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 March 31, 2002
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 [ ]
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
I N D E X
Page No.
Part I - Financial Information:
Item 1. Financial Statements
Balance Sheets --
March 31, 2002 and December 31, 2001................3
Statements of Operations --
Three months ended March 31, 2002 and 2001..........4
Statements of Cash Flows
Three months ended March 31, 2002 and 2001..........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
2
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
MARCH 31,
2002 DECEMBER 31,
(IN THOUSANDS EXCEPT UNIT DATA) (UNAUDITED) 2001
__________________________________________________________________________________________________________
ASSETS
Cash and cash equivalents $ 2,123 $ 9,432
Finance leases - net 7,029 6,949
Operating leases - net 13,875 14,218
Aircraft held for lease 20,813
21,326
Notes receivable (interest and discount) 544 544
Prepaid expenses and other assets 57 60
-------- --------
Total assets $ 44,441 $ 52,529
======== ========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Distribution payable to partners $ 514 $ 7,521
Deferred income 509 509
Accounts payable and accrued liabilities 623 602
Taxes payable 57 223
Long-term notes payable 3,389 3,389
-------- --------
Total liabilities 5,092 12,244
-------- --------
COMMITMENTS AND CONTINGENCIES
PARTNERS' EQUITY
Limited partners (4,625,000 units outstanding) 38,956 39,883
General partner 393 402
-------- --------
Total partners' equity 39,349 40,285
-------- --------
Total liabilities and partners' equity $ 44,441 $ 52,529
======== ========
___________________________________________
See NOTES TO CONDENSED FINANCIAL STATEMENTS
3
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
(UNAUDITED; IN THOUSANDS MARCH 31,
EXCEPT PER UNIT AMOUNTS) 2002 2001
_____________________________________________________________________
REVENUES
Finance lease income $ 80 $1,536
Operating lease rentals 750 0
Other income 29 14
------- ------
Total revenues 859 1,550
------- ------
EXPENSES
Interest 54 174
Depreciation 856 0
Management fee - general partner 97 146
Investor reporting 112 106
General and administrative 29 16
Aircraft maintenance and refurbishing 91 0
Tax on gross income 42 185
------- ------
Total expenses 1,281 627
------- ------
Net Income/(Loss) $ (422) $ 923
======= ======
Net Income/(Loss) Allocated To:
General Partner $ (4) $ 9
======= ======
Limited Partners $ (417) $ 914
======= ======
Net Income/(Loss) Per Limited Partnership Unit $ (0.09) $ 0.20
======= ======
___________________________________________
See NOTES TO CONDENSED FINANCIAL STATEMENTS
4
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED; IN THOUSANDS) 2002 2001
_______________________________________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income/(Loss) $ (422) $ 923
Adjustments to reconcile net income to net cash provided
by operating activities:
Operating lease depreciation 856 0
Decrease in accounts payable and accrued liabilities (156) (101)
Decrease in taxes payable (166) (137)
Decrease in prepaid expenses and other assets 3 29
------- ------
Net cash provided by operating activities 115 714
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in operating lease rents receivable 177 0
Rental receipts in excess of earned finance lease income (80) 2,223
------- ------
Net cash provided by investing activities 97 2,223
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings/(repayments) under lines of credit, net 0 75
Repayment of long-term notes payable 0 (537)
Distributions paid to partners (7,521) (2,102)
------- ------
Net cash used by financing activities (7,521) (2,564)
------- ------
Increase/(decrease) in cash (7,309) 373
Cash at beginning of period 9,432 17
------- ------
Cash at end of period $ 2,123 $ 390
======= ======
ADDITIONAL INFORMATION
Interest paid $ 1 $ 101
======= ======
___________________________________________
See NOTES TO CONDENSED FINANCIAL STATEMENTS
5
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The accompanying unaudited condensed financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of the Partnership, necessary to a fair
statement of the results for the interim periods. The results of operations for
such interim periods are not necessarily indicative of results of operations for
a full year. The December 31, 2001 balance sheet included herein is derived 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, 2001,
but does not include all disclosures required by generally accepted accounting
principles. 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,
2001.
CASH EQUIVALENTS - The Partnership considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents.
FINANCE LEASES - Lease agreements, under which the partnership recovers
substantially all its investment from the minimum lease payments are accounted
for as finance leases. At lease commencement, the partnership records the lease
receivable, estimated residual value of the leased aircraft, and unearned lease
income. The original unearned income is equal to the receivable plus the
residual value less the cost of the aircraft (including the acquisition fee paid
to an affiliate of the general partner). The remaining unearned income is
recognized as revenue over the lease term so as to approximate a level rate of
return on the investment.
OPERATING LEASES - Leases that do not meet the criteria for finance leases are
accounted for as operating leases. The partnership's undivided interests in
aircraft subject to operating leases are recorded at carrying value of the
aircraft at lease inception. Aircraft are depreciated over the related lease
terms, generally five to nine years on a straight-line basis to an estimated
salvage value, or over their estimated useful lives for aircraft held for lease,
on a straight-line basis to an estimated salvage value.
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 units outstanding (4,625,000).
6
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership presently has one long-term debt facility. At March 31, 2002,
the 7.4% non-recourse note collateralized by one aircraft leased to FedEx had an
outstanding balance of $3.4 million. The facility matures in April 2006.
At March 31, 2002, long-term borrowings of $3.4 million represented 3.1 % 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 three months of 2002 were $1.61 per limited
partnership unit, representing the regular 2001 fourth-quarter cash distribution
of $0.11 per unit, and a special distribution of $1.50 per unit as a result of
the sale of one MD-82 aircraft in December 2001.
In March 2002, the Partnership declared a first-quarter 2002 cash distribution
of $0.11 per unit totaling $513,889 and payable on May 15, 2002 to unitholders
of record on March 29, 2002.
RESULTS OF OPERATIONS
The Partnership reported a 2002 first quarter loss of $422,000, compared with
last year's first quarter earnings of $923,000. Revenues for the first quarter
of 2002 were $859,000, a decrease of $691,000 from last year's first quarter
revenues of $1,550,000. The revenue reduction is primarily due to the expiration
of the lease with US Airways for five aircraft in the fourth quarter of 2001,
three of which remain off lease; the sale of one aircraft in December 2001; and
the scheduled decline in finance lease income in 2002 associated with the
aircraft leased to FedEx. The decline in earnings results from the reduced
revenues, together with an increase in expenses primarily due to an increase in
depreciation expense.
Expenses for the first three months of 2002 were $1,281,000, an increase of
$654,000 from $627,000 for the comparable 2001 period. The increase in expenses
is primarily due to depreciation expense of $856,000 for the first quarter of
2002 related to aircraft subject to operating leases and to aircraft available
for lease. No depreciation expense was recorded in the first quarter of 2001 as
the aircraft were on finance leases. The increase in expenses due to
depreciation expense was partially offset by lower interest expense in the first
quarter of 2002 as a result of the reduction in the Partnership's debt balances,
and by lower management fees and taxes due to a smaller asset base and lower
revenues.
7
PORTFOLIO
At March 31, 2002, the Partnership's portfolio consisted of six Stage-III
commercial aircraft. Two are leased to CSI Aviation Services, Inc., one to
FedEx, and three are off lease.
The Partnership is in negotiation with US Airways concerning satisfaction of
aircraft return conditions and payment of hold-over rent with respect to the
three aircraft currently off lease, which were previously leased by US Airways.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995:
The Partnership has included in this quarterly report certain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 concerning the Partnership's business, operations and financial
condition. The words or phrases "can be", "may affect", "may depend", "expect",
"believe", "anticipate", "intend", "will", "estimate", "project" and similar
words and phrases are intended to identify such forward-looking statements. Such
forward-looking statements are subject to various known and unknown risks and
uncertainties and the Partnership cautions you that any forward-looking
information provided by or on behalf of the Partnership is not a guarantee of
future performance. Actual results could differ materially from those
anticipated in such forward-looking statements due to a number of factors, some
of which are beyond the Partnership's control, in addition to those discussed in
the Partnership's other press releases and public filings, including (i) changes
in the aircraft or aircraft leasing market, (ii) economic downturn in the
airline industry, (iii) default by lessees under leases causing the Partnership
to incur uncontemplated expenses or not to receive rental income as and when
expected, (iv) the impact of the events of September 11, 2001 on the aircraft or
aircraft leasing market and on the airline industry, (v) changes in interest
rates and (vi) legislative or regulatory changes that adversely affect the value
of aircraft. All such forward-looking statements are current only as of the date
on which such statements were made. The Partnership does not undertake any
obligation to publicly update any forward-looking statement to reflect events or
circumstances after the date on which any such statement is made or to reflect
the occurrence of unanticipated events.
OUTLOOK
The market conditions for aircraft leasing declined during 2001 and during the
first quarter of 2002, in particular after September 11, 2001, when reduction in
air-traffic demand, caused the supply of aircraft to exceed demand. While there
are signs of increases in air traffic from September 2001 levels, which could
lead to increased demand, it is widely believed that it will take time before
the industry recovers fully. Consequently, the Partnership continues to
experience significant competitive pressure in marketing the three aircraft
currently off lease, and management is not able to predict when these aircraft
may be leased again or the terms of any such future leasing.
QUANTITATIVE AND QUALITATIVE DISCLOSURE 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, 2001.
8
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The Partnership did not file any reports on Form 8-K during the
quarter ended March 31, 2002.
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
APRIL XX, 2002 By: /s/ DAVID B. GEBLER
--------------------- _________________________________
Date David B. Gebler
Chairman, Chief Executive Officer
and President
APRIL XX, 2002 By: /s/ ROBERT A. KEYES
-------------------- _________________________________
Date Robert A. Keyes
Chief Financial Officer
10