UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
Form 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2003
Commission file number 1-9259
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
_________________________________________________________________
(Exact name of small business issuer 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
________________________________________________
(Issuer's telephone number, including area code)
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
I N D E X
Page No.
Part I - Financial Information:
Item 1. Condensed Financial Statements (Unaudited)
Condensed Balance Sheets --
September 30, 2003 and December 31, 2002.........3
Condensed Statements of Operations --
Three and nine months ended September 30,
2003 and 2002....................................4
Condensed Statements of Changes of Partners'
Equity Accounts Nine months ended September
30, 2003 and 2002................................5
Condensed Statements of Cash Flows
Nine months ended September 30, 2003
and 2002.........................................6
Notes to Condensed Financial Statements............7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................10
Item 3. Controls and Procedures...........................12
Part II - Other Information:
Item 1. Legal Proceedings.................................13
Item 6. Exhibits and Reports on Form 8-K..................13
Signatures........................................14
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
September 30,
2003 December 31,
(In thousands except unit data) (Unaudited) 2002*
________________________________________________________________________________
ASSETS
Cash and cash equivalents $ 5,543 $ 2,569
Finance leases - net 5,482 5,939
Operating leases - net 8,345 12,753
Aircraft held for sale 1,200 -
Aircraft held for lease - 8,500
Prepaid expenses and other assets 36 50
________ ________
Total assets $ 20,606 $ 29,811
======== ========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Distribution payable to partners $ 1,448 $ 234
Accounts payable and accrued liabilities 431 345
Sale deposit 200 -
Maintenance reserves 1,321 748
Long-term notes payable 2,381 2,729
________ ________
Total liabilities 5,781 4,056
________ ________
COMMITMENTS AND CONTINGENCIES
PARTNERS' EQUITY
Limited partners (4,625,000 units outstanding) 14,677 25,498
General partner (46,717 units outstanding) 148 257
________ ________
Total partners' equity 14,825 25,755
________ ________
Total liabilities and partners' equity $ 20,606 $ 29,811
======== ========
See accompanying notes to the condensed financial statements
*The amounts are derived from the December 31, 2002, audited financial
statements
3
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(Unaudited; in thousands Three Months Ended Nine Months Ended
except per unit amounts) September 30, September 30,
2003 2002 2003 2002
_____________________________________________________________________________________
REVENUES
Finance lease income $ 63 $ 75 $ 195 $ 230
Operating lease rentals 330 750 1,090 2,250
Other income 6 8 23 45
Total revenues 399 833 1,308 2,525
_______ ________ _______ ________
EXPENSES
Interest 47 60 148 175
Depreciation 381 856 1,656 2,568
Management fee - general partner 49 94 181 287
Investor reporting 94 92 265 289
General and administrative 35 110 99 194
Tax on gross income 79 42 138 127
Bad debt expense - 34 - 34
Impairment charge on aircraft - 11,086 7,652 11,086
Aircraft maintenance and refurbishing 85 26 184 91
_______ ________ _______ ________
Total expenses 770 12,400 10,323 14,851
_______ ________ _______ ________
Net Loss $ (371) $(11,567) $(9,015) $(12,326)
======= ======== ======= ========
Net Loss Allocated To:
General Partner $ (4) $ (116) $ (90) $ (123)
======= ======== ======= ========
Limited Partners $ (367) $(11,451) $(8,925) $(12,203)
======= ======== ======= ========
Net Loss Per Limited
Partnership Unit $ (0.08) $ (2.48) $ (1.93) $ (2.64)
======= ======== ======= ========
Cash distributions declared
Per partnership unit $ 0.31 $ 0.05 $ 0.41 $ 0.27
======= ======== ======= ========
See accompanying notes to the condensed financials statements
4
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' EQUITY ACCOUNTS
Nine Months Ended September 30, 2003
General Limited Total
(Unaudited; in thousands) Partner Partners Partnership
________________________________________________________________________
Balance, January 1, 2002 $ 402 $ 39,883 $ 40,285
Net Loss (123) (12,203) (12,326)
Declared Distributions (12) (1,249) (1,261)
_______ ________ ________
Balance, September 30, 2002 $ 267 $ 26,431 $ 26,698
======= ======== ========
Balance, January 1, 2003 $ 257 $ 25,498 $ 25,755
Net Loss (90) (8,925) (9,015)
Declared Distributions (19) (1,896) (1,915)
_______ ________ ________
Balance, September 30, 2003 $ 148 $ 14,677 $ 14,825
======= ======== ========
See accompanying notes to the condensed financial statements
5
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
(Unaudited; in thousands) 2003 2002
_______________________________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (9,015) $ (12,326)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Impairment charge on aircraft 7,652 11,086
Depreciation 1,656 2,568
Bad Debt Expense - 34
Changes in assets and liabilities:
Increase (decrease) in accounts payable and accrued liabilities 86 (243)
Increase in sale deposit 200 -
Increase in maintenance reserves 573 608
Increase (decrease) in taxes payable - (132)
Decrease (increase) in prepaid expenses and other assets 14 (6)
________ _________
Net cash provided by operating activities 1,166 1,589
________ _________
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment 2,400 -
Rental receipts in excess of finance lease income 457 425
________ _________
Net cash provided by investing activities 2,857 425
________ _________
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term notes payable (348) (324)
Distributions paid to partners (701) (8,548)
________ _________
Net cash used in financing activities (1,049) (8,872)
________ _________
Increase (decrease) in cash and cash equivalents 2,974 (6,858)
Cash and cash equivalents at beginning of period 2,569 9,432
________ _________
Cash and cash equivalents at end of period $ 5,543 $ 2,574
======== =========
ADDITIONAL INFORMATION
Interest paid $ 106 $ 134
======== =========
See accompanying notes to the condensed financials statements
6
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The accompanying unaudited condensed financial
statements of Airlease Ltd., A California Limited Partnership (the Partnership)
reflect all adjustments (consisting only of normal recurring adjustments) that
are, in the opinion of the Partnership, necessary to fairly state 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, 2002, 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, 2002.
The accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include all disclosures
required by accounting principles generally accepted in the United States for
complete financial statements. 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, 2002.
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, less any impairment charges. 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.
MAINTENANCE RESERVES - On certain operating leases the Partnership requires the
lessees to pay aircraft maintenance reserves. The reserves will be applied
toward the aircraft's future maintenance requirements. Reserves are collected
for engines, airframe, and other aircraft components. The amount of the reserves
is based on flight hours.
LONG LIVED ASSETS IMPAIRMENT - The Partnership accounts for its long-lived
assets, including Operating Leases and Aircraft Held for Lease and assets held
for sale, in accordance with Statement of Financial Accounting Standards
("SFAS") No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets".
SFAS No. 144, was issued in October 2001 and addresses how and when to measure
impairment on long-lived assets, and how to account for long-lived assets that
an entity plans to dispose of either through sale, abandonment, exchange, or
distribution to owners. Under SFAS No. 144, an impairment loss is recognized in
an amount equal to the difference between the carrying value and the fair value
if the carrying value of an asset is not recoverable based on undiscounted
future cash flows. Assets held for sale are carried at estimated fair value,
less estimated disposal costs.
7
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
(continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
On July 7, 2003, the Board of Directors of the General Partner of the
Partnership approved a plan to sell the three off-lease MD-81 aircraft. The
Partnership signed a purchase agreement with OLSF, LLC ("OLSF") to sell the
three aircraft in intervals of 120 days, with the first aircraft being delivered
on August 12, 2003. The purchase price per aircraft is $1,200,000. As a result
of the contractual sale of the aircraft being lower than its book value, the
aircraft were written-down in the second quarter of 2003. The amount of the
write-down per aircraft of $1,500,000 was equal to the difference between the
carrying book value of $2,700,000 and the sale amount of $1,200,000.
In the second quarter of 2003, management prepared an impairment evaluation on
the two MD-82 aircraft currently on lease to CSI Aviation Services, Inc. ("CSI")
on month-to-month basis. The evaluation indicated that the aircraft were
impaired as defined by SFAS No. 144, and an impairment charge of $1,576,000 per
aircraft was recorded. The new book value per aircraft after the impairment
charge is $4,363,000. The fair values of these two MD-82 aircraft were
determined by discounting the estimated future cash flows from leasing
activities.
NET LOSS PER LIMITED PARTNERSHIP UNIT - Net loss per limited partnership unit is
computed by dividing the net loss allocated to the Limited Partners by the
weighted average limited partner units outstanding (4,625,000).
RECLASSIFICATION - Certain reclassifications have been made to the prior year's
financial statements to conform to the current year's presentation.
2. CASH DISTRIBUTIONS - In September 2003, the Partnership declared a regular
third-quarter 2003 cash distribution of $0.05 per unit totaling approximately
$234,000. The Partnership also declared a special cash distribution of $0.26 as
a result of the sale on August 12, 2003 of one MD-81 off-lease aircraft. Both,
the regular and the special cash distributions are payable on November 14, 2003
to unitholders of record on September 30, 2003. As a result of these
distributions and the first and second quarter 2003 distributions, and the
Partnership loss in the first nine-months period, Partnership equity declined to
$14.8 million at September 30, 2003 from $25.8 million at December 31, 2002, and
limited partner equity per unit declined to $3.17 from $5.51. The 2003
third-quarter cash distribution constitutes a return of capital. The 2002
third-quarter regular cash distribution was also $0.05 per unit.
The cash distributions paid in the first nine months of 2003 totaled $701,000,
of which $7,010 was allocated to the General Partner and $693,990 was allocated
to the limited partners, or $0.15 per limited partnership unit, representing the
regular fourth quarter 2002, and first and second quarter 2003, distributions.
3. PORTFOLIO TRANSACTIONS
AIRCRAFT SALE - On September 26, 2003, the Partnership, completed the sale of a
second off-lease MD-81 aircraft to OLSF, pursuant to an Aircraft Sales
Agreement, dated as of August 12, 2003 (the "Sales Agreement"), among Wachovia
Bank, National Association as trustee, the Partnership and OLSF, as amended by a
First Amendment to Aircraft Sales Agreement, dated as of September 26, 2003
(together with the Sales Agreement, the "Agreement"), among the same parties. As
part of the sale of these assets, the Partnership also sold two engines
installed on the aircraft, installed or attached appliances, parts, instruments
and other equipment, related flight, engineering and maintenance documents and
data, and related operational and maintenance records. In addition to providing
for the sale of these assets, the Agreement also provides for the sale of the
one remaining off-lease MD-81 aircraft and related assets by the Partnership,
which is expected to
8
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
3. PORTFOLIO TRANSACTIONS (continued)
AIRCRAFT SALE (continued)
be completed within the next four months. The consideration paid to the
Partnership in connection with sale of assets completed on September 26, 2003
was $1,200,000, as purchase price, plus a $100,000 deposit. The consideration
paid to the Partnership in connection with sale of assets completed on August
12, 2003 was $1,200,000, as purchase price, plus a $100,000 deposit. The
combined $200,000 deposit now held by the Partnership and included on the
balance sheet as sale deposit will be credited against the $1,200,000 purchase
price for the third aircraft (which would be payable to the Partnership at the
time that this aircraft is sold to OLSF pursuant to the Agreement). The
obligations of OLSF under the Agreement are guaranteed by GA Telesis Turbine
Technologies, L.L.C. The total consideration paid and payable to the Partnership
for assets sold pursuant to the Agreement was determined through arm's-length
negotiations between representatives of the Partnership and OLSF.
LEASE RENEGOTIATION - CSI operates the two aircraft it leases under a contract
for charter services to the United States Marshals Service ("USMS"). In March
2003, the CSI leases were extended on a month-to-month basis at a monthly rental
rate of $60,000 per aircraft. In September 2003, the CSI leases were amended to
provide for a reduced lease rate of $45,000 per aircraft, so long as CSI is
leasing both aircraft, and a lease rate of $60,000 per aircraft if CSI is
leasing only one of the two aircraft. CSI may terminate the lease for either
aircraft upon 30 days' notice so long as the lease for the other aircraft has
not been terminated. If CSI is leasing only one aircraft, it may terminate the
lease for that aircraft upon 30 days' notice if CSI's contract with USMS has
terminated. CSI's contract with USMS is expected to terminate in January 2004.
The Partnership expects that CSI will return the aircraft at the earlier of the
termination of the USMS contract or the date on which the required C-Check
maintenance (FAA required extensive maintenance work after a certain number of
flight hours) for the aircraft becomes due. The performance of the C-check at
this time is not cost effective due to the lack of a long term lease commitment
by a lessee. Depending on CSI's usage of the aircraft, the C-Check on either
aircraft may become due prior to the date of termination of the USMS contract.
The Partnership continues to actively search for new potential lessees for these
two aircraft.
US AIRWAYS CLAIM SETTLEMENT - In June 2002, the Partnership commenced litigation
against U.S. Airways seeking to recover damages for U.S. Airways' failure to
return three aircraft leased to U.S. Airways in the condition prescribed in the
lease following lease expiration on October 1, 2001 and to pay rent due on the
aircraft. U.S. Airways subsequently filed for bankruptcy, and the owner trustee
for the Partnership (the "Owner Trustee") filed a proof of claim in the
bankruptcy case in the amount of $13 million with respect to the aircraft. In
September 2003, the Owner Trustee and U.S. Airways entered into a stipulation
providing for the allowance of an unsecured claim in the bankruptcy case in the
amount of $9.3 million. The Partnership expects that it will receive a
distribution on the U.S. Airways claim in the form of common stock and other
securities of U.S. Airways. However, there can be no assurance as to the amount,
value or timing of any distribution on the claim. In its Disclosure Statement
dated January 17, 2003, filed as part of its proposed plan of reorganization,
U.S. Airways projected that it would pay between 1.2 percent and 1.8 percent on
unsecured claims. However, this projection may no longer be accurate. At
September 30, 2003, the Partnership had not recorded a contingent gain for any
possible settlement.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Partnership reported a loss of $371,000 in the third quarter ended September
30, 2003, compared with last year's third quarter loss of $11,567,000. Revenues
for the 2003 third quarter were $399,000, compared with last year's third
quarter revenues of $833,000. Net loss for the first nine months of 2003 was
$9,015,000, compared with a net loss of $12,326,000 for the first nine months of
2002. Revenues for the nine-month period of 2003 were $1,308,000, compared with
$2,525,000 for the first nine months of 2002.
The decline in net losses for the first nine months of 2003 results from a
decrease in expenses, primarily due to lower aircraft impairment charges and
reduced depreciation expense.
The revenue reductions are primarily due to lower operating lease rental income
associated with the two aircraft on lease to CSI Aviation Services, Inc.
("CSI"), and the scheduled decline in finance lease income in 2003 associated
with the aircraft leased to FedEx. The lease terms for the CSI leases were
extended in the fourth quarter of 2002 and again in the first and third quarters
of 2003, each time at a reduced monthly rental rate that reflects current market
conditions. The FedEx aircraft lease had a scheduled decline in finance lease
income of $35,000 in the first nine months of 2003 as compared with the first
nine months of 2002.
Expenses for the first nine months of 2003 were $10,323,000, a decrease of
$4,528,000 from $14,851,000 for the comparable 2002 period. The decrease in
expenses is primarily due to the lower aircraft impairment charges of $7,652,000
recorded in 2003 compared with the aircraft impairment charges of $11,086,000
recorded in the first nine months of 2002. During the 2003 second quarter, the
General Partner evaluated the carrying values of the three off-lease aircraft
and the two aircraft on lease to CSI under SFAS No. 144 and determined that
these five aircraft were impaired. Accordingly, the carrying values were
adjusted to the estimated fair values. In addition, expenses were lower in 2003
due to the lower aircraft depreciation expense of $1,656,000 recorded in the
first nine months of 2003 compared with the $2,568,000 aircraft depreciation
expense recorded in the comparable period of 2002. The decline in depreciation
expense reflects the lower carrying value and the fact that fewer aircraft are
being depreciated in 2004.
PORTFOLIO MATTERS
At September 30, 2003, the Partnership's portfolio consisted of four Stage-III
commercial aircraft. Two were leased to CSI, one was leased to FedEx, and one
was off-lease.
CSI operates the two aircraft it leases under a contract for charter services to
the United States Marshals Service ("USMS"). In March 2003, the CSI leases were
extended on a month-to-month basis at a monthly rental rate of $60,000 per
aircraft. In September 2003, the CSI leases were amended to provide for a
reduced lease rate of $45,000 per aircraft, so long as CSI is leasing both
aircraft, and a lease rate of $60,000 per aircraft if CSI is leasing only one of
the two aircraft. CSI may terminate the lease for either aircraft upon 30 days'
notice so long as the lease for the other aircraft has not been terminated. If
CSI is leasing only one aircraft, it may terminate the lease for that aircraft
upon 30 days' notice if CSI's contract with USMS has terminated. CSI's contract
with USMS is expected to terminate in January 2004. The Partnership expects that
CSI will return the aircraft at the earlier of the termination of the USMS
contract or the date on which the required C-Check maintenance (FAA required
extensive maintenance work after a certain number of flight hours) for the
aircraft becomes due. The performance of the C-check at this time is not cost
effective due to the lack of a long term lease commitment by a lessee. Depending
on CSI's usage of the aircraft, the C-Check on either aircraft may become due
prior to the date of termination of the USMS contract. The Partnership continues
to actively search for new potential lessees for these two aircraft.
On August 12, 2003, the Partnership entered into an agreement with OLSF, LLC to
sell the three off-lease MD-81 aircraft in intervals of up to120 days. The first
aircraft was sold and delivered on August 12, 2003. The second aircraft was sold
and delivered on September 26, 2003. Subject to satisfaction of customary
closing
10
conditions, the third aircraft is to be sold and delivered February 24,
2004, 120 days after the sale and delivery of the second aircraft, unless OLSF
exercises an option to purchase the aircraft prior to that date or OLSF and the
Partnership mutually agree to a different date. The purchase price per aircraft
is $1,200,000, which is equal to the carrying book value for the aircraft after
giving effect to the impairment charges recorded in the second quarter of 2003.
The obligations of OLSF to purchase the aircraft are guaranteed by GA Telesis
Turbine Technologies, LLC.
The lease for a 727-200 FH aircraft to FedEx is scheduled to terminate in 2006.
In June 2002, the Partnership commenced litigation against U.S. Airways seeking
to recover damages for U.S. Airways' failure to return three aircraft leased to
U.S. Airways in the condition prescribed in the lease following lease expiration
on October 1, 2001 and to pay rent due on the aircraft. U.S. Airways
subsequently filed for bankruptcy, and the owner trustee for the Partnership
(the "Owner Trustee") filed a proof of claim in the bankruptcy case in the
amount of $13 million with respect to the aircraft. In September 2003, the Owner
Trustee and U.S. Airways entered into a stipulation providing for the allowance
of an unsecured claim in the bankruptcy case in the amount of $9.3 million. The
Partnership expects that it will receive a distribution on the U.S. Airways
claim in the form of common stock and other securities of U.S. Airways. However,
there can be no assurance as to the amount, value or timing of any distribution
on the claim. In its Disclosure Statement dated January 17, 2003, filed as part
of its proposed plan of reorganization, U.S. Airways projected that it would pay
between 1.2 percent and 1.8 percent on unsecured claims. However, this
projection may no longer be accurate. At September 30, 2003, the Partnership had
not recorded a contingent gain for any possible settlement.
OUTLOOK
The market conditions for aircraft leasing continue to be weak, as the supply of
aircraft exceeds demand. The two aircraft on lease to CSI are leased on a
month-to-month basis. The Partnership expects that CSI will return each aircraft
it leases in January 2004 or on such earlier date as the C-Check for the
aircraft may become due. Management is not able to predict when the aircraft may
be leased again after their return from CSI. If the leases with CSI were to
terminate, management's best estimate at the present time is that the
Partnership would be able to recover net book value through a combination of
lease rentals and sales proceeds; however, if the Partnership's assumptions
regarding renewal lease rates and terms are not realized, the Partnership could
record additional impairment charges with respect to these aircraft.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership presently has one long-term debt facility. At September 30,
2003, the 7.4% non-recourse note collateralized by one aircraft leased to FedEx
corporation ("Fed Ex") had an outstanding balance of $2.4 million. This
outstanding balance is 3.46% of the original cost of all 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. The lease and debt facility mature in April 2006.
In September 2003, the Partnership declared a regular third-quarter 2003 cash
distribution of $0.05 per unit totaling approximately $234,000. The Partnership
also declared a special cash distribution of $0.26 per unit as a result of the
sale on August 12, 2003 of one MD-81 off-lease aircraft. Both the regular and
the special cash distributions are payable on November 14, 2003 to unitholders
of record on September 30, 2003. As a result of these distributions and the
first and second quarter 2003 distributions, and the Partnership loss in the
first nine-months period, Partnership equity declined to $14.8 million at
September 30, 2003 from $25.8 million at December 31, 2002, and limited partner
equity per unit declined to $3.17 from $5.51. Both the regular and the special
2003 cash distribution constitute a return of capital. The 2002 third-quarter
regular cash distribution was also $0.05 per unit.
The cash distributions paid in the first nine months of 2003 totaled $701,000,
of which $7,010 was allocated to the General Partner and $693,990 was allocated
to the limited partners , or $0.15 per limited partnership unit, representing
the regular fourth quarter 2002, and first and second quarter 2003,
distributions.
11
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 public filings and press releases, 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, additional terrorist
threats or attacks, and war or other military involvement by the U.S. or others
in Iraq or other regions, 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.
ITEM 3. CONTROLS AND PROCEDURES
(a) The Chief Executive Officer and the Chief Financial Officer of the
General Partner of the Partnership, after evaluating the effectiveness of the
Partnership's disclosure controls and procedures as of the end of the period
covered by this quarterly report, have concluded that the Partnership's
disclosure of the controls and procedures are effective to ensure that
information required to be disclosed by the Partnership in this quarterly report
is accumulated and communicated to the Partnership's management to allow timely
decisions regarding required disclosure.
(b) No change was made in the Partnership's internal control over
financial reporting that has materially affected, or is reasonably likely to
materially affect, the Partnership's internal control over financial reporting.
12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 2002, the Partnership commenced litigation against U.S. Airways in the
Superior Court of California in the County of Los Angeles, seeking to recover
damages for U.S. Airways' failure to return three aircraft leased to U.S.
Airways in the condition prescribed in the lease following lease expiration on
October 1, 2001 and to pay rent due on the aircraft. U.S. Airways subsequently
filed for bankruptcy, and the owner trustee for the Partnership (the "Owner
Trustee") filed a proof of claim in the bankruptcy case in the amount of $13
million with respect to the aircraft. In September 2003, the Owner Trustee and
U.S. Airways entered into a stipulation providing for the allowance of an
unsecured claim in the bankruptcy case in the amount of $9.3 million, and the
Owner Trustee dismissed the claim against U.S. Airways in the Superior Court of
California. See "Portfolio Matters" under Part I, Item 2 above.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.58 Lease Supplement Number Four dated September 10, 2003,
among Wachovia Bank, National Association, as successor to
First Union National Bank, not in its individual capacity but
solely as Trustee, the Partnership and CSI Aviation Services,
Inc.
10.59 (1) Aircraft Sales Agreement, dated as of August 12,
2003, among Wachovia Bank, National Association as trustee,
Airlease Ltd., a California limited partnership, and OLSF,
L.L.C., a Delaware limited liability company.
10.60 (1) First Amendment to Aircraft Sales Agreement, dated
as of September 26, 2003, among Wachovia Bank, National
Association as trustee, Airlease Ltd., a California limited
partnership, and OLSF, L.L.C., a Delaware limited liability
company.
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
b) On September 17, 2003, the Partnership filed a report on
Form 8-K dated September 17, 2003, disclosing under Item 5 the
Partnership's regular third quarter cash distribution and a
special cash distribution resulting from the sale of one MD-81
aircraft.
(1) Incorporated by reference to the Partnership's Form 8-K dated September 26,
2003 filed on October 2, 2003.
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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
November 6, 2003 By: /s/ DAVID B. GEBLER
________________ _________________________________
Date David B. Gebler
Chairman, Chief Executive Officer
and President
November 6, 2003 By: /s/ ROBERT A. KEYES
________________ _________________________________
Date Robert A. Keyes
Chief Financial Officer
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EXHIBIT INDEX
Exhibit Number Description
(a) Exhibits:
10.58 Lease Supplement Number Four dated September 10, 2003,
among Wachovia Bank, National Association, as successor to
First Union National Bank, not in its individual capacity but
solely as Trustee, the Partnership and CSI Aviation Services,
Inc.
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002