UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2001
Commission file number 1-9259
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3008908
_______________________ ____________________________________
(State of Organization) (I.R.S. Employer Identification No.)
555 CALIFORNIA STREET, 4TH FLOOR, SAN FRANCISCO, CA. 94104
____________________________________________________ __________
(Address of principal executive offices) (Zip Code)
(415) 765-1814
____________________________________________________
(Registrant's telephone number, including area code)
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
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AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
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I N D E X
Page No.
Part I - Financial Information:
Item 1. Financial Statements
Balance Sheets --
June 30, 2001 and December 31, 2000.................3
Statements of Income --
Three and six months ended June 30,
2001 and 2000.......................................4
Statements of Cash Flows
Six months ended June 30, 2001 and 2000.............5
Notes to Financial Statements.........................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......7
Item 3. Quantitative and Qualitative Disclosures
about Market Risk...................................8
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K......................9
Signatures...........................................10
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
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BALANCE SHEETS
JUNE 30,
2001 DECEMBER 31,
(IN THOUSANDS EXCEPT UNIT DATA) (UNAUDITED) 2000
________________________________________________________________________________
ASSETS
Cash $ 85 $ 17
Finance leases - net 48,696 61,657
Operating leases - net 8,383 0
Prepaid expenses and other assets 105 162
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Total assets $ 57,269 $ 61,836
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LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Distribution payable to partners $ 1,757 $ 2,102
Accounts payable and accrued liabilities 802 468
Taxes Payable 3 139
Long-term notes payable 5,436 7,992
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Total liabilities 7,998 10,701
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COMMITMENTS AND CONTINGENCIES
PARTNERS' EQUITY
Limited partners (4,625,000 units outstanding) 48,778 50,624
General partner 493 511
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Total partners' equity 49,271 51,135
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Total liabilities and partners' equity $ 57,269 $ 61,836
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_____________________________________________________
See NOTES TO CONDENSED FINANCIAL STATEMENTS
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AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
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STATEMENTS OF INCOME
THREE MONTHS ENDED SIX MONTHS ENDED
(UNAUDITED; IN THOUSANDS JUNE 30, JUNE 30,
_______________________________________________________________________________________
EXCEPT PER UNIT AMOUNTS) 2001 2000 2001 2000
REVENUES
Finance lease income $ 1,235 $ 1,712 $ 2,771 $ 3,483
Operating lease rentals 246 0 246 0
Other income 9 0 23 0
------- ------- ------- -------
Total revenues 1,490 1,712 3,040 3,483
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EXPENSES
Interest 149 238 323 501
Depreciation - operating leases 145 0 145 0
Management fee - general partner 142 152 288 305
Investor reporting 87 79 193 158
General and administrative 37 41 53 83
Tax on gross income 184 137 369 274
------- ------- ------- -------
Total expenses 744 647 1,371 1,321
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Net Income $ 746 $ 1,066 $ 1,669 $ 2,162
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Net Income Allocated To:
General Partner $ 7 $ 11 $ 17 $ 22
======= ======= ======= =======
Limited Partners $ 739 $ 1,055 $ 1,652 $ 2,140
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Net Income Per Limited Partnership Unit $ 0.16 $ 0.23 $ 0.36 $ 0.46
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_____________________________________________________
See NOTES TO CONDENSED FINANCIAL STATEMENTS
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AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
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STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30,
(UNAUDITED; IN THOUSANDS) 2001 2000
__________________________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,669 $ 2,162
Adjustments to reconcile net income to net cash provided
by operating activities:
Operating lease depreciation 145 0
Increase/(Decrease) in accounts payable and accrued liabilities 334 (105)
Decrease in taxes payable (136) (3)
Increase in accounts receivable (90) 0
Decrease in prepaid expenses and other assets 57 57
------- -------
Net cash provided by operating activities 1,979 2,111
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CASH FLOWS FROM INVESTING ACTIVITIES
Rental receipts in excess of earned finance lease income 4,522 4,291
------- -------
Net cash provided by investing activities 4,522 4,291
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CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings/(repayments) under lines of credit, net (1,765) (1,353)
Repayment of long-term notes payable (791) (1,018)
Distributions paid to partners (3,877) (4,017)
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Net cash used by financing activities (6,433) (6,388)
------- -------
Increase (decrease) in cash 68 14
Cash at beginning of period 17 2
------- -------
Cash at end of period $ 85 $ 16
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ADDITIONAL INFORMATION
Interest paid $ 310 $ 477
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_____________________________________________________
See NOTES TO CONDENSED FINANCIAL STATEMENTS
5
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
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NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The accompanying unaudited financial statements
reflect all adjustments (consisting only of normal recurring adjustments)
which are, in the opinion of the Partnership's management, necessary for a
fair presentation of the financial position and results of operations for
the presented periods. The results of operations for such interim periods
are not necessarily indicative of results of operations for a full year.
The December 31, 2000 balance sheet included herein is taken from the
audited financial statements included in the Partnership's Annual Report
and incorporated by reference in the Form 10-K for the year ended December
31, 2000. The statements should be read in conjunction with the
Organization and Significant Accounting Policies and other notes to
financial statements included in the Partnership's Annual Report for the
year ended December 31, 2000.
2. NET INCOME PER LIMITED PARTNERSHIP UNIT
---------------------------------------
Net Income Per Limited Partnership Unit is computed by dividing the net
income allocated to the Limited Partners by the weighted average of the
units outstanding (4,625,000).
3. INCOME TAXES
------------
In January 1998, the Partnership made an election to pay an annual combined
federal and state tax at the Partnership level of 4.5% tax on its
applicable gross income beginning January 1, 1998. The election was made in
order to avoid a limitation on the public trading of the Partnership's
units.
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AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership presently has three long-term debt facilities. At June 30, 2001,
the following amounts were outstanding: $3.7 million on a 7.4% non-recourse note
collateralized by one aircraft leased to FedEx; $1.3 million on a 9.35%
non-recourse note collateralized by one aircraft on lease to American Airlines;
and $0.5 million on a variable rate revolving loan facility expiring September
30, 2001 and guaranteed by the Partnership and collateralized by two aircraft on
lease to USAirways. At June 30, 2001 approximately $3.2 million remains
available under the revolving loan facility.
At June 30, 2001, long-term borrowings of $5.4 million represented 4.5% of the
original cost of the aircraft presently owned by the partnership, including
capital expenditures for upgrades. The terms of the Limited Partnership
Agreement permit debt to be at a level not exceeding 50% of such cost.
Cash distributions paid in the first six months of 2001 were $0.83 per limited
partnership unit, representing the regular 2000 fourth-quarter cash distribution
of $0.45 per unit and the regular 2001 first-quarter cash distribution of $0.38
per unit.
In June 2001, the Partnership declared a second-quarter 2001 cash distribution
of $0.38 per unit totaling $1,775,252 payable on August 15, 2001 to unitholders
of record on June 29, 2001. Since this distribution and the first-quarter 2001
distribution were in excess of earnings, Partnership equity declined to $49.3
million at June 30, 2001 from $51.1 million at December 31, 2000, and limited
partner equity per unit declined to $10.55. The portion of the distribution in
excess of net income constitutes a return of capital. The 2000 second-quarter
cash distribution was $0.45 per unit.
RESULTS OF OPERATIONS
The Partnership earned $746,000 in the second quarter ended June 30, 2001, a
decrease of $320,000 from last year's second quarter earnings of $1,066,000.
Revenues for the 2001 second-quarter were $1,490,000, compared with last year's
second quarter revenues of $1,712,000.
Net income for the first six months of 2001 was $1,669,000, a decrease of
$493,000 compared with $2,162,000 for the first six months of 2000. Revenues for
the six-month period were $3,040,000, compared with $3,483,000 for the first six
months of 2000.
The decline in net income is primarily due to lower net lease income resulting
from the scheduled decline in finance lease income in 2001 as the balances due
from the lessees continued to decline, and from the lower rent received under
the lease recently assumed by American Airlines from TWA.
Expenses for the first-half of 2001 were $1,371,000, an increase of $50,000 from
$1,321,000 for the comparable 2000 period. The slight increase in expenses is
primarily due to the operating lease depreciation expense of $145,000 associated
with the recently assumed lease by American Airlines from TWA, and an increase
in tax payments, partially offset by lower interest expense. In 2000, no
operating lease depreciation was recorded, as the lease assumed by American
Airlines was previously classified as a finance lease.
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PORTFOLIO MATTERS
As of June 30, 2001 the Partnership's portfolio consisted of six MD 82s aircraft
(five on lease to US Airways and one on lease to American Airlines), and one
727-200 FH aircraft (on lease to FedEx).
On April 9, 2001 the Partnership entered into an agreement with American
Airlines completing the assumption by American Airlines of the aircraft
previously on lease to TWA, subject to a reduced monthly rent and an extension
of the lease expiration date from 2002 to 2009.
The leases of the Partnership's five MD-82 aircraft to US Airways expire on
September 30, 2001, at which time US Airways will be required to return the
aircraft. The Partnership has been marketing the aircraft to others for either
sale or a new lease since April 1, 2001, when US Airways declined to renew the
leases for the aircraft. In the Partnership's experience, under normal market
conditions, it often takes more than six months to remarket aircraft. While the
Partnership has identified a level of interest in these aircraft, it has not
received an attractive offer at this time and therefore continues its marketing
efforts. Since quarterly distributions are made in part from cash available from
operations, if the aircraft are not sold or leased when the aircraft are
returned, distributions could be adversely impacted.
As the leases for the aircraft in the Partnership's portfolio near their
maturity, distributions will depend more on the residual value of the aircraft
than on the rental payment obligation from existing lessees (the booked residual
value for the entire portfolio is $8.97 per unit). Although the Partnership has
consistently sold aircraft at prices in excess of book value, aircraft values
depend on the supply and demand for aircraft, economic conditions, and other
factors. The Partnership's initial feedback from marketing the aircraft leased
to US Airways indicates that market conditions have softened somewhat.
Consequently, the Partnership cannot determine precisely either the proceeds
available from or the timing of a sale or release of the aircraft.
FORWARD-LOOKING STATEMENTS
The information set forth in this quarterly report contains certain
forward-looking statements, which reflect the current view of the partnership
with respect to future events and financial performance. The words, "expect",
"intend", "believe", "anticipate", "likely" and "will" and similar expressions
generally identify forward-looking statements. These statements are subject to
certain risks and uncertainties, which could cause actual results, and events to
differ materially from those anticipated in the forward-looking statements.
Factors that could cause the partnership's actual results to differ from current
expectations include, among others, changes in the aircraft or aircraft leasing
market, economic downturn in the airline industry, default by lessees under
leases causing the partnership to incur uncontemplated expenses or not to
receive rental income as and when expected, changes in interest rates and
legislative or regulatory changes that adversely affect the value of aircraft.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The General Partner believes there has been no material change in the
Partnership's exposure to market risk from that discussed in the Partnership's
Annual Report on Form 10-k for the year ended December 31, 2000.
8
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.52 Assignment, Assumption and Amendment Agreement dated
April 9, 2001 among Trans World Airlines, Inc., American
Airlines, Inc., The registrant and First Security Bank, National
Association, as Owner Trustee.
(b) The Partnership did not file any reports on Form 8-k during the
quarter ended June 30, 2001.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AIRLEASE LTD., A CALIFORNIA LIMITED
PARTNERSHIP
By: Airlease Management Services, Inc.
General Partner
JULY 20, 2001 By: /s/ DAVID B. GEBLER
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Date David B. Gebler
Chairman, Chief Executive Officer
and President
JULY 20, 2001 By: /s/ ROBERT A. KEYES
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Date Robert A. Keyes
Chief Financial Officer
10