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 June 30, 2004
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. Financial Statements (Unaudited)
Balance Sheets --
June 30, 2004 and December 31, 2003......................3
Statements of Operations --
Three and six months ended June 30, 2004 and 2003........4
Condensed Statements of Changes of Partners' Equity Accounts
Six months ended June 30, 2004 and 2003..................5
Statements of Cash Flows
Six months ended June 30, 2004 and 2003..................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...................................13
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K..........................12
Signatures................................................14
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
JUNE 30,
2004 DECEMBER 31,
(IN THOUSANDS EXCEPT UNIT DATA) UNAUDITED) 2003*
________________________________________________________________________________
ASSETS
Cash and cash equivalents $ 4,952 $ 4,288
Investments - available for sale - 43
Finance leases - net - 3,718
Operating leases - net - 2,250
Aircraft held for sale (1) MD-81 - 1,200
Prepaid expenses and other assets - 33
________ ________
Total assets $ 4,952 $ 11,532
======== ========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Distribution payable to partners $ - $ 1,448
Accounts payable to General Partner and Affiliates 6 238
Accounts payable and accrued liabilities 202 112
Aircraft sale security deposit - 200
Maintenance reserves - 1,425
Current portion of long-term notes payable - 764
Long-term notes payable - 1,256
________ ________
Total liabilities 208 5,443
________ ________
COMMITMENTS AND CONTINGENCIES
PARTNERS' EQUITY
Limited partners (4,625,000 units outstanding) 4,697 6,029
General partner (46,717 units outstanding) 47 60
________ ________
Total partners' equity 4,744 6,089
________ ________
Total liabilities and partners' equity $ 4,952 $ 11,532
======== ========
See accompanying notes to the condensed financial statements
*The amounts are derived from the December 31, 2003, audited financial
statements
3
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
(UNAUDITED; IN THOUSANDS JUNE 30, JUNE 30,
EXCEPT PER UNIT AMOUNTS) 2004 2003 2004 2003
_______________________________________________________________________________________
REVENUES
Finance lease income $ - $ 63 $ 43 $ 132
Operating lease rentals 154 360 402 760
Gain on sale of aircraft 468 - 468 -
Aircraft maintenance reserves income 1,187 - 1,187
Other income 9 10 6 17
_______ ________ ______ _______
Total revenues 1,818 433 2,106 909
_______ ________ ______ _______
EXPENSES
Interest 116 48 156 101
Depreciation 0 637 18 1,275
Management fee - general partner 274 65 363 132
Investor reporting 197 86 292 171
General and administrative 117 35 281 64
Tax on gross income 250 30 325 59
Impairment charge on aircraft - 7,652 561 7,652
Aircraft maintenance and refurbishing 1 66 7 99
_______ ________ ______ _______
Total expenses 955 8,619 2,003 9,553
_______ ________ ______ _______
Net Income (Loss) $ 863 $ (8,186) $ 103 $(8,644)
======= ======== ====== =======
Net Income (Loss) Allocated To:
General Partner $ 9 $ (82) $ 1 $ (86)
======= ======== ====== =======
Limited Partners $ 854 $ (8,104) $ 102 $(8,558)
======= ======== ====== =======
Net Income (Loss) Per Limited
Partnership Unit $ 0.18 $ (1.75) $ 0.02 $ (1.85)
======= ======== ====== =======
See accompanying notes to the condensed financials statements
4
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' EQUITY ACCOUNTS
SIX MONTHS ENDED JUNE 30, 2004
GENERAL LIMITED TOTAL
(UNAUDITED; IN THOUSANDS) PARTNER PARTNERS PARTNERSHIP
________________________________________________________________________
Balance, January 1, 2003 $ 258 $ 25,497 $25,755
Net Loss (86) (8,558) (8,644)
Declared Distributions (6) (462) (468)
_____ ________ _______
Balance, June 30, 2003 $ 166 $ 16,477 $16,643
===== ======== =======
Balance, January 1, 2004 $ 60 $ 6,029 $ 6,089
Net Income 1 102 103
Declared Distributions (14) (1,434) (1,448)
_____ ________ _______
Balance, June 30, 2004 $ 47 $ 4,697 $ 4,744
===== ======== =======
See accompanying notes to the condensed financial statements
5
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30,
(UNAUDITED; IN THOUSANDS) 2004 2003
__________________________________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 103 $(8,644)
Adjustments to reconcile net income (loss) to net cash (used in) provided
by operating activities:
Impairment charge on aircraft 561 7,652
Depreciation 18 1,275
Gain on sale of aircraft (468) -
Loss on sale of investments 12 -
Decrease in prepaid expenses and other assets 33 11
Increase (decrease) in accounts payable and accrued liabilities 90 (21)
Increase (decrease) in accounts payable to General Partner and Affiliates (232) (79)
Increase (decrease) in maintenance reserves (1,425) 370
_______ _______
Net cash (used in) provided by operating activities (1,308) 564
_______ _______
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of aircraft 6,245 -
Proceeds from sale of investments 31 -
Rental receipts in excess of finance lease income 612 520
_______ _______
Net cash provided by investing activities 6,888 520
_______ _______
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term notes payable (2,020) (348)
Distributions paid to partners (2,896) (468)
_______ _______
Net cash used in financing activities (4,916) (816)
_______ _______
Increase in cash and cash equivalents 664 268
Cash and cash equivalents at beginning of period 4,288 2,569
_______ _______
Cash and cash equivalent at end of period $ 4,952 $ 2,837
======= =======
ADDITIONAL INFORMATION
Interest paid $ 186 $ 104
======= =======
See accompanying notes to the condensed financials statements
6
AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
NOTES CONDENSED TO FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES
1. 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, 2003, 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-KSB for the year ended December 31,
2003. 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, 2003.
DISSOLUTION, WINDING UP AND LIQUIDATION OF THE PARTNERSHIP
On March 17, 2004 the Board of Directors of the General Partner directed the
General Partner to cease making new aircraft investments, sell the Partnership's
remaining aircraft as attractive sale opportunities arise, distribute sales
proceeds (after repaying debt and establishing appropriate reserves) to
Unitholders after disposition, and dissolve the Partnership when all assets are
sold. In May 2004, the Partnership sold all three of the Partnership's aircraft.
On June 18, 2004, in response to these sales and pursuant to the provisions of
the Amended and Restated Agreement of Limited Partnership of the Partnership,
the Board of Directors of the General Partner approved the cessation of the
Partnership's business and the dissolution and liquidation of the Partnership.
On June 30, 2004, the General Partner of the Partnership filed with the
California Secretary of State a certificate of dissolution.
As a consequence of the foregoing developments, the Partnership has now been
dissolved and the General Partner has undertaken to wind up the affairs of the
Partnership and liquidate its assets. The Partnership has ceased conducting
business and, until the Partnership is terminated, the Partnership will engage
only in such activities as are necessary to wind up its affairs, pay its
creditors and satisfy its liabilities, and distribute its remaining assets. The
General Partner presently intends to terminate the Partnership at or before the
end of 2004.
On July 12, 2004, the Board of Directors of the General Partner declared a cash
distribution of $0.88 per unit payable on August 6, 2004 to Unitholders of
record on July 22, 2004, representing a majority of the net available funds.
This distribution represents cash from the sale of aircraft net of cash from
operations. In declaring this distribution, the Board of Directors determined
that the Partnership's remaining assets are reasonably likely to satisfy all
creditors and liabilities of the Partnership through termination of the
Partnership.
The Board also has determined that it will not declare any further distributions
until termination of the Partnership.
MD-82S AIRCRAFT SALE
Pursuant to the Board's directive and the authority granted to the General
Partner by the unitholders to sell the Partnership's remaining assets as
attractive sale opportunities arise, the General Partner, on May 10, 2004, sold
7
to Jetran International Ltd. the two MD-82 aircraft previously on lease to CSI
for $1.3 million and $1.4 million, respectively, for a total of $2.7 million in
cash and recognized a gain in the second quarter of $468,000.
B727-200FH AIRCRAFT SALE
On May 27, 2004, the Partnership completed the sale of one Boeing 727-2D4
aircraft to Federal Express Corporation ("FedEx"), the lessee of the aircraft.
The total consideration paid by FedEx was $2,545,000 $794,000 of which was paid
to the Partnership and $1,751,000 of which was applied in payment in full of a
note collateralized by the aircraft. Included in the payment to the lender was a
make-whole payment of $94,000 in accordance with the note agreement and
primarily represented the interest expense for the difference of the coupon rate
of 7.4% and the current market rate for a similar debt instrument with a
corresponding remaining average life.
Since the sale price was expected to be lower than the book value of the lease,
an impairment charge of $561,000 was recorded in the first quarter of 2004.
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.
INVESTMENT SECURITIES - Investment securities available for sale at December 31,
2003 include 6,975 shares of US Airways Class A common stock received in
December 2003 in partial settlement of a claim against US Airways for past due
lease payments and damages resulting from US Airways' failure to return three
aircraft in the condition prescribed in the lease agreement. These shares are
reported at market value, with unrealized gains and losses, net of taxes,
reported as a component of cumulative other comprehensive income (loss) in
partners' equity. Unrealized gains and losses other-than-temporary impairments
related to investment securities are determined using specific identification.
Investment securities are regularly reviewed for impairment based on criteria
that include the extent to which cost exceeds market value, the duration of the
market decline and the financial health of and specific prospects of the issuer
of the investment security. On March 30, 2004, the Partnership sold its 6,975
shares of Common A stock with a settlement date of April 2, 2004. The net sale
price of the stock was $31,177. Since the sale price was lower than the
investment book value, a loss on sale of $12,208 was recorded as a component of
other income in the statement of operations.
MAINTENANCE RESERVES - On certain operating leases the Partnership required the
lessees to pay aircraft maintenance reserves. The reserves are applied toward
the aircraft's maintenance requirements as they occur. Reserves are collected
for engines, airframe, and other aircraft components. The amount of the reserves
is based on flight hours. As a result of the sale of the sale of the two MD-82
aircraft in the month of May 2004, the remaining maintenance reserves balance of
$1,187,000 was recognized as other income in the second quarter of 2004.
LONG-LIVED ASSETS - 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 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
8
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.
Residual valuation, which is reviewed annually, represents the estimated amount
to be received from the disposition of aircraft after lease termination. If
necessary, residual adjustments are made which result in an immediate charge to
earnings and/or a reduction in earnings over the remaining term of the lease.
NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT - Net income (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).
2. CASH DISTRIBUTIONS - In March 2004, the Partnership declared a regular
first-quarter 2004 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 January 26, 2004 of one MD-81 off-lease aircraft. Both,
the regular and the special cash distributions are payable on May 14, 2004 to
unitholders of record on March 31, 2004.
The cash distributions paid in the first six months of 2004 totaled $2,896,464,
of which $28,965 was allocated to the General Partner and $2,867,499 was
allocated to the limited partners, or $0.62 per limited partnership unit. The
cash distributions represent the regular fourth quarter 2003 and first quarter
2004 distributions of $0.05 per unit each, and two special cash distributions of
$0.26 per unit each from the sale of two MD-81 off-lease aircraft.
DECLARED SPECIAL CASH DISTRIBUTIONS - On July 12, 2004, the Board of Directors
of the General Partner declared a cash distribution of $0.88 per unit payable on
August 6, 2004 to Unitholders of record on July 22, 2004, representing a
majority of the net available funds. The $0.88 per unit distribution totals
approximately $4,111,000 to be paid to on all units outstanding. Following
payment of the $0.88 per unit distribution, the Partnership will have
approximately $841,000 in cash and cash equivalents then remaining on hand,
which will be used to pay and satisfy the Partnership's creditors and
outstanding liabilities, and pay expenses associated with winding up,
liquidating and terminating the Partnership. The Board anticipates terminating
the Partnership and making a final cash distribution to Unitholders out of its
then remaining net available funds at or before the end of 2004.
3. ASSETS AND LIABILITIES LISTING AS OF JUNE 30, 2004 - As part of the
dissolution and termination process, the Partnership agreement provides for a
listing of the Partnership's assets and liabilities at the time of the
Partnership's dissolution and termination. Following is a listing of the
Partnership's assets and liabilities as of June 30, 2004, the date of the
Partnership's filing of the dissolution certificates with the California
Secretary of State:
ASSETS & Liabilities Schedule as of June 30, 2004
ASSETS (IN THOUSANDS):
Cash and Cash Equivalents $4,952
Warrants for 4,278 of US Airways' Class A Preferred Stock (1) 0
______
Total Assets $4,952
======
LIABILITIES (IN THOUSANDS):
Accounts payable to General Partner and Affiliaties $ 6
Accounts Payable and Accrued Liabilities:
K-1 Processing, Printing and Mailing $ 85
SEC and Investor Reporting 19
Tax and Audit Fees 30
Legal Fees 65
General and Administrative 3
______
Total Accounts Payable and Accrued Liabilities 202
______
Total Liabilities $ 208
======
(1) The strike price of these warrants is $7.42 per share, substantially lower
than the trading price of the stock.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995:
The Partnership has included in this 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 filings with the Securities and Exchange Commission, including
(i) changes in interest rates; (ii) the costs satisfying and providing for the
Partnership's liabilities; and (iii) the costs of winding up, liquidating and
dissolving the Partnership. 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.
DISSOLUTION, WINDING UP AND LIQUIDATION OF THE PARTNERSHIP
On March 17, 2004, the Board of Directors of the General Partner directed the
General Partner to cease making new aircraft investments, sell the Partnership's
remaining aircraft as attractive sale opportunities arise, distribute sales
proceeds (after repaying debt and establishing appropriate reserves) to
Unitholders after disposition, and dissolve the Partnership when all assets are
sold. In May 2004, the Partnership sold all three of the Partnership's aircraft.
On June 18, 2004, in response to these sales and pursuant to the provisions of
the Amended and Restated Agreement of Limited Partnership of the Partnership,
the Board of Directors of the General Partner approved the cessation of the
Partnership's business and the dissolution and liquidation of the Partnership.
On June 30, 2004, the General Partner of the Partnership filed with the
California Secretary of State a certificate of dissolution.
As a consequence of the foregoing developments, the Partnership has now been
dissolved and the General Partner has undertaken to wind up the affairs of the
Partnership and liquidate its assets. The Partnership has ceased conducting
business and, until the Partnership is terminated, the Partnership will engage
only in such activities as are necessary to wind up its affairs, pay its
creditors and satisfy its liabilities, and distribute its remaining assets. The
General Partner presently intends to terminate the Partnership at or before the
end of 2004.
On July 12, 2004, the Board of Directors of the General Partner declared a cash
distribution of $0.88 per unit payable on August 6, 2004 to Unitholders of
record on July 22, 2004, representing a majority of the net available funds.
This distribution represents both cash from the sale of aircraft in May 2004 and
cash from operations. In declaring this distribution, the Board of Directors
determined that the Partnership's remaining assets are reasonably likely to
satisfy all creditors and liabilities of the Partnership through termination of
the Partnership.
The Board also has determined that it will not declare any further distributions
until termination of the Partnership.
10
RESULTS OF OPERATIONS
The Partnership reported net income $863,000 in the second quarter ended June
30, 2004, compared with last year's second quarter loss of $8,186,000. Revenues
for the 2004 second-quarter were $1,818,000, compared with last year's second
quarter revenues of $433,000. Net income for the first six months of 2004 was
$103,000, compared with a net loss of $8,644,000 for the first six months of
2003. Revenues for the six-month period of 2004 were $2,106,000, compared with
revenues of $909,000 for the first six months of 2003.
The increased earnings in the first half of 2004 as compared with the same
period of 2003 is primarily due to increased revenues and reduced expenses for
the first six months of 2004 compared to the first six months of 2003. Increased
revenues and reduced expenses also led to net income for the three months ended
June 30, 2004 compared to a net loss for the comparable period of 2003.
Revenue increased in during the first six months of 2004 compared to the first
six months of 2003 primarily as a result of the recording of $468,000 in gain on
sale associated with the two MD-82 aircraft that were sold in May 2004 and to
the recognition in other income of $1,187,000 of maintenance reserves associated
with two sold aircraft.
Expenses for the first six months of 2004 were $2,003,000, a decrease of
$7,550,000 from $9,553,000 for the comparable 2003 period. The decrease in
expenses is primarily due to lower aircraft impairment charges of $561,000
during the first six months of 2004 compared to $7,652,000 of impairment charges
for the first six months of 2003. Expenses for the three months ended June 30,
2004 also decreased compared to expenses for the comparable period in 2003
primarily for the same reason. Taxes on gross income increased substantially
during the three months ended June 2004 due to the payment of taxes associated
with sale of aircraft in May 2004.
CLOSING AND POST-CLOSING EXPENSE ESTIMATES
In the course of winding up, liquidating and terminating the Partnership,
certain operating expenses will be incurred until the Partnership is terminated.
Among these expenses are expenses relating to processing and producing
Unitholders' Form K-1 reports for the 2004 taxable year, expenses associated
with preparing and filing periodic reports with the Securities and Exchange
Commission, preparing the Partnership's 2004 tax return, accounting and legal
fees, and various other miscellaneous expenses. Following is a schedule
outlining the estimates of these expenses:
2004 K-1 Processing, Printing and Mailing $170,000
SEC and Investor Reporting (including transfer agent fees) 47,000
Tax and Accounting Services 51,000
Legal Fees (including fees associated with aircraft sales) 110,000
General, Administrative, and Other Expenses 37,000
________
Total Estimated Closing and Post-Closing Expenses $415,000
========
These estimates are based on information currently available to the General
Partner and represent the General Partner's current belief as to the types and
amounts of expenses that the General Partner presently expects will be incurred
through termination of the Partnership. The actual expenses incurred by the
Partnership through termination may be greater or less than these estimates
since many of these estimates cannot be quantified precisely at this time.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2004, the Partnership's assets consisted of only cash and cash
equivalents in the amount of $4,952,000. Since the Partnership has now been
dissolved, it will not conduct any business activities and will only undertake
such other activities as are necessary to wind up the Partnership's affairs, pay
its creditors and satisfy its liabilities, and distribute its remaining assets.
As discussed below under "Declared Distributions," the Board of Directors of the
General Partnership declared on July 12, 2004 a distribution to Unitholders
representing a majority of the Partnership's net available funds.
11
In conjunction with the sale of the FedEx aircraft, the Partnership paid off its
only long-term debt facility. This 7.4% non-recourse note collateralized by one
aircraft leased to FedEx was due to mature in April 2006. The pay-off amount was
$1,751,000, which included a make-whole payment of $94,000 in accordance with
the note agreement and primarily represented the interest expense for the
difference of the coupon rate of 7.4% and the current market rate for a similar
debt instrument with a corresponding remaining average life.
In March 2004, the Partnership declared a regular first-quarter 2004 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
January 26, 2004 of one MD-81 off-lease aircraft. Both, the regular and the
special cash distributions are payable on May 14, 2004 to Unitholders of record
on March 31, 2004.
The cash distributions paid in the first six months of 2004 totaled $2,896,464,
of which $28,965 was allocated to the General Partner and $2,867,499 was
allocated to the limited partners, or $0.62 per limited partnership unit. The
cash distributions represent the regular fourth quarter 2003 and first quarter
2004 distributions of $0.05 per unit each, and two special cash distributions of
$0.26 per unit each from the sale of two MD-81 off-lease aircraft.
DECLARED DISTRIBUTIONS
On July 12, 2004, the Board of Directors of the General Partner declared a cash
distribution of $0.88 per unit payable on August 6, 2004 to Unitholders of
record on July 22, 2004, representing a majority of the net available funds. The
$0.88 per unit distribution totals approximately $4,111,000 to be paid to on all
units outstanding. Following payment of the $0.88 per unit distribution, the
Partnership will have approximately $841,000 in cash and cash equivalents then
remaining on hand, which will be used to pay and satisfy the Partnership's
creditors and outstanding liabilities, pay expenses associated with winding up,
liquidating and terminating the Partnership. The Board anticipates terminating
the Partnership and making a final cash distribution to Unitholders out of its
then remaining net available funds at or before the end of 2004.
PORTFOLIO MATTERS
Pursuant to the Board's directive and the authority granted to the General
Partner by the Unitholders to sell the Partnership's remaining assets as
attractive sale opportunities arise, the General Partner, on May 10, 2004, sold
to Jetran International Ltd. the two MD-82 aircraft previously on lease to CSI
for $1.3 million and $1.4 million, respectively, for a total of $2.7 million in
cash and recognized a gain in the second quarter of $468,000.
On May 27, 2004, the Partnership completed the sale of one Boeing 727-2D4
aircraft to Federal Express Corporation ("FedEx"), the lessee of the aircraft.
The total consideration paid by FedEx was $2,545,000, of which $1,751,000 was
paid to the lender in payment in full of a note collateralized by the aircraft.
Since the sale price was expected to be lower than the book value of the lease,
an impairment charge of $561,000 was recorded in the first quarter of 2004.
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 US Airways seeking to
recover damages for US Airways' failure to return three aircraft leased to US
Airways in the condition prescribed in the lease following lease expiration on
October 1, 2001 and to pay rent due on such aircraft. US 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 $13.0
million with respect to the aircraft. In September 2003, the Owner Trustee and
US Airways entered into a stipulation providing for the allowance of an
unsecured claim in the bankruptcy case in the amount of $9.3 million. In its
Disclosure Statement dated January 17, 2003, filed as part of its proposed plan
of reorganization, US Airways projected that it would pay between 1.2% and 1.8%
on unsecured claims. In December 2003, the Partnership received a partial
distribution from US Airways in the form of company Class A Common stock and
Warrants redeemable for Class A Preferred stocks. The Partnership received 6,975
shares of Class A Common stock, which were valued as of December 31, 2003 at
$43,385 ($6.22 per share) and warrants for 4,278 of Class A Preferred stock. No
value was recorded on the Preferred stock since the per share strike price of
$7.42 was higher than the closing stock price of $6.22 at December 31, 2003. On
March 30, 2004, the Partnership sold its 6,975 shares of Common A stock with a
settlement date of April 2, 2004. The net sale price of the stock was $31,177.
Since the sale price was lower than the investment book value, a loss on sale of
$12,208 was recorded in the first quarter of 2004 and included in other income
in the statement of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
3.1 Fourth Amendment to Amended and Restated Partnership
Agreement
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
99.1 Press release issued by the Partnership on July 12, 2004
99.2 Independent Accountant's Report
Reports on Form 8-K
On May 14, 2004, the Partnership filed a report on Form 8-K
dated May 10, 2004, disclosing under Item 2 the completion of
the sale by the Partnership of two MD-82 aircraft and related
assets to Jetran International Ltd.
On June 6, 2004, the Partnership filed a report on Form 8-K
dated May 27, 2004, disclosing under Item 2 the completion of
the sale by the Partnership of one B727-200FH aircraft and
related assets to FedEx Corporation.
13
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 15, 2004 By: /s/ DAVID B. GEBLER
_____________ __________________________________
Date David B. Gebler
Chairman, Chief Executive Officer
and President
July 15, 2004 By: /s/ ROBERT A. KEYES
_____________ __________________________________
Date Robert A. Keyes
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
(a) Exhibits:
3.1 Fourth Amendment to Amended and Restated Partnership
Agreement
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
99.1 Press release issued by the Partnership on July 12, 2004.
99.2 Independent Accountant's Report
Reports on Form 8-K
On May 14, 2004, the Partnership filed a report on Form 8-K
dated May 10, 2004, disclosing under Item 2 the completion of
the sale by the Partnership of two MD-82 aircraft and related
assets to Jetran International Ltd.
On June 6, 2004, the Partnership filed a report on Form 8-K
dated May 27, 2004, disclosing under Item 2 the completion of
the sale by the Partnership of one B727-200FH aircraft and
related assets to FedEx Corporation .
15