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EXHIBIT 2
MSAF'S PERFORMANCE ASSUMPTIONS
INTRODUCTION
As an illustration of certain payment characteristics of the 1998 Notes, we
describe below our assumptions about MSAF's performance in future years. We
refer to the scenario in which all of these assumptions prove to be correct as
our "BASE CASE". The assumptions that relate specifically to line items that
will be contained in future monthly cash reports to noteholders are separately
identified and numbered for your ease of reference. In the tables that follow we
set out possible future revenue scenarios that we have developed by fixing
certain of the assumptions and varying other assumptions and certain other
factors that affect our revenues, costs and expenses.
You should note that the assumptions are not projections, estimates,
forecasts or forward-looking statements. The assumptions do not represent a
complete list of factors which may affect our revenues, costs and expenses but
rather indicate those factors which are likely to significantly affect our
performance in future years. You should also note that the different possible
future revenue scenarios contained in the tables only illustrate some of the
payment sensitivities of the 1998 Notes to market and economic stresses. More
severe stresses may lead to payments of principal on the 1998 Notes being
delayed or decreased, or in certain cases, an event of default. It is highly
likely that actual experience will vary from the Base Case and the possible
future revenue scenarios that we have illustrated.
We do not expect to update or revise the assumptions or tables to reflect
changes occurring after February 15, 2000. As of the date of this report, we are
not aware of events or circumstances since that date that would cause the
assumptions to be unreliable. In formulating the Base Case, we have taken
account of the issuance of the following subclasses of New Notes:
SUBCLASS OF NEW NOTES AMOUNT MONTHLY COUPON
--------------------- ------------ ---------------------
($ MILLIONS)
Subclass A-3.................................. 580 1 Month LIBOR + 0.52%
Subclass A-4.................................. 200 1 Month LIBOR + 0.54%
Subclass A-5.................................. 400 1 Month LIBOR + 0.58%
Subclass B-2.................................. 75 1 Month LIBOR + 1.05%
Subclass C-2.................................. 55 9.60%
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$1,310
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SUMMARY OF THE BASE CASE
The table below shows our Base Case by reference to the line items to be
contained in the "Summary Performance to Date" section of our future monthly
cash reports to noteholders. In this table Base Case items are shown as a
percentage of lease rentals on the basis of the whole portfolio.
BASE CASE RELATED ASSUMPTION
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(SEE BELOW)
Lease rentals............................................... 100.0 (1)
Net stress-related costs.................................... (4.5) (2)
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Net lease rentals........................................... 95.5
Interest earned............................................. 1.0 (3)
Net maintenance............................................. 0.0 (4)
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Total cash collections...................................... 96.5
Aircraft operating expenses................................. (0.8) (5)
SG&A........................................................ (4.2) (6)
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Total cash expenses......................................... (5.0)
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Net cash collections........................................ 91.5
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Net cash collections represent the amount available to pay principal and
interest on the 1998 Notes. Under the Base Case, we have assumed that interest
payments (net of swap payments) will be 55.6% of lease rentals, leaving 35.9% of
lease rentals available to repay principal in the first year, assuming
consummation of the securitization and refinancing.
You should refer to Exhibit 4 to this report for the month-by-month
roll-out of our assumed lease rentals, from the expected closing date of the
securitization through the final maturity date of the New Notes, under the Base
Case.
PRIMARY REVENUE ASSUMPTIONS
We make the following assumptions about each of our main revenue line
items.
LEASE RENTALS
"LEASE RENTALS" represents all rental payments received under the leases
and the net proceeds of any aircraft sales.
We assume that: (1)
- we re-lease aircraft coming off lease at a monthly rental rate that is a
function of the age of the aircraft and the contracted monthly rental
rate as of February 15, 2000, with lease rates being assumed to decline
by 2% per annum in years 1-5 of an aircraft's expected useful life, 1%
per annum in years 6-15, 3% per annum in years 16-20 and 5% in years
21-25; and
- we sell each aircraft only at the end of its expected useful life for a
scrap value price that is equal to 12% of its assumed value when new.
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NET STRESS-RELATED COSTS
"NET STRESS-RELATED COSTS" represents the net total of lost revenue due to
the combination of the following five inter-related items:
-- lost rental revenue due to aircraft downtime following the termination
or expiration of a lease; and
-- bad debts realized and/or provided for; and
-- aircraft repossession costs
offset by
-- security deposits drawn after an event of default; and
-- other leasing income, which includes lease termination payments and
default interest.
- We assume that net stress-related costs are 4.5% per annum of lease
rentals. (2)
INTEREST EARNED
"INTEREST EARNED" represents interest earned by funds on deposit in the
collection account and any other cash balances, including the liquidity reserve
amount, including rental payments received, security deposits and accrued
maintenance expenses.
- We assume that the interest rate at which the cash balances described
above earn interest is one month LIBOR minus 20 basis points. (3)
NET MAINTENANCE
"NET MAINTENANCE" represents maintenance payments received from lessees
under the terms of the applicable leases, less maintenance costs that we make or
expect to make under the leases and any modification payments that we make.
- We assume that net maintenance is zero. (4)
OTHER REVENUE-RELATED ASSUMPTIONS
In addition to the revenue assumptions above, we make the following
revenue-related assumptions.
- We assume that future lease terms are five years.
- We assume that we grant no purchase options to lessees and that no
existing purchase options are exercised.
- We assume that we grant no new lease termination or extension options to
lessees and that existing termination or extension options are exercised
only when to do so would result in a rental rate at the time that is
lower than the rental rate that we would otherwise assume under
assumption(1).
- We assume that the remaining aircraft is delivered to us.
- We assume that each aircraft has an expected useful life of 25 years.
- We assume that aircraft values decline over time in accordance with the
depreciation curve described in MSAF's prospectus dated November 4, 1998
under "Description of Notes -- Payment of Principal and Interest --
Principal Amortization".
- We assume that we acquire no additional aircraft.
EXPENSE-RELATED ASSUMPTIONS
We make the following assumptions about each of our main expense line
items.
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AIRCRAFT OPERATING EXPENSES
"AIRCRAFT OPERATING EXPENSES" represents certain operating costs incurred
in the ordinary course of the operating lease business, including insurance
expenses and leasing transaction expenses.
- We assume that aircraft operating expenses are 0.8% per annum of lease
rentals. (5)
SG&A
"SG&A" represents the sum of the following expense items:
-- fees paid to ILFC as servicer of the aircraft;
-- fees paid to the administrative agent and other service providers,
including the financial advisor;
-- legal fees, underwriting fees, printing and other expenses of the
issuance and sale of any refinancing notes and any notes issued in the
exchange offer for the subclass A-3, A-4 and A-5 notes; and
-- other selling, general and administrative expenses.
We assume that: (6)
- we pay fees to ILFC as servicer as follows:
-- a monthly retainer fee equal of approximately $250,000,
-- a monthly fee equal to 1% of the aggregate rent due for any month (or
portion of a month), and
-- a monthly fee equal to approximately 1.25% of the aggregate rent
actually paid for the month.
- we pay fees to the administrative agent and other service providers as
follows:
-- Cabot Aircraft Services, the administrative agent receives a monthly
fee equal to 0.5% of rental payments made by the lessees under the
leases, subject to an initial annual minimum of $500,000;
-- Bankers Trust, the cash manager receives an annual fee not to exceed
$500,000;
-- Morgan Stanley & Co. Incorporated, the financial advisor receives an
annual fee of $50,000.
- we pay customary legal fees, underwriting fees, printing and other
expenses of the issuance and sale of any refinancing notes and any notes
issued in the exchange offer; and
- other selling, general and administrative expenses are 0.3% per annum of
lease rentals.
FINANCING-RELATED ASSUMPTIONS
We make the following financing-related assumptions:
- We assume that one month LIBOR remains constant at 5.97% per annum.
- We assume that MSAF makes and receives swap payments in accordance with
the contracted terms of the swaps that we will have in place on the
closing date of this offering.
- We assume that we make payments in accordance with the order of
priorities set forth in MSAF's prospectus dated November 4, 1998 under
"Description of Notes -- Priority of Payments".
- We assume that we issue and sell refinancing notes on the expected final
payment dates of each of the subclass A-3, A-4 and B-2 notes, and on
each subsequent expected final payment dates of any such refinancing
notes, on the same terms with respect to priority, redemption and coupon
as the notes being refinanced and with maturities and amortization
schedules paid with the application of the minimum, scheduled and
supplemental principal payment amounts.
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