 100.0% (44.0%)
6 Movement in Current Arrears Balance (2.5) 0.0 (2.5) (2.4%) 0.0% (2.4%)
7 less Net Stress Related Costs
8 - Bad Debts 0.0 (1.0) 1.0 0.0% (1.0%) 1.0%
9 - Deferred Arrears Balance 3.4 0.0 3.4 3.3% 0.0% 3.3%
10 - AOG (10.1) (4.3) (5.8) (9.9%) (4.2%) (5.7%)
11 - Other Leasing Income 0.5 0.0 0.5 0.5% 0.0% 0.5%
12 - Repossession 0.0 (0.8) 0.8 0.0% (0.8%) 0.8%
------- ------- ----- ------- ------- ------
13 SUM 8 - 12 Sub-total (6.2) (6.1) (0.1) (6.1%) (6.0%) (0.1%)
14 5+6+13 Net Lease Rental 48.5 96.1 (47.6) 47.5% 94.0% (46.6%)
15 Interest Earned 0.3 1.7 (1.4) 0.3% 1.7% (1.4%)
16 Aircraft Sales 48.1 0.0 48.1 47.1% 0.0% 47.1%
17 Net Maintenance 8.4 0.0 8.4 8.2% 0.0% 8.2%
18 Other Receipts 5.4 0.0 5.4 5.3% 0.0% 5.3%
------- ------- ----- ------- ------- ------
19 SUM 14 - 18 Total Cash Collections 110.7 97.8 12.9 108.3% 95.7% 12.6%
======= ======= ===== ======= ======= ======
CASH EXPENSES
Aircraft Operating Expenses
20 - Re-leasing and other overheads (4.8) (5.1) 0.3 (4.7%) (5.0%) 0.3%
SG&A Expenses
21 Aircraft Servicer Fees
- Retainer Fee (5.6) (5.5) (0.1) (5.5%) (5.4%) (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 (5.6) (5.9) 0.3 (5.5%) (5.8%) 0.3%
23 Other Servicer Fees and Other Overheads (3.2) (2.3) (0.9) (3.1%) (2.3%) (0.9%)
23A Other SG&A Expenses 0.0 0.0 0.0 0.0% 0.0% 0.0%
------- ------- ----- ------- ------ ------
24 22+23+23A Sub-total (8.8) (8.2) (0.6) (8.6%) (8.0%) (0.6%)
------- ------- ----- ------- ------ ------
25 24+20 Total Cash Expenses (13.6) (13.3) (0.3) (13.3%) (13.0%) (0.3%)
======= ======= ===== ======= ====== ======
NET CASH COLLECTIONS
26 19 Total Cash Collections 110.7 97.8 12.9 108.3% 95.7% 12.6%
27 25 Total Cash Expenses (13.6) (13.3) (0.3) (13.3%) (13.0%) (0.3%)
28 Movement in Expense Account 0.0 0.0 0.0 0.0% 0.0% 0.0%
29 Reduction in Liquidity Reserve 0.0 0.0 0.0 0.0% 0.0% 0.0%
29A Shortfall in Liquidity Reserve (1.9) 0.0 (1.9) (1.9%) 0.0% (1.9%)
30 Interest Payments (7.8) (40.5) 32.7 (7.6%) (39.6%) 32.0%
31 Swap Payments (9.0) 0.0 (9.0) (8.8%) 0.0% (8.8%)
------- ------- ----- ------- ------ ------
32 SUM 26 - 31 TOTAL 78.4 44.0 34.4 76.7% 43.1% 33.6%
======= ======= ===== ======= ====== ======
33 PRINCIPAL PAYMENTS
Class A 78.4 38.6 39.8 76.7% 37.8% 38.9%
Class B 0.0 5.4 (5.4) 0.0% 5.3% (5.3%)
------- ------- ----- ------- ------ ------
Total 78.4 44.0 34.4 76.7% 43.1% 33.6%
======= ======= ===== ======= ====== ======
Debt Balances at October 15, 2004
Subclass A-6 0.0 0.0
Subclass A-8 677.8 700.0
Subclass A-9 750.0 613.6
Class B 226.8 209.2
Class C 349.8 349.8
Class D 395.1 395.1
------- -------
2,399.5 2,267.7
======= =======
46
Airplanes Group Cashflow Performance for the Period from March 10, 2001 to
October 15, 2004 (43 Months)
Comparison of Actual Cashflows versus 2001 Base Case Cashflows
% of Lease Rentals under
the 2001 Base Case
2001 2001
---- ----
Actual Base Case Variance Actual Base Case Variance
------ --------- -------- ------ --------- --------
CASH COLLECTIONS ($ Millions)
1 Lease Rentals 1,497.2 1,497.2 0.0 100.0% 100.0% 0.0%
2 - Renegotiated Leases (82.1) 0.0 (82.1) (5.5%) 0.0% (5.5%)
3 - Rental Resets (289.4) 0.0 (289.4) (19.3%) 0.0% (19.3%)
4 - Lease Rentals - Aircraft Sales (22.8) 0.0 (22.8) (1.5%) 0.0% (1.5%)
------- ------- ----- ------- ------- ------
5 SUM 1 - 4 Contracted Lease Rentals 1,102.9 1,497.2 (394.3) 73.7% 100.0% (26.3%)
6 Movement in Current Arrears Balance (4.2) 0.0 (4.2) (0.3%) 0.0% (0.3%)
7 less Net Stress Related Costs
8 - Bad Debts (10.2) (15.0) 4.8 (0.7%) (1.0%) 0.3%
9 - Deferred Arrears Balance 17.4 3.1 14.3 1.2% 0.2% 1.0%
10 - AOG (121.5) (63.0) (58.5) (8.1%) (4.2%) (3.9%)
11 - Other Leasing Income 13.6 0.0 13.6 0.9% 0.0% 0.9%
12 - Repossession (4.1) (12.0) 7.9 (0.3%) (0.8%) 0.5%
------- ------- ----- ------- ------- ------
13 SUM 8 - 12 Sub-total (104.8) (86.9) (17.9) (7.0%) (5.8%) (1.2%)
14 5+6+13 Net Lease Rental 3.9 1,410.3 (416.4) 66.4% 94.2% (27.8%)
15 Interest Earned 9.9 24.8 (14.9) 0.7% 1.7% (1.0%)
16 Aircraft Sales 85.4 43.6 41.8 5.7% 2.9% 2.8%
17 Net Maintenance 84.0 0.0 84.0 5.6% 0.0% 5.6%
18 Other Receipts 13.8 0.0 13.8 0.9% 0.0% 0.9%
------- ------- ----- ------- ------- ------
19 SUM 14 - 18 Total Cash Collections 1,187.0 1,478.7 (291.7) 79.3% 98.8% (19.5%)
======= ======= ===== ======= ======= ======
CASH EXPENSES
Aircraft Operating Expenses
20 - Re-leasing and other overheads (86.4) (75.0) (11.4) (5.8%) (5.0%) (0.8%)
SG&A Expenses
21 Aircraft Servicer Fees
- Retainer Fee (80.2) (79.8) (0.4) (5.4%) (5.3%) (0.0%)
- Minimum Incentive Fee (6.0) (5.4) (0.6) (0.4%) (0.4%) (0.0%)
- Core Cashflow/Sales Incentive Fee (0.2) 0.0 (0.2) 0.0% 0.0% (0.0%)
------- ------- ----- ------- ------- ------
22 21 Sub-total (86.4) (85.2) (1.2) (5.8%) (5.7%) (0.1%)
23 Other Servicer Fees and Other Overheads (39.3) (35.9) (3.4) (2.6%) (2.4%) (0.2%)
23A Other SG&A Expenses (2.0) (4.7) 2.7 (0.1%) (0.3%) 0.2%
------- ------- ----- ------- ------- ------
24 22+23+23A Sub-total (127.7) (125.8) (1.9) (8.5%) (8.4%) (0.1%)
------- ------- ----- ------- ------- ------
25 24+20 Total Cash Expenses (214.1) (200.8) (13.3) (14.3%) (13.4%) (0.9%)
======= ======= ===== ======= ======= ======
NET CASH COLLECTIONS
26 19 Total Cash Collections 1,187.0 1,478.7 (291.7) 79.3% 98.8% (19.5%)
27 25 Total Cash Expenses (214.1) (200.8) (13.3) (14.3%) (13.4%) (0.9%)
28 Movement in Expense Account (7.5) 0.0 (7.5) (0.5%) 0.0% (0.5%)
29 Reduction in Liquidity Reserve 40.0 40.0 0.0 2.7% 2.7% 0.0%
29A Shortfall in Liquidity Reserve 43.5 0.0 43.5 2.9% 0.0% 2.9%
30 Interest Payments (358.6) (638.8) 280.2 (24.0%) (42.7%) 18.7%
5.1 Swap Payments (171.2) (28.2) (143.0) (11.4%) (1.9%) (9.6%)
------- ------- ----- ------- ------- ------
32 SUM 26 - 31 TOTAL 519.1 650.9 (131.8) 34.7% 43.5% (8.8%)
======= ======= ===== ======= ======= ======
33 PRINCIPAL PAYMENTS
Class A 467.6 581.8 (114.2) 31.3% 38.9% (7.6%)
Class B 51.5 69.1 (17.6) 3.4% 4.6% (1.2%)
------- ------- ----- ------- ------- ------
Total 519.1 650.9 (131.8) 34.7% 43.5% (8.8%)
======= ======= ===== ======= ======= ======
Debt Balances at October 15, 2004
Subclass A-6 0.0 0.0 0.0
Subclass A-8 677.8 700.0 (22.2)
Subclass A-9 750.0 613.6 136.4
Class B 226.8 209.2 17.6
Class C 349.8 349.8 0.0
Class D 395.1 395.1 0.0
------- ------- -----
2,399.5 2,267.7 131.8
======= ======= =====
47
Mar-01 2001
------ ----
Closing Actual Base Case
------- ------ ---------
($ Millions) ($ Millions) ($ Millions)
Net Cash Collections 519.1 650.9
Add Back Interest and Swap Payments 529.8 667.0
------- -------
a Net Cash Collections 1,048.9 1,317.9
(excl. interest and swap ======= =======
payments)
b Swaps 171.2 28.2
c Class A Interest 147.5 329.3
d Class A Minimum 212.7 0.0
e Class B Interest 20.5 53.3
f Class B Minimum 51.5 69.1
g Class C Interest 76.0 102.2
h Class D Interest 114.6 154.0
i Class A Principal 254.9 581.8
Adjustment
i Class C Scheduled 0.0 0.0
k Class D Scheduled 0.0 0.0
l Permitted Aircraft 0.0 0.0
Modifications
m Step-up Interest 0.0 0.0
n Class E Minimum 0.0 0.0
Interest
o Class B Supplemental 0.0 0.0
p Class A Supplemental 0.0 0.0
------- -------
Total 1,048.9 1,317.9
======= =======
[1] Interest Coverage
Ratio
Class A 3.3 3.7 = a/(b+c)
Class B N/A 3.2 = a/(b+c+d+e)
Class C N/A 2.3 = a/(b+c+d+e+f+g)
Class D N/A 1.8 = a/(b+c+d+e+f+g+h)
[2] Debt Coverage Ratio
Class A N/A 3.7 = a/(b+c+d)
Class B N/A 2.7 = a/(b+c+d+e+f)
Class C N/A N/A = a/(b+c+d+e+f+g+h+i+j)
Class D N/A N/A = a/(b+c+d+e+f+g+h+i+j+k)
Loan to Value Ratios (in
U.S. dollars)
[3] Adjusted Portfolio 3,108.6 1,763.0 2,424.1
Value
Liquidity Reserve
Amount of which
- Cash 156.9 60.0 116.0
- Accrued Expenses 12.6 12.0 0.0
------- ------- -------
Subtotal 169.5 72.0 116.0
Less Lessee Security 36.9 0.0 36.0
------- ------- -------
Subtotal 132.6 72.0 80.0
------- ------- -------
[4] Total Asset Value 3,241.2 1,835.0 2,504.1
======= ======= =======
Note Balances as at: March 15, 2001 October 15, 2004 October 15, 2004
- -------------------- -------------- ---------------- ----------------
Class A 1,895.4 58.5% 1,427.8 77.8% 1,313.6 52.5%
Class B 278.3 67.1% 226.8 90.2% 209.2 60.8%
Class C 349.8 77.9% 349.8 109.2% 349.8 74.8%
Class D 395.1 90.0% 395.1 130.8% 395.1 90.6%
------- ------- -------
2,918.6 2,399.5 2,267.7
======= ======= =======
48
[1] "Interest Coverage Ratio" is equal to Net Cash Collections (excluding
interest and swap payments) expressed as a ratio of the interest payments
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. Actual Interest Coverage Ratios
have not been provided for the class B, C and D notes as interest amounts
have not been paid on these notes since the December 2003 payment date.
[2] "Debt Coverage 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. Actual Debt Coverage Ratios have not been
provided for the class A, B, C and D notes as minimum principal amounts on
the class A and B notes have not been paid in full and no scheduled
principal amounts have been paid on the class C and D notes in the period
since March 2001. 2001 Base Case Debt Coverage Ratios have not been
provided for the class C and D notes as no principal payments were assumed.
[3] "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.
[4] "Total Asset Value" is equal to total Adjusted Portfolio Value plus
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 or class of notes, including the outstanding
principal amount as of September 30, 2004 and estimated fair value as of
September 30, 2004, are as follows:
Principal Estimated
Amount at Fair Value at
Annual Interest September 30, September 30,
Rate ------------- Final -------------
Class of Notes* (Payable Monthly) 2004 Maturity Date 2004**
- --------------- ----------------- ---- ------------- ----
$ Million $ Million
Subclass A-8 (LIBOR+.375%) 678 March 15, 2019 576
Subclass A-9 (LIBOR+.55%) 750 March 15, 2019 375
Class B (LIBOR+.75%) 227 March 15, 2019 36
Class C (8.15%) 350 March 15, 2019 12
Class D (10.875%) 395 March 15, 2019 -
------ -----
2,400 999
====== =====
_____________________
* The subclass A-6 notes were repaid on October 15, 2004.
** Although the estimated fair values of the class A to D notes outstanding have
been determined by reference to prices as at September 30, 2004 provided by an
independent third party, these fair values do not reflect the market value of
these notes at a specific time and should not be relied upon as a measure of the
value that could be realized by a noteholder upon sale.
Interest Rate Management
The leasing revenues of Airplanes Group are generated primarily from lease
rental receipts which are based on either a fixed or floating rate, or a
combination of the two. 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
leases representing approximately 98% of our portfolio by appraised value as of
January 31, 2004 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 to D
notes do not correlate to the mix of fixed and floating rental receipts for
different rental periods. This interest rate exposure can be managed through the
use of interest rate swaps and other derivative instruments. The class A and B
notes bear floating rates of interest and the class C and class D notes bear
fixed rates of interest. The mix of fixed and floating rental receipts contains
a higher percentage of fixed rate receipts than the percentage of fixed rate
interest payments on the notes and the reset periods on floating receipts
payments are generally longer than the monthly reset periods on the floating
rate notes. Before November 17, 2003 we entered into interest rate swaps in
order to correlate the contracted fixed and floating rental receipts to the
fixed and floating interest payments on the notes. Since November 17, 2003,
however, we have ceased paying interest on our class B, C and D notes.
50
We have therefore reviewed and modified our hedging policy with the approval of
the rating agencies and no longer enter into hedges of the class B notes and
certificates. We believe it prudent to continue to hedge our interest rate
exposure in respect of the class A notes and certificates as the mix of fixed
and floating rental receipts does not correlate to the floating payments due on
the class A notes and certificates. Our cashflows have been insufficient to
enable any funds to be allocated to the "Second Collection Account Top-up" in
the priority of payments since December 15, 2003. We have therefore not included
this cash balance in our hedging calculations since the end of 2003.
Under the swaps, Airplanes Group pays fixed amounts and receives floating
amounts on a monthly basis. The swaps amortize having regard to a number of
factors, including the expected paydown schedule of the class A notes, the
expiry dates of the leases under which lessees are contracted to make fixed rate
rental payments and the LIBOR reset dates under the floating rate leases. At
least every three months, and in practice more frequently, 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 to rebalance the floating interest
obligations and the fixed and floating mix of rental receipts.
At September 30, 2004, Airplanes Group had unamortized swaps with an aggregate
notional principal balance of $1,045 million. The aggregate notional principal
balance of these swaps will reduce, by their terms, to an aggregate notional
principal balance of $940 million by March 31, 2005, to an aggregate notional
principal balance of $685 million by March 31, 2006, to an aggregate notional
principal balance of $465 million by March 31, 2007, to an aggregate notional
principal balance of $190 million by March 2008, to an aggregate notional
principal balance of $100 million by March 2009 and to an aggregate notional
principal balance of $50 million by March 2010. None of the swaps has a maturity
date extending beyond April 2010. The aggregate estimated fair market value of
the swaps at September 30, 2004 was ($27.2) million, that is the swaps were
"out-of-the-money", meaning that if the swaps were sold, Airplanes Group would
incur a loss of $27.2 million, as detailed on the next page:
52
Airplanes Group Swap Book at September 30, 2004
Estimated Fair
Notional Market Value ($)
Swap Amount (1) Effective Final Fixed Rate As at Sept 30,
No. $'millions Date Maturity Date Payable (2) 2004
1 30 17-Jun-02 15-Oct-04 3.5800% (45,465)
2 25 15-Jul-03 15-Nov-04 5.7650% (166,029)
3 15 15-Apr-02 15-Dec-04 5.3975% (132,099)
4 20 15-Apr-03 15-Dec-04 4.2350% (117,038)
5 50 15-May-01 15-Jan-05 4.7950% (317,630)
6 60 21-Aug-01 15-Feb-05 4.4195% (566,125)
7 0 (3) 15-Oct-04 17-Oct-05 4.5650% (294,536)
8 40 17-Oct-01 15-Nov-05 3.9475% (334,663)
9 60 15-Jul-04 15-Dec-05 2.4475% 149,791
10 110 24-Jul-01 15-Dec-05 5.2850% (2,560,457)
11 20 17-Nov-03 17-Jan-06 5.1150% (505,631)
12 125 20-Dec-01 15-Feb-06 4.6350% (2,028,822)
13 10 15-May-03 15-Mar-06 2.8800% (43,518)
14 25 30-Jan-02 15-Apr-06 3.5040% (332,320)
15 60 15-Mar-02 15-Apr-06 4.0125% (802,759)
16 30 15-Dec-03 18-Apr-06 2.9425% (65,510)
17 130 15-Aug-02 15-Jul-06 5.5500% (5,606,128)
18 0 (3) 17-Oct-05 15-Oct-06 4.9400% (163,339)
19 65 15-Jul-04 15-May-07 5.8620% (6,514,765)
20 40 15-Mar-04 15-May-07 5.2020% (2,437,010)
21 60 15-Apr-03 15-May-07 3.5350% (754,156)
22 0 (3) 15-Dec-04 15-Jun-07 4.1300% (1,979,399)
23 70 17-Mar-03 17-Sep-07 3.8700% (1,702,269)
24 0 (3) 15-May-07 15-Nov-07 4.8000% (256,416)
25 0 (3) 17-Sep-07 17-Dec-07 4.9440% (150,942)
26 0 (3) 15-Jul-05 15-Apr-08 3.4800% 485,181
27 0 (3) 15-Apr-05 15-Apr-10 4.0800% 996
----------- -----------------
1,045 (27,241,058)
=========== =================
1) While some of the above swaps have a fixed notional amount, many amortize
over the period to the final maturity date.
2) Under all swaps, Airplanes Group receives floating rate payments at one
month LIBOR, reset monthly on an actual /360 adjusted basis.
3) The initial amounts for swaps number 7, 18, 22, 24, 25, 26 and 27 are $15
million, $10 million, $90 million, $95 million, $75 million, $45 million
and $50 million respectively.
4) Airplanes Group has also purchased an interest rate cap with a notional
amount of $50 million.
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 can be managed
through the purchase of swaptions.If Airplanes Group purchases swaptions, these,
if exercised, will allow Airplanes Group to enter into interest rate swap
transactions under which it would pay floating amounts and receive fixed
amounts. These swaptions could be exercised in the event of defaults by lessees
owing fixed rate rental payments in circumstances where interest rates had
declined since the contract date of such leases. Following consultation with the
rating agencies in the year ended March 31, 2002, it is not currently proposed
to purchase any swaptions due primarily to the low interest rate environment and
our current cashflow performance.
If we are required by the rating agencies to purchase swaptions, the premium
would be payable at two points in the priority of payments under the indentures.
Fifty percent of any swaption premium in any month is a "minimum hedge payment"
and would be payable fourth in Airplanes Group's order of priority of payments
(ahead of class A minimum principal amount). The other fifty percent of the
premium is expended as a "supplemental hedge payment" and would be payable
seventeenth in Airplanes Group's order of priority of payments but given our
current cashflow performance it is highly unlikely we would ever be able to make
such payment.
Through the use of swaps, swaptions (when applicable) and other interest rate
hedging products, Airplanes Group seeks to manage its exposure to adverse
changes in interest rates based on regular reviews of its interest rate risk.
There can be no assurance, however, that Airplanes Group's interest rate risk
management strategies will be effective in this regard.
Our indentures required that any counterparty with whom we enter into a swap
have at least a short-term unsecured debt rating of A-1+ from Standard & Poor's
and a long-term unsecured debt rating of A1 from Moody's. It was proving
increasingly difficult to find counterparties meeting these requirements and
therefore, as further described in our most recent Annual Report on Form 10-K,
as filed with the SEC, the board of directors of Airplanes Limited and the
controlling trustees of Airplanes Trust resolved to undertake a consent
solicitation seeking, among other things, to amend the indentures so as to
reduce the required rating for a swap counterparty to a short-term unsecured
debt rating of at least A-1 from Standard & Poor's and a long-term unsecured
debt rating of at least A2 from Moody's or otherwise as approved by the Board
with the prior agreement of the rating agencies. The consent solicitation was
successful and the indentures accordingly amended in September 2003. However,
because of our financial condition, notwithstanding the changes to the
indentures, the availability of counterparties has become very limited.
Consequently we may not be able to find counterparties willing to enter into
interest rate swaps with us, and/or it may become more expensive for us to enter
into swaps with eligible counterparties. As a result we have concluded that in
such circumstances we may partially hedge the vehicle against a significant
adverse movement in interest rates through the purchase of a limited amount of
out of the money interest rate caps. During the period ended September 30, 2004
we purchased an interest rate cap with a notional amount of $50 million.
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
53
directors of Airplanes Limited and the controlling trustees of Airplanes Trust.
Airplanes Group is required by the indentures to enter into swaps only with
counterparties meeting certain rating requirements as discussed more fully in
our most recent Annual Report on Form 10-K, as filed with the SEC.
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. Please refer to "Risk Factors" in the Airplanes Group Report on Form
10-K for the year ended March 31, 2004 for more information about risks,
especially lessee credit risk, that could intensify Airplanes Group's exposure
to changes in interest rates.
54
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures
The Chairman of the Board of Directors of Airplanes Limited and of the
Controlling Trustees of Airplanes Trust acting on the recommendation of the
Board of Directors of Airplanes Limited and the Controlling Trustees of
Airplanes Trust, after evaluating the effectiveness of Airplanes Group's
"disclosure controls and procedures" (as defined in Exchange Act Rules 13a-15(e)
and 15 (d) - 15(e)) as of the end of the period covered by this quarterly
report, has concluded that as of such date, our disclosure controls and
procedures were effective based on their evaluation of these controls and
procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.
Airplanes Group's disclosure controls and procedures are designed to provide
reasonable assurance of achieving their objectives, and the Board of Directors
of Airplanes Limited and the Controlling Trustees of Airplanes Trust have
concluded that these controls and procedures are effective at the "reasonable
assurance" level. However, Airplanes Group believes that a control system, no
matter how well designed or operated, cannot provide absolute assurance that the
objectives of the control system are met, and that no evaluation of controls can
provide absolute assurance that various types of corporate operational risks
within a company, particularly one such as this that relies exclusively on third
parties for all services, will be detected in a timely manner.
(b) Changes in internal controls
There were no changes in the internal controls of Airplanes Group over financial
reporting identified in connection with the evaluation required by paragraph (d)
of Exchange Act Rules 13a-15(e) or 15(d)-15(e) that occurred during our last
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
55
Part II. Other Information
Item 1. Legal Proceedings
VASP
Following the default by the Brazilian airline VASP under its leases, debis
AirFinance Ireland (formerly known as GPA Group plc) sought and obtained in
November 1992 a preliminary injunction for repossession of 13 aircraft and three
spare engines, and subsequently repossessed these aircraft and engines.
Airplanes Group acquired seven of these aircraft from debis AirFinance Ireland
in March 1996, four of which remain in our portfolio and represented 1.98% of
our portfolio by appraised value as of January 31, 2004. In December 1996, the
Sao Paolo Court of Justice, 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 challenged
this decision and in January 2000, the Court of Justice granted a stay of the
1996 judgment while it considered debis AirFinance Ireland's rescission action.
In April 2002, the Court of Justice found in favor of debis AirFinance Ireland's
rescission action and overturned the 1996 judgment in favor of VASP. VASP has
actively pursued appeals to this decision and in June 2004, the Superior Court
of Justice found in favour of VASP, granting VASP's special appeal with the
consequent dismissal of debis AirFinance Ireland's rescission action. debis
AirFinance Ireland has indicated that it will continue to actively pursue all
available courses of action, including appeals and if necessary initiating a new
rescission action. A risk of repossession by VASP would only arise if VASP were
successful on appeal in seeking repossession of the aircraft and the aircraft
were located in Brazil. Brazilian counsel to debis AirFinance Ireland believe
that VASP may not commence a repossession action as VASP has indicated that it
may instead file a motion for damages suffered as a result of the repossession
of the aircraft. We cannot at this point quantify the amount of this potential
damages claim. 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.
Other Matters
Two subsidiaries of Airplanes Trust, AeroUSA Inc. 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 no ongoing tax audits by state and local tax authorities
with respect to tax returns previously reported by debis AirFinance, Inc. and
its subsidiaries.
Since November 20, 1998, AeroUSA, Inc. and AeroUSA 3, Inc. have filed
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.
56
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults Upon Senior Securities
As discussed more fully in "Part 1 Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations", we have had insufficient
cashflows to be able to make any payment of interest on the class B, C and D
notes since the December 15, 2003 payment date.
In general, the rights and remedies with respect to a note event of default are
exercisable only by the trustee of and the holders of the most senior class of
notes outstanding, and then only to the extent that there is an event of default
with respect to that senior class of notes. For example, a failure to make a
required payment on a class of notes is a default only with respect to that
class of notes and the corresponding certificates. Accordingly, if, as occurred
on December 15, 2003 when we were unable to pay interest on the class B, C and D
notes, an event of default occurs with respect to a class of notes which is not
the most senior class outstanding, the holders of that class of notes (and thus,
the corresponding certificates) will not be permitted to enforce their rights
until all amounts owing under any more senior class of notes outstanding and
certain other amounts have been paid in full. The class A notes are the most
senior class of notes currently outstanding.
Item 4. Submission of Matters to a Vote of Security holders
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
31 Certification of Chairman pursuant to Rule 13a-14(a).
32 Section 1350 Certification
Reports on Form 8-K:
Filed on July 15, 2004, August 16, 2004 and September 15, 2004 (relating to the
monthly report to holders of the certificates) and September 30, 2004 (relating
to the sale of three MD-11 aircraft).
57
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: November 9, 2004 AIRPLANES LIMITED
By: /s/ William M. McCann
-------------------------------
William M. McCann
Director and Principal
Accounting Officer
Date: November 9, 2004 AIRPLANES U.S. TRUST
By: /s/ William M. McCann
-------------------------------
William M. McCann
Controlling Trustee and
Principal Accounting Officer
AIRPLANES GROUP PORTFOLIO ANALYSIS
AT SEPTEMBER 30, 2004
Appraised % of Portfolio
Value at by Appraised
Aircraft Serial January 31, Value as of
Region Country Lessee Type Number 2004 Jan 31, 2004
- --------------------------------------------------------------------------------------------------------------
Africa Tunisia Nouvelair Tunisie A320-200 348 23,223 1.29%
Africa Tunisia Nouvelair Tunisie MD83 49631 11,174 0.62%
Africa Tunisia Nouvelair Tunisie MD83 49672 9,522 0.53%
Asia & Far East Bangladesh GMG Airlines DHC8-300 307 5,735 0.32%
Asia & Far East China China Southern B737-500 24897 13,642 0.76%
Asia & Far East China China Southern B737-500 25182 14,269 0.79%
Asia & Far East China China Southern B737-500 25183 14,845 0.82%
Asia & Far East China China Southern B737-500 25188 14,858 0.83%
Asia & Far East China Xinjiang B757-200 26156 26,091 1.45%
Asia & Far East Indonesia Garuda B737-400 24683 16,772 0.93%
Asia & Far East Indonesia Garuda B737-400 24691 17,129 0.95%
Asia & Far East Indonesia Merpati Nusantara Airlines B737-200A 22368 2,054 0.11%
Asia & Far East Indonesia Merpati Nusantara Airlines B737-200A 22369 1,951 0.11%
Asia & Far East Indonesia PT Adam SkyConnection Airlines B737-400 26071 18,757 1.04%
Asia & Far East Indonesia PT Mandala Airlines B737-200A 21685 1,464 0.08%
Asia & Far East Indonesia PT Mandala Airlines B737-200A 22278 1,617 0.09%
Asia & Far East Indonesia PT Mandala Airlines B737-200A 22803 2,367 0.13%
Asia & Far East Indonesia PT Mandala Airlines B737-200A 22804 2,314 0.13%
Asia & Far East Indonesia PT Mandala Airlines B737-200A 23023 2,544 0.14%
Asia & Far East Indonesia PT Metro Batavia B737-200A 22802 1,797 0.10%
Asia & Far East Indonesia PT Metro Batavia B737-400 24345 15,710 0.87%
Asia & Far East Indonesia PT Metro Batavia B737-400 24687 16,453 0.91%
Asia & Far East Japan Skynet Asia B737-400 26069 18,583 1.03%
Asia & Far East Malaysia AirAsia Berhad B737-300 24905 16,467 0.91%
Asia & Far East Malaysia AirAsia Berhad B737-300 24907 16,560 0.92%
Asia & Far East Pakistan Pakistan Int Airline A300B4-200 269 4,131 0.23%
Asia & Far East Philippines Philippine Airlines B737-400 24684 16,270 0.90%
Asia & Far East Philippines Philippine Airlines B737-300 24770 14,697 0.82%
Asia & Far East Philippines Philippine Airlines B737-400 26081 19,484 1.08%
Asia & Far East South Korea Asiana Airlines B737-400 24520 16,354 0.91%
Asia & Far East Taiwan Far Eastern Air Transport MD83 49950 11,627 0.65%
Australia &
New Zealand Australia National Jet Systems DHC8-100 229 3,573 0.20%
Europe Bulgaria BH Air A320-200 294 22,722 1.26%
Europe Bulgaria BH Air A320-200 349 24,214 1.35%
Europe Czech Republic Travel Servis a.s. B737-400 24911 17,468 0.97%
Europe France Air France A320-200 203 20,910 1.16%
Europe France Air France A320-200 220 21,680 1.20%
Europe Hungary SkyEurope Airlines Hungary Kft B737-500 25185 14,966 0.83%
Europe Hungary SkyEurope Airlines Hungary Kft B737-500 25289 14,737 0.82%
Europe Iceland Air Atlanta Icelandic B767-300ER 26204 41,877 2.33%
Europe Iceland Bluebird Cargo B737-300SF 23499 13,011 0.72%
Europe Iceland Bluebird Cargo B737-300SF 23500 12,674 0.70%
Europe Italy Air One SpA B737-400 24906 17,152 0.95%
Europe Italy Air One SpA B737-400 24912 17,308 0.96%
Appraised % of Portfolio
Value at by Appraised
Aircraft Serial January 31, Value as of
Region Country Lessee Type Number 2004 Jan 31, 2004
- --------------------------------------------------------------------------------------------------------------
Europe Italy Air One SpA B737-300 25179 17,054 0.95%
Europe Italy Air One SpA B737-300 25187 17,357 0.96%
Europe Italy Meridiana SpA MD83 49792 11,291 0.63%
Europe Italy Meridiana SpA MD83 49935 11,474 0.64%
Europe Italy Meridiana SpA MD83 49951 12,334 0.69%
Europe Netherlands Capital Aviation Services B.V. DHC8-300 244 5,202 0.29%
Europe Netherlands Capital Aviation Services B.V. DHC8-300 276 5,402 0.30%
Europe Norway Wideroe's Flyveselskap A/S DHC8-300 293 5,701 0.32%
Europe Norway Wideroe's Flyveselskap A/S DHC8-300 342 6,112 0.34%
Europe Portugal euroAtlantic airways B767-300ER 25411 41,234 2.29%
Europe Slovakia SkyEurope Airlines a.s B737-500 25186 13,917 0.77%
Europe Slovakia SkyEurope Airlines a.s B737-500 25191 15,088 0.84%
Europe Slovakia SkyEurope Airlines a.s B737-500 25288 14,657 0.81%
Europe Spain Futura B737-400 24689 16,426 0.91%
Europe Spain Futura B737-400 24690 16,305 0.91%
Europe Spain Futura B737-400 25180 18,341 1.02%
Europe Spain Spanair MD83 49620 10,012 0.56%
Europe Spain Spanair MD83 49624 9,644 0.54%
Europe Spain Spanair MD83 49626 10,028 0.56%
Europe Spain Spanair MD83 49709 9,922 0.55%
Europe Spain Spanair MD83 49936 12,367 0.69%
Europe Spain Spanair MD83 49938 11,637 0.65%
Europe Turkey FreeBird Airlines MD83 49949 12,018 0.67%
Europe Turkey Turk Hava Yollari B737-400 24493 15,767 0.88%
Europe Turkey Turk Hava Yollari B737-400 24917 17,517 0.97%
Europe Turkey Turk Hava Yollari B737-400 25181 17,807 0.99%
Europe Turkey Turk Hava Yollari B737-400 25184 18,174 1.01%
Europe Turkey Turk Hava Yollari B737-400 25261 18,675 1.04%
Europe Turkey Turk Hava Yollari B737-400 26065 18,392 1.02%
Europe United Kingdom Air Southwest DHC8-300 296 5,753 0.32%
Europe United Kingdom Air Southwest DHC8-300 334 6,263 0.35%
Europe United Kingdom easyJet Airline Company Limited B737-300 23923 13,499 0.75%
Europe United Kingdom Titan Airways Limited ATR42-300 113 2,840 0.16%
Europe United Kingdom Titan Airways Limited B757-200 26151 25,565 1.42%
Latin America Antigua Caribbean Star Airlines DHC8-300 232 5,240 0.29%
Latin America Antigua Caribbean Star Airlines DHC8-300 266 5,596 0.31%
Latin America Antigua Caribbean Star Airlines DHC8-300 267 5,781 0.32%
Latin America Antigua Caribbean Star Airlines DHC8-300 298 5,839 0.32%
Latin America Antigua Caribbean Star Airlines DHC8-300 300 5,706 0.32%
Latin America Antigua Liat DHC8-100 113 2,567 0.14%
Latin America Antigua Liat DHC8-100 140 2,714 0.15%
Latin America Antigua Liat DHC8-100 144 2,808 0.16%
Latin America Antigua Liat DHC8-100 270 3,197 0.18%
Latin America Antigua Liat DHC8-300 283 5,524 0.31%
Latin America Brazil Promodal Transportes Aereos
Ltda. DC8-71F 45970 8,111 0.45%
Latin America Brazil TAM Linhas Aereas F100 11284 6,463 0.36%
Latin America Brazil TAM Linhas Aereas F100 11285 6,113 0.34%
Latin America Brazil TAM Linhas Aereas F100 11304 6,504 0.36%
Latin America Brazil TAM Linhas Aereas F100 11305 6,865 0.38%
Latin America Brazil TAM Linhas Aereas F100 11336 7,209 0.40%
Appraised % of Portfolio
Value at by Appraised
Aircraft Serial January 31, Value as of
Region Country Lessee Type Number 2004 Jan 31, 2004
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Latin America Brazil TAM Linhas Aereas F100 11347 7,292 0.41%
Latin America Brazil TAM Linhas Aereas F100 11348 6,540 0.36%
Latin America Brazil TAM Linhas Aereas F100 11371 6,578 0.37%
Latin America Colombia Avianca B767-200ER 25421 30,425 1.69%
Latin America Colombia Avianca B757-200 26154 24,859 1.38%
Latin America Colombia Avianca MD83 49939 12,030 0.67%
Latin America Colombia Avianca MD83 49946 11,937 0.66%
Latin America Colombia Avianca MD83 53120 12,685 0.70%
Latin America Colombia Avianca MD83 53125 12,979 0.72%
Latin America Colombia Tampa DC8-71F 45945 7,211 0.40%
Latin America Colombia Tampa DC8-71F 45976 9,007 0.50%
Latin America Colombia Tampa DC8-71F 46066 6,814 0.38%
Latin America Mexico Aeromexico MD82 49660 8,003 0.44%
Latin America Mexico Aeromexico MD82 49667 8,029 0.45%
Latin America Mexico Aeromexico MD87 49673 8,914 0.50%
Latin America Mexico Mexicana F100 11266 6,970 0.39%
Latin America Mexico Mexicana F100 11309 7,594 0.42%
Latin America Mexico Mexicana F100 11319 7,398 0.41%
Latin America Mexico Mexicana F100 11339 6,687 0.37%
Latin America Mexico Mexicana F100 11374 7,584 0.42%
Latin America Mexico Mexicana F100 11375 7,347 0.41%
Latin America Mexico Mexicana F100 11382 7,654 0.43%
Latin America Mexico Mexicana F100 11384 7,530 0.42%
Latin America Uruguay PLUNA Lineas Aereas Uraguayas S.ATR42-300 284 4,163 0.23%
North America Canada AC Leasing A320-200 174 20,485 1.14%
North America Canada AC Leasing A320-200 175 20,703 1.15%
North America Canada AC Leasing A320-200 232 20,839 1.16%
North America Canada AC Leasing A320-200 284 21,171 1.18%
North America Canada AC Leasing A320-200 309 21,862 1.21%
North America Canada AC Leasing A320-200 404 23,260 1.29%
North America Canada Jetsgo Airlines MD83 49941 11,867 0.66%
North America Canada Jetsgo Airlines MD83 49943 12,545 0.70%
North America United States
of America Air Transport International DC8-71F 45811 7,862 0.44%
North America United States
of America Air Transport International DC8-71F 45813 7,199 0.40%
North America United States
of America Air Transport International DC8-71F 45973 7,409 0.41%
North America United States
of America Air Transport International DC8-71F 45978 6,505 0.36%
North America United States
of America Air Transport International DC8-71F 45993 7,609 0.42%
North America United States
of America Air Transport International DC8-71F 45994 6,453 0.36%
North America United States
of America Air Transport International DC8-71F 46065 7,175 0.40%
North America United States
of America Astar Air Cargo DC8-73CF 46091 9,664 0.54%
North America United States
of America Frontier Airlines Inc. B737-300 23177 11,033 0.61%
North America United States
of America Pace Airlines B737-300 23749 12,763 0.71%
North America United States
of America TWA Airlines LLC MD83 49575 9,250 0.51%
Off Lease Off Lease Off Lease ATR42-300 109 2,778 0.15%
Off Lease Off Lease Off Lease DHC8-300C 242 5,116 0.28%
Off Lease Off Lease Off Lease ATR42-300 249 3,825 0.21%
Off Lease Off Lease Off Lease DHC8-100 258 3,292 0.18%
Off Lease Off Lease Off Lease B747-200SF 21730 16,180 0.90%
Off Lease Off Lease Off Lease B737-200A 22979 2,697 0.15%
Off Lease Off Lease Off Lease B767-300ER 24948 38,679 2.15%
Appraised % of Portfolio
Value at by Appraised
Aircraft Serial January 31, Value as of
Region Country Lessee Type Number 2004 Jan 31, 2004
- --------------------------------------------------------------------------------------------------------------
Off Lease Off Lease Off Lease DC8-71F 45849 6,927 0.38%
Off Lease Off Lease Off Lease DC9-32 48128 1,301 0.07%
Off Lease Off Lease Off Lease DC9-32 48129 1,595 0.09%
Off Lease Off Lease Off Lease MD83 49390 8,028 0.45%
Off Lease Off Lease Off Lease MD83 49442 8,824 0.49%
Off Lease Off Lease Off Lease MD83 49789 10,814 0.60%
Other Ukraine Ukraine International B737-400 25190 18,348 1.02%
Other Ukraine Ukraine International B737-500 25192 14,672 0.82%
Other Ukraine Ukraine International B737-500 26075 14,029 0.78%
--------- ------
1,799,754 100.00%
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