Back to GetFilings.com

Table of Contents

UNITED STATES

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

For the fiscal year ended December 31, 2002

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

For the transition period from _______________ to

INTERNATIONAL LEASE FINANCE CORPORATION

Registrant’s telephone number, including area code: (310) 788-1999

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

      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 o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES o  NO x

      As of June 28, 2002 and March 12, 2003, there were 35,818,122 and 42,198,119 shares of Common Stock, no par value, respectively, outstanding, all of which were held by affiliates.

      Registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format.

Table of Contents

INTERNATIONAL LEASE FINANCE CORPORATION

2002 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

Table of Contents

PART I

General

      International Lease Finance Corporation (the “Company”) is primarily engaged in the acquisition of new commercial jet aircraft and the leasing of those aircraft to airlines throughout the world. In addition to its leasing activity, the Company regularly sells aircraft from its leased aircraft fleet and aircraft owned by others to third party lessors and airlines and in some cases provides fleet management services to these buyers. The Company, in terms of the number and value of transactions concluded, is a major owner-lessor of commercial jet aircraft.

      As of December 31, 2002, the Company’s lease portfolio consisted of 543 owned aircraft, 13 leased by the Company and subleased to others, and five aircraft classified as finance leases. Additionally, the Company provided fleet management services for 33 aircraft. See “Item 2. Properties — Flight Equipment.” At December 31, 2002, the Company had committed to purchase 523 aircraft deliverable through 2010 at an estimated aggregate purchase price of $29.8 billion, of which the Company currently anticipates taking delivery of 90 aircraft in 2003 with an estimated aggregate purchase price of $4.4 billion. It also had options to purchase an additional 18 aircraft deliverable through 2008 at an estimated aggregate purchase price of $1.3 billion. See “Item 2. Properties — Commitments.”

      The Company maintains the mix of flight equipment to meet its customers’ needs and to minimize the time that its aircraft are not leased to customers by purchasing those models of new and used aircraft which it believes will have the greatest airline demand and operational longevity.

      The Company purchases, and finances the purchase of, aircraft on terms intended to permit the Company to lease or sell such aircraft at a profit. The Company typically finances the purchase of aircraft with borrowed funds and internally generated cash flow. The Company accesses the capital markets for such funds at times and on terms and conditions it considers appropriate. The Company may, but does not usually, engage in financing transactions for specific aircraft. The Company relies significantly on short- and medium-term financing, and thereby attempts to manage interest rate exposure. To date, the Company has been able to purchase aircraft on terms which have permitted it to lease the aircraft at a profit and has been able to obtain the necessary funding from the capital markets.

      The Company’s aircraft are usually leased on terms under which the Company does not fully recover the acquisition cost of such aircraft. Thus, at the termination of a lease, the Company bears the risk of selling or re-leasing the aircraft on terms which will cover its remaining cost.

      The airline industry is cyclical, economically sensitive and highly competitive. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The Company’s revenue and income may be affected by political or economic instability, terrorist activities, changes in national policy, competitive pressures on certain air carriers, fuel shortages, labor stoppages, recessions, competition from other leasing companies and other political or economic events adversely affecting world or regional trading markets or impacting a particular customer. The Company’s continued success is partly dependent on management’s ability in the future to develop customer relationships for leasing, sales, remarketing and management services with those airlines and other customers best able to maintain their economic viability and survive in the competitive environment in which they operate.

      The Company is incorporated in the State of California and its principal executive offices are located at 1999 Avenue of the Stars, Los Angeles, California 90067. The Company’s telephone, telecopier number and website address are (310) 788-1999, (310) 788-1990, and www.ilfc.com, respectively. The Company makes available its SEC EDGAR filings, free of charge, on its website.

      The Company is an indirect wholly owned subsidiary of American International Group, Inc. (“AIG”). AIG is a holding company which through its subsidiaries is engaged in a broad range of insurance and insurance-related activities in the United States and abroad. AIG’s primary activities include both general and

1

Table of Contents

Aircraft Leasing

      The initial term of the Company’s current leases range in length from one year to 15 years. See “Item 2. Properties — Flight Equipment” for information regarding scheduled lease terminations. Most of the Company’s leases are operating leases under which the Company does not fully recover its aircraft cost and retains the benefit and assumes the risk of the residual value of the aircraft. The Company on occasion also enters into finance and sales-type leases where the full cost of the aircraft is substantially recovered over the term of the lease. At December 31, 2002, five of the Company’s leases were accounted for as finance leases. The aircraft under operating leases are included as Flight equipment on the Company’s balance sheet and depreciation is charged to income over the estimated useful lives of the aircraft. In accordance with generally accepted accounting principles, rentals are reported ratably as revenue over the lease term as they are earned. The Company attempts to maintain a mix of short- and medium-term leases to balance the benefits and risks associated with different lease terms and changing market conditions. Varying lease terms mitigate the effects of changes in prevailing market conditions at the time aircraft become eligible for re-lease or sale and the uncertainty associated with the estimated residual value of the aircraft at the end of the lease term.

      All leases are on a “net” basis with the lessee responsible for all operating expenses, which customarily include fuel, crews, airport and navigation charges, taxes, licenses, registration and insurance. In addition, normal maintenance and repairs, airframe and engine overhauls, and compliance with return conditions of flight equipment on lease are provided by and paid for by the lessee. The Company may, in connection with the lease of an aircraft, agree to contribute to the cost of certain major overhauls depending on the condition of the aircraft at delivery. Under the provisions of some leases, for certain airframe and engine overhauls, the lessee is reimbursed by the Company for costs incurred up to but not exceeding related hourly rentals paid to the Company by the lessee. Such rentals are included in the caption Rental of flight equipment on the Company’s Consolidated Statement of Income. The Company provides a charge to operations for such reimbursements based on the estimated reimbursements during the life of the lease, which amount is included in Provision for overhauls on the Company’s Consolidated Statement of Income. The lessee is responsible for compliance with all applicable laws and regulations with respect to the aircraft. The Company requires its lessees to comply with the standards of either the Federal Aviation Administration (the “FAA”) or its foreign equivalent. The Company makes periodic inspections of the condition of its leased aircraft. Generally, the Company requires a deposit which is security for the condition of the aircraft upon return to the Company, the rental payments by the lessee and the performance of other obligations by the lessee under the lease. In addition, the leases contain extensive provisions regarding the remedies and rights of the Company in the event of a default by the lessee and specific provisions regarding the condition of the aircraft upon return of the aircraft to the Company. The lessee is required to continue to make lease payments under all circumstances, including periods during which the aircraft is not in operation due to maintenance or grounding.

      The Company obtains and reviews relevant business materials from all prospective lessees and purchasers before entering into a lease or extending credit. Under certain circumstances, the Company may require the lessee to obtain guarantees or other financial support from an acceptable financial institution or other third party.

Flight Equipment Marketing

      The Company also may dispose of its leased aircraft at or before the expiration of their leases. The buyers include the aircraft’s lessee, another aircraft operator or a third party lessor. Any gain or loss on disposition of leased aircraft is included in the caption Flight equipment marketing.

      From time to time, the Company also engages in transactions to buy aircraft for resale. In other cases, the Company assists its customers in acquiring or disposing of aircraft through consulting services and procurement of financing from third parties.

2

Table of Contents

      In addition to its leasing and sales operations, the Company is engaged, from time to time, as an agent for airlines and various financial institutions in the disposition of their surplus aircraft. The Company generally acts as an agent under an exclusive remarketing contract whereby it agrees to sell aircraft on a “best efforts” basis within a fixed time period. These activities generally augment the Company’s primary activities and also serve to promote relationships with prospective sellers and buyers of aircraft. The Company may, from time to time, participate with banks, airlines and other financial institutions to assist in financing aircraft by providing asset guarantees, put options, or loan guarantees collateralized by aircraft.

      The Company plans to continue its remarketing services on a selective basis involving specific situations where these activities will not conflict or compete with, but rather will be complementary to, its leasing and selling activities.

Fleet Management Services

      The Company provides fleet management services to third party operating lessors who are unable or unwilling to perform this service as part of their own operation. The Company typically provides the same services that it performs for its own fleet. Specifically, the Company provides leasing, re-leasing and sales services on behalf of the lessor for which the Company receives a fee.

Financing/Source of Funds

      The Company purchases new aircraft directly from manufacturers and used aircraft from airlines and other owners. The Company finances the purchase price of flight equipment from internally generated funds, secured and unsecured commercial bank financings and the issuance of commercial paper, public and private debt and preferred stock. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Customers

      At December 31, 2002, the Company had contracts to lease aircraft, and manage aircraft leased, to the following airlines: (domestic) Alaska Airlines, American Airlines, American Trans Air, America West, Continental Airlines, Frontier Airlines, Hawaiian Airlines, Jet Blue Airways, MN Airlines, North American Airlines, Omni Air, Southwest Airlines, USA 3000 and World Airways; (foreign) Aer Lingus, Aeris, Aero Continente, Aeroflot, Aero Lloyd, Aeromexico, Aerosvit, Air 2000, Air Anatolia, Air Asia, Air Astana, Air Atlanta Icelandic, Air Austral, Air Canada, Air China, Air Europa, Air Europe SpA, Air France, Air Holland, Air India, Air Jamaica, Air Luxor, Air Macau, Air Madagascar, Air Malta, Air Mauritanie, Air Mauritius, Air Mediterranee, Air New Zealand, Air Polonia, Air One, Air Plus Comet, Air Seychelles, Air Tahiti NUI, Air Transat, Air Vanuatu, Alitalia, Asiana Airlines, Austrian Airlines, Avianca, Belair, Braathens S.A.F.E., Britannia Airways, British Midland Airways, Blue Panorama, Blue Wings, BWIA, Cathay Pacific, China Airlines, China Eastern Airlines, China Hainan Airlines, China Northwest, China Southern Airlines, China Xinjiang, Cyprus Airways, Eagle Aviation, Easy Jet, Emirates, Estonian Air, Euroatlantic Airways, Eurocypria, Eurofly, Excel Airways, Finnair, Flash Airlines, Garuda Indonesia, GOL Transportes Aeros, S.A., Hapag-Lloyd Flug, Hong Kong Dragon Airlines (Dragonair), Iberia, Iberworld, Icelandair, Islandflug Icebird Airlines, Israir, JMC Airlines, Jugoslovenski Aerotransport (JAT), KLM Royal Dutch Airlines, KLM U.K. (“BUZZ”), Lauda Air Italy, Lithuanian, Lloyd Aero Boliviano (LAB), Línea Aérea Nacional Chile, Lotus Air, LTU Luftransport-Unternehmen, Lufthansa, Malaysia Airlines, Malev, Mandarin Airlines, Mekong Airlines, Meridiana, Mexicana, Middle East Airlines, MNG Airlines, Norwegian, Olympic, Oman Air, Onur Air, Pegasus, Polynesian Airlines, QANTAS, Region Air, Rio Sul, Royal Jordanian, Sahara India Airlines, Shanghai, Shenzhen, Siberia Airlines, Sichuan Airlines, Sky Airlines, Skymark, Skyservice Airlines, South African, Southern Winds, Spanair, Star Airlines, Sterling European, Swiss, TACV Cabo Verde, TAP Air Portugal, Turk Hava Yollari (THY), Transaero, Transavia, Varig, Vietnam Airlines, Virgin Atlantic Airways, Virgin Blue, Volare, Wuhan Airlines, Xiamen Airlines and Yemenia. No single customer accounted for more than 10% of total revenues in any of the last three years.

3

Table of Contents

      Revenues include rentals of flight equipment to foreign airlines of $2,317,619,000 (2002), $2,173,778,000 (2001) and $2,026,017,000 (2000) comprising 86.5%, 87.9% and 88.0%, respectively, of total rentals of flight equipment. See Note J of Notes to Consolidated Financial Statements.

      The following table sets forth the dollar amount and percentage of total rental revenues attributable to the indicated geographic areas based on each airline’s principal place of business for the years indicated:

      The following table sets forth revenue attributable to individual countries representing at least 10% of total revenue based on each airline’s principal place of business for the years indicated:

      Many foreign countries have currency and exchange laws regulating the international transfer of currencies. The Company attempts to minimize its currency and exchange risks by negotiating most of its aircraft leases and all of its sales transactions in U.S. Dollars, and all guarantees obtained to support various lease agreements are denominated for payment in the same currency as the lease. The Company requires, as a condition to any foreign transaction, that the lessee or purchaser in a foreign country obtain the necessary approvals of the appropriate government agency, finance ministry or central bank for the remittance of all funds contractually owed to the Company in U.S. Dollars. Some of the Company’s leases are negotiated in Euros to meet the needs of a growing number of airlines. As the Euro to U.S. Dollar exchange rate fluctuates, airlines’ interest in entering into Euro denominated lease agreements will change. Once an airline and the Company agree to the rental payment currency, it remains for the term of the lease. The Company currently has sufficient Euro inflows from leases and currency swaps to meet its Euro denominated debt obligations. Therefore foreign currency risk has, to date, been immaterial to the Company.

      The Company has restructured leases with both foreign and domestic lessees. Such restructurings have involved the voluntary termination of leases prior to lease expiration, the replacement of leased aircraft with smaller, less expensive leased aircraft, the arrangement of subleases from the primary lessee to another airline and the rescheduling of lease payments. In some situations where the Company repossesses an aircraft, it may decide to export the aircraft from the lessee’s jurisdiction. In the majority of these situations, the Company obtains the lessee’s cooperation and the return and export of the aircraft is immediate. In some situations, however, the lessees have not cooperated in returning aircraft, in which case the Company has had to take legal action in the appropriate jurisdictions which has delayed the ultimate return and export of the aircraft. In addition, in connection with the repossession of an aircraft, the Company may be required to pay outstanding mechanic’s, airport and other operating liens on the repossessed aircraft, which could include charges relating to other aircraft operated by the lessee.

      The Company’s revenues and income may be affected by political or economic instability, terrorist activities, changes in national policy, competitive pressures on certain air carriers, fuel shortages, labor stoppages, recessions, competition from other leasing companies and other political or economic events adversely affecting world or regional trading markets or impacting a particular customer.

4

Table of Contents

      As a result of the September 11, 2001 terrorist attacks on the United States, the general slowdown of the worldwide economy, both before and after the attacks, and world political unrest, many United States and international commercial air carriers have reduced capacity, idled aircraft, furloughed employees and initiated cost reduction programs and some have filed for bankruptcy protection and/or ceased operations. Many airlines still face significant economic challenges. Air carriers are experiencing increased competition from low cost carriers, a reduction in passenger traffic and an actual or potential increase in costs, including insurance premiums, fuel cost and security costs. These factors combined with the potential for future terrorist attacks, the national and international responses to terrorist attacks, and other acts of war have created many economic and political uncertainties, which could adversely affect the Company’s business and revenues in the short and long-term in ways that cannot presently be predicted.

Competition

      The leasing, remarketing and sale of jet aircraft is highly competitive. The Company faces competition from aircraft manufacturers, banks, financial institutions, other leasing companies, aircraft brokers and airlines. Competition for a leasing transaction is based on a number of factors including delivery dates, lease rates, term of lease, extension options, termination options, purchase options, aircraft condition and the availability of the types of aircraft to meet the needs of the customer. The Company believes it is a strong competitor in all of these areas. However, overcapacity in the current market place has increased competition from other entities leasing aircraft and will cause continued downward pressure on lease rates and lease revenue and, possibly, aircraft values.

Government Regulation

      The FAA and the U.S. Departments of Transportation and State exercise regulatory authority over air transportation in the United States.

      The U.S. Departments of Transportation and State, in general, have jurisdiction over the economic regulation of air transportation, including the negotiation with foreign governments of the rights of U.S. carriers to fly to other countries and the rights of foreign carriers to fly to and within the United States.

      The FAA has regulatory jurisdiction over the maintenance and operation of U.S. air carriers, the operation of aircraft in the United States by foreign carriers and the registration of aircraft in the United States. The FAA can suspend or revoke the authority of U.S. air carriers or their licensed personnel and can similarly revoke the authority of foreign air carriers to operate within the United States for failure to comply with FAA regulations. The FAA can also ground aircraft if their airworthiness is in question.

      In every foreign country, similar government agencies regulate the country’s air carriers, the operations of foreign airlines in the country and the registration of aircraft. Like the FAA, the civil aviation authority in a foreign country can suspend or revoke the operating authority of an airline and ground aircraft for safety reasons.

      Since the Company does not itself operate its aircraft for public transportation of passengers and property, the Company is not directly subject to the regulatory jurisdiction of the U.S. Departments of Transportation and State or their counterpart organizations in foreign countries.

      The Company’s relationship with the FAA consists of the registration with the FAA of those aircraft which are leased by the Company to U.S. carriers and to a number of foreign carriers where, by agreement, the aircraft are to be registered in the United States. In limited circumstances, the Company also obtains from the FAA, or its designated representatives, a U.S. Certificate of Airworthiness for a particular aircraft or a ferry flight permit.

      The Company’s involvement with the civil aviation authorities of foreign jurisdictions consists largely of requests to register and deregister the Company’s aircraft on lease to carriers in those countries.

      The Company also works with U.S. Customs with respect to the import and export of the Company’s aircraft into and from the United States for maintenance or lease.

5

Table of Contents

Employees

      The Company is in a capital intensive rather than a labor intensive business. As of December 31, 2002, the Company had 124 full-time employees, which it considered adequate for its business operations. The Company will expand its management and administrative personnel, as necessary, to meet future growth. None of the Company’s employees is covered by a collective bargaining agreement and the Company believes that it has maintained excellent employee relations. The Company provides certain employee benefits under plans established by its parent, AIG, including retirement, health, life, disability and accident insurance plans.

Insurance

      The Company requires its lessees to carry those types of insurance which are customary in the air transportation industry, including comprehensive liability insurance and aircraft hull insurance. In general, the Company is an additional insured on liability policies carried by the lessees. The Company obtains certificates of insurance from the lessee’s insurance brokers. All certificates of insurance contain a breach of warranty endorsement so that the interests of the Company are not prejudiced by any act or omission of the operator-lessee.

      Insurance premiums are paid by the lessee, with coverage acknowledged by the broker or carrier. The territorial coverage is, in each case, suitable for the lessee’s area of operations and the certificates of insurance contain, among other provisions, a “no co-insurance” clause and a provision prohibiting cancellation or material change without at least 30 days advance written notice to the insurance broker, who is obligated to give prompt notice to the Company. Hull/war insurance policies customarily provide 7 days advance written notice and may be subject to lesser notice under certain market conditions. Furthermore, the insurance is primary and not contributory and all insurance carriers are required to waive rights of subrogation against the Company.

      The stipulated loss value schedule under aircraft hull insurance policies is on an agreed value basis acceptable to the Company, which usually exceeds the book value of the aircraft. In cases where the Company believes that the agreed value stated in the lease is not sufficient, the Company purchases additional Total Loss Only coverage for the deficiency. Aircraft hull policies contain standard clauses covering aircraft engines. All deductibles are required to be paid by the lessee. Furthermore, the aircraft hull policies contain full war risk endorsements, including, but not limited to, confiscation (where available), seizure, hijacking and similar forms of retention or terrorist acts. Lease agreements generally require liability limits to be in U.S. Dollars, which are shown on the certificate of insurance.

      The comprehensive liability insurance listed on certificates of insurance include provisions for bodily injury, property damage, passenger liability, cargo liability and such other provisions reasonably necessary in commercial passenger and cargo airline operations. Such certificates of insurance list combined comprehensive single liability limits of not less than $250 million. As a result of the terrorist attacks on September 11, 2001, the insurance market unilaterally imposed a sublimit on each operator’s policy for third party war risk liability in the amount of $50 million. The Company requires each lessee to purchase higher limits of third party war risk liability or obtain an indemnity from their government. Additionally, all aircraft in the Company’s fleet are covered by contingent liability insurance and contingent hull insurance.

      The Company also maintains other insurance covering the specific needs of its business operations. Insurance policies are generally placed or reinsured through AIG subsidiaries, with costs allocated back to the Company. The Company believes that its insurance is adequate both as to coverage and amount.

Forward-Looking Statements

      This annual report on Form 10-K contains or incorporates statements that constitute forward-looking statements. Those statements appear in a number of places in this Form 10-K and include statements regarding, among other matters, the state of the airline industry, the Company’s access to the capital markets, the Company’s ability to restructure leases and repossess aircraft, the structure of the Company’s leases, regulatory matters pertaining to compliance with governmental regulations and other factors affecting the

6

Table of Contents

7

Table of Contents

Item 2. Properties

Flight Equipment

      The Company’s management frequently reviews opportunities to acquire suitable commercial jet aircraft based not only on market demand and customer airline requirements, but also on the Company’s fleet portfolio mix criteria and planning strategies for leasing. Before committing to purchase specific aircraft, the Company takes into consideration factors such as estimates of future values, potential for remarketing, trends in supply and demand for the particular type, make and model of aircraft and engines, and anticipated obsolescence. As a result, certain types and vintages of aircraft do not necessarily fit the profile for inclusion in the Company’s portfolio of aircraft owned and used in its leasing operations.

      At December 31, 2002, all of the Company’s fleet was Stage III compliant, meaning that the aircraft hold or are capable of holding a noise certificate issued under Chapter 3 of Volume 1, Part II of Annex 16 of the Chicago Convention or have been shown to comply with the Stage III noise levels set out in Section 36.5 of Appendix C of Part 36 of the Federal Aviation Regulations of the United States. At December 31, 2002, the average age of the Company’s aircraft was 4.92 years.

      The following table shows the scheduled lease terminations (for the minimum noncancelable period) by aircraft type for the Company’s operating lease portfolio at December 31, 2002:

      This schedule includes 13 aircraft leased by the Company and subleased to others and excludes one aircraft which was not subject to lease at December 31, 2002 but was subsequently leased. As of March 20, 2003, 24 of the 34 aircraft with lease expiration dates during 2003 had been extended or leased to other customers.

8

Table of Contents

Commitments

      At December 31, 2002, the Company had committed to purchase the following new and used aircraft at an estimated aggregate purchase price (including adjustment for anticipated inflation) of approximately $29.8 billion for delivery as shown:

(a)	The Company has the right to designate the size of the aircraft within the specific model type at specific dates prior to contractual delivery.
(b)	Commitment is to acquire used aircraft.
(c)	Subsequent to December 31, 2002, the Company cancelled one B737-700 for delivery in 2004, one A330-200 for delivery in 2008 and two A340-600 for delivery in 2005. The Company also deferred one A319, one A320 and one A321 deliveries from 2004 to 2006 and one A380 delivery from 2006 to 2008.
(d)	Under the terms of the contract with Airbus, the Company intends to exercise its right to redesignate these aircraft to other aircraft types.

      At December 31, 2002, the Company had options to purchase the following aircraft at an estimated aggregate purchase price (including adjustment for anticipated inflation) of approximately $1.3 billion for delivery as shown:

      Management anticipates that a significant portion of such aggregate purchase price will be funded by incurring additional debt. The exact amount of the indebtedness to be incurred will depend upon the actual purchase price of the aircraft, which can vary due to a number of factors, including inflation, and the percentage of the purchase price of the aircraft which must be financed. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

9

Table of Contents

      The aircraft listed above are being purchased pursuant to master agreements with each of The Boeing Company (“Boeing”) and AVSA, S.A.R.L., the sales subsidiary of Airbus Industrie (“Airbus”). These agreements establish the pricing formulas (which include certain price adjustments based upon inflation and other factors) and various other terms with respect to the purchase of aircraft. Under certain circumstances, the Company has the right to alter the mix of aircraft type ultimately acquired. As of December 31, 2002, the Company had made non-refundable deposits (exclusive of capitalized interest) with respect to the aircraft which the Company has committed to purchase of approximately $610 million and $407 million with Boeing and Airbus, respectively.

      As of March 20, 2003, after taking into consideration deferrals and cancellations, the Company had entered into contracts for the lease of 86 of the 90 aircraft to be delivered in 2003, 51 of the 82 aircraft to be delivered in 2004, 16 of the 88 aircraft to be delivered in 2005, 6 of the 90 aircraft to be delivered in 2006 and 5 of the 169 aircraft to be delivered subsequent to 2006. The Company will need to find customers for aircraft presently on order and not subject to contract and any new aircraft ordered and will need to arrange financing for portions of the purchase price of such equipment. Although the Company has been successful to date in placing its new aircraft on lease and has been able to obtain adequate financing in the past, there can be no assurance as to the future continued availability of lessees or of sufficient amounts of financing on terms acceptable to the Company.

Facilities

      The Company’s principal offices are located at 1999 Avenue of the Stars, Los Angeles, California. The Company occupies space under leases which expire in 2005. As of December 31, 2002, the Company occupied approximately 54,000 square feet of office space. The leases provide for annual rentals of approximately $3,000,000, and the rental payments thereunder are subject to certain indexed escalation provisions. The Company signed a lease for approximately 127,000 square feet of office space at 10250 Constellation Avenue, Los Angeles, California starting in the fourth quarter, 2003. The lease provides for average annual rent of approximately $9,000,000 beginning in 2004. The Company is actively seeking subleases for its currently leased office space.

Item 3. Legal Proceedings

      The Company is not a party to any significant legal proceedings.

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

      The Company is indirectly wholly owned by AIG and the Company’s common stock is not listed on any national exchange or traded in any established market. During the years ended December 31, 2002, 2001 and 2000, the Company paid cash dividends to its parent company of $26,000,000, $83,500,000, and $206,000,000, respectively. It is the intent of the Company to pay its parent company an annual dividend of at least 7% of net income subject to the dividend preference of any preferred stock outstanding. Under the most restrictive provisions of the Company’s borrowing arrangements, consolidated retained earnings at December 31, 2002 in the amount of $1,238,697,000 were unrestricted as to the payment of dividends. In 2002 the Company cancelled 40 shares of Series A Preferred Stock in the amount of $400 million owned by AIG and issued 3,951,398 shares of common stock for the value of the cancelled Series A Preferred Stock and 2,428,599 shares for $250 million.

10

Table of Contents

Item 6. Selected Financial Data

      The following table summarizes selected consolidated financial data and certain operating information of the Company. The selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements and notes thereto and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K.