10-Q 1 aug0904_10q.txt 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 June 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 June 30, 2004 ------ ----- ------------- Airplanes Limited Ordinary Shares, $1.00 par value 30 Airplanes Limited and Airplanes U.S. Trust Form 10-Q for the Three Month Period Ended June 30, 2004 Index Part I. Financial Information Page No. Item 1. Financial Statements (Unaudited) 3 - Unaudited Condensed Balance Sheets - June 30, 2004 and March 31, 2004 - Unaudited Condensed Statements of Operations - Three Months Ended June 30, 2004 and June 30, 2003 - Unaudited Condensed Statements of Comprehensive Income / (Loss) - Three Months Ended June 30, 2004 and June 30, 2003 - Unaudited Statements of Changes in Shareholders Deficit / Net Liabilities - Three Months Ended June 30, 2004 and June 30, 2003 - Unaudited Condensed Statement of Cashflows - Three Months Ended June 30, 2004 and June 30, 2003 - Notes to the Unaudited Condensed Financial Statements Item 2. Management's Discussion and Analysis of Financial 11 Condition and Results of Operations - Introduction - Results of Operations - Three Months Ended June 30, 2004 compared with Three Months Ended June 30, 2003 - Comparison of Actual Cashflows versus the 2001 Base Case for the Two Month Period from May 12, 2004 to July 15, 2004 Item 3. Quantitative and Qualitative Disclosures about Market Risks 42 Item 4. Controls and Procedures 47 Part II. Other Information Item 1. Legal Proceedings 48 Item 2. Changes in Securities and use of Proceeds 49 Item 3. Defaults Upon Senior Securities 49 Item 4. Submission of Matters to a Vote of Security Holders 49 Item 6. Exhibits and Reports on Form 8-K 49 Signatures Appendix 1 Portfolio Information as at June 30, 2004 2 Part I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) AIRPLANES GROUP UNAUDITED CONDENSED BALANCE SHEETS March 31, June 30, ---------------------------------- ----------------------------------- 2004 2004 ---------------------------------- ----------------------------------- Airplanes Airplanes Airplanes Airplanes Limited Trust Combined Limited Trust Combined ---------- ---------- ---------- ---------- --------- ------------ ($millions) ($millions) ASSETS Cash 77 6 83 85 6 91 Accounts receivable Trade receivables 19 4 23 12 4 16 Allowance for doubtful debts (8) (1) (9) (6) (1) (7) Amounts due from Airplanes Limited - 45 45 - 45 45 Prepaid expenses 3 - 3 3 - 3 Other Current Assets 1 5 6 - 5 5 ---------- ---------- ---------- ---------- --------- ------------ Total Current Assets 92 59 151 94 59 153 ---------- ---------- ---------- ---------- --------- ------------ Net investment in capital and sales type leases 1 - 1 1 - 1 Aircraft, Held for Use 1,393 59 1,452 1,347 58 1,405 Aircraft, Held for Sale 98 8 106 98 - 98 ---------- ---------- ---------- ---------- --------- ------------ Total assets 1,584 126 1,710 1,540 117 1,657 ========== ========== ========== ========== ========= ============ LIABILITIES Accrued expenses and other liabilities 2,639 255 2,894 2,819 268 3,087 Amounts due to Airplanes Trust 45 - 45 45 - 45 ---------- ---------- ---------- ---------- --------- ------------ Total Current Liabilities 2,684 255 2,939 2,864 268 3,132 ---------- ---------- ---------- ---------- --------- ------------ Indebtedness 2,828 275 3,103 2,798 273 3,071 Provision for maintenance 274 13 287 281 7 288 Deferred income taxes - 19 19 - 20 20 ---------- ---------- ---------- ---------- --------- ------------ Total liabilities 5,786 562 6,348 5,943 568 6,511 ---------- ---------- ---------- ---------- --------- ------------ Common Stock, $1 par value per share, Authorised 10,000 shares; issued and outstanding 30 shares. - - - - - - ---------- ---------- ---------- ---------- --------- ------------ Net liabilities (4,202) (436) (4,638) (4,403) (451) (4,854) ---------- ---------- ---------- ---------- --------- ------------ 1,584 126 1,710 1,540 117 1,657 ========== ========== ========== ========== ========= ============

The accompanying notes are an integral part of the unaudited condensed financial statements 3 AIRPLANES GROUP UNAUDITED CONDENSED STATEMENTS OF OPERATIONS Three Months Ended June 30, ---------------------------------------------------------------------------------------- 2003 2004 ------------------------------------------ -------------------------------------------- Airplanes Airplanes Airplanes Airplanes Limited Trust Combined Limited Trust Combined ------------ ------------ ------------- ------------ ------------ --------------- ($millions) ($millions) Revenues Aircraft leasing 71 4 75 62 4 66 Aircraft sales 1 - 1 1 5 6 Expenses Cost of Aircraft sold (2) - (2) 3 (2) 1 Impairment Provision - - - (26) - (26) Depreciation and amortisation (31) (2) (33) (20) (1) (21) Net interest expense (182) (18) (200) (220) (22) (242) Bad and doubtful debts (2) (1) (3) 2 - 2 Other lease costs (25) (1) (26) (17) - (17) Selling, general and administrative expenses (7) (1) (8) (8) - (8) ------------ ------------ ------------- ------------ ------------ --------------- Operating loss before provision for income taxes (177) (19) (196) (223) (16) (239) Income tax charge 13 2 15 - (1) (1) ------------ ------------ ------------- ------------ ------------ --------------- Net loss (164) (17) (181) (223) (17) (240) ============ ============ ============= ============ ============ ===============

The accompanying notes are an integral part of the unaudited condensed financial statements 4 AIRPLANES GROUP UNAUDITED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS) Three Months Ended June 30, --------------------------------------------------------------------------------------- 2003 2004 ----------------------------------------- -------------------------------------------- Airplanes Airplanes Airplanes Airplanes Limited Trust Combined Limited Trust Combined ------------ ------------ ------------ ------------- ------------ -------------- ($millions) ($millions) Loss for the period (164) (17) (181) (223) (17) (240) Other Comprehensive (Loss) / Gain - Net change in cashflow hedges (1) - (1) 22 2 24 ------------ ------------ ------------ ------------- ------------ -------------- Total Comprehensive loss (165) (17) (182) (201) (15) (216) ============ ============ ============ ============= ============ ==============

The accompanying notes are an integral part of the unaudited condensed financial statements 5 AIRPLANES GROUP UNAUDITED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT/NET LIABILITIES Three Months Ended June 30, 2004 and June 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 ------------------------------------------------- ------------------------- ------------ ------------- ($millions) ($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 - 164 - 164 17 - 17 181 Other Comprehensive Loss - - 1 1 - - - 1 -------- ------------ -------------- ------------ ----------- ------------- ---------- ------------- Balance at June 30, 2003 - 3,254 72 3,326 343 7 350 3,676 ======== ============ ============== ============ =========== ============= ========== ============= Balance at March 31, 2004 - 4,156 46 4,202 431 5 436 4,638 Net loss for the period - 223 - 223 17 - 17 240 Other Comprehensive Gain - - (22) (22) - (2) (2) (24) -------- ------------ -------------- ------------ ----------- ------------- ---------- ------------- Balance at June 30, 2004 - 4,379 24 4,403 448 3 451 4,854 ======== ============ ============== ============ =========== ============= ========== =============

The accompanying notes are an integral part of the unaudited condensed financial statements 6 AIRPLANES GROUP UNAUDITED CONDENSED STATEMENTS OF CASHFLOWS Three Months Ended June 30, ---------------------------------------------------------------------------------- 2003 2004 ---------------------------------------- --------------------------------------- Airplanes Airplanes Airplanes Airplanes Limited Trust Combined Limited Trust Combined ----------- ------------- ------------ ------------ ------------ --------- ($millions) ($millions) Cash flows from operating activities Net loss (164) (17) (181) (223) (17) (240) Adjustment to reconcile (net loss) to net cash provided by operating activities: Depreciation 31 2 33 20 1 21 Impairment Charge - - - 26 - 26 Aircraft maintenance, net 5 - 5 11 - 11 Loss/ (Profit) on disposal of aircraft 1 - 1 (4) (3) (7) Deferred income taxes (13) (2) (15) - 1 1 Provision for bad debts 2 1 3 (2) - (2) Accrued and deferred interest expense 146 15 161 207 21 228 Changes in operating assets & liabilities: Accounts receivable (2) (2) (4) 6 (1) 5 Intercompany account movements 1 (1) - - - - Other accruals and liabilities (4) 4 - (5) (4) (9) Other assets (3) - (3) 1 - 1 ----------- ------------- ------------ ------------ ------------ --------- Net cash provided by operating activities - - - 37 (2) 35 =========== ============= ============ ============ ============ ========= Cash flows from investing activities Purchase/Sale of aircraft - 1 1 - 5 5 Capital and sales type leases 1 - 1 1 - 1 Net cash provided by ----------- ------------- ------------ ------------ ------------ --------- investing activities 1 1 2 1 5 6 =========== ============= ============ ============ ============ ========= Cash flows from financing activities Repayment of indebtedness (6) (1) (7) (30) (3) (33) ----------- ------------- ------------ ------------ ------------ --------- Net cash used in financing activities (6) (1) (7) (30) (3) (33) =========== ============= ============ ============ ============ ========= Net increase / (decrease) in cash (5) - (5) 8 - 8 Cash at beginning of period 135 6 141 77 6 83 ----------- ------------- ------------ ------------ ------------ --------- Cash at end of period 130 6 136 85 6 91 =========== ============= ============ ============ ============ ========= Cash paid in respect of: Interest 36 3 39 14 1 15 =========== ============= ============ ============ ============ =========

The accompanying notes are an integral part of the unaudited condensed financial statements 7 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 June 30, 2004 and for the three month period ended June 30, 2004. Such adjustments are of a normal, recurring nature. The results of operations for the three and nine month periods ended June 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 we are now able to sell aircraft where it 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. 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 July 15, 2004 was $36.2 million in arrears. It is highly unlikely that we will ever be able to resume making payments of 8 interest or principal on the class B, C and D notes. 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 assets 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 assumptions 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 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 three month period ended June 30, 2004. 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. 9 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 June 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"). 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 accompanying unaudited condensed interim financial statements of Airplanes Limited and Airplanes Trust (pages 3 to 10) 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. 10 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 June 30, 2004, we owned 168 aircraft, 149 of which were on lease to 57 lessees in 35 countries. On March 28, 1996, we established eight separate pass-through trusts to issue and sell $4,048 million in aggregate principal amount of subclass A-1, A-2, A-3, A-4 and A-5 and class B, C and D pass-through certificates in an underwritten offering. We used the proceeds from this offering, together with the proceeds from the sale of the class E notes of Airplanes Limited and Airplanes Trust to debis AirFinance Ireland plc (then known as GPA Group plc) to acquire a portfolio of 229 aircraft from debis AirFinance Ireland and its subsidiaries. We use the rental payments that we receive from leasing the aircraft to pay interest and principal on this debt. On March 16, 1998, we established four additional pass-through trusts to issue and sell $2,437 million in aggregate principal amount of subclass A-6, A-7 and A-8 and class B certificates in connection with the refinancing of our subclass A-1, A-2 and A-3 and class B certificates. On November 20, 1998, GE Capital acquired a majority of the class E notes from debis AirFinance Ireland (then known as AerFi Group) and its subsidiaries. On that date, a subsidiary of debis AirFinance Ireland also granted GE Capital an option to acquire the residual interest in Airplanes Trust. The subclass A-5 certificates were fully repaid as of May 15, 1998. We established a new pass-through trust on March 15, 2001 to issue and sell $750 million in aggregate principal amount of subclass A-9 certificates. 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. 11 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 (described more fully below) 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. 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 July 15, 2004 was $36.2 million in arrears. It is highly unlikely 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 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 12 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 $36.2 million following the July 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 of minimum principal on the class B notes or any interest on the class C and D notes, since the December 15, 2003 payment date. Class B, C and D notes It is highly unlikely 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 will be 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 below class A 13 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 the likelihood of remaining cashflows over the life of Airplanes Group being sufficient to resume any payments of class B principal or any payments of interest or principal on the class C and, ultimately, the class D notes is even further diminished. If we were able to resume making payments on the class B, C and D notes, payments would be made according to the priority of payments, commencing with the then most senior class and only making payments on more junior classes to the extent of available cashflows. The more junior the class of notes is in the order of priority, the greater the risk that we would be unable to make further payments on that class of notes. Our failure to make payments on a class of notes results in failure to make payments on the corresponding class of certificates. 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 August 9, 2004:- Outstanding Principal Balance as at August 9, Moody's (S&P Certificate 2004 S & P Fitch equivalent) ----------- ---- ----- ----- ----------- Subclass A-6 $64.5m AA- BBB- A2 (A) Subclass A-8 $700.0m 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. Prior to the successful completion of the consent solicitation as outlined in our most recent Form 10K as previously filed with the SEC, our indentures restricted our ability to sell aircraft. Sales of an aircraft were generally permitted only if the sales proceeds were at least equal to 105% of the aggregate outstanding class A to D principal allocable to that aircraft by 14 reference to the most recent appraised value (the "note target price"). Where note target price could not be achieved, sales were subject to, among other conditions, a $50 million annual limit and a $500 million overall limit (determined in each case by reference to the initial appraised value - the appraised value of the aircraft upon its original acquisition in 1996). As a result of the market price for aircraft declining at a rate greater than the decrease in outstanding principal of the class A to D notes due to the factors discussed in "Recent Developments", it was increasingly difficult to achieve sales of aircraft at or above note target price. Our ability to generate sales of aircraft at or above note target price would have further declined as we fall further behind our 2001 Base Case assumptions as to our principal repayments. As we had already utilized the current fiscal year's $50 million limit, and as some aircraft such as the MD-11s have initial appraised values in excess of $50 million, which precluded use of the annual allowance for this aircraft type, it was becoming more likely that this indenture restriction would present a real impediment to the ability of the servicer to maximize cash flow from the portfolio. For example, it may be in our best economic interests to sell a specific aircraft at a price below note target price if a suitable opportunity becomes available rather than lease it or have it non-revenue earning and requiring outlay for storage, maintenance and insurance, yet the indentures previously prohibited this. 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 Form 10K. We have identified a number of aircraft which are potential candidates for sale, having little to no re-lease prospects and which require expenditure for storage, maintenance and insurance. At June 30, 2004 eight aircraft (ATR42x1, A300C4-200x1, DHC8-100x1, DHC8-300Cx1, B737-200Ax1, DC9-32x3) were subject to letters of intent for sale. As disclosed in our most recent Form 10K a letter of intent for the sale of three MD11 aircraft was signed by the servicer in June 2004. This letter of intent subsequently expired and the transaction did not proceed. Subsequent to June 30, 2004 another letter of intent for the sale of the three MD11 aircraft has been signed following an offer from a separate purchaser. It is highly likely that we will accept this offer as we have been unable to re-lease the aircraft since their early return to us last year and the operating lease market for MD11 aircraft in passenger configuration is extremely weak. However, we are still in the process of reviewing the proposal to ensure that acceptance of the offer is in the best economic interest of Airplanes Group and the noteholders. If the sale is approved and the transaction proceeds we intend to disclose this through a separate press release. As of the date of this Form 10Q, in addition to the three MD11 aircraft referred to above, a further three aircraft (MD83x1, DC8-71Fx2) have become subject to letters of intent for sale, one of which has been approved by the Board of Directors. Remarketing At June 30, 2004, we had 33 aircraft scheduled to be remarketed before June 30, 2005. These comprise 2 B737-200As, 2 B737-300s, 2 B737-400s, 1 B747-200SF, 1 B767-300ER, 3 DHC8s, 6 MD-83s, 1 MD-87, 3 MD-11s, 6 DC8s, 1 A320s, 2 DC9s, 2 ATR42s and 1 B757-200. Furthermore, in light of negotiations with certain lessees, we may also experience 15 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 June 30, 2004 we leased 48 aircraft which represented 35.60% of our portfolio by appraised value at January 31, 2004 to operators in Europe. At June 30, 2004 a Turkish lessee of one A300 aircraft was in arrears. A termination notice has been issued by the servicer and discussions continue regarding the payment of arrears. North America At June 30, 2004 we leased 20 aircraft representing 12.35% of our portfolio by appraised value as of January 31, 2004, to operators in North America. At June 30, 2004, we leased six aircraft, representing 6.34% of our portfolio by appraised value as of January 31, 2004 to one Canadian lessee. The lessee, which has been under the protection of the Companies Creditors Arrangement Act (Canada) since March 2003, resumed making payments in July 2003 and continues to do so. The servicer has agreed a restructuring of the leases resulting in a reduction in lease rentals. The court has approved the entry by the lessee into this restructuring. At June 30, 2004 a lessee of one aircraft representing 0.80% 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 is pursuing all amounts outstanding in respect of the lessee's obligations. Latin America At June 30, 2004, lessees of 40 aircraft with respect to 15.99% 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, representing 5.86% of our portfolio by appraised value as of January 31, 2004, is currently in arrears, due to trading difficulties. The servicer, following discussions with the lessee agreed to the early return of the aircraft during 16 2003. All aircraft have been returned. The servicer has signed a settlement agreement in respect of the lessees obligations. The lessee is current in respect of these obligations. A second Brazilian lessee of eight F-100 aircraft representing 2.65% 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 to us. At June 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 June 30, 2004, we leased nine aircraft, representing 6.32% 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. At June 30, 2004, we leased six aircraft (included in the nine aircraft mentioned in the preceding paragraph) to one Colombian lessee, representing 5.19% 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 June 30, 2004, an Antiguan lessee of five aircraft representing 0.83% 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 June 30, 2004, we leased 30 aircraft representing 16.11% of our portfolio by appraised value as of January 31, 2004 to 13 lessees in this region. Since 1999, there has been some stabilization and recovery in the economies of this region. However, a decline in tourism in this area may adversely affect demand for aircraft in the region. 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 June 30, 2004 an Indonesian lessee of two aircraft representing 0.20% of our portfolio by appraised value as of January 31, 2004 wasin arrears. The servicer has used default notices to the lessee and is currently in discussions regarding outstanding amounts. 17 Africa At June 30, 2004 we leased six aircraft representing 6.25% of our portfolio by appraised value at January 31, 2004 to lessees in Africa. Other We also leased three aircraft representing 2.30% of our portfolio by appraised value as of January 31, 2004 to a lessee in Ukraine and one aircraft representing 0.17% 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. 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 2.82% of our portfolio by appraised value as of January 31, 2004 did not meet the Stage 3 requirements as of March 31, 2003, 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. 18 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 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, which could impact adversely our results of operations. The FAA issued an AD concerning insulation for the purpose of increasing fire safety on MD-80 and MD-11 aircraft. At June 30, 2004, 29 aircraft representing 19.42% of the portfolio by appraised value as of January 31, 2004, were MD-11s and MD-80s. We will incur significant costs in ensuring these aircraft comply with these standards. It is estimated that the necessary modification of the 29 aircraft will cost approximately $12.3 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 June 30, 2005 at an estimated cost of $6.2 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 58 Boeing 737 aircraft, representing 35.09% 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, which could impact adversely our results of operations. In early 2004 Boeing has 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. The initial reaction from Boeing has been to require repetitive inspections of this area every 500 flight hours, however it is expected that once investigation develops a major modification may be required to these aircraft types. 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. 19 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 58 Boeing 737 aircraft comply with these modifications, which could impact adversely our results of operations. 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. 20 Results of Operations - Three Months Ended June 30, 2004 Compared with Three Months Ended June 30, 2003. Airplanes Group's results for the three months ended June 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 $35 million in cash from operations in the three months ended June 30, 2004 compared to $Nil in the same period of the previous year. The increase in cash generated from operations in the three month period ended June 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 June 30, 2004 of $240 million (Airplanes Limited: $223 million; Airplanes Trust: $17 million) compared to a net loss after taxation for the three months ended June 30, 2003 of $181 million (Airplanes Limited: $164 million; Airplanes Trust: $17 million). Excluding accrued but unpaid class E note interest and impairment charges, the movement from a loss of $22 million to a loss of $7 million for the three months ended June 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 (which include maintenance reserve receipts which we receive from certain of our lessees) for the three months ended June 30, 2004 were $66 million (Airplanes Limited: $62 million; Airplanes Trust: $4 million) compared with $75 million (Airplanes Limited: $71 million; Airplanes Trust: $4 million) for the three months ended June 30, 2003. The decrease in 2004 was primarily attributable to a number of lease restructurings including rental reductions, the number of aircraft being off lease during the three months ended June 30, 2004 and to the reduction in the number of aircraft on lease in the period ended June 30, 2004 as a consequence of aircraft sales in previous periods. At June 30, 2004, we had 148 of our 168 aircraft on lease (Airplanes Limited: 138 aircraft; Airplanes Trust: 10 aircraft) compared to 155 of our 176 aircraft on lease (Airplanes Limited: 145 aircraft; Airplanes Trust: 10 aircraft) at June 30, 2003. 21 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 requirement for an impairment provision of $26 million (Airplanes Limited: $26 million; Airplanes Trust: $Nil) in the three month period ended June 30, 2004. Depreciation and Amortization The charge for depreciation and amortization in the three months ended June 30, 2004 amounted to $21 million (Airplanes Limited: $20 million; Airplanes Trust: $1 million) as compared with $33 million (Airplanes Limited: $31 million; Airplanes Trust: $2 million) for the three months ended June 30, 2003. The reduction in the charge in the three month period ended June 30, 2004 resulted primarily from the reduced depreciable value of the fleet following the impairment provisions made in the year ended March 31, 2003 and to a lesser extent, aircraft sales in previous periods. Net Interest Expense Net interest expense was $242 million (Airplanes Limited: $220 million; Airplanes Trust: $22 million), of which $35 million related to interest on the class A to D notes and swaps and $207 million related to interest on the class E notes, in the three month period ended June 30, 2004 compared to $200 million (Airplanes Limited: $182 million; Airplanes Trust: $18 million), of which $40 million related to interest on the class A to D notes and swaps and $160 million related to interest on the class E notes, in the three month period ended June 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 $47 million, partially offset by lower average debt and interest rates in the three months ended June 30, 2004. The weighted average interest rate on the class A to D notes during the three months ended June 30, 2004 was 5.50% and the average debt in respect of the class A to D notes outstanding during the period was $2,506 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 June 30, 2003 was 6.21% and the average debt in respect of the class A to D notes outstanding during the period was $2,624 million. The difference for the three months ended June 30, 2004 in Airplanes Group's net interest expense of $242 million (Airplanes Limited: $220 million; Airplanes Trust: $22 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 22 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 June 30, 2004, Airplanes Group earned interest income (including lessee default interest) of $Nil compared with $1 million in the three months ended June 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 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 June 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 $2 million (Airplanes Limited: $2 million; Airplanes Trust: $Nil) in respect of bad and doubtful debts in the three months ended June 30, 2004 compared with a net provision of $3 million (Airplanes Limited: $2 million; Airplanes Trust: $1 million) for the three months ended June 30, 2003. Other Lease Costs Other lease costs, comprising mainly a transfer to the provision for maintenance and aircraft related technical expenditure associated with remarketing the aircraft, in the three months ended June 30, 2004 amounted to $17 million (Airplanes Limited: $17 million; Airplanes Trust: $Nil) compared with other lease costs of $26 million (Airplanes Limited: $25 million; Airplanes Trust: $1 million) in the three months ended June 30, 2003. Selling, General and Administrative Expenses Selling, general and administrative expenses for the three month period ended June 30, 2004 amounted to $8 million (Airplanes Limited: $8 million; Airplanes Trust: $Nil) as compared to the expense that was incurred in the three months ended June 30, 2003 of $8 million (Airplanes Limited: $7 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 three months ended June 30, 2004 and the three months ended June 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 June 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, 23 compared to the charge of $1 million (Airplanes Limited: $1 million; Airplanes Trust $Nil) for the three month period ended June 30, 2003. Operating Loss The operating loss for the three months ended June 30, 2004 was $239 million (Airplanes Limited: $223 million; Airplanes Trust: $16 million) compared with an operating loss of $196 million for the three months ended June 30, 2003 (Airplanes Limited: $177 million; Airplanes Trust: $19 million). Airplanes Limited and Airplanes Trust are expected to continue to report substantial losses in the future. Taxes There was a tax charge of $1 million (Airplanes Limited: $Nil; Airplanes Trust: $1 million) in the three months ended June 30, 2004, as compared with a tax benefit of $15 million (Airplanes Limited: $13 million; Airplanes Trust: $2 million) for the three months ended June 30, 2003. The benefit in the three months ended June 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 The net loss after taxation for the three months ended June 30, 2004 was $240 million (Airplanes Limited: $223 million; Airplanes Trust: $17 million) compared with a net loss after taxation for the three months ended June 30, 2003 of $181 million (Airplanes Limited: $164 million; Airplanes Trust: $17 million). Financial Resources and Liquidity Commentary on Statement of Cashflows The factors discussed above at "Recent Developments" are causing a significant reduction in our cashflows. Liquidity Cash balances at June 30, 2004 amounted to $91 million (Airplanes Limited: $85 million; Airplanes Trust: $6 million) compared to cash balances at June 30, 2003 of $136 million (Airplanes Limited: $130 million; Airplanes Trust: $6 million). The principal reason for the reduction in cash balances is due to the depletion of the "Second Collection Account Top-up" following the recommencement of payment of class A minimum principal in August 2003. Operating Activities Net cash provided by operating activities in the three months ended June 30, 2004 amounted to $35 million (Airplanes Limited: $37 million; Airplanes Trust: $(2) million) compared with $Nil in the three months ended June 30, 2003 (Airplanes Limited: $Nil million; Airplanes Trust: $Nil). This includes cash paid in respect of interest of $15 24 million in the three months ended June 30, 2004 (Airplanes Limited: $14 million; Airplanes Trust: $1 million) compared with $39 million in the three months ended June 30, 2003 (Airplanes Limited: $36 million; Airplanes Trust: $3 million). The increase in cash provided by operating activities in the three month period ended June 30, 2004 is primarily attributable to positive maintenance cashflows, offset by a reduction in lease revenues due to lease restructurings and, to a lesser extent, greater aircraft downtime and aircraft sales in previous periods. Investing and Financing Activities Cashflows provided by investing activities in the three months ended June 30, 2004 were $6 million (Airplanes Limited: $1 million; Airplanes Trust: $5 million). This includes proceeds of $6 million (Airplanes Limited: $1 million; Airplanes Trust: $5 million) from the sale of three DC8-71F aircraft and one B737-200A aircraft. In the three months ended June 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 three months ended June 30, 2004 primarily reflect the repayment of $33 million of principal on subclass A-6 notes by Airplanes Group (Airplanes Limited: $30 million; Airplanes Trust: $3 million) compared with $6 million of principal repaid on subclass A-6 notes and class B notes by Airplanes Group (Airplanes Limited: $5 million; Airplanes Trust: $1 million) in the three months ended June 30, 2003. Indebtedness Airplanes Group's indebtedness consisted of class A to E notes in the amount of $3,071 million (Airplanes Limited: $2,798 million; Airplanes Trust: $273 million) at June 30, 2004 and $3,103 million (Airplanes Limited: $2,828 million; Airplanes Trust: $275 million) at June 30, 2003. Airplanes Group's outstanding publicly traded class A to D notes amounted to $2,480 million (Airplanes Limited: $2,257 million; Airplanes Trust: $223 million) at June 30, 2004 and $2,612 million (Airplanes Limited: $2,377 million; Airplanes Trust: $235 million) at June 30, 2003. Airplanes Group had $591 million class E notes outstanding at June 30, 2004 and June 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 25 is now, subclass A-6, subclass A-8 and subclass A-9 in that order. Comparison of Actual Cashflows versus the 2001 Base Case for the Two Month Period from May 12, 2004 to July 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 which is 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 "Two 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 June 15, 2004 and July 15, 2004. The financial data in these reports includes cash receipts from May 12, 2004 (first day of the Calculation Period for the June 2004 Report) up to July 9, 2004 (last day of the Calculation Period for the July 2004 Report). Page 41 presents the cumulative cashflow information from March 2001 to the July 2004 payment date. This report, however, limits its commentary to the Two 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 Two Month Period and should be read in conjunction with the analysis on page 40. Cash Collections "Total Cash Collections" include Net Lease Rental, Interest Earned, Aircraft Sales, Net Maintenance and Other Receipts (each as defined below). In the Two Month Period, Airplanes Group generated approximately $39.5 million in Total Cash Collections, $28.1 million less than the 2001 Base Case. This difference is due to a combination of the factors set out below the numbers in square brackets below refer to the line item number shown on page 39. 26 [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 Two Month Period, the amount of revenue loss attributed to Renegotiated Leases was $0.8 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 one Asian lessee representing 5 aircraft in total on lease to these lessees at June 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 $22.9 million in the Two 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 DC9-51 aircraft, one DC9-32 aircraft, four DC8-71F aircraft, two B727-200A aircraft, five 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 $3.0 million in lease rentals compared to the 2001 Base Case in the Two Month Period. Lease rentals totaling $0.2 million were received in the Two Month Period in respect of one A300C4-200 aircraft which has remained on lease after its assumed sale date in the 2001 Base Case. 27 [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 Two Month Period, Contracted Lease Rentals were $41.1 million, which was $26.5 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 $0.3 million in the Current Arrears balance over the Two 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 Two Month Period. Net Stress-Related Costs incurred in the Two Month Period amounted to a net cash outflow of $6.3 million (9.3% of Lease Rentals) compared to $4.0 million outflow assumed in the 2001 Base Case, a variance of $2.3 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 Two Month Period as compared to the 2001 Base Case assumption of $0.7 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 Two Month Period, Airplanes Group received payments totaling $1.3 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 Two Month Period. 28 [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 twenty aircraft AOG at various times during the Two Month Period and at June 30, 2004, twenty aircraft were AOG, six 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 Two Month Period, the 2001 Base Case Lease Rentals loss attributed to AOG was $8.0 million (11.8% of Lease Rentals), as compared to $2.8 million (4.2% of Lease Rentals) assumed under the 2001 Base Case. [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 Two Month Period, Other Leasing Income amounted to $0.4 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 Two Month Period, Repossession Costs amounted to $Nil, as compared to $0.5 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 Two Month Period, Net Lease Rental amounted to $34.5 million, $29.1 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 Two Month Period, Interest Earned amounted to $0.1 million, $1.0 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 Two 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 Two Month Period was 1.1% (excluding a $5 million guaranteed investment contract) as compared to the 5.2% assumed in the 2001 Base Case. 29 [16] Aircraft Sales Aircraft sales proceeds totalling $2.1 million were received in the Two Month Period in respect of the sale of one DC8-71F aircraft, one B737-200A aircraft and two engines from one other B737-200A aircraft. Sale deposits totalling $0.3 million had been received in a prior period in respect of the sale of these aircraft. In the 2001 Base Case, aircraft sales proceeds totalling $2.9 million are assumed to be received in the Two Month Period in respect of the assumed sale of one B737-200A aircraft which was sold in the Two 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 Two Month Period, positive net maintenance cashflows of $2.8 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. CASH EXPENSES "Total Cash Expenses" include Aircraft Operating Expenses and Selling, General and Administrative ("SG&A") Expenses. In the Two Month Period, Total Cash Expenses were $11.8 million compared to $8.8 million assumed in the 2001 Base Case, a negative variance of $3.0 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 Two Month Period, these costs amounted to $7.0 million (or 10.4% of Lease Rentals) compared to $3.4 million (or 5.0% of Lease Rentals) assumed in the 2001 Base Case. Actual Re-Leasing and Other Overhead Costs were higher than the 2001 Base Case assumption primarily due to higher than assumed transition costs on aircraft delivering to new lessees and higher payments made in the form of lessor contributions to defray certain technical costs during the term of certain leases. "SG&A Expenses" relate to fees paid to the servicer and to other service providers. 30 [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 Two Month Period, the total Aircraft Servicer Fees paid were $3.9 million, as compared to $3.9 million assumed in the 2001 Base Case. Aircraft Servicer Fees consist of: $M -- Retainer Fee........................................ 3.9 Minimum Incentive Fee............................... 0.0 Core Cashflow/Sales Incentive Fee................... 0.0 --- Total Aircraft Servicer Fee......................... 3.9 === 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 Two Month Period, Other Servicer Fees and Other Overheads amounted to $0.9 million, $0.6 million lower than an assumed expense of $1.5 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 July 15, 2004 payment date, there was a shortfall in the 31 liquidity reserve amount of $45.4 million as compared to a shortfall of $45.7 million on the May 17, 2004 payment date, representing an overall decrease of $0.3 million in the Shortfall in Liquidity Reserve for the Two Month Period. This decrease in the Shortfall in Liquidity Reserve is explained by a net reduction of $0.3 million in the security deposit reserve amount in the Two Month Period. Under the 2001 Base Case, a Shortfall in Liquidity Reserve was not anticipated. [30] Interest Payments In the Two Month Period, interest payments to the holders of the class A, B, C and D notes amounted to $4.1 million which is $23.3 million lower than assumed under the 2001 Base Case. Interest payments on the floating rate class A notes amounted to $4.1 million, $9.1 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 Two Month Period was 1.2%. Our cashflows have been inadequate to pay any interest on the class B, C and D notes in the Two Month Period. Interest payments assumed under the 2001 Base Case in the Two Month Period amounted to $2.2 million, $4.8 million and $7.2 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 $2.9 million, $19.5 million and $29.6 million respectively on the class B, C and D notes following the July 15, 2004 payment date. In the Two 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 July 15, 2004 was $4.8 million. 32 [31] Swap and Swaption Cashflows Airplanes Group's net swap payments during the Two Month Period were $5.9 million compared to $Nil assumed in the 2001 Base Case. [33] Principal Payments In the forty month period from March 10, 2001 to July 15, 2004, total principal payments amounted to $440.8 million (comprising $389.3 million on the class A notes and $51.5 million on the class B notes), $166.1 million less than assumed in the 2001 Base Case. The breakdown of the $166.1 million variance is set out on page 41. In the Two Month Period, total principal payments amounted to $18.4 million, (comprising $18.4 million on the class A notes), $13.0 million less than assumed in the 2001 Base Case. The breakdown of the $13.0 million variance is set out on page 40. 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 $2,736.4 million at July 15, 2004. Our portfolio is appraised annually and the most recent appraisal was obtained on January 31, 2004 and valued the current portfolio at $2,023.2 million. Applying the declining value assumptions to this appraisal, the total appraised value was $1,942.0 million at July 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 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 month period since the 2001 refinancing. Total deferrals of class C and class D scheduled principal amounts amounted to $85.7 million and $54.9 million respectively as of July 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 $462.9 million as at July 15, 2004. 33 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 $36.2 million following the July 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 $15.3 million following the July 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 such as the MD-11s, 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. 34 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. 35 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 Revenue foregone on aircraft sold prior to their assumed sale Sales......................... 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] S [1]...[4] Contracted Lease Rentals....... Current Contracted Lease Rentals due as at the latest Calculation Date [6] Movement in Current Arrears Current Contracted Lease Rentals not received as at the latest Balance........................ 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] S [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] S [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 Incentive Fees (in excess of Minimum Incentive Fee above) paid to servicer Fee for performance above an annually agreed target/on sale of an aircraft. [22] [21] Sub-total [23] Other Servicer Fees and Other Administrative Agent, trustee and professional fees paid to Overheads...................... 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 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] S [26]...[31] Total [33] PRINCIPAL PAYMENTS.............. Principal payments on debt

36 Airplanes Group Cashflow Performance for the Period from May 12, 2004 to July 15, 2004 (2 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 67.6 67.6 0.0 100.0% 100.0% 0.0% 2 - Renegotiated Leases (0.8) 0.0 (0.8) (1.2%) 0.0% (1.2%) 3 - Rental Resets (22.9) 0.0 (22.9) (33.9%) 0.0% (33.9%) 4 - Lease Rentals - Aircraft Sales (2.8) 0.0 (2.8) (4.1%) 0.0% (4.1%) ---- ---- ----- ---- ---- ----- 5 S 1 - 4 Contracted Lease Rentals 41.1 67.6 (26.5) 60.8% 100.0% (39.2%) 6 Movement in Current Arrears (0.3) 0.0 (0.3) (0.4%) 0.0% (0.4%) Balance 7 less Net Stress Related Costs 8 - Bad Debts 0.0 (0.7) 0.7 0.0% (1.0%) 1.0% 9 - Deferred Arrears Balance 1.3 0.0 1.3 1.9% 0.0% 1.9% 10 - AOG (8.0) (2.8) (5.2) (11.8%) (4.2%) (7.7%) 11 - Other Leasing Income 0.4 0.0 0.4 0.6% 0.0% 0.6% 12 - Repossession 0.0 (0.5) 0.5 0.0% (0.8%) 0.7% ---- ---- ----- ---- ---- ----- 13 S 8 - 12 Sub-total (6.3) (4.0) (2.3) (9.3%) (6.0%) (3.4%) 14 5+6+13 Net Lease Rental 34.5 63.6 (29.1) 51.0% 94.1% (43.0%) 15 Interest Earned 0.1 1.1 (1.0) 0.1% 1.6% (1.5%) 16 Aircraft Sales 2.1 2.9 (0.8) 3.1% 4.3% (1.2%) 17 Net Maintenance 2.8 0.0 2.8 4.1% 0.0% 4.1% 18 Other Receipts 0.0 0.0 0.0 0.0% 0.0% 0.0% ---- ---- ----- ---- ---- ----- 19 S 14 - 18 Total Cash Collections 39.5 67.6 (28.1) 58.4% 100.0% (41.6%) ==== ==== ===== ==== ==== ===== CASH EXPENSES Aircraft Operating Expenses 20 - Re-leasing and other overheads (7.0) (3.4) (3.6) (10.4%) (5.0%) (5.3%) SG&A Expenses 21 Aircraft Servicer Fees - Retainer Fee (3.9) (3.6) (0.3) (5.8%) (5.3%) (0.4%) - Minimum Incentive Fee 0.0 (0.3) 0.3 0.0% (0.4%) 0.4% - Core Cashflow/Sales Incentive 0.0 0.0 0.0 0.0% 0.0% 0.0% Fee 22 21 Sub-total (3.9) (3.9) 0.0 (5.8%) (5.7%) (0.1%) 23 Other Servicer Fees and Other (0.9) (1.5) 0.6 (1.3%) (2.4%) (1.0%) Overheads 23A Other SG&A Expenses 0.0 0.0 0.0 0.0% 0.0% 0.0% ---- ---- ----- ---- ---- ----- 24 22+23+23A Sub-total (4.8) (5.4) 0.6 (7.1%) (8.1%) (1.0%) ---- ---- ----- ---- ---- ----- 25 24+20 Total Cash Expenses (11.8) (8.8) (3.0) (17.5%) (13.1%) (4.4%) ==== ==== ===== ==== ==== ===== NET CASH COLLECTIONS 26 19 Total Cash Collections 39.5 67.6 (28.1) 58.4% 100.0% (41.6%) 27 25 Total Cash Expenses (11.8) (8.8) (3.0) (17.5%) (13.1%) (4.4%) 28 Movement in Expense Account 1.0 0.0 1.0 1.5% 0.0% 1.5% 29 Reduction in Liquidity Reserve 0.0 0.0 0.0 0.0% 0.0% 0.0% 29A Shortfall in Liquidity Reserve (0.3) 0.0 (0.3) (0.4%) 0.0% (0.4%) 30 Interest Payments (4.1) (27.4) 23.3 (6.1%) (40.5%) (34.5%) 31 Swap Payments (5.9) 0.0 (5.9) (8.7%) 0.0% (8.7%) ---- ---- ----- ---- ---- ----- 32 S 26 - 31 TOTAL 18.4 31.4 (13.0) 27.2% 46.4% (19.2%) ==== ==== ===== ==== ==== ===== 33 PRINCIPAL PAYMENTS Class A 18.4 27.9 (9.5) (27.2%) 41.3% (14.1%) Class B 0.0 3.5 (3.5) 0.0% 5.2% (5.2%) ---- ---- ----- ---- ---- ----- Total 18.4 31.4 (13.0) 27.2% 46.4% (19.2%) ==== ==== ===== ==== ==== ===== Debt Balances at July 15, 2004 Subclass A-6 56.1 0.0 Subclass A-8 700.0 700.0 Subclass A-9 750.0 652.2 Class B 226.8 214.6 Class C 349.8 349.8 Class D 395.1 395.1 ------- ------- 2,477.8 2,311.7 ======= =======

37 Airplanes Group Cashflow Performance for the Period from March 10, 2001 to July 15, 2004 (40 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 1,395.0 1,395.0 0.0 100.0% 100.0% 0.0% 2 - Renegotiated Leases (80.4) 0.0 (80.4) (5.8%) 0.0% (5.8%) 3 - Rental Resets (253.6) 0.0 (253.6) (18.2%) 0.0% (18.2%) 4 - Lease Rentals - Aircraft Sales (15.1) 0.0 (15.1) (1.1%) 0.0% (1.1%) ------- ------- ------ ---- ---- ----- 5 S 1 - 4 Contracted Lease Rentals 1,045.9 1,395.0 (349.1) 75.0% 100.0% (25.0%) 6 Movement in Current Arrears (1.7) 0.0 (1.7) (0.1%) 0.0% (0.1%) Balance 7 less Net Stress Related Costs 8 - Bad Debts (10.2) (14.0) 3.8 (0.7%) (1.0%) 0.3% 9 - Deferred Arrears Balance 14.0 3.1 10.9 1.0% 0.2% 0.8% 10 - AOG (111.4) (58.7) (52.7) (8.0%) (4.2%) (3.8%) 11 - Other Leasing Income 13.2 0.0 13.2 0.9% 0.0% 0.9% 12 - Repossession (4.1) (11.2) 7.1 (0.3%) (0.8%) 0.5% ------- ------- ------ ---- ---- ----- 13 S 8 - 12 Sub-total (98.5) (80.8) (17.7) (7.1%) (5.8%) (1.3%) 14 5+6+13 Net Lease Rental 945.7 1,314.2 (368.5) 67.8% 94.2% (26.4%) 15 Interest Earned 9.6 23.0 (13.4) 0.7% 1.6% (1.0%) 16 Aircraft Sales 37.3 43.6 (6.3) 2.7% 3.1% (0.5%) 17 Net Maintenance 75.5 0.0 75.5 5.4% 0.0% 5.4% 18 Other Receipts 8.3 0.0 8.3 0.6% 0.0% 0.6% ------- ------- ------ ---- ---- ----- 19 S 14 - 18 Total Cash Collections 1,076.4 1,380.8 (304.4) 77.2% 99.0% (21.8%) ======= ======= ====== ==== ==== ===== CASH EXPENSES Aircraft Operating Expenses 20 - Re-leasing and other overheads (81.6) (69.9) (11.7) (5.8%) (5.0%) (0.8%) SG&A Expenses 21 Aircraft Servicer Fees - Retainer Fee (74.6) (74.3) (0.3) (5.3%) (5.3%) (0.0%) - Minimum Incentive Fee (6.0) (5.0) (1.0) (0.4%) (0.4%) (0.1%) - Core Cashflow/Sales Incentive Fee (0.2) 0.0 (0.2) 0.0% 0.0% 0.0% ----- ----- ------ ---- ---- ----- 22 21 Sub-total (80.8) (79.3) (1.5) (5.8%) (5.7%) (0.1%) 23 Other Servicer Fees and Other (36.0) (33.6) (2.4) (2.6%) (2.4%) (0.2%) Overheads 23A Other SG&A Expenses (2.0) (4.7) 2.7 (0.1%) (0.3%) 0.2% ----- ----- ------ ---- ---- ----- 24 22+23+23A Sub-total (118.8) (117.6) (1.2) (8.5%) (8.4%) (0.1%) ----- ----- ------ ---- ---- ----- 25 24+20 Total Cash Expenses (200.4) (187.5) (12.9) (14.4%) (13.4%) (0.9%) ====== ====== ===== ===== ===== ==== NET CASH COLLECTIONS 26 19 Total Cash Collections 1,076.4 1,380.8 (304.4) 77.2% 99.0% (21.8%) 27 25 Total Cash Expenses (200.4) (187.5) (12.9) (14.4%) (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 2.9% 2.9% 0.0% 29A Shortfall in Liquidity Reserve 45.4 0.0 45.4 3.3% 0.0% 3.3% 30 Interest Payments (350.8) (598.2) 247.4 (25.1%) (42.9%) 17.7% 5.1 Swap Payments (162.3) (28.2) (134.1) (11.6%) (2.0%) (9.6%) ----- ----- ------ ---- ---- ----- 32 S 26 - 31 TOTAL 440.8 606.9 (166.1) 31.6% 43.5% (11.9%) ===== ===== ====== ==== ==== ===== 33 PRINCIPAL PAYMENTS Class A 389.3 543.2 (153.9) 27.9% 38.9% (11.0%) Class B 51.5 63.7 (12.2) 3.7% 4.6% (0.9%) ----- ----- ------ ---- ---- ----- Total 440.8 606.9 (166.1) 31.6% 43.5% (11.9%) ===== ===== ====== ==== ==== ===== Debt Balances at July 15, 2004 Subclass A-6 56.1 0.0 56.1 Subclass A-8 700.0 700.0 0.0 Subclass A-9 750.0 652.2 97.8 Class B 226.8 214.6 12.2 Class C 349.8 349.8 0.0 Class D 395.1 395.1 0.0 ------- ------- ----- 2,477.8 2,311.7 166.1 ======= ======= =====

Mar-01 2001 ------ ---- Closing Actual Base Case ------- ------ --------- ($ Millions) ($ Millions) ($ Millions) Net Cash Collections 440.8 606.9 Add Back Interest and Swap Payments 513.1 626.4 ----- ------- a Net Cash Collections 953.9 1,233.3 ===== ======= (excl. interest and swap payments) b Swaps 162.3 28.2 c Class A Interest 139.7 309.9 d Class A Minimum 134.3 0.0 e Class B Interest 20.5 50.1 f Class B Minimum 51.5 63.7 g Class C Interest 76.0 95.0 h Class D Interest 114.6 143.2 i Class A Principal Adjustment 255.0 543.2 i Class C Scheduled 0.0 0.0 k Class D Scheduled 0.0 0.0 l Permitted Aircraft Modifications 0.0 0.0 m Step-up Interest 0.0 0.0 n Class E Minimum Interest 0.0 0.0 o Class B Supplemental 0.0 0.0 p Class A Supplemental 0.0 0.0 ----- ------- Total 953.9 1,233.3 ===== ======= [1] Interest Coverage Ratio Class A 3.2 3.6 = 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 3.6 = 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 Value 3,1086.6 1,942.0 2,474.2 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 Deposits 36.9 0.0 36.0 ------- ------- ------- Subtotal 132.6 72.0 80.0 ------- ------- ------- [4] Total Asset Value 3,241.2 2,014.0 2,554.2 ======= ======= ======= Note Balances as at: March 15, 2001 July 15, 2004 July 15, 2004 -------------------- -------------- ------------- ------------- Class A 1,895.4 58.5% 1,506.1 74.8% 1,352.2 52.9% Class B 278.3 67.1% 226.8 86.0% 214.6 61.3% Class C 349.8 77.9% 349.8 103.4% 349.8 75.0% Class D 395.1 90.0% 395.1 123.0% 395.1 90.5% ------- ------- ------- 2,918.6 2,477.8 2,311.7 ======= ======= =======

39 [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. 40 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 June 30, 2004 and estimated fair value as of June 30, 2004, are as follows: Annual Interest Estimated Fair Rate Principal Amount Final Value at Class of Notes (Payable Monthly) at June 30, 2004 Maturity Date June 30, 2004* -------------- ----------------- ---------------- ------------- -------------- $ Million $ Million Subclass A-6 (LIBOR+.34%) 65 March 15, 2019 64 Subclass A-8 (LIBOR+.375%) 700 March 15, 2019 578 Subclass A-9 (LIBOR+.55%) 750 March 15, 2019 368 Class B (LIBOR+.75%) 227 March 15, 2019 37 Class C (8.15%) 350 March 15, 2019 19 Class D (10.875%) 395 March 15, 2019 12 ----- ----- 2,487 1,078 ===== =====

---------- * Although the estimated fair values of the class A to D notes outstanding have been determined by reference to prices as at June 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 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. One reason for this is the fact that 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. 41 We have therefore reviewed and modified our hedging policy with the approval of the rating agencies and will not enter into any further 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 from 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 the expected paydown schedule of the class A and class B notes, the expiry dates of the leases under which lessees are contracted to make fixed rate rental payments and the LIBOR reset dates under the floating 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 fixed and floating mix of interest obligations and the fixed and floating mix of rental receipts. At June 30, 2004, Airplanes Group had unamortized swaps with an aggregate notional principal balance of $1,250 million. The aggregate notional principal balance of these swaps will reduce, by their terms, to an aggregate notional principal balance of $700 million by March 31, 2005, to an aggregate notional principal balance of $495 million by March 31, 2006, to an aggregate notional principal balance of $275 million by March 31, 2007 and to an aggregate notional principal balance of $90 million by March 2008. None of the swaps have a maturity date extending beyond April 2008. The aggregate estimated fair market value of the swaps at June 30, 2004 was ($49.8) million, that is the swaps were "out-of-the-money", such that if sold, Airplanes Group would incur a loss of $26.6 million, as detailed on the next page: 42 Airplanes Group Swap Book at June 30, 2004 Notional Estimated Fair Swap Amount (1) Final Fixed Rate Market Value ($) No. $'millions Effective Date Maturity Date Payable (2) As at Jun 30, 2004 1 200 17-Feb-04 15-Jul-04 1.2000% 6,455 2 5 12-Oct-00 15-Jul-04 6.5850% (22,264) 3 65 17-Jun-02 15-Jul-04 3.7700% (137,048) 4 35 17-Sep-01 15-Sep-04 5.7125% (380,940) 5 30 17-Jun-02 15-Oct-04 3.5800% (207,128) 6 25 15-Jul-03 15-Nov-04 5.7650% (434,642) 7 30 15-Apr-02 15-Dec-04 5.3975% (331,511) 8 25 15-Apr-03 15-Dec-04 4.2350% (283,326) 9 40 15-May-01 15-Jan-05 4.7950% (656,410) 10 60 21-Aug-01 15-Feb-05 4.4195% (1,015,881) 11 0 (3) 15-Oct-04 17-Oct-05 4.5650% (275,105) 12 40 17-Oct-01 15-Nov-05 3.9475% (559,032) 13 0 (3) 15-Jul-04 15-Dec-05 2.4475% 631,114 14 105 24-Jul-01 15-Dec-05 5.2850% (3,305,995) 15 35 17-Nov-03 17-Jan-06 5.1150% (704,397) 16 125 20-Dec-01 15-Feb-06 4.6350% (2,961,514) 17 20 15-May-03 15-Mar-06 2.8800% (98,499) 18 65 30-Jan-02 15-Apr-06 3.5040% (353,295) 19 60 15-Mar-02 15-Apr-06 4.0125% (1,126,441) 20 30 15-Dec-03 18-Apr-06 2.9425% (108,071) 21 100 15-Aug-02 15-Jul-06 5.5500% (6,465,785) 22 0 (3) 17-Oct-05 15-Oct-06 4.9400% (113,496) 23 0 (3) 15-Jul-04 15-May-07 5.8620% (5,423,494) 24 50 15-Mar-04 15-May-07 5.2020% (2,542,771) 25 35 15-Apr-03 15-May-07 3.5350% (456,234) 26 0 (3) 15-Dec-04 15-Jun-07 4.1300% (615,098) 27 70 17-Mar-03 17-Sep-07 3.8700% (591,040) 28 0 (3) 15-May-07 15-Nov-07 4.8000% 98,647 29 0 (3) 17-Sep-07 17-Dec-07 4.9440% 12,272 30 0 (3) 15-Jul-05 15-Apr-08 3.4800% 1,857,958 --------------- ------------------------- 1,250 (26,562,972) =============== =========================

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, which resets monthly on an actual /360 adjusted basis. 3) The initial amounts for swaps number 11, 13, 22, 23, 26, 28, 29 and 30 are $15 million, $60 million, $10 million, $65 million, $90 million, $95 million, $75 million and $45 million respectively. 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. 43 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 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 is paid 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 is paid 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 under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation s- Recent Developments", 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 solicitations were 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 enter into any further interest rate swaps. 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. The directors of Airplanes Limited and the controlling trustees of Airplanes Trust are responsible for reviewing and approving the overall interest rate management policy and transaction authority limits. Specific hedging contracts are approved by officers of the Administrative Agent acting within the overall policies and limits. Counterparty risk is monitored on an ongoing basis. Counterparties are subject to the prior approval of the directors of Airplanes Limited and the controlling trustees of Airplanes Trust. Airplanes Group is required by the indentures to enter into swaps only with counterparties meeting certain rating requirements as discussed more fully under "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations". 44 The quantitative disclosure and other statements in this section are forward-looking statements that involve risks and uncertainties. Although Airplanes Group's policy is to limit its exposure to changes in interest rates, it could suffer higher cashflow losses as a result of actual future changes in interest rates. It should also be noted that Airplanes Group's future exposure to interest rate movements will change as the composition of its lease portfolio changes or if it issues new subclasses of refinancing notes with different interest rate provisions from the notes. 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. 45 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 the Evaluation 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. 46 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 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 High Court in Sao Paolo, Brazil, found in favor of VASP on appeal and granted it the right to the return of the aircraft and engines or the right to seek damages against debis AirFinance Ireland. debis AirFinance Ireland challenged this decision and in January 2000, the High Court granted a stay of the 1996 judgment while it considered debis AirFinance Ireland's rescission action. In April 2002, the High Court 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 repossesion 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. 47 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 payments 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 April 15, 2004, May 17, 2004 and June 15, 2004 (relating to the monthly report to holders of the certificates). 48 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: August 9, 2004 AIRPLANES LIMITED By:/s/ William M. McCann ---------------------- William M. McCann Director and Principal Accounting Officer Date: August 9, 2004 AIRPLANES LIMITED By:/s/ William M. McCann ---------------------- William M. McCann Controlling Trustee and Principal Accounting Officer AIRPLANES GROUP PORTFOLIO ANALYSIS AT JUNE 30, 2004 Appraised % of Portfolio Value by Appraised Aircraft Serial January 31, Value as of Jan Region Country Lessee Type Number 2004 31, 2004 Africa Kenya East African Safari Air, Limited B767-300ER 24948 38,679 1.91% Africa Nigeria Bellview Airlines Ltd B737-200A 23024 1,997 0.10% Africa South Africa Nationwide Airlines B767-300ER 26200 41,936 2.07% Africa Tunisia Nouvelair Tunisie A320-200 348 23,223 1.15% Africa Tunisia Nouvelair Tunisie MD83 49631 11,174 0.55% Africa Tunisia Nouvelair Tunisie MD83 49672 9,522 0.47% Asia & Far East Bangladesh GMG Airlines DHC8-300 307 5,735 0.28% Asia & Far East China China Southern B737-500 24897 13,642 0.67% Asia & Far East China China Southern B737-500 25182 14,269 0.71% Asia & Far East China China Southern B737-500 25183 14,845 0.73% Asia & Far East China China Southern B737-500 25188 14,858 0.73% Asia & Far East China Xinjiang B757-200 26156 26,091 1.29% Asia & Far East Indonesia Garuda B737-400 24683 16,772 0.83% Asia & Far East Indonesia Garuda B737-400 24691 17,129 0.85% Asia & Far East Indonesia Merpati Nusantara Airlines B737-200A 22368 2,054 0.10% Asia & Far East Indonesia Merpati Nusantara Airlines B737-200A 22369 1,951 0.10% Asia & Far East Indonesia PT Adam SkyConnection Airlines B737-400 26071 18,757 0.93% Asia & Far East Indonesia PT Mandala Airlines B737-200A 21685 1,464 0.07% Asia & Far East Indonesia PT Mandala Airlines B737-200A 22278 1,617 0.08% Asia & Far East Indonesia PT Mandala Airlines B737-200A 22803 2,367 0.12% Asia & Far East Indonesia PT Mandala Airlines B737-200A 22804 2,314 0.11% Asia & Far East Indonesia PT Mandala Airlines B737-200A 23023 2,544 0.13% Asia & Far East Indonesia PT Metro Batavia B737-200A 22397 2,104 0.10% Asia & Far East Indonesia PT Metro Batavia B737-200A 22407 2,135 0.11% Asia & Far East Indonesia PT Metro Batavia B737-200A 22802 1,797 0.09% Asia & Far East Indonesia PT Metro Batavia B737-400 24345 15,710 0.78% Asia & Far East Indonesia PT Metro Batavia B737-400 24687 16,453 0.81% Asia & Far East Malaysia AirAsia Berhad B737-300 24905 16,467 0.81% Asia & Far East Malaysia AirAsia Berhad B737-300 24907 16,560 0.82% Asia & Far East Pakistan Pakistan Int Airline A300B4-200 269 4,131 0.20% Asia & Far East Philippines Philippine Airlines B737-400 24684 16,270 0.80% Asia & Far East Philippines Philippine Airlines B737-300 24770 14,697 0.73% Asia & Far East Philippines Philippine Airlines B737-400 26081 19,484 0.96% Asia & Far East South Korea Asiana Airlines B737-400 24493 15,767 0.78% Asia & Far East South Korea Asiana Airlines B737-400 24520 16,354 0.81% Asia & Far East Taiwan Far Eastern Air Transport MD83 49950 11,627 0.57%

Appraised % of Portfolio Value by Appraised Aircraft Serial January 31, Value as of Jan Region Country Lessee Type Number 2004 31, 2004 Australia & New Zealand Australia National Jet Systems DHC8-100 229 3,573 0.18% Europe Bulgaria BH Air A320-200 294 22,722 1.12% Europe Bulgaria BH Air A320-200 349 24,214 1.20% Europe Czech Republic Travel Servis a.s. B737-400 24911 17,468 0.86% Europe France Air France A320-200 203 20,910 1.03% Europe France Air France A320-200 220 21,680 1.07% Europe Hungary SkyEurope Airlines Hungary Kft B737-500 25185 14,966 0.74% Europe Hungary SkyEurope Airlines Hungary Kft B737-500 25289 14,737 0.73% Europe Iceland Air Atlanta Icelandic B767-300ER 26204 41,877 2.07% Europe Iceland Bluebird Cargo B737-300SF 23499 13,011 0.64% Europe Iceland Bluebird Cargo B737-300SF 23500 12,674 0.63% Europe Italy Air One SpA B737-400 24906 17,152 0.85% Europe Italy Air One SpA B737-400 24912 17,308 0.86% Europe Italy Air One SpA B737-300 25179 17,054 0.84% Europe Italy Air One SpA B737-300 25187 17,357 0.86% Europe Italy Meridiana SpA MD83 49792 11,291 0.56% Europe Italy Meridiana SpA MD83 49935 11,474 0.57% Europe Italy Meridiana SpA MD83 49951 12,334 0.61% Europe Netherlands Capital Aviation Services B.V. DHC8-300 244 5,202 0.26% Europe Netherlands Capital Aviation Services B.V. DHC8-300 276 5,402 0.27% Europe Norway Wideroe's Flyveselskap a/s DHC8-300 293 5,701 0.28% Europe Norway Wideroe's Flyveselskap a/s DHC8-300 342 6,112 0.30% Europe Portugal euroAtlantic airways B767-300ER 25411 41,234 2.04% Europe Slovakia SkyEurope Airlines, a.s B737-500 25186 13,917 0.69% Europe Slovakia SkyEurope Airlines, a.s B737-500 25191 15,088 0.75% Europe Slovakia SkyEurope Airlines, a.s B737-500 25288 14,657 0.72% Europe Spain Futura B737-400 24689 16,426 0.81% Europe Spain Futura B737-400 24690 16,305 0.81% Europe Spain Futura B737-400 25180 18,341 0.91% Europe Spain Spanair MD83 49620 10,012 0.49% Europe Spain Spanair MD83 49624 9,644 0.48% Europe Spain Spanair MD83 49626 10,028 0.50% Europe Spain Spanair MD83 49709 9,922 0.49% Europe Spain Spanair MD83 49936 12,367 0.61% Europe Spain Spanair MD83 49938 11,637 0.58% Europe Tunisia Nouvelair Tunisie A320-200 301 22,440 1.11% Europe Turkey FreeBird Airlines MD83 49949 12,018 0.59% Europe Turkey Orbit Ekspres Havayollari A.S. A300C4-200 83 8,377 0.41% Europe Turkey Turk Hava Yollari B737-400 24917 17,517 0.87% Europe Turkey Turk Hava Yollari B737-400 25181 17,807 0.88% Europe Turkey Turk Hava Yollari B737-400 25184 18,174 0.90% Europe Turkey Turk Hava Yollari B737-400 25261 18,675 0.92% Europe Turkey Turk Hava Yollari B737-400 26065 18,392 0.91% Europe United Kingdom Air Southwest DHC8-300 296 5,753 0.28%

Appraised % of Portfolio Value by Appraised Aircraft Serial January 31, Value as of Jan Region Country Lessee Type Number 2004 31, 2004 Europe United Kingdom Air Southwest DHC8-300 334 6,263 0.31% Europe United Kingdom easyJet Airline Company Limited B737-300 23923 13,499 0.67% Europe United Kingdom Titan Airways Limited ATR42-300 109 2,778 0.14% Europe United Kingdom Titan Airways Limited ATR42-300 113 2,840 0.14% Europe United Kingdom Titan Airways Limited B757-200 26151 25,565 1.26% Latin America Antigua Caribbean Star Airlines DHC8-300 232 5,240 0.26% Latin America Antigua Caribbean Star Airlines DHC8-300 266 5,596 0.28% Latin America Antigua Caribbean Star Airlines DHC8-300 267 5,781 0.29% Latin America Antigua Caribbean Star Airlines DHC8-300 298 5,839 0.29% Latin America Antigua Caribbean Star Airlines DHC8-300 300 5,706 0.28% Latin America Antigua Liat DHC8-100 113 2,567 0.13% Latin America Antigua Liat DHC8-100 140 2,714 0.13% Latin America Antigua Liat DHC8-100 144 2,808 0.14% Latin America Antigua Liat DHC8-100 270 3,197 0.16% Latin America Antigua Liat DHC8-300 283 5,524 0.27% Latin America Brazil Promodal Transportes Aereos Ltda. DC8-71F 45970 8,111 0.40% Latin America Brazil TAM Linhas Aereas F100 11284 6,463 0.32% Latin America Brazil TAM Linhas Aereas F100 11285 6,113 0.30% Latin America Brazil TAM Linhas Aereas F100 11304 6,504 0.32% Latin America Brazil TAM Linhas Aereas F100 11305 6,865 0.34% Latin America Brazil TAM Linhas Aereas F100 11336 7,209 0.36% Latin America Brazil TAM Linhas Aereas F100 11347 7,292 0.36% Latin America Brazil TAM Linhas Aereas F100 11348 6,540 0.32% Latin America Brazil TAM Linhas Aereas F100 11371 6,578 0.33% Latin America Colombia Avianca B767-200ER 25421 30,425 1.50% Latin America Colombia Avianca B757-200 26154 24,859 1.23% Latin America Colombia Avianca MD83 49939 12,030 0.59% Latin America Colombia Avianca MD83 49946 11,937 0.59% Latin America Colombia Avianca MD83 53120 12,685 0.63% Latin America Colombia Avianca MD83 53125 12,979 0.64% Latin America Colombia Tampa DC8-71F 45945 7,211 0.36% Latin America Colombia Tampa DC8-71F 45976 9,007 0.45% Latin America Colombia Tampa DC8-71F 46066 6,814 0.34% Latin America Mexico Aeromexico MD82 49660 8,003 0.40% Latin America Mexico Aeromexico MD82 49667 8,029 0.40% Latin America Mexico Aeromexico MD87 49673 8,914 0.44% Latin America Mexico Mexicana F100 11266 6,970 0.34% Latin America Mexico Mexicana F100 11309 7,594 0.38% Latin America Mexico Mexicana F100 11319 7,398 0.37% Latin America Mexico Mexicana F100 11339 6,687 0.33% Latin America Mexico Mexicana F100 11374 7,584 0.37% Latin America Mexico Mexicana F100 11375 7,347 0.36% Latin America Mexico Mexicana F100 11382 7,654 0.38% Latin America Mexico Mexicana F100 11384 7,530 0.37%

Appraised % of Portfolio Value by Appraised Aircraft Serial January 31, Value as of Jan Region Country Lessee Type Number 2004 31, 2004 Latin America Netherlands Antilles Dutch Caribbean Airline DHC8-300C 230 5,253 0.26% N America Canada Air Canada A320-200 174 20,485 1.01% N America Canada Air Canada A320-200 175 20,703 1.02% N America Canada Air Canada A320-200 232 20,839 1.03% N America Canada Air Canada A320-200 284 21,171 1.05% N America Canada Air Canada A320-200 309 21,862 1.08% N America Canada air Canada A320-200 404 23,260 1.15% N America Canada Jetsgo Airlines MD83 49941 11,867 0.59% N America Canada Jetsgo Airlines MD83 49943 12,545 0.62% N America United States of America Air Transport International DC8-71F 45811 7,862 0.39% N America United States of America Air Transport International DC8-71F 45813 7,199 0.36% N America United States of America Air Transport International DC8-71F 45973 7,409 0.37% N America United States of America Air Transport International DC8-71F 45978 6,505 0.32% N America United States of America Air Transport International DC8-71F 45993 7,609 0.38% N America United States of America Air Transport International DC8-71F 45994 6,453 0.32% N America United States of America Air Transport International DC8-71F 46065 7,175 0.35% N America United States of America Astar Air Cargo DC8-73CF 46091 9,664 0.48% N America United States of America Frontier Airlines, Inc. B737-300 23177 11,033 0.55% N America United States of America Pace Airlines B737-300 23749 12,763 0.63% N America United States of America TWA Airlines LLC MD83 49575 9,250 0.46% N America Uruguay PLUNA Lineas Aereas Uraguayas S.A. ATR42-300 284 4,163 0.21% Off Lease Off Lease Off Lease DHC8-300C 242 5,116 0.25% Off Lease Off Lease Off Lease ATR42-300 249 3,825 0.19% Off Lease Off Lease Off Lease DHC8-100 258 3,292 0.16% Off Lease Off Lease Off Lease B747-200SF 21730 16,180 0.80% Off Lease Off Lease Off Lease B737-200A 22979 2,697 0.13% Off Lease Off Lease Off Lease B737-400 26069 18,583 0.92% Off Lease Off Lease Off Lease DC8-71F 45849 6,927 0.34% Off Lease Off Lease Off Lease DC8-71F 45996 6,654 0.33% Off Lease Off Lease Off Lease DC8-71F 45997 10,398 0.51% Off Lease Off Lease Off Lease DC9-32 48125 1,343 0.07% Off Lease Off Lease Off Lease DC9-32 48126 1,258 0.06% Off Lease Off Lease Off Lease DC9-32 48127 1,128 0.06% Off Lease Off Lease Off Lease DC9-32 48128 1,301 0.06% Off Lease Off Lease Off Lease DC9-32 48129 1,595 0.08% Off Lease Off Lease Off Lease MD11 48499 38,667 1.91% Off Lease Off Lease Off Lease MD11 48500 39,690 1.96% Off Lease Off Lease Off Lease MD11 48501 40,112 1.98% Off Lease Off Lease Off Lease MD83 49390 8,028 0.40% Off Lease Off Lease Off Lease MD83 49442 8,824 0.44% Off Lease Off Lease Off Lease MD83 49789 10,814 0.53% Others Ukraine Ukraine International B737-400 25190 18,348 0.91% Others Ukraine Ukraine International B737-500 25192 14,672 0.73% Others Ukraine Ukraine International B737-500 26075 14,029 0.69% --------------------------- 2,023,246 100.00% ===========================

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