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                                  United States
                       Securities and Exchange Commission
                              Washington, DC 20549

                         ------------------------------

                                    Form 10-K

                Annual Report Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934

                      For the year ended December 31, 1997

                          -----------------------------

                           BOEING CAPITAL CORPORATION
             (Exact name of registrant as specified in its charter)

                           Delaware 95-2564584 0-10795
     (State or other jurisdiction of (I.R.S. Employer (Commission File No.)
                Incorporation or Organization) dentification No.)

     4060 Lakewood Boulevard, 6th Floor - Long Beach, California 90808-1700
                    (Address of principal executive offices)

                                 (562) 627-3000
              (Registrant's telephone number, including area code)

                           -----------------------------

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

                                      None

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

                     Common stock, par value $100 per share

Indicate by check mark whether the registrant (1) has filed all reports required
by  Section  13 or 15(d)  of the  Securities  Exchange  Act of 1934  during  the
preceding 12 months,  and (2) has been subject to such filing  requirements  for
the past 90 days. Yes |X| No |_|

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K 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|

As of March 30,  1998,  there were 50,000 shares of the Company's  common stock
outstanding.

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

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--------------------------------------------------------------------------------


<PAGE>



                                Table of Contents



Page
Part I

   Item 1.     Business..................................................3
   Item 2.     Properties...............................................18
   Item 3.     Legal Proceedings........................................18
   Item 4.     Submission of Matters to a Vote of Security Holders *

Part II

   Item 5.     Market for Registrant's Common Equity and
                 Related Stockholder Matters............................20
   Item 6.     Selected Financial Data..................................21
   Item 7.     Management's Discussion and Analysis of Financial
                 Condition and Results of Operations....................22
   Item 8.     Financial Statements and Supplementary Data..............25
   Item 9.     Changes in and Disagreements with Accountants on
                 Accounting and Financial Disclosure....................45

Part III

   Item 10.    Directors and Executive Officers of the Registrant *
   Item 11.    Executive Compensation *
   Item 12.    Security Ownership of Certain Beneficial Owners and Management *
   Item 13.    Certain Relationships and Related Transactions *


Part IV

   Item 14.    Exhibits, Financial Statement Schedules and
                 Reports on Form 8-K.....................................46
               Signatures................................................51
               Exhibits..................................................52


---------------------------------
*Omitted pursuant to General Instruction J(2)(c) of Form 10-K.


<PAGE>


                                     Part I

Item 1.  Business

General

Boeing Capital  Corporation  (formerly  McDonnell  Douglas Finance  Corporation)
(together with its subsidiaries  the "Company") is a wholly-owned  subsidiary of
Boeing  Capital  Services  Corporation  (formerly  McDonnell  Douglas  Financial
Services Corporation)  ("BCSC"), a wholly-owned  subsidiary of McDonnell Douglas
Corporation  ("McDonnell  Douglas"),  which in turn,  as of August 1,  1997,  is
wholly-owned by The Boeing Company  ("Boeing").  The Company was incorporated in
Delaware in 1968 and provides equipment financing and leasing  arrangements to a
diversified range of customers and industries.  The Company's primary operations
include two financial  reporting  segments:  commercial  aircraft  financing and
commercial  equipment  leasing.  The  Company's  strategy  is  to  generate  and
participate  in finance  transactions  in which the  Company's  structuring  and
analysis  can  provide  high  returns on its  invested  equity.  Currently,  the
commercial  aircraft  financing  group is  active  in  providing  lease and debt
financing to domestic and international  airlines,  and the Company is active in
providing lease and debt financing to a broad range of commercial and industrial
customers. At December 31, 1997, the Company had 68 employees.

On August 1, 1997, the Boeing-McDonnell  Douglas merger was consummated pursuant
to an Agreement and Plan of Merger dated as of December 14, 1996,  among Boeing,
West  Acquisition  Corp.,  a  wholly-owned  subsidiary  of Boeing  ("Sub"),  and
McDonnell  Douglas  (the  "Merger  Agreement").  Under the  terms of the  Merger
Agreement,  Sub was  merged  into  McDonnell  Douglas,  with  McDonnell  Douglas
surviving as a wholly-owned subsidiary of Boeing.

The many  possible  ramifications  of the merger on the  Company  (for  example,
decisions  regarding the strategic value of the Company to Boeing, the impact of
the merger on residual  values of aircraft in the Company's  portfolio,  the tax
position  of Boeing and the effect of  decisions  relating to the  financing  of
Boeing aircraft) are currently unknown and,  therefore,  cannot be quantified at
this time.  Boeing is  conducting a review of the  operations  and the strategic
value of the  Company,  which  review  could lead to a decision to divest all or
part of the Company's  assets or to sell the  Company's  stock,  presently  held
indirectly by Boeing.

On November 3, 1997, Boeing announced that it will continue to produce MD-80 and
MD-90 aircraft only until approximately mid-1999.  Boeing also stated that MD-80
and MD-90 customers, with 1,200 such aircraft in service overall, can expect the
same level of long-term  support that Boeing  provides for all of its  aircraft,
whether they are in or out of production.  Boeing has stated that  production of
the MD-11 will continue at a relatively  low rate through 1998, and future sales
prospects  are  principally  limited to the freighter  version.  Boeing has also
noted that the future of the MD-11  jetliner  program  depends on the success of
current marketing  efforts,  and Boeing expects to have a clearer picture of the
program's future later in 1998. The Company's  commercial  aircraft portfolio as
of  December  31,  1997  included  33 MD-80s,  three  MD-90s  and seven  MD-11s,
representing $425.3 million, $100.5 million and $650.3 million, respectively, in
net asset value or 15.8%, 3.7% and 24.1%,  respectively,  of the Company's total
portfolio.  The Company periodically reviews the carrying and residual values of
all aircraft in its portfolio.  Such reviews include the effects, if any, of the
foregoing  announcements  as they become known or can be  reasonably  estimated.
While management  believes that current booked residual values are conservative,
significant  declines  in  market  value  could  impact  the  gain  or  loss  on
disposition of these aircraft.

The Company now  operates  in  principally  two  segments:  commercial  aircraft
financing and commercial  equipment leasing ("CEL").  Prior to 1995, the Company
operated in three  segments:  commercial  aircraft  financing,  CEL and non-core
businesses. Non-core businesses represented market segments in which the Company
is no longer  active,  and the Company  continues  to manage and  liquidate  the
remaining non-core businesses as market  opportunities occur. Based on trends to
date,  the Company does not expect to incur  significant  losses  related to the
disposal  of its  non-core  businesses.  At  December  31,  1997 and  1996,  the
portfolio  balances  for non-core  businesses  totaled  $12.2  million and $44.9
million, respectively.

Information on the Company's continuing  businesses is included in the following
tables.
<TABLE>
<CAPTION>

New Business Volume
                                                                             Years ended December 31,
                                    ----------------------------------------------------------------------------
(Dollars in millions)                   1997            1996          1995           1994             1993
<S>                                 <C>            <C>            <C>            <C>             <C>

Commercial aircraft financing       $     176.3    $     475.3    $      349.7   $      117.9    $      411.4
Commercial equipment leasing              414.8          392.0           241.1           84.1            41.5
                                    ----------------------------------------------------------------------------
                                    $     591.1    $     867.3    $      590.8   $      202.0    $      452.9
                                    ============================================================================
</TABLE>
<TABLE>
<CAPTION>

Portfolio Balances
                                                                   December 31,
                                    ----------------------------------------------------------------------------
(Dollars in millions)                   1997            1996           1995           1994            1993
<S>                                 <C>            <C>             <C>            <C>             <C>
Commercial aircraft financing       $   1,711.5    $   1,814.9     $   1,405.7    $    1,333.0    $   1,237.5
Commercial equipment leasing              976.6          769.8           502.4           369.4          422.3
                                    ----------------------------------------------------------------------------
                                    $   2,688.1    $   2,584.7     $   1,908.1    $    1,702.4    $   1,659.8
                                    ============================================================================
</TABLE>

For  financial   information  about  the  Company's   segments,   see  Notes  to
Consolidated Financial Statements included in Item 8.


Commercial Aircraft Financing Segment

The  Company's  commercial  aircraft  financing  group,  located in Long  Beach,
California,  provides financing for customers purchasing aircraft. A substantial
majority  of the value of the  commercial  aircraft  portfolio  is derived  from
aircraft  manufactured  by  McDonnell  Douglas.  The  Company's  strategy  is to
generate  and  participate  in  finance  transactions  in  which  the  Company's
structuring  and  analysis  can provide  high  returns on its  invested  equity.
Currently,  the commercial aircraft financing group is active in providing lease
and debt financing to domestic and international airlines.

The Company has not been involved in the  financing of any new  Boeing/McDonnell
Douglas aircraft subsequent to the Boeing-McDonnell  Douglas merger. The Company
does not expect  Boeing to provide a material  amount of new aircraft  financing
opportunities.  The Company has, however, financed two used Boeing 737 aircraft,
one used Boeing 757 aircraft and one used Boeing 767 aircraft  subsequent to the
Boeing-McDonnell  Douglas  merger.  It is the  present  intent of the  Company's
management to achieve more balance in the commercial  aircraft portfolio between
Boeing and McDonnell Douglas aircraft.

Portfolio balances for the Company's  commercial  aircraft financing segment are
summarized as follows:

Commercial Aircraft Portfolio by Aircraft Type
<TABLE>
<CAPTION>
                                                                            December 31,
                                        -------------------------------------------------------------------------
(Dollars in millions)                       1997           1996           1995           1994           1993
<S>                                     <C>           <C>            <C>            <C>            <C>
Boeing/McDonnell Douglas aircraft
    financing:
      Finance leases                    $     964.9   $   1,132.6    $      857.4   $     748.2    $     732.3
      Operating leases                        495.2         402.0           256.8         197.8          176.9
      Notes receivable                         61.9          82.9           110.9         194.8          125.9
                                        -------------------------------------------------------------------------
                                            1,522.0       1,617.5         1,225.1       1,140.8        1,035.1
                                        -------------------------------------------------------------------------

Other commercial aircraft financing:
    Finance leases                             133.3         136.9           126.1         125.2          123.0
    Operating leases                            51.9          56.0            49.6          43.1           55.9
    Notes receivable                             4.3           4.5             4.9          23.9           23.5
                                         -------------------------------------------------------------------------
                                               189.5         197.4           180.6         192.2          202.4
                                         -------------------------------------------------------------------------
                                         $   1,711.5   $   1,814.9    $    1,405.7   $   1,333.0    $   1,237.5
                                         =========================================================================
</TABLE>

Commercial Aircraft Portfolio by Product Type
<TABLE>
<CAPTION>
                                                                      December 31,
                                        -------------------------------------------------------------------------
(Dollars in millions)                      1997           1996           1995           1994           1993
<S>                                     <C>           <C>            <C>            <C>             <C>
Aircraft leases:
    Finance leases
      Domestic                          $     863.1   $     950.0    $      776.2   $     653.3     $     638.9
      Foreign                                 235.1         319.5           207.3         220.1           216.5
    Operating leases
      Domestic                                319.2         357.2           183.5         161.9           149.7
      Foreign                                 227.9         100.8           122.9          79.0            83.0
                                        -------------------------------------------------------------------------
                                            1,645.3       1,727.5         1,289.9       1,114.3         1,088.1
                                        -------------------------------------------------------------------------
Aircraft related notes receivable:
    Domestic obligors                           2.2          22.6            31.2          53.4            51.4
    Foreign obligors                           64.0          64.8            84.6         165.3            98.0
                                        -------------------------------------------------------------------------
                                               66.2          87.4           115.8         218.7           149.4
                                        -------------------------------------------------------------------------
                                        $   1,711.5   $   1,814.9    $    1,405.7   $   1,333.0     $   1,237.5
                                        =========================================================================
</TABLE>

At December 31, 1997, the Company's  commercial aircraft portfolio was comprised
of finance leases to 29 customers (24 domestic and five foreign) with a carrying
amount of $1,098.2 million (40.7% of total Company portfolio),  notes receivable
from four customers  (one domestic and three foreign) with a carrying  amount of
$66.2  million  (2.4% of total Company  portfolio)  and  operating  leases to 17
customers (11 domestic and six foreign) with a carrying amount of $547.1 million
(20.3% of total Company portfolio).

At December  31,  1997,  56.4% of the  Company's  total  portfolio  consisted of
financings related to Boeing/McDonnell Douglas aircraft, compared with 61.5% and
61.6% in 1996 and 1995, respectively.

-  Factors Affecting the Commercial Aircraft Financing Portfolio

   A substantial  portion of the Company's total portfolio is concentrated among
   the Company's  largest  commercial  aircraft  financing  customers.  The five
   largest commercial  aircraft financing customers accounted for $994.4 million
   (36.8% of total  Company  portfolio)  and  $1,172.4  million  (44.6% of total
   Company portfolio) at December 31, 1997 and 1996, respectively.

   The Company's largest customer,  Federal Express  Corporation,  accounted for
   $309.7 million  (11.5% of total Company  portfolio) and $316.1 million (12.0%
   of the total Company portfolio) at December 31, 1997 and 1996, respectively.

   At December 31, 1997, the Company's  second largest  customer was Trans World
   Airlines,  Inc.  ("TWA"),  which  accounted for $196.6 million (7.3% of total
   Company  portfolio) and $249.5  million (9.5% of total Company  portfolio) at
   December  31,  1997 and  1996,  respectively.  In 1997,  1996 and  1995,  TWA
   accounted  for  16.8%,  18.0%  and  21.6%,  respectively,  of  the  Company's
   operating  income;  no other  customer  accounted  for  more  than 10% of the
   Company's  operating income.  TWA continues to operate under a reorganization
   plan,  confirmed  by  the  United  States  Bankruptcy  Court  in  1995,  that
   restructured its indebtedness and leasehold obligations to its creditors.  In
   addition,  TWA  continues  to  face  financial  and  operational  challenges.
   McDonnell Douglas provides  guaranties to the Company for certain obligations
   of TWA under the  various  lease  agreements  between the Company and TWA. At
   December 31, 1997, the maximum  aggregate  coverage under such guaranties was
   $36.4  million.  TWA has  reported  cash  balances  of $237.8  million  as of
   December 31, 1997, compared to $181.6 million at December 31, 1996. As of the
   date hereof,  TWA is current on its obligations to the Company.  If, however,
   TWA were to  default on its  obligations  to the  Company,  this could have a
   material  adverse  effect on the Company's  earnings,  cash flow or financial
   position.

   P.T. Garuda Indonesia ("Garuda"), accounted for $171.8 million (6.4% of total
   Company  portfolio) and $279.4 million (10.6% of total Company  portfolio) at
   December 31, 1997 and 1996, respectively. Garuda has proposed a restructuring
   of the Company's two MD-11 leases.  A possible  restructuring,  providing for
   lease extensions and payment  deferrals,  is being considered by the Company.
   Uncertainty for  Asia-Pacific  airlines  increased  during the latter half of
   1997, as currency  devaluations  and continuing  turmoil in Asia's  financial
   markets  dimmed  the  region's  near-term  prospects  for  growth.  For  more
   discussion on the Asia-Pacific  economies,  see "Current  Commercial Aircraft
   Market Conditions."

   The $100.0 million used aircraft  purchase  bridge facility made available by
   the Company to AirTran Airlines ("AirTran"), formerly ValuJet Airlines, Inc.,
   in 1995, was reduced to a maximum of $50.0 million by mutual agreement during
   the third quarter of 1996. This facility  expires upon delivery to AirTran of
   the first scheduled new Boeing 717-200  (formerly MD-95) aircraft,  presently
   expected to occur in 1999.  Borrowings  under this  agreement  must be repaid
   within  180 days and the  interest  rate is  based  on the  London  Interbank
   Offering  Rate  ("LIBOR").  There  were no  amounts  outstanding  under  this
   agreement at December 31, 1997 or 1996.

-  Current Commercial Aircraft Market Conditions

   The  Company's  financial  performance  is  dependent  in part  upon  general
   economic  conditions  which may affect the  profitability  of the  commercial
   airlines with which the Company does business.  The Company continues to look
   for  opportunities to expand its commercial  aircraft  portfolio while taking
   advantage of improving market conditions to reduce  concentration and certain
   exposure levels.

   The  Company  believes  that  realizable  values  for its  aircraft  at lease
   maturity are likely to remain above the values actually  booked,  but this is
   subject  to  many  uncertainties  including  those  referred  to in  "Factors
   Affecting  Aircraft  Financing  Volume." If aircraft  values  decline and the
   Company  is  required,  as a result of  customer  defaults,  to  repossess  a
   substantial  number of aircraft  prior to the expiration of the related lease
   or financing,  the Company could incur substantial  losses in remarketing the
   aircraft,  which  could  have a  material  adverse  effect  on the  Company's
   earnings, cash flow or financial position.

   On November 3, 1997,  Boeing announced that it will continue to produce MD-80
   and MD-90 aircraft only until approximately mid-1999. Boeing also stated that
   MD-80 and MD-90 customers,  with 1,200 such aircraft in service overall,  can
   expect the same level of long-term  support  that Boeing  provides for all of
   its  aircraft,  whether they are in or out of  production.  Boeing has stated
   that  production of the MD-11 will continue at a relatively  low rate through
   1998,  and future sales  prospects are  principally  limited to the freighter
   version.  Boeing has also noted that the future of the MD-11 jetliner program
   depends on the success of current  marketing  efforts,  and Boeing expects to
   have a clearer  picture of the program's  future later in 1998. The Company's
   commercial  aircraft  portfolio as of December  31, 1997  included 33 MD-80s,
   three MD-90s and seven MD-11s,  representing  $425.3 million,  $100.5 million
   and  $650.3  million,  respectively,  in net asset  value or 15.8%,  3.7% and
   24.1%,   respectively,   of  the  Company's  total  portfolio.   The  Company
   periodically  reviews the carrying and residual values of all aircraft in its
   portfolio.  Such  reviews  include  the  effects,  if any,  of the  foregoing
   announcements  as they become  known or can be  reasonably  estimated.  While
   management  believes that current booked  residual  values are  conservative,
   significant  declines  in  market  value  could  impact  the  gain or loss on
   disposition of these aircraft.

   Generally,  Asia-Pacific  airlines'  load factors  declined and some airlines
   reported net losses in 1997.  Uncertainty increased during the latter half of
   1997, as currency  devaluations  and continuing  turmoil in Asia's  financial
   markets dimmed the region's  near-term  prospects for growth.  With prospects
   for air travel growth in the region lower than most  forecasts,  airlines are
   currently  evaluating the number and timing of aircraft additions  contracted
   to deliver  during the next  several  years.  Except for the lease of the two
   MD-11s to Garuda  discussed in "Factors  Affecting  the  Commercial  Aircraft
   Financing  Portfolio"  and the two Boeing 737 aircraft  leased to Jet Airways
   (India)  Pvt.  Ltd.  discussed  in  "Relationship  With Boeing and  McDonnell
   Douglas,"  the Company has no commercial  aircraft  leased to airlines in the
   Asia-Pacific region.

   For further  discussion on the commercial jet aircraft  market and the
   airline  industry,  see  "Competition  and Economic Factors."

-  Aircraft Leasing

   The Company normally purchases commercial aircraft for lease to airlines only
   when such  aircraft are subject to a signed lease  contract.  At December 31,
   1997,  the  Company  owned or  participated  in the  ownership  of 132 leased
   commercial  aircraft,  a majority  of which were  manufactured  by  McDonnell
   Douglas.

-  Factors Affecting Aircraft Financing Volume

    The  Company's  commercial  aircraft  group  has  historically  derived  the
    majority of its new  business  volume by  financing  new  McDonnell  Douglas
    aircraft.  Following the Boeing-McDonnell Douglas merger, this source of new
    business has not been available to the Company and, accordingly, the Company
    has not financed any new Boeing/McDonnell Douglas aircraft. The Company does
    not expect  Boeing to provide a material  amount of new  aircraft  financing
    opportunities. See "Relationship with Boeing and McDonnell Douglas."

   The  Company's  financial  performance  is  dependent  in part  upon  general
   economic  conditions  which may affect the  profitability  of the  commercial
   airlines with which the Company does business.

   The Company anticipates continued  fluctuations in the volume of its aircraft
   financing transactions. At December 31, 1997, commercial aircraft financing's
   backlog was $22.5  million.  At  December  31,  1997,  the Company had unused
   credit lines available to a customer totaling $50.0 million.  The Company had
   no other  commitments to provide aircraft  related  financing at December 31,
   1997. See "Competition and Economic Factors."

   The  following  table  lists  information  on new  business  volume  for  the
   Company's commercial aircraft financing segment:
<TABLE>
<CAPTION>

                                                                     Years ending December 31,
                                             ---------------------------------------------------------------------------
(Dollars in millions)                           1997            1996           1995           1994            1993
<S>                                          <C>            <C>            <C>            <C>             <C>
Boeing/McDonnell Douglas aircraft
    financing volume:

      Finance leases                         $       7.1    $     234.1    $     220.6    $       53.0    $     357.3
      Operating leases                             146.5          196.9           81.9            15.7           33.8
      Notes receivable                              18.2           24.2           36.2            41.3           19.1
                                             ---------------------------------------------------------------------------
                                                   171.8          455.2          338.7           110.0          410.2
                                             ---------------------------------------------------------------------------
Other commercial aircraft
    financing volume:
      Finance leases                                 4.5           20.1            7.7             7.9            -
      Operating leases                               -              -              3.3             -              0.7
      Notes receivable                               -              -              -               -              0.5
                                             ---------------------------------------------------------------------------
                                                     4.5           20.1           11.0             7.9            1.2
                                             ---------------------------------------------------------------------------
                                             $     176.3    $     475.3    $     349.7    $      117.9    $     411.4
                                             ===========================================================================
</TABLE>

    In 1997,  $146.5 million of the $171.8 million in  Boeing/McDonnell  Douglas
    aircraft  financing  volume  related to used Boeing  aircraft.  There are no
    Boeing  commercial  aircraft in the Company's  portfolio  from  transactions
    prior to 1997.

-  Aircraft Financing Guaranties

   At December 31, 1997,  the Company had $374.0 of guaranties in its favor with
   respect  to  its  commercial   aircraft   financing   portfolio  relating  to
   transactions  with a  carrying  amount  of  $1,103.7  million  (64.5%  of the
   commercial aircraft financing portfolio). The following table summarizes such
   guaranties:

<TABLE>
<CAPTION>

                             Domestic Airlines     Foreign Airlines        Total
(Dollars in millions)
<S>                        <C>                   <C>                 <C>
Amounts guaranteed by:
     McDonnell Douglas     $       225.4         $       109.5       $       334.9
     Other                          26.7                  12.4                39.1
                           -----------------------------------------------------------
Total guaranties           $       252.1         $       121.9       $       374.0
                           ===========================================================
</TABLE>

The Company has no reason to believe  that the amounts  guaranteed  by McDonnell
Douglas will be  ultimately  uncollectible.  See  "Relationship  with Boeing and
McDonnell Douglas."

Commercial Equipment Leasing Segment

The  CEL  group  provides  single-investor,  tax-oriented  lease  financing  and
participates  in senior secured bank loans.  CEL obtains its business  primarily
through  direct  solicitation  by its  marketing  personnel  and  maintains  its
principal  operations  in Long  Beach,  California  with  marketing  offices  in
Atlanta, Georgia; Chicago,  Illinois; and Detroit,  Michigan. CEL specializes in
leasing equipment such as machine tools,  executive aircraft,  highway vehicles,
containers and chassis, printing equipment and other types of equipment which it
believes will maintain strong collateral and residual values.  The lease term is
generally  between  three and ten  years and  transaction  sizes  usually  range
between $2.0 million and $20.0 million.

Portfolio balances for the Company's CEL segment are summarized as follows:
<TABLE>
<CAPTION>

                                                                  December 31,
                                    -------------------------------------------------------------------------
(Dollars in millions)                    1997          1996          1995           1994           1993
<S>                                 <C>          <C>            <C>           <C>            <C>
Finance leases                      $     410.9  $      361.7   $      266.3  $      216.8   $       235.2
Operating leases                          375.0         231.5          169.1         133.4           157.5
Notes receivable                          190.7         176.6           67.0          18.5            28.8
Preferred and preference stock              -             -              -             0.7             0.8
                                    --------------------------------------------------------------------------
                                    $     976.6  $      769.8   $      502.4  $      369.4   $       422.3
                                    =========================================================================
</TABLE>

-  Factors Affecting CEL Volume

   As the Company's borrowing costs have declined in recent years, CEL's ability
   to compete more effectively has been aided. At the same time,  however,  more
   financial  institutions  have entered the  particular  portion of the leasing
   market  in  which  the  Company  has  operated,   thus  intensifying  overall
   competition.  In 1997,  CEL booked  $414.8  million of new  business  volume,
   representing  a $22.8 million  increase over 1996  bookings.  At December 31,
   1997, CEL's backlog of business was $79.7 million,  compared to $76.6 million
   at December 31, 1996.

   The Company is presently attempting to grow its CEL portfolio at a relatively
   faster  rate than its  commercial  aircraft  portfolio  in order to achieve a
   better  balance of its  overall  portfolio.  Additionally,  due to  increased
   domestic competition, the Company is attempting to increase the amount of its
   financings to foreign  borrowers and lessees.  For a discussion of additional
   risks associated with foreign financings, see "Cross-Border Outstandings."

   The  following  lists  information  on  new  business  volume  for  the
   Company's CEL segment:
<TABLE>
<CAPTION>

                                                        Years ended December 31,
                           ----------------------------------------------------------------------------------
(Dollars in millions)           1997             1996                 1995         1994             1993
<S>                        <C>              <C>             <C>              <C>              <C>
Finance leases             $      109.5     $      160.9    $       102.0    $        53.9    $       15.3
Operating leases                  199.7            107.0             70.5             24.3            22.9
Notes receivable                  105.6            124.1             68.6              5.9             3.3
                           ----------------------------------------------------------------------------------
                           $      414.8     $      392.0    $       241.1    $        84.1    $       41.5
                           ==================================================================================
</TABLE>

Cross-Border Outstandings

The  extension of credit to borrowers  located  outside of the United  States is
called "cross-border" credit. In addition to the credit risk associated with any
borrower,  these  particular  credits  are also  subject  to  "country  risk" -
economic  and  political  risk  factors  specific to the country of the borrower
which may make the borrower unable or unwilling to pay principal and interest or
otherwise  perform according to contractual  terms.  Other risks associated with
these credits  include the  possibility  of  insufficient  foreign  exchange and
restrictions on its availability.

Approximately 22.8% of the total Company portfolio consisted of amounts due from
customers  outside the United  States.  Substantially  all of these  amounts are
payable  in U.S.  dollars,  and,  in  management's  opinion,  related  risks are
adequately covered by guaranties and allowance for losses.  Overall, the Company
has not experienced  materially  adverse  financial  consequences as a result of
sales and financing activities outside the United States. The countries in which
the Company's cross-border  outstandings exceeded 1% of consolidated assets, net
of domestic  guaranties,  consisted of the following at December 31, 1997,  1996
and 1995:
<TABLE>
<CAPTION>

                                                     December 31,
                           -----------------------------------------------------------------
                            Finance Leases       Notes         Operating
(Dollars in millions)                         Receivable        Leases           Total
<S>                        <C>              <C>             <C>             <C>
Country
1997
Indonesia                  $      110.5     $        -      $        -      $      110.5
Mexico                             50.1             44.0             -              94.1
Scandinavia                         -                -              55.1            55.1
India                               -                -              50.4            50.4
Italy                               -                3.5            39.8            43.3
Spain                               -                -              39.4            39.4
United Kingdom                     10.9              -              28.0            38.9
                           -----------------------------------------------------------------
                           $      171.5     $       47.5    $      212.7    $      431.7
                           =================================================================

1996
Indonesia                  $      120.8     $        -      $        -      $      120.8
Mexico                             27.0             31.2            13.2            71.4
Italy                               -                -              44.4            44.4
                           -----------------------------------------------------------------
                           $      147.8     $       31.2    $       57.6    $      236.6
                           =================================================================

1995
Indonesia                  $      132.6     $        -      $        -      $      132.6
Italy                               -                -              48.8            48.8
                           -----------------------------------------------------------------
                           $      132.6     $        -      $       48.8    $      181.4
                           =================================================================
</TABLE>

At  December  31,  1997 and 1996,  there  were no  countries  in which  customer
outstandings  were  between  0.75%  and 1% of the  Company's  total  assets.  At
December  31,  1995,  the Company had  equipment  in Mexico under both a finance
lease and an operating  lease agreement with an aggregate net carrying amount of
$15.6 million and equipment in Belgium under an operating lease agreement with a
net carrying amount of $16.0 million,  representing  outstandings  between 0.75%
and 1% of the Company's total assets.

Maturities and Sensitivity to Interest Rate Changes

The following table shows the maturity  distribution  and sensitivity to changes
in interest rates of the Company's domestic and foreign financing receivables at
December 31, 1997:
<TABLE>
<CAPTION>


(Dollars in millions)                                  Domestic          Foreign           Total
<S> <C>                                              <C>              <C>             <C>
Maturity Distribution

    1998                                             $      251.1     $       35.0    $       286.1
    1999                                                    237.9             36.6            274.5
    2000                                                    191.9             37.1            229.0
    2001                                                    178.5             40.9            219.4
    2002                                                    158.7             36.4            195.1
    2003 and thereafter                                     835.7            211.9          1,047.6
                                                     -------------------------------------------------
                                                     $    1,853.8     $      397.9    $     2,251.7
                                                     =================================================

Financing Receivables due 1999 and Thereafter
    Fixed interest rates                             $    1,500.9     $      126.5    $     1,627.4
    Variable interest rates                                 101.8            236.4            338.2
                                                     -------------------------------------------------
                                                     $    1,602.7     $      362.9    $     1,965.6
                                                     =================================================

</TABLE>

Allowance for Losses on Financing Receivables and Credit Loss Experience

Analysis of Allowance for Losses on Financing Receivables
<TABLE>
<CAPTION>

                                                                                December 31,
                                                   -----------------------------------------------------------------------
(Dollars in millions)                                 1997          1996          1995           1994           1993
<S>                                                <C>           <C>            <C>           <C>           <C>
Allowance for losses on financing
    receivables at beginning of year               $    48.6     $    42.3      $     40.7    $    35.6     $    37.4
Provision for losses                                    11.5          14.2            12.2          9.9           8.6
Write-offs, net of recoveries                           (2.5)         (6.0)          (10.6)        (4.9)        (10.4)
Other                                                   (1.7)         (1.9)            -            0.1           -
                                                   =======================================================================
Allowance for losses on financing
    receivables at end of year                     $    55.9     $    48.6      $     42.3    $    40.7     $    35.6
                                                   =======================================================================

Allowance as percent of total portfolio                  2.1  %        1.8   %         2.1  %       2.2  %        1.9  %
Net write-offs as percent of average portfolio           0.1  %        0.3   %         0.6  %       0.3  %        1.6  %
More than 90 days delinquent:
    Amount of delinquent installments              $     1.8     $     2.1      $     10.0    $     2.8     $     3.7
    Total receivables due from delinquent
      obligors                                     $    15.5     $    23.4      $     12.1    $    43.2     $   108.4
    Total receivables due from delinquent
      obligors as a percentage of total                  0.6  %        0.9   %         0.6  %       2.4  %        5.9  %
      portfolio
</TABLE>

The  portfolio  at December  31, 1997  includes  one CEL obligor and two airline
obligors to which payment  extensions  have been granted.  At December 31, 1997,
payments so extended  amounted to $2.8 million ($1.2  million  airline-related),
and the aggregate  carrying amount of the related  receivables was $38.2 million
($18.0 million airline-related).

Receivable Write-offs, Net of Recoveries by Segment

The Company's  primary  operations had no net write-offs of receivables  for the
year ended December 31, 1997.  CEL had $3.0 million in net  write-offs  (0.5% of
CEL  average  portfolio),   while  commercial  aircraft  financing  had  no  net
write-offs of receivables for the year ended December 31, 1996.

In its  analysis  of the  allowance  for losses on  financing  receivables,  the
Company has taken into  consideration the current economic and market conditions
and provided $11.5 million and $14.2 million in 1997 and 1996, respectively, for
losses.  The  Company  believes  that the  allowance  for  losses  on  financing
receivables  is adequate at December 31, 1997 to cover  potential  losses in the
Company's total portfolio.  If, however,  certain major customers  defaulted and
the Company were forced to take possession of and dispose of significant amounts
of aircraft or equipment,  losses in excess of the allowance  could be incurred,
which would be charged directly against earnings.

The Company's receivable  write-offs,  net of recoveries,  decreased in 1997, as
compared to 1996,  primarily  attributable  to certain CEL  repossessions  which
occurred in 1996.

Nonaccrual and Past Due Financing Receivables

Financing  receivables  accounted  for on a  nonaccrual  basis  consisted of the
following at December 31:
<TABLE>
<CAPTION>

                                            December 31,
                               ----------------------------------------
<S>                            <C>                  <C>
(Dollars in millions)                 1997                 1996

Domestic                       $         1.4        $         1.6
Foreign                                  -                   13.8
                               ----------------------------------------
                               $         1.4        $        15.4
                               ========================================
</TABLE>

Interest on receivables which are  contractually  past due 90 days or more as to
principal and interest payments is being accrued for domestic financings of $4.6
million and $0.9 million at December 31, 1997 and 1996, respectively.


Borrowing Operations

The  Company  principally  relies on funds from  operations  and  borrowings  to
operate its business. Borrowings include commercial paper, secured and unsecured
senior and subordinated  long-term debt, and bank  borrowings.  The Company also
utilizes  interest  rate  swap  agreements  to  manage  interest  costs and risk
associated with changing  interest  rates.  See Note 7 of "Notes to Consolidated
Financial Statements" included as Item 8.

The Company has a joint revolving credit agreement under which the Company may
borrow up to $240.0 million, reduced by borrowings of up to $16.0 million that
can be made by BCSC under this agreement. At December 31, 1997 and 1996, there
were no amounts outstanding under the revolving credit agreement. At
December 31, 1997 and 1996, borrowings  under  commercial  paper  totaling $80.0
million and $96.0  million,  respectively, were supported by available  unused
commitments under  the  revolving   credit   agreement.   The  Company  also
has  available approximately $95.0 million in uncommitted, short-term bank
credit facilities.

On October  10,  1997,  the  Company  filed  with the  Securities  and  Exchange
Commission  ("Commission") a Form S-3 Registration  Statement for a public shelf
registration of $1.2 billion of its debt securities (SEC File No. 333-37635). On
October 31, 1997,  the  Commission  declared such  Registration  Statement to be
effective. The Company has authorized the sale and issuance from time to time at
the Company's  discretion  of up to $400 million of such debt  securities in the
form of the Company's  Series X medium-term  notes. As of December 31, 1997, the
Company has issued and sold $165.0 million in aggregate principal amount of such
notes.

The  following  table sets forth the average  debt of the  Company by  borrowing
classification:
<TABLE>
<CAPTION>

(Dollars in millions)
                            Average             Average               Average
         Years ended       Short-Term          Long-Term               Total
        December 31,          Debt                Debt                  Debt
<S>         <C>           <C>                 <C>               <C>
            1997          $      114.0        $      1,606.2    $      1,720.2
            1996                  49.5               1,501.0           1,550.5
            1995                  71.4               1,183.6           1,255.0
            1994                 108.0               1,167.3           1,275.3
            1993                 113.0               1,153.7           1,266.7
</TABLE>

The weighted average interest rates on all outstanding indebtedness computed for
the relevant period were as follows:
<TABLE>
<CAPTION>

                         Weighted Average    Weighted Average   Weighted Average
        Years ended         Short-Term           Long-Term         Total Debt
        December 31,       Interest Rate       Interest Rate      Interest Rate
<S>         <C>                 <C>                   <C>              <C>
            1997                5.72%                 7.34%            7.25%
            1996                5.66                  7.60             7.56
            1995                6.34                  8.19             8.12
            1994                5.27                  8.76             8.50
            1993                5.97                  9.53             9.19
</TABLE>

The Company's  access to capital at rates that allow for a reasonable  return on
new business is affected by credit  rating  agencies'  ratings of the  Company's
debt.  On July 31,  1997,  Standard  & Poor's  raised  its  ratings  on  Boeing,
McDonnell  Douglas and the Company.  The Company's  senior unsecured debt rating
was raised to AA from A- and its subordinated debt rating was raised to AA- from
BBB+.  The  Company's  commercial  paper  rating  was  raised  to A-1+ from A-2.
Standard  & Poor's  stated  that  "The  upgrade  on  McDonnell  Douglas  Finance
Corporation  reflects the benefits of the merger,  including  the 100%  indirect
ownership  by Boeing."  Standard & Poor's also stated that "the  finance  unit's
ratings are not equalized with those of Boeing because there is some uncertainty
about the strategic  fit of financial  services in Boeing's  long-term  business
mix."

On March 16, 1998,  Moody's Investors  Service  ("Moody's) said that it upgraded
the ratings of the  Company.  The  Company's  senior  unsecured  debt rating was
raised to A3 from Baa2 and its subordinated  debt rating was raised to Baa1 from
Baa3. The Company's  commercial paper rating was raised to Prime-1 from Prime-2.
Moody's said these ratings increases consider, among other things, "the improved
and  steady  performance  of Boeing  Capital's  business  over the last  several
years." Moody's stated that "Further rating  considerations  include uncertainty
regarding  Boeing's  long-term  commitment to this business unit." Moody's noted
that "the  strategic  fit of Boeing  Capital  is  unclear  in  Boeing's  overall
strategy."  The rating  agency went on to say that "Boeing has not  maintained a
finance  subsidiary  of its own in the  past,  but  has  preferred  to keep  its
customer financing exposure on its own balance sheet."

Although security ratings impact the rate at which the Company can borrow funds,
a security rating is not a recommendation  to buy, sell or hold  securities.  In
addition,  a security rating is subject to revision or withdrawal at any time by
the  assigning   rating   organization  and  each  rating  should  be  evaluated
independently of any other rating.


Competition and Economic Factors

The  Company is  subject  to  competition  from  other  financial  institutions,
including  commercial banks,  finance companies and leasing  companies,  some of
which are larger than the Company and have greater financial resources,  greater
leverage ability and lower effective  borrowing costs. These factors permit many
competitors  to  provide  financing  at lower  rates  than the  Company.  In its
commercial  equipment leasing and commercial  aircraft financing  segments,  the
ability of the Company to compete in the  marketplace  is  principally  based on
rates which the Company  charges its  customers,  which rates are related to the
Company's  access  to and cost of funds and to the  ability  of the  Company  to
utilize tax benefits  attendant to leasing.  See "Commercial  Equipment  Leasing
Segment - Factors Affecting CEL Volume," "Relationship With Boeing and McDonnell
Douglas" and "Borrowing  Operations."  Competitive  factors also include,  among
other things,  the Company's ability to be relatively  flexible in its financing
arrangements  with  new  and  existing   customers.   Although  the  Company  is
particularly   subject  to  risks   attendant   to  the  airline  and   aircraft
manufacturing  industries,  the ability of the Company to generate  new business
also is dependent upon, among other factors, the capital equipment  requirements
of United States and foreign businesses and the availability of capital.

The  Company  has in the past  obtained a  significant  portion  of its  leasing
business and notes  receivable in connection with the lease or sale of McDonnell
Douglas aircraft.  The Company's relationship with McDonnell Douglas has in many
cases presented opportunities for such business and has caused McDonnell Douglas
to offer to the Company  substantially all of the financing receivables taken by
McDonnell  Douglas upon the sale of its  aircraft.  This  relationship  has been
materially  changed as a result of the  Boeing-McDonnell  Douglas merger and the
Company  does not expect  Boeing to provide a  material  amount of new  aircraft
financing  opportunities.  See "Relationship With Boeing and McDonnell Douglas."
In past years,  many  customers  have  obtained  their  financing  for McDonnell
Douglas  aircraft  through sources other than the Company or McDonnell  Douglas,
reflecting a broader range of competitive  financing  alternatives  available to
McDonnell Douglas  customers.  See "Commercial  Aircraft  Financing Segment" and
"Allowance for Losses on Financing Receivables and Credit Loss Experience."

Aircraft owned or financed by the Company may become significantly less valuable
because of the  discontinuation  of existing aircraft models or the introduction
of new aircraft  models which may be more  economical  to operate,  the aging of
particular  aircraft,   technological   obsolescence  such  as  that  caused  by
legislation  for noise abatement which will over time prohibit the use of older,
noisier  (Stage  2)  aircraft  in the  United  States  by year end  2000,  or an
oversupply  of aircraft  for sale.  In any such event,  carrying  amounts on the
Company's books may be reduced if, in the judgment of management,  such carrying
amounts are greater than market value (including estimated lease values),  which
would result in recognition of a loss to the Company.  At December 31, 1997, the
Company's carrying amount of Stage 2 aircraft totaled $33.1 million (1.9% of the
Company's  total  aircraft  portfolio);  however,  all of the Company's  Stage 2
aircraft will have book values  approximating  the aircraft's scrap value by the
year 2000.  For a discussion  of the effects of the upcoming  discontinuance  of
MD-80 and MD-90 aircraft,  see "Commercial  Aircraft Financing Segment - Factors
Affecting Aircraft Financing Volume."

The commercial jet aircraft  market and the airline  industry  remain  extremely
competitive.  Competitive  pressures,  as well as increased  lower-fare personal
travel,  have combined to cause a long-term  downward trend in passenger revenue
yields on a worldwide basis  (measured in real terms).  Over the past two years,
airplane capacity  increases in the United States have lagged air travel growth,
resulting in stable or increasing  passenger yields. In Asia, slowing economies,
reduced business travel,  and currency  devaluations are contributing to sharply
lower  yields.  These  factors  result in continued  price  pressure on Boeing's
products,  and major  productivity  gains are  essential to ensuring a favorable
market position at acceptable profit margins.

As the world economy has improved in this decade,  airline passenger traffic has
been increasing.  For the five-year period 1993-1997,  the average annual growth
rate for worldwide  passenger traffic was approximately  5.7%.  Boeing's 20-year
forecast  of  the  average   long-term  growth  rate  in  passenger  traffic  is
approximately  5.0% annually for the first half of the 20-year  forecast period,
and 4.9% annually for the balance,  based on projected  average worldwide annual
economic real growth of 3.0% over the period.

Based on global economic growth  projections over the long term, and taking into
consideration  increasing utilization levels of the worldwide aircraft fleet and
requirements to replace older aircraft, Boeing projects the total commercial jet
aircraft  market  over the next 20 years at more  than  $1,000  billion  in 1997
dollars.


Relationship With Boeing and McDonnell Douglas

Boeing,  together with its subsidiary  McDonnell Douglas, is principally engaged
in the design, development and production of government and commercial aerospace
products.  For the year ended  December 31, 1997,  Boeing  recorded  revenues of
$45.8 billion and net losses of $178.0 million. At December 31, 1997, Boeing had
assets of $38.0 billion and  shareholders'  equity of $13.0  billion.  Boeing is
conducting a review of the  operations  and the strategic  value of the Company,
which  review  could lead to a decision  to divest all or part of the  Company's
assets or to sell the Company's stock, presently held indirectly by Boeing.

If the  financial  well-being  of  Boeing  were to  decline  significantly,  the
Company's  ability to enter into  significant  amounts  of new  business  in the
future could be materially  constrained.  Two of the principal industry segments
in which  Boeing  operates,  military  aircraft  and  commercial  aircraft,  are
especially  competitive and have a limited number of customers.  At December 31,
1997,  McDonnell  Douglas  has  provided  $334.9  million of  guaranties  on the
Company's aircraft  portfolio,  including first loss guaranties.  In the event a
substantial  portion  of the  guaranties  become  payable  and in the event that
McDonnell  Douglas is unable to honor its  obligations  under these  guaranties,
such event could have a material adverse effect on the Company's earnings,  cash
flow or financial position.  In addition,  McDonnell Douglas is the obligor in a
small number of the Company's commercial aircraft  transactions and largely as a
result thereof, at December 31, 1997, McDonnell Douglas was the lessee for $53.6
million of the Company's commercial aircraft portfolio.

In December 1997, the Company acquired from Boeing all of the outstanding shares
of a corporation  which had been formed for the exclusive  purpose of owning and
leasing two used Boeing 737-400  aircraft for a purchase price of $51.2 million.
The aircraft continue to be owned by the corporation and are presently leased to
Jet Airways (India) Pvt. Ltd. under leases expiring in 1999.

For a further  description of significant  factors which may affect Boeing,  see
Boeing's Form 10-K for the year ended December 31, 1997 (Securities and Exchange
Commission file number 001-00442).

-        Operating Agreement

   The relationship  between the Company and McDonnell Douglas is governed by an
   operating  agreement  (the  "Operating  Agreement"),  which was  intended  to
   formalize  certain  aspects  of  the  relationship   between  the  companies,
   principally  those  relating to the purchase  and sale of  McDonnell  Douglas
   aircraft receivables,  the leasing of McDonnell Douglas aircraft,  the resale
   of McDonnell  Douglas  aircraft  returned to, or repossessed  by, the Company
   under leases or secured  notes,  and the  allocation of federal  income taxes
   between the companies.  Now that McDonnell Douglas is a subsidiary of Boeing,
   Boeing has entered into a  substantially  similar  agreement with the Company
   with respect to the allocation of federal income taxes,  but not with respect
   to the purchase,  sale and financing of any commercial aircraft.  Although it
   remains in full force and effect, the Operating  Agreement,  as it relates to
   future  commercial  aircraft  financings,  now has  little  if any  practical
   significance, as Boeing is not a party to it. This is illustrated by the fact
   that since the  Boeing-McDonnell  Douglas  merger,  the  Company has not been
   involved in the financing of any new commercial  aircraft.  Further,  it does
   not appear  that any  future  financings  would be  covered by the  Operating
   Agreement.  It is also  uncertain  whether the  Operating  Agreement  will be
   amended or whether Boeing will become a party to it in its current or amended
   form.

   The  Company  has the  option  under  the  Operating  Agreement  to tender to
   McDonnell  Douglas any McDonnell  Douglas aircraft returned to or repossessed
   by the Company  under a lease or security  instrument at a price equal to the
   fair market value of the aircraft less 10%. This  provision  does not include
   McDonnell  Douglas  aircraft leased under a partnership  arrangement in which
   the Company is one of the partners,  or McDonnell Douglas aircraft subject to
   third  party  liens or other  security  interests,  unless  the  Company  and
   McDonnell  Douglas determine that purchase by McDonnell Douglas is desirable.
   At December 31,  1997,  the carrying  amount of  McDonnell  Douglas  aircraft
   potentially  excluded  by this  provision  amounted to  approximately  $639.8
   million.

-  Federal Income Taxes

   The Company and  McDonnell  Douglas  presently  file a  consolidated  federal
   income tax return with Boeing,  with the consolidated  tax payments,  if any,
   being  made by  Boeing.  The  Operating  Agreement  provides  that so long as
   consolidated federal tax returns are filed,  payments shall be made, directly
   or  indirectly,  by  McDonnell  Douglas to the  Company or by the  Company to
   McDonnell  Douglas,  as  appropriate,  equal to the  difference  between  the
   consolidated  tax liability and  McDonnell  Douglas's tax liability  computed
   without  consolidation with the Company.  If, subsequent to any such payments
   by McDonnell  Douglas,  it incurs tax losses which may be carried back to the
   year for which such payments were made, the Company  nevertheless will not be
   obligated to repay to McDonnell Douglas any portion of such payments.

   The Company and  McDonnell  Douglas have been  operating  since 1975 under an
   informal  arrangement,  which  has  entitled  the  Company  to rely  upon the
   realization of tax benefits for the portion of projected  taxable earnings of
   McDonnell  Douglas  allocated  to the  Company.  This has been  important  in
   planning  the volume of and pricing  for the  Company's  leasing  activities.
   Under the current arrangement, McDonnell Douglas presently charges or credits
   the Company for the corresponding increase or decrease in McDonnell Douglas's
   taxes  (disregarding  alternative minimum taxes) resulting from the Company's
   inclusion in the consolidated federal income tax return of McDonnell Douglas.
   Intercompany  payments  are made when such taxes are due or tax  benefits are
   realized  by  McDonnell  Douglas  based  on the  assumption,  pursuant  to an
   informal  arrangement,  that taxes are due or tax benefits are realized up to
   100% of the amounts  forecasted  by the Company with the amounts in excess of
   such forecast due in the year realized by McDonnell Douglas.

   The  Company,  McDonnell  Douglas  and Boeing  intend to file a  consolidated
   federal income tax return, with the consolidated tax payments,  if any, being
   made by Boeing.  Boeing,  BCSC and the Company have  entered into  agreements
   (the  "Boeing   Operating   Agreements")   which  provide  that  so  long  as
   consolidated federal tax returns are filed,  payments shall be made, directly
   or  indirectly,  by Boeing to the  Company or by the  Company  to Boeing,  as
   appropriate,  equal to the difference  between the consolidated tax liability
   and Boeing's tax liability  computed without  consolidation with the Company.
   If,  subsequent to any such  payments by Boeing (or the  Company),  the payer
   incurs  tax  losses  which may be  carried  back to the year for  which  such
   payments were made, the payee nevertheless will not be obligated to repay any
   portion of such payments.

   The Operating Agreement among the Company, BCSC and McDonnell Douglas remains
   in effect and amounts payable under the Boeing Operating Agreements take into
   account  payments  made under the  Operating  Agreement,  provided that in no
   event will the Company  receive an amount  which is  materially  less,  or be
   obligated to pay an amount which is  materially  greater,  than it would have
   received, or been obligated to pay, under the Operating Agreement.  Likewise,
   the informal  arrangement  which generally  entitles the Company to rely upon
   the realization of tax benefits for the portion of projected taxable earnings
   allocated to the Company remains in effect.

   The  Company's  ability to price its  business  competitively  and obtain new
   business volume is significantly  dependent on its ability to realize the tax
   benefits  generated  by its leasing  business.  In some cases,  the yields on
   receivables,  without regard to tax benefits,  may be less than the Company's
   related  financing  costs.  To the extent  that  Boeing  would be unable on a
   long-term basis to utilize such tax benefits,  or if the informal arrangement
   is not  continued  in its  present  form,  the  Company  would be required to
   restructure  its  financing  activities  and to  reprice  its  new  financing
   transactions  so as to  make  them  profitable  without  regard  to  Boeing's
   utilization  of tax benefits since there can be no assurance that the Company
   would be able to utilize such benefits currently.  No assurances can be given
   that  the  Company  would  be  successful  in  restructuring   its  financing
   activities. See "Competition and Economic Factors."

   There can  likewise  be no  assurance  that  these (and  other)  intercompany
   arrangements  will not change as time permits the Company's new Board members
   and  shareholder  to study  and  become  more  familiar  with  these  working
   arrangements.  While it is  difficult  to predict  the  applicability  of the
   alternative  minimum tax to Boeing and the effect thereof under such informal
   arrangement,  if Boeing were subject to alternative minimum tax liability for
   an  extended  period,  it  could  have  a  material  adverse  impact  on  the
   competitiveness  of the Company's pricing of new business and on the earnings
   of the Company.

-  Intercompany Services

   McDonnell Douglas provides to the Company certain payroll,  employee benefit,
   facilities and other services, for which the Company generally pays McDonnell
   Douglas  the  actual  cost.  See  of "Notes to  Consolidated  Financial
   Statements" included as Item 8.

-  Intercompany Credit Arrangements

   The  Company  maintains  separate  borrowing  facilities  and  there  are  no
   arrangements  for joint  use of such  credit  lines by  Boeing  or  McDonnell
   Douglas.  Bank credit and other  borrowing  facilities  are negotiated by the
   Company on its own behalf.  There are no  provisions  in the  Company's  debt
   instruments  that provide  that a default by Boeing or  McDonnell  Douglas on
   their  respective  debt  constitutes a default on Company debt.  There are no
   guaranties, direct or indirect, by Boeing or McDonnell Douglas of the payment
   of any debt of the Company.

   The  Company had  arrangements  with  McDonnell  Douglas,  terminable  at the
   discretion of either of the parties, pursuant to which the Company may borrow
   from  McDonnell  Douglas and  McDonnell  Douglas may borrow from the Company,
   funds for  periods up to 30 days at a market  rate of  interest.  Under these
   arrangements,  there were no  outstanding  balances at December  31, 1997 and
   1996.   Such   arrangements   have  been   terminated  as  a  result  of  the
   Boeing-McDonnell Douglas merger.

   Under a similar  arrangement,  the Company may borrow from BCSC, and BCSC and
   its subsidiaries may borrow from the Company, funds for periods up to 30 days
   at the  Company's  cost  of  funds  for  short-term  borrowings.  Under  this
   arrangement,  borrowings of $51.0 million and $20.3 million were  outstanding
   at December  31, 1997 and 1996,  respectively.  During  1997,  the  Company's
   highest level of borrowings  from BCSC was $51.0 million.  The Company had no
   loans to BCSC during 1997.

   Under  another  arrangement,   Boeing  Realty  Corporation,   a  wholly-owned
   subsidiary  of McDonnell  Douglas,  owed the Company $1.7 million at December
   31, 1996. The outstanding balance was paid in full in November 1997 and there
   were no subsequent borrowings in 1997.


Item 2.  Properties

The Company leases all of its office space and other  facilities.  The Company's
principal  office  is  subleased  from  McDonnell  Douglas,  at a rate  that was
considered fair market value at the inception of the lease. The Company believes
that its properties,  including the equipment located therein,  are suitable and
adequate to meet the requirements of its business.


Item 3.  Legal Proceedings

On November 1, 1996, The Allen Austin Harris Group, Inc. (the "Plaintiff") filed
a complaint in the Superior Court of the State of California, County of Alameda,
against the Company,  McDonnell  Douglas,  McDonnell  Douglas Aerospace - Middle
East Limited and the Selah Group, Inc. (the "Defendants").  The Plaintiff, which
had hoped to establish a manufacturing plant abroad with various assistance from
the  Defendants,  seeks more than $57.0  million in alleged  damages  (primarily
consisting of lost profits) based on various  theories.  The Company believes it
has meritorious  defenses to all of the allegations,  but is unable to determine
at this stage of  discovery  if the  litigation  will have any  future  material
adverse effect on its earnings, cash flow or financial position.

The  Company is a party to  litigation  in the  United  States  District  Court,
Southern District of Florida,  entitled  McDonnell  Douglas Finance  Corporation
adv. Aviaco International Leasing, Inc., Aviaco Traders International,  Inc. and
Craig  L.  Dobbin  with  Related  Counter-Claims  (collectively  referred  to as
"Aviaco").  The  foregoing  litigation  arose  out of an action  brought  by the
Company  in July 1991  seeking  remedies  on account  of  defaults  by the other
parties to the  litigation  under loan and related  documents  involving a $17.9
million loan made by the Company.  In January 1994, in response to the Company's
foreclosure  of two aircraft and a related  aircraft lease  agreement  which had
been collateral for the loan, Aviaco filed a counter-claim  against the Company,
asserting nine claims for alleged  damages based on various tort and contractual
theories relating to the Company's foreclosure.

The case  proceeded to jury trial on three of the nine claims which survived the
Company's  Motion for Summary  Judgment.  The case was  submitted to the jury on
October 16, 1997.  On October 17, 1997,  the jury returned a verdict in favor of
Aviaco awarding  aggregate  damages of  approximately  $12.2 million,  including
damages of  approximately  $10.0 million for the failure to exercise  reasonable
care with regard to the related lease agreement.

In December of 1997, the Company filed a Motion for Judgment as a Matter of Law,
arguing, inter alia, to set aside the $10.0 million award as not being supported
by the record  evidence or by  applicable  law. On February 13, 1998,  the Judge
ruled in favor of the Company and set aside the $10.0 million award.

On March 2, 1998, the Judge entered a Final Judgment  against the Company in the
aggregate amount,  including prejudgment interest, of approximately $2.8 million
with post judgment  interest thereon at the rate of 5.42% per annum. Both Aviaco
and the Company have appealed from the Final Judgment to the United States Court
of Appeals for the Eleventh  Circuit.  Taking into account amounts  reserved for
this litigation,  the Company does not expect such litigation to have any future
material adverse effect on its earnings, cash flow or financial position.

A number of legal  proceedings  and  claims are  pending  or have been  asserted
against the Company.  A substantial  number of such legal proceedings and claims
are  covered  by third  parties,  including  insurance  companies.  The  Company
believes that the final outcome of such  proceedings  and claims will not have a
material adverse effect on its earnings, cash flow, or financial position.

<PAGE>

                                     Part II


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

All of the Company's  preferred and common stock is owned by BCSC. In 1997,  the
Company  declared  and paid  dividends  of $25.0  million on its common stock to
BCSC.  In 1996,  the Company did not declare or pay any dividends to BCSC on its
common stock.  The Company paid $3.5 million in dividends on its preferred stock
in 1997 and 1996. Preferred stock dividends of $0.6 million payable to BCSC were
accrued at December 31, 1997.

The  provisions  of various  credit and debt  agreements  require the Company to
maintain a minimum net worth,  restrict  indebtedness,  and limit cash dividends
and other distributions.  Under the most restrictive provision, $77.4 million of
the Company's income retained for growth was available for dividends at December
31, 1997.

Item 6.  Selected Financial Data

The selected consolidated  financial data should be read in conjunction with the
Company's  consolidated  financial  statements  at December 31, 1997 and for the
year then  ended and with  "Item 7.  Management's  Discussion  and  Analysis  of
Financial  Condition and Results of Operations."  The following table sets forth
selected consolidated financial data for the Company:
<TABLE>
<CAPTION>

                                                                  Years ended December 31,
(Dollars in millions)                      1997           1996            1995            1994           1993
<S>                                    <C>            <C>             <C>             <C>            <C>
Financing volume                       $     591.1    $      867.3    $      590.8    $     202.0    $     453.0
                                       ============================================================================

Operating income:
   Finance lease income                $     136.9    $      118.6    $      104.3    $     100.7    $      90.1
   Interest on notes receivable               26.3            24.4            27.2           29.4           38.9
   Operating lease income, net                56.7            55.1            41.1           38.5           35.9
   Net gain on disposal or re-lease
     of assets                                21.0            19.6             8.7           11.1           23.7
   Other                                       5.5             3.8             9.3            7.1            8.3
                                       ----------------------------------------------------------------------------
                                             246.4           221.5           190.6          186.8          196.9
                                       ----------------------------------------------------------------------------

Expenses:
   Interest expense                          124.7           117.3           101.9          108.3          116.4
   Provision for losses                       11.5            14.2            12.2            9.9            8.6
   Operating expenses                         13.1            11.7            11.3           15.2           20.3
   Other                                       9.3             3.4             4.9           12.3           12.4
                                       ----------------------------------------------------------------------------
                                             158.6           146.6           130.3          145.7          157.7
                                       ----------------------------------------------------------------------------

Income before provision for income
   taxes                                      87.8            74.9            60.3           41.1           39.2
Provision for income taxes                    31.7            26.1            21.0           12.8           22.4
                                       ----------------------------------------------------------------------------
Net income                             $      56.1    $       48.8    $       39.3    $      28.3    $      16.8
                                       ============================================================================

Dividends declared                     $      28.5    $        3.5    $       31.0    $      30.5    $       3.6

Ratio of income to fixed charges (1)           1.68            1.62            1.57           1.37           1.33

Balance sheet data:
   Total assets                        $   2,722.8    $    2,653.6    $    2,049.6    $   1,929.6    $   2,055.5
   Total debt                              1,797.9         1,850.2         1,339.7        1,215.1        1,361.2
   Shareholder's equity                      353.1           325.5           280.2          271.9          269.4

Dividends accrued on preferred
   stock at year end                   $       0.6    $        0.6    $        0.6    $       0.6    $       0.6
</TABLE>

(1) For the purpose of computing  the ratio of income to fixed  charges,  income
    consists of income before provision for income taxes and fixed charges;  and
    fixed charges consist of interest expense and preferred stock dividends.


<PAGE>


Item 7.  Management's Discussion and Analysis of Financial Condition and Results
of Operations

The following  should be read in  conjunction  with the  consolidated  financial
statements included in Item 8.

From  time to  time,  the  Company  may make  certain  statements  that  contain
projections  or  "forward-looking"   information  (as  defined  in  the  Private
Securities  Litigation  Reform Act of 1995) that involve  risk and  uncertainty.
Certain  statements in this Form 10-K, and particularly in Items 1, 3 and 7, may
contain forward-looking  information.  The subject matter of such statements may
include,   but  are  not   limited  to,  the  effects  on  the  Company  of  the
Boeing-McDonnell Douglas merger, future earnings, costs,  expenditures,  losses,
residual values, and various business  environment  trends. In addition to those
contained  herein,  forward-looking  statements  and  properties  may be made by
management orally or in writing including,  but not limited to, various sections
of the Company's  filings with the Securities and Exchange  Commission under the
Securities Act of 1933 and the Securities Exchange Act of 1934.

Actual results and trends in the future may differ  materially from  projections
depending on a variety of factors including,  but not limited to, the effects on
the  Company  of  the   Boeing-McDonnell   Douglas   merger  and  the  Company's
relationship with Boeing, as well as strategic decisions relating to the Company
to be made by such  shareholder,  the capital  equipment  requirements of United
States and foreign  businesses,  capital  availability and cost, changes in laws
and tax benefits,  competition from other financial institutions,  the Company's
successful  execution  of  internal  operating  plans,  defaults  by  customers,
regulatory uncertainties, and legal proceedings.

Capital Resources and Liquidity

The Company has significant liquidity requirements. The Company attempts to fund
its business such that  scheduled  receipts  from its  portfolio  will cover its
expenses and debt payments as they become due. The Company believes that, absent
a severe or prolonged economic downturn which results in defaults  materially in
excess of those provided for, receipts from the portfolio will cover the payment
of expenses and debt payments when due. If cash provided by operations, issuance
of commercial  paper,  borrowings under bank credit lines and term borrowings do
not provide the necessary  liquidity,  the Company would be required to restrict
its new business  volume,  unless it obtained access to other sources of capital
at rates that would allow for a reasonable  return on new business.  The Company
has a $240.0 million  revolving  credit agreement which is reduced by borrowings
of up to $16.0 million made by BCSC.  At December 31, 1997 and 1996,  borrowings
under commercial  paper totaling $80.0 million and $96.0 million,  respectively,
were  supported by  available  unused  commitments  under the  revolving  credit
agreement. The Company has available approximately $95.0 million in uncommitted,
short-term bank credit  facilities  whereby the Company may borrow,  at interest
rates which are negotiated at the time of the borrowings, upon such terms as the
Company  and the  banks may  mutually  agree.  At  December  31,  1997 and 1996,
borrowings  under  these  credit  facilities  totaled  $18.0  million  and $45.0
million,  respectively.  The Company  also  accesses  the public debt market and
anticipates  using proceeds from the issuance of additional  public debt to fund
future  growth.  On October 10, 1997,  the Company filed with the Securities and
Exchange  Commission  ("Commission")  a Form S-3  Registration  Statement  for a
public shelf  registration  of $1.2 billion of its debt securities (SEC File No.
333-37635).  On October 31, 1997,  the  Commission  declared  such  Registration
Statement to be effective. The Company has authorized the sale and issuance from
time to time at the  Company's  discretion  of up to $400  million  of such debt
securities  in the form of the  Company's  Series  X  medium-term  notes.  As of
December 31, 1997, the Company has issued $165.0 million in aggregate  principal
of medium-term notes. See "Item 1. Business - Borrowing Operations."

1997 vs. 1996

Finance lease income  increased  $18.3 million (15.4%) in 1997 compared to 1996,
primarily  attributable  to the financings of two MD-11 aircraft  funded in late
1996 under finance lease agreements.

Interest  expense  increased  $7.4  million  (6.3%)  in 1997  compared  to 1996,
attributable  to a higher level of borrowings in 1997,  resulting from increased
financing activity in late 1996.

Provision for losses  decreased  $2.7 million  (19.0%) in 1997 compared to 1996,
primarily attributable to the Company's determination that additional provisions
for losses  relating to the  commercial  aircraft  portfolio  in excess of those
previously  provided were not necessary or appropriate during the current period
and to a decrease in new aircraft lease volume,  which aggregated $176.3 million
in 1997, compared to aircraft lease volume of $475.3 million in 1996.

Other  expenses  increased  $5.9  million  (173.5%)  in 1997  compared  to 1996,
primarily  attributable to maintenance expenses of approximately $5.3 million on
an airplane that was repossessed in March 1997.

1996 vs. 1995

Finance lease income  increased  $14.3 million (13.7%) in 1996 compared to 1995,
primarily  attributable to increased volume for 1996 and the 1995 fourth quarter
financings of two MD-11 aircraft.

Interest on notes  receivable in 1996 was $2.8 million  (10.3%) lower than 1995,
primarily  attributable to aircraft repossessed under defaulted loans and leased
in 1995 and notes that matured in 1995.

Operating  lease income,  net of depreciation  expense,  increased $14.0 million
(34.1%)  in 1996  compared  to 1995,  primarily  attributable  to the March 1996
financing of two MD-11s and the March 1995 financing of two MD-82 aircraft under
operating lease agreements.

Net gain on disposal or re-lease of assets increased $10.9 million (greater than
125%) in 1996 compared to 1995, attributable primarily to equipment sales within
the  commercial  equipment  leasing  portfolio  and sales within the  commercial
aircraft financing portfolio.

Interest  expense  increased  $15.4  million  (15.1%) in 1996  compared to 1995,
primarily  attributable to a higher level of debt borrowings in 1996,  resulting
from increased financing activity.

Provision  for losses  increased  $2.0 million  (16.4%)  during 1996 compared to
1995, primarily attributable to increased financing activity.

Year 2000 Date Conversion

The Company has  assessed  and  continues  to assess the impact of the Year 2000
issue on its  reporting  systems  and  operations.  The Year 2000  issue  exists
because many computer  systems and  applications  use  two-digit  date fields to
designate a year. As the century date change occurs,  date-sensitive systems may
recognize the year 2000 as 1900,  or not at all. This  inability to recognize or
properly  treat  the year  2000 may  cause  systems  to  process  financial  and
operational information incorrectly. In 1996, the Company initiated a conversion
from its existing  lease  administrative  system to programs  that are Year 2000
compliant.  Management  has  determined  that the Year 2000  issue will not pose
significant operational problems for its computer systems.

The  Company  has and will  continue  to  utilize  both  internal  and  external
resources to replace and test the software for Year 2000 compliance. The Company
anticipates completing the Year 2000 project by the third quarter of 1999, which
is prior to any anticipated impact on its operating systems.

The total cost of the Year 2000 project is being funded  through  operating cash
flows and will have no material adverse effect on the Company's  earnings,  cash
flow or financial position.

No assurance can be given,  however,  that Year 2000 problems of unrelated third
parties  (such as other  financial  institutions  with  which the  Company  does
business) will not materially impact operations or operating results.

Market Risk Exposure

The Company has  financial  instruments  that are subject to interest rate risk,
principally short-term investments,  fixed-rate notes receivable attributable to
customer financing,  and debt obligations issued at a fixed rate.  Historically,
the Company has not  experienced  material  gains or losses due to interest rate
changes when selling fixed-rate notes receivable. Additionally, the Company uses
interest rate swaps to manage  exposure to interest  rate changes.  Based on the
current  holdings  of  short-term  investments,  fixed-rate  notes,  as  well as
underlying  swaps,  the exposure to interest  rate risk is not  considered to be
material.  Fixed-rate  debt  obligations  currently  issued by the  Company  are
generally not callable until maturity.

Item 8.  Financial Statements and Supplementary Data

The following pages include the consolidated financial statements of the Company
as described in Item 14 (a) 1 and (a) 2 of Part IV herein.


<PAGE>

                          Independent Auditors' Report


Shareholder and Board of Directors
Boeing Capital Corporation

We have audited the  accompanying  consolidated  balance sheet of Boeing Capital
Corporation (a wholly-owned  subsidiary of Boeing Capital Services  Corporation)
and  subsidiaries  as  of  December  31,  1997,  and  the  related  consolidated
statements of income and income retained for growth, and cash flows for the year
then ended.  These financial  statements are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated financial position of Boeing
Capital  Corporation and subsidiaries at December 31, 1997, and the consolidated
results of their  operations  and their cash flows for the year then  ended,  in
conformity with generally accepted accounting principles.

/s/ DELOITTE & TOUCHE LLP

Seattle, Washington
January 23, 1998


<PAGE>

                          Independent Auditors' Report


Shareholder and Board of Directors
McDonnell Douglas Finance Corporation

We have audited the accompanying consolidated balance sheet of McDonnell Douglas
Finance  Corporation (a wholly-owned  subsidiary of McDonnell  Douglas Financial
Services  Corporation) and subsidiaries as of December 31, 1996, and the related
consolidated statements of income and income retained for growth, and cash flows
for each of the two years in the period ended December 31, 1996. Our audits also
included the  financial  statement  schedule  listed in the Index at Item 14(a).
These financial  statements and schedule are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
McDonnell Douglas Finance Corporation and subsidiaries at December 31, 1996, and
the  consolidated  results of their  operations and their cash flows for each of
the two  years in the  period  ended  December  31,  1996,  in  conformity  with
generally  accepted  accounting  principles.  Also, in our opinion,  the related
financial statement schedule, when considered in relation to the basic financial
statements  taken  as a whole,  present  fairly  in all  material  respects  the
information set forth therein.

We have also previously  audited, in accordance with generally accepted auditing
standards,  the  consolidated  balance sheets as of December 31, 1995,  1994 and
1993, and the related consolidated  statements of income and income retained for
growth,  and cash flows for the years ended  December 31, 1994 and 1993 (none of
which are presented separately herein); and we expressed unqualified opinions on
those consolidated  financial  statements.  In our opinion,  the information set
forth in the  selected  financial  data for each of the four years in the period
ended  December 31, 1996,  appearing on page 21 is fairly stated in all material
respects in relation to the consolidated  financial statements from which it has
been derived.



/s/ ERNST & YOUNG LLP

January 22, 1997


<PAGE>


Boeing Capital Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>


                                                                                  December 31,
(Dollars in millions, except stated value and par value)                    1997                1996
------------------------------------------------------------------------------------------------------------

ASSETS
    Financing receivables:
<S>                                                                   <C>                 <C>
      Investment in finance leases                                    $      1,509.1      $      1,631.2
      Notes receivable                                                         269.0               308.9
                                                                      --------------------------------------
                                                                             1,778.1             1,940.1
      Allowance for losses on financing receivables                            (55.9)              (48.6)
                                                                      --------------------------------------
                                                                             1,722.2             1,891.5
    Cash and cash equivalents                                                   39.1                16.9
    Equipment under operating leases, net                                      922.2               689.5
    Equipment held for sale or re-lease                                          0.7                14.0
    Other assets                                                                38.6                41.7
                                                                      --------------------------------------
                                                                      $      2,722.8      $      2,653.6
                                                                      ======================================

LIABILITIES AND SHAREHOLDER'S EQUITY
    Short-term notes payable                                          $        149.0      $        161.3
    Accounts payable and accrued expenses                                       49.1                47.7
    Accounts with Boeing, McDonnell Douglas and BCSC                            37.2                 -
    Other liabilities                                                           97.2                90.0
    Deferred income taxes                                                      388.3               340.2
    Long-term debt:
       Senior                                                                1,579.0             1,594.1
       Subordinated                                                             69.9                94.8
                                                                      --------------------------------------
                                                                             2,369.7             2,328.1
                                                                      --------------------------------------

    Commitments and contingencies - Note 8

    Shareholder's equity:
      Preferred stock - no par value; authorized 100,000 shares:
         Series A; $5,000 stated value; authorized, issued and
         outstanding 10,000 shares                                              50.0                50.0
      Common stock - $100 par value; authorized 100,000 shares;
         issued and outstanding 50,000 shares                                    5.0                 5.0
      Capital in excess of par value                                            89.5                89.5
      Income retained for growth                                               208.6               181.0
                                                                      --------------------------------------
                                                                               353.1               325.5
                                                                      --------------------------------------
                                                                      $      2,722.8      $      2,653.6
                                                                      ======================================
</TABLE>

See notes to consolidated financial statements.


<PAGE>


Boeing Capital Corporation and Subsidiaries
Consolidated Statements of Income and Income Retained for Growth
<TABLE>
<CAPTION>


(Dollars in millions)                                               1997              1996                1995
--------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>               <C>               <C>
OPERATING INCOME
    Finance lease income                                       $      136.9      $      118.6      $       104.3
    Interest income on notes receivable                                26.3              24.4               27.2
    Operating lease income, net of depreciation expense of
       $61.1, $57.6 and $48.2 in 1997, 1996 and 1995,
       respectively                                                    56.7              55.1               41.1
    Net gain on disposal or re-lease of assets                         21.0              19.6                8.7
    Other                                                               5.5               3.8                9.3
                                                               -----------------------------------------------------
                                                                      246.4             221.5              190.6
                                                               -----------------------------------------------------

EXPENSES
    Interest expense                                                  124.7             117.3              101.9
    Provision for losses                                               11.5              14.2               12.2
    Operating expenses                                                 13.1              11.7               11.3
    Other                                                               9.3               3.4                4.9
                                                               -----------------------------------------------------
                                                                      158.6             146.6              130.3
                                                               -----------------------------------------------------
Income before provision for income taxes                               87.8              74.9               60.3
Provision for income taxes                                             31.7              26.1               21.0
                                                               -----------------------------------------------------
Net income                                                             56.1              48.8               39.3
Income retained for growth at beginning of year                       181.0             135.7              127.4
Dividends                                                             (28.5)             (3.5)             (31.0)
                                                               -----------------------------------------------------
Income retained for growth at end of year                      $      208.6      $      181.0      $       135.7
                                                               =====================================================

</TABLE>

See notes to consolidated financial statements.



<PAGE>


Boeing Capital Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>


                                                                              Years ended December 31,
(Dollars in millions)                                                1997              1996              1995
--------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>              <C>               <C>
OPERATING ACTIVITIES
    Net income                                                   $       56.1     $       48.8      $        39.3
    Adjustments to reconcile net income to net cash
       provided by operating activities:
          Depreciation expense - equipment under operating
            leases                                                       61.1             57.6               48.2
          Net gain on disposal or re-lease of assets                    (21.0)           (19.6)              (8.7)
          Provision for losses                                           11.5             14.2               12.2
          Change in assets and liabilities:
            Accounts with Boeing, McDonnell Douglas and
              BCSC                                                       37.2             18.5               26.4
            Other assets                                                  3.1              1.8               40.4
            Accounts payable and accrued expenses                         1.4              5.9                8.8
            Other liabilities                                             7.2              7.5              (10.0)
            Deferred income taxes                                        48.1             34.8               (0.7)
          Other, net                                                     (0.7)            (1.7)               0.4
                                                                 ---------------------------------------------------
                                                                        204.0            167.8              156.3
                                                                 ---------------------------------------------------

INVESTING ACTIVITIES
    Net change in short-term notes and leases receivable                101.7            (91.2)              60.6
    Purchase of equipment for operating leases                         (346.2)          (303.9)            (155.7)
    Proceeds from disposition of equipment, notes and leases
       receivable                                                       177.4            115.0              109.6
Collection of notes and leases receivable                               209.6            167.0              181.6
Acquisition of notes and leases receivable                             (243.0)          (557.2)            (435.6)
                                                                 ---------------------------------------------------
                                                                       (100.5)          (670.3)            (239.5)
                                                                 ---------------------------------------------------

FINANCING ACTIVITIES
    Net change in short-term borrowings                                 (12.3)           147.6              (90.1)
    Debt having maturities more than 90 days:
       Proceeds                                                         226.8            608.7              572.8
       Repayments                                                      (267.3)          (246.0)            (358.0)
    Payment of cash dividends                                           (28.5)            (3.5)             (42.0)
                                                                 ---------------------------------------------------
                                                                        (81.3)           506.8               82.7
                                                                 ---------------------------------------------------
Net increase (decrease) in cash and cash equivalents                     22.2              4.3               (0.5)
Cash and cash equivalents at beginning of year                           16.9             12.6               13.1
                                                                 ---------------------------------------------------
Cash and cash equivalents at end of year                         $       39.1     $       16.9      $        12.6
                                                                 ===================================================
</TABLE>

See notes to consolidated financial statements.



<PAGE>


Boeing Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997


Note 1 -- Organization and Summary of Significant Accounting Policies

ORGANIZATION  Boeing Capital  Corporation  (formerly  McDonnell  Douglas Finance
Corporation)  (the  "Company") is a  wholly-owned  subsidiary of Boeing  Capital
Services Corporation (formerly McDonnell Douglas Financial Services Corporation)
("BCSC"), a wholly-owned subsidiary of McDonnell Douglas Corporation ("McDonnell
Douglas"),  which in turn, as of August 1, 1997, is  wholly-owned  by The Boeing
Company  ("Boeing").  The  Company  was  incorporated  in  Delaware  in 1968 and
provides equipment financing and leasing  arrangements to a diversified range of
customers and industries. The Company's primary operations include two financial
reporting  segments:  commercial  aircraft  financing and  commercial  equipment
leasing.  The  Company's  strategy is to  generate  and  participate  in finance
transactions  in which the Company's  structuring  and analysis can provide high
returns on its invested equity.  Currently,  the commercial  aircraft  financing
group  is  active  in  providing  lease  and  debt  financing  to  domestic  and
international  airlines, and the Company as a whole is active in providing lease
and debt financing to a broad range of commercial and industrial customers.

PRINCIPLES OF CONSOLIDATION The consolidated  financial  statements  include the
accounts of the  Company  and its  wholly-owned  subsidiaries.  All  significant
intercompany  accounts  and  transactions  have been  eliminated.  Certain  1996
amounts have been reclassified to conform to the 1997 presentation.

USE OF ESTIMATES The  preparation  of financial  statements  in conformity  with
generally accepted accounting principles requires management to make assumptions
and estimates  that  directly  affect the amounts  reported in the  consolidated
financial  statements.  Significant estimates for which changes in the near term
are considered  reasonably  possible and that may have a material  impact on the
financial statements are addressed in these notes to the consolidated  financial
statements.

FINANCE LEASES At lease commencement,  the Company records the lease receivable,
estimated  residual  value of the leased  equipment  and unearned  lease income.
Income  from  leases  is  recognized  over  the  terms  of the  leases  so as to
approximate a level rate of return on the net investment. Residual values, which
are reviewed  periodically,  represent  the  estimated  amount to be received at
lease termination from the disposition of leased equipment.

INITIAL  DIRECT COSTS Initial  direct costs are deferred and amortized  over the
related financing terms.

CASH  EQUIVALENTS  The Company  considers  all cash  investments  with  original
maturities of three months or less to be cash  equivalents.  Cash equivalents at
December 31, 1997 and 1996 were $37.9 million and $15.3  million,  respectively.
At December  31,  1997 and 1996,  the Company  has  classified  as other  assets
restricted  cash  deposited  with banks in  interest  bearing  accounts of $27.6
million  and  $29.5  million,   respectively,   for  specific  lease  rents  and
contractual  purchase  options related to certain aircraft leased by the Company
under capital lease obligations.

ALLOWANCE FOR LOSSES ON FINANCING RECEIVABLES      The  allowance  for losses on
financing receivables includes  consideration of such factors as the risk rating
of individual credits, economic and political conditions, guaranties, prior loss
experience, collateral value of the underlying equipment and results of periodic
credit reviews.

Collateral that is repossessed in satisfaction of a receivable is transferred to
equipment held for sale or re-lease at the lower of the former receivable amount
or estimated net realizable value.

EQUIPMENT UNDER OPERATING LEASES Rental equipment subject to operating leases is
recorded  at cost and  depreciated  over  its  useful  life or lease  term to an
estimated salvage value, primarily on a straight-line basis.

INCOME TAXES  The  operations  of the Company are  included in the  consolidated
federal  income  tax  return of Boeing.  McDonnell  Douglas or Boeing  presently
charges or credits  the Company  for the  corresponding  increase or decrease in
taxes  resulting from such inclusion.  Intercompany  payments are made when such
taxes are due or tax benefits  are  realized by Boeing based on the  assumption,
pursuant  to an informal  arrangement,  that taxes are due or tax  benefits  are
realized up to 100% of the amounts  forecasted by the Company,  with the amounts
in excess of such forecast due in the year realized by Boeing.

Federal,  state and foreign income taxes are computed at current tax rates, less
tax credits. Taxes are adjusted both for items that do not have tax consequences
and for the cumulative  effect of any changes in tax rates from those previously
used to determine  deferred tax assets or  liabilities.  Tax provisions  include
amounts  that are  currently  payable,  plus  changes in deferred tax assets and
liabilities  that arise because of temporary  differences  between the time when
items of income and expense are  recognized  for financial  reporting and income
tax purposes.  Under an informal  arrangement,  the current  provision for state
income taxes based on an agreed upon rate is paid to Boeing and the state income
tax deferred asset or liability is carried on Boeing's books.

SEGMENT INFORMATION  The Company has adopted  Statement of Financial  Accounting
Standards No. 131,  "Disclosures  about  Segments of an  Enterprise  and Related
Information."  The  adoption  thereof  had no material  effect on the  Company's
financial position or operating results. For segment information, see Note 11.

Note 2 -- The Effects of the Boeing-McDonnell Douglas Merger

On August 1, 1997, the Boeing-McDonnell  Douglas merger was consummated pursuant
to an Agreement and Plan of Merger dated as of December 14, 1996,  among Boeing,
West  Acquisition  Corp.,  a  wholly-owned  subsidiary  of Boeing  ("Sub"),  and
McDonnell  Douglas  (the  "Merger  Agreement").  Under the  terms of the  Merger
Agreement,  Sub was  merged  into  McDonnell  Douglas,  with  McDonnell  Douglas
surviving as a wholly-owned subsidiary of Boeing.

The many  possible  ramifications  of the merger on the  Company  (for  example,
decisions  regarding the strategic value of the Company to Boeing, the impact of
the merger on residual  values of aircraft in the Company's  portfolio,  the tax
position  of Boeing and the effect of  decisions  relating to the  financing  of
Boeing aircraft) are currently unknown and,  therefore,  cannot be quantified at
this time.  Boeing is  conducting a review of the  operations  and the strategic
value of the  Company,  which  review  could lead to a decision to divest all or
part of the Company's  assets or to sell the  Company's  stock,  presently  held
indirectly by Boeing.

The Company and McDonnell Douglas  presently file a consolidated  federal income
tax return with Boeing,  with the consolidated tax payments,  if any, being made
by Boeing.  The  operating  agreement  between the Company,  BCSC and  McDonnell
Douglas  ("the  Operating  Agreement")  provides  that so  long as  consolidated
federal tax returns are filed,  payments shall be made,  directly or indirectly,
by McDonnell Douglas to the Company or by the Company to McDonnell  Douglas,  as
appropriate,  equal to the difference between the consolidated tax liability and
McDonnell  Douglas's  tax  liability  computed  without  consolidation  with the
Company. If, subsequent to any such payments by McDonnell Douglas, it incurs tax
losses which may be carried back to the year for which such  payments were made,
the Company nevertheless will not be obligated to repay to McDonnell Douglas any
portion of such payments.

The  Company  and  McDonnell  Douglas  have been  operating  since 1975 under an
informal  arrangement,   which  has  entitled  the  Company  to  rely  upon  the
realization  of tax benefits for the portion of  projected  taxable  earnings of
McDonnell Douglas allocated to the Company.  This has been important in planning
the  volume of and  pricing  for the  Company's  leasing  activities.  Under the
current arrangement,  McDonnell Douglas presently charges or credits the Company
for  the  corresponding  increase  or  decrease  in  McDonnell  Douglas's  taxes
(disregarding  alternative minimum taxes) resulting from the Company's inclusion
in the consolidated federal income tax return of McDonnell Douglas. Intercompany
payments  are made  when such  taxes are due or tax  benefits  are  realized  by
McDonnell Douglas based on the assumption,  pursuant to an informal arrangement,
that  taxes  are due or tax  benefits  are  realized  up to 100% of the  amounts
forecasted  by the Company,  with the amounts in excess of such  forecast due in
the year realized by McDonnell Douglas.

The Company,  McDonnell Douglas and Boeing intend to file a consolidated federal
income tax return,  with the  consolidated  tax payments,  if any, being made by
Boeing.  Boeing,  BCSC and the Company have entered into agreements (the "Boeing
Operating  Agreements")  which provide that so long as consolidated  federal tax
returns are filed, payments shall be made, directly or indirectly,  by Boeing to
the Company or by the Company to Boeing, as appropriate, equal to the difference
between the  consolidated  tax  liability  and Boeing's tax  liability  computed
without  consolidation with the Company.  If, subsequent to any such payments by
Boeing (or the  Company),  the payer incurs tax losses which may be carried back
to the year for which such payments were made, the payee  nevertheless  will not
be obligated to repay any portion of such payments.

The Operating Agreement among the Company, BCSC and McDonnell Douglas remains in
effect and  amounts  payable  under the Boeing  Operating  Agreements  take into
account payments made under the Operating  Agreement,  provided that in no event
will the Company receive an amount which is materially  less, or be obligated to
pay an amount which is materially greater,  than it would have received, or been
obligated  to  pay,  under  the  Operating  Agreement.  Likewise,  the  informal
arrangement which generally entitles the Company to rely upon the realization of
tax  benefits  for the portion of projected  taxable  earnings  allocated to the
Company remains in effect.

There  can  be no  assurance,  however,  that  these  (and  other)  intercompany
arrangements will not change as time permits the Company's new Board members and
shareholder  to study and become more familiar with these working  arrangements.
While it is difficult to predict the  applicability  of the alternative  minimum
tax to Boeing and the effect thereof under such informal arrangement,  if Boeing
were subject to  alternative  minimum tax liability for an extended  period,  it
could have a material  adverse  impact on the  competitiveness  of the Company's
pricing of new business and on the earnings of the Company.

On November 3, 1997, Boeing announced that it will continue to produce MD-80 and
MD-90 aircraft only until approximately mid-1999.  Boeing also stated that MD-80
and MD-90 customers, with 1,200 such aircraft in service overall, can expect the
same level of long-term  support that Boeing  provides for all of its  aircraft,
whether they are in or out of production.  Boeing has stated that  production of
the MD-11 will continue at a relatively  low rate through 1998, and future sales
prospects  are  principally  limited to the freighter  version.  Boeing has also
noted that the future of the MD-11  jetliner  program  depends on the success of
current marketing  efforts,  and Boeing expects to have a clearer picture of the
program's future later in 1998. The Company's  commercial  aircraft portfolio as
of  December  31,  1997  included  33 MD-80s,  three  MD-90s  and seven  MD-11s,
representing $425.3 million, $100.5 million and $650.3 million, respectively, in
net asset value or 15.8%, 3.7% and 24.1%,  respectively,  of the Company's total
portfolio.  The Company periodically reviews the carrying and residual values of
all aircraft in its portfolio.  Such reviews include the effects, if any, of the
foregoing  announcements  as they become known or can be  reasonably  estimated.
While management  believes that current booked residual values are conservative,
significant  declines  in  market  value  could  impact  the  gain  or  loss  on
disposition of these aircraft.

Note 3 -- Investment in Finance Leases

The  following  lists the  components  of the  investment  in finance  leases at
December 31:
<TABLE>
<CAPTION>
(Dollars in millions)                               1997               1996
<S>                                           <C>                <C>
Minimum lease payments receivable             $    1,985.8       $    2,252.1
Estimated residual value of leased assets            405.6              423.6
Unearned income                                     (885.9)          (1,047.7)
Deferred initial direct costs                          3.6                3.2
                                              ------------------------------------
                                              $    1,509.1       $    1,631.2
                                              ====================================
</TABLE>

The  following  lists the  components  of the  investment  in finance  leases at
December 31 that relate to aircraft  leased by the Company under capital  leases
that have been subleased to others under finance leases:
<TABLE>
<CAPTION>
(Dollars in millions)                                  1997               1996
<S>                                              <C>                 <C>
Minimum lease payments receivable                $      534.3        $      568.1
Estimated residual value of leased assets                83.3                83.3
Unearned income                                        (276.2)             (300.8)
Deferred initial direct costs                             0.8                 0.7
                                                 -----------------------------------
                                                 $      342.2        $      351.3
                                                 ===================================
</TABLE>
At December  31, 1997,  finance  lease  receivables  of $50.9  million  serve as
collateral to senior long-term debt.

At December 31, 1997,  finance  lease  receivables  are due in  installments  as
follows: 1998, $258.4 million; 1999, $245.1 million; 2000, $200.1 million; 2001,
$190.6 million; 2002, $160.9 million; 2003 and thereafter, $930.7 million.

Under a finance  lease  agreement,  the  Company  leases a DC-10-30  aircraft to
McDonnell  Douglas.  The lease  requires  monthly rent  payments of $0.4 million
through  April 14, 2004. At December 31, 1997 and 1996,  the carrying  amount of
this aircraft was $26.7 million and $28.5 million, respectively.

Note 4 -- Notes Receivable

The following lists the components of notes receivable at December 31:
<TABLE>
<CAPTION>
(Dollars in millions)                    1997              1996
<S>                                <C>               <C>
Principal                          $      265.9      $      306.3
Accrued interest                            2.8               2.8
Unamortized discount                       (0.5)             (0.8)
Deferred initial direct costs               0.8               0.6
                                   ------------------------------------
                                   $      269.0      $      308.9
                                   ====================================
</TABLE>
At December 31, 1997,  notes  receivables  are due in  installments  as follows:
1998,  $27.7 million;  1999,  $29.4 million;  2000,  $28.9 million;  2001, $28.8
million; 2002, $34.2 million; 2003 and thereafter, $116.9 million.

Note 5 -- Equipment Under Operating Leases

Equipment under operating leases consisted of the following at December 31:
<TABLE>
<CAPTION>
 (Dollars in millions)                           1997              1996
<S>                                        <C>                <C>
Commercial aircraft                        $      651.1       $      543.7
Executive aircraft                                313.1              153.9
Highway vehicles                                   51.4               61.7
Machine tools and production equipment             52.6               50.7
Printing equipment                                 32.2               34.1
Other                                              15.3               16.4
                                           -----------------------------------
                                                1,115.7              860.5
Accumulated depreciation                         (185.3)            (158.9)
Rentals receivable                                 15.1               11.6
Deferred lease income                             (24.0)             (25.0)
Deferred initial direct costs                       1.7                1.3
Allowance for uncollectible rents                  (1.0)               -
                                           -----------------------------------
                                           $      922.2       $      689.5
                                           ===================================
</TABLE>
At December 31, 1997,  future minimum rentals scheduled to be received under the
noncancelable portion of operating leases are as follows:  1998, $150.1 million;
1999,  $113.8 million;  2000, $79.6 million;  2001,  $63.0 million;  2002, $52.7
million; 2003 and thereafter, $383.4 million.

At December  31,  1997,  equipment  under  operating  leases of $7.1 million are
assigned as collateral  to senior  long-term  debt.  Equipment  under  operating
leases of $195.2  million at December 31, 1997,  relate to  commercial  aircraft
leased by the Company under capital lease obligations.

Under an operating  lease  agreement,  the Company  leased two MD-82 aircraft to
McDonnell  Douglas.  At December 31, 1996, the carrying amount of these aircraft
was $26.5 million. These aircraft were sold to an unrelated party in 1997.

During 1996, the Company entered into an operating lease  agreement,  to lease a
DC-10-30 aircraft to McDonnell Douglas.  The lease requires monthly rent payment
of $0.4 million through 2004. At December 31, 1997 and 1996, the carrying amount
of this aircraft was $26.9 million and $28.9 million, respectively.

Under a separate  operating  lease  agreement,  the Company  leased an executive
aircraft to McDonnell Douglas. At December 31, 1996, the carrying amount of this
aircraft  was  $15.6  million.  The  executive  aircraft  was sold to  Boeing in
November 1997 (See Note 9).

Note 6 -- Income Taxes

The  components  of the  provision  (benefit)  for taxes on income for the years
ended December 31 were as follows:
<TABLE>
<CAPTION>

(Dollars in millions)         1997               1996                1995
Current:
<S>                      <C>               <C>                 <C>
    Federal              $    (21.3)       $      (12.8)       $       18.5
    State                       4.9                 4.1                 3.2
                        --------------------------------------------------------
                             (16.4)               (8.7)               21.7
Deferred:
    Federal                    48.1                34.8                (0.7)
                        --------------------------------------------------------
                         $     31.7        $       26.1        $       21.0
                        ========================================================
</TABLE>

Temporary  differences  represent the cumulative  taxable or deductible  amounts
recorded in the financial  statements in different  years than recognized in the
tax returns.  The components of the net deferred income tax liability  consisted
of the following at December 31:
<TABLE>
<CAPTION>

(Dollars in millions)                  1997               1996
Deferred tax assets:
<S>                              <C>                <C>
    Allowance for losses         $         19.6     $         17.0
    Other                                   5.7                6.0
                                 -------------------------------------
                                           25.3               23.0
                                 -------------------------------------

Deferred tax liabilities:
    Leased assets                        (410.9)            (358.5)
    Other                                  (2.7)              (4.7)
                                 -------------------------------------
                                         (413.6)            (363.2)
                                 -------------------------------------
Net deferred tax liability       $       (388.3)    $       (340.2)
                                 =====================================
</TABLE>
Income  taxes  computed  at the United  States  federal  income tax rate and the
provision  (benefit)  for taxes on income  differ as follows for the years ended
December 31:
<TABLE>
<CAPTION>

(Dollars in millions)                                   1997              1996              1995
<S>                                               <C>               <C>                <C>
Tax computed at federal statutory rate            $        30.7     $         26.2     $        21.1
State income taxes, net of federal tax benefit              3.2                2.6               2.1
Foreign sales corporation benefit                          (1.2)              (1.5)             (2.1)
Effect of investment tax credits                           (0.9)              (0.7)             (0.9)
Other                                                      (0.1)              (0.5)              0.8
                                                  -----------------------------------------------------
                                                  $        31.7     $         26.1     $        21.0
                                                  =====================================================
</TABLE>
The Company is  currently  under  examination  by the Internal  Revenue  Service
("IRS") for the tax years 1986 through 1995. The outcome of the IRS audit is not
expected  to have a material  effect on the  Company's  financial  condition  or
results of operations.

The Company received income tax payments from Boeing/McDonnell  Douglas of $30.7
million, $15.4 million and $2.1 million in 1997, 1996 and 1995, respectively.

Note 7 -- Indebtedness

Short-term notes payable consisted of the following at December 31:
<TABLE>
<CAPTION>
                                                              December 31,
                                     ---------------------------------------------------------------
                                                                       Weighted Average Interest
(Dollars in millions)                   Balance at End of Year            Rate at End of Year
                                     ---------------------------------------------------------------
                                          1997            1996           1997           1996
<S>                                  <C>             <C>                  <C>            <C>
Commercial paper                     $       80.0    $       96.0         7.00    %      6.43    %
Uncommitted credit facilities                18.0            45.0         5.93           6.02
BCSC                                         51.0            20.3         5.96           5.75
                                     ------------------------------
                                     $      149.0    $      161.3
                                     ==============================
</TABLE>
During 1996, BCSC and the Company amended their joint revolving credit agreement
to provide,  among other things, for increased  borrowing capacity and to extend
the maturity date to August 2001. Under the amended  agreement,  the Company may
borrow a maximum of $240.0 million,  reduced by BCSC borrowings  under this same
agreement,  which are limited to $16.0 million. The interest rate, at the option
of BCSC or the  Company,  is either a fixed rate,  generally  based on a defined
prime rate, or floating rate related to LIBOR. There were no amounts outstanding
under this  agreement  at December  31, 1997 and 1996.  At December 31, 1997 and
1996,  borrowings  under  commercial  paper  totaling  $80.0  million  and $96.0
million, respectively,  were supported by available unused commitments under the
revolving credit agreement.

The Company has available approximately $95.0 million in uncommitted, short-term
bank credit  facilities  whereby the Company may borrow, at interest rates which
are negotiated at the time of the borrowings, upon such terms as the Company and
the banks may mutually  agree. At December 31, 1997 and 1996,  borrowings  under
these credit facilities totaled $18.0 million and $45.0 million, respectively.

On October  10,  1997,  the  Company  filed  with the  Securities  and  Exchange
Commission  ("Commission") a Form S-3 Registration  Statement for a public shelf
registration of $1.2 billion of its debt securities (SEC File No. 333-37635). On
October 31, 1997,  the  Commission  declared such  Registration  Statement to be
effective. The Company has authorized the sale and issuance from time to time at
the Company's  discretion  of up to $400 million of such debt  securities in the
form of the Company's  Series X medium-term  notes. As of December 31, 1997, the
Company  has issued and sold $165.0  million in  aggregate  principal  amount of
medium-term notes.

Senior long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>


(Dollars in millions)                                                      1997                  1996
<S>                                                                 <C>                   <C>
7.0% Notes due through 1998, net of discount based on imputed
    interest rate of 10.88%                                         $             0.2     $             1.0
Variable rate note due 1998                                                      15.0                  15.0
3.9% Notes due through 1999, net of discount based on imputed
    interest rates of 9.15% - 10.6%                                               2.9                   4.7
5.75% - 6.875% notes due through 2000, net of discount based on
    imputed interest rates of 9.75% - 11.4%                                       5.0                   6.7
6.9% - 9.43% notes due through 2001                                              44.2                  54.1
6.0% - 8.375% Retail medium-term notes due through 2011                          76.6                  76.5
5.9% - 13.55% Medium-term notes due through 2017                                990.5                 960.2
Capital lease obligations due through 2008                                      444.6                 475.9
                                                                    ------------------------------------------
                                                                    $         1,579.0     $         1,594.1
                                                                    ==========================================
</TABLE>
At December 31, 1997 and 1996,  subordinated  long-term  debt consisted of $69.9
million and $94.8 million,  respectively,  in medium-term notes due through 2004
with interest rates ranging from 5.48% to 8.31%.

The derivative  financial  instruments held by the Company at December 31, 1997,
consisted of  specifically  tailored  interest rate swaps.  The Company does not
trade in derivatives for speculative purposes.

The Company uses interest  rate swap  agreements  to manage  interest  costs and
risks  associated with changing  interest rates.  The differential to be paid or
received  is accrued as  interest  rates  change and is  recognized  in interest
expense over the life of the agreements.  The Company  believes it has no market
rate  risk,  as  the  interest  rate  swaps  are  matched  with  specific  debt.
Counterparties   to  the  interest  rate  swap  contracts  are  major  financial
institutions  and  credit  loss  from   counterparty   non-performance   is  not
anticipated. At December 31, 1997, the Company had interest rate swap agreements
outstanding as follows:
<TABLE>
<CAPTION>

(Dollars in millions)      Contract Maturity    Notional Principal        Receive Rate        Pay Rate
<S>                            <C>    <C>         <C>                    <C>     <C>         <C>
Capital lease obligations      2006 - 2008        $    376.1              Floating(1)        6.65% - 7.599%
Medium-term notes              2000 - 2001              50.0             6.83% - 8.61%         Floating(1)
</TABLE>
-------------
       (1) Floating rates are based on LIBOR.

As  of  December  31,  1997,   $44.4  million  of  senior   long-term  debt  was
collateralized  by  equipment.  This  debt is  comprised  of the 7.0%  Notes due
through 1998 and the 6.9% - 9.43% Notes due through 2001.

Payments  required on long-term  debt and capital lease  obligations  during the
years ending December 31 are as follows:
<TABLE>
<CAPTION>


                             Long-Term              Capital
(Dollars in millions)          Debt                 Leases
<C>                     <C>                   <C>
1998                    $        218.3        $         72.6
1999                             209.8                  70.8
2000                             130.9                  87.8
2001                             182.4                  67.5
2002                             111.1                  58.1
2003 and thereafter              356.5                 289.1
                        ------------------------------------------
                               1,209.0                 645.9
Deferred debt expenses            (4.7)                 (0.4)
Imputed interest                   -                  (200.9)
                        ------------------------------------------
                        $      1,204.3        $        444.6
                        ==========================================
</TABLE>

The  provisions  of various  credit and debt  agreements  require the Company to
maintain a minimum net worth,  restrict  indebtedness,  and limit cash dividends
and other distributions.  Under the most restrictive provision, $77.4 million of
the Company's income retained for growth was available for dividends at December
31, 1997.

Interest  payments  totaled $124.4  million in 1997,  $113.9 million in 1996 and
$99.2 million in 1995.

Note 8 -- Commitments and Contingencies

On November 1, 1996, The Allen Austin Harris Group, Inc.  ("Plaintiff")  filed a
complaint in the Superior Court of the State of  California,  County of Alameda,
against the Company,  McDonnell  Douglas,  McDonnell  Douglas Aerospace - Middle
East Limited and the Selah Group, Inc. (the "Defendants").  The Plaintiff, which
had hoped to establish a manufacturing plant abroad with various assistance from
the  Defendants,  seeks more than $57.0  million in alleged  damages  (primarily
consisting of lost profits) based on various  theories.  The Company believes it
has meritorious  defenses to all of the allegations,  but is unable to determine
at this stage of  discovery  if the  litigation  will have any  future  material
adverse effect on its earnings, cash flow or financial position.

The  Company is a party to  litigation  in the  United  States  District  Court,
Southern District of Florida,  entitled  McDonnell  Douglas Finance  Corporation
adv. Aviaco International Leasing, Inc., Aviaco Traders International,  Inc. and
Craig  L.  Dobbin  with  Related  Counter-Claims  (collectively  referred  to as
"Aviaco").  The  foregoing  litigation  arose  out of an action  brought  by the
Company  in July 1991  seeking  remedies  on account  of  defaults  by the other
parties to the  litigation  under loan and related  documents  involving a $17.9
million loan made by the Company.  In January 1994, in response to the Company's
foreclosure  of two aircraft and a related  aircraft lease  agreement  which had
been collateral for the loan, Aviaco filed a counter-claim  against the Company,
asserting nine claims for alleged  damages based on various tort and contractual
theories relating to the Company's foreclosure.

The case  proceeded to jury trial on three of the nine claims which survived the
Company's  Motion for Summary  Judgment.  The case was  submitted to the jury on
October 16, 1997.  On October 17, 1997,  the jury returned a verdict in favor of
Aviaco awarding  aggregate  damages of  approximately  $12.2 million,  including
damages of  approximately  $10.0 million for the failure to exercise  reasonable
care with regard to the related lease agreement.

In December of 1997, the Company filed a Motion for Judgment as a Matter of Law,
arguing, inter alia, to set aside the $10.0 million award as not being supported
by the record  evidence or by  applicable  law. On February 13, 1998,  the Judge
ruled in favor of the Company and set aside the $10.0 million award.

On March 2, 1998, the Judge entered a Final Judgment  against the Company in the
aggregate amount,  including  prejudgment interest of approximately $2.8 million
with post judgment  interest thereon at the rate of 5.42% per annum. Both Aviaco
and the Company have appealed from the Final Judgment to the United States Court
of Appeals for the Eleventh  Circuit.  Taking into account amounts  reserved for
this litigation,  the Company does not expect such litigation to have any future
material adverse effect on its earnings, cash flow or financial position.

A number of legal  proceedings  and  claims are  pending  or have been  asserted
against the Company.  A substantial  number of such legal proceedings and claims
are  covered  by third  parties,  including  insurance  companies.  The  Company
believes that the final outcome of such  proceedings  and claims will not have a
material adverse effect on its earnings, cash flow, or financial position.

Trans World Airlines,  Inc. ("TWA")  accounted for $196.6 million (7.3% of total
Company  portfolio)  and $249.5  million  (9.5% of total  Company  portfolio) at
December  31, 1997 and 1996,  respectively.  TWA  continues  to operate  under a
reorganization  plan,  confirmed by the United States  Bankruptcy Court in 1995,
that  restructured its indebtedness and leasehold  obligations to its creditors.
In  addition,  TWA  continues  to face  financial  and  operational  challenges.
McDonnell Douglas provides  guaranties to the Company for certain obligations of
TWA under the various lease agreements  between the Company and TWA. At December
31,  1997,  the  maximum  aggregate  coverage  under such  guaranties  was $36.4
million.  TWA has reported  cash  balances of $237.8  million as of December 31,
1997,  compared to $181.6  million at December 31, 1996.  As of the date hereof,
TWA is current on its  obligations  to the  Company.  If,  however,  TWA were to
default on its  obligations to the Company,  this could have a material  adverse
effect on the Company's earnings, cash flow or financial position.

P.T. Garuda  Indonesia  ("Garuda"),  accounted for $171.8 million (6.4% of total
Company  portfolio)  and $279.4  million  (10.6% of total Company  portfolio) at
December 31, 1997 and 1996, respectively. Garuda has proposed a restructuring of
the Company's two MD-11 leases.  A possible  restructuring,  providing for lease
extensions  and  payment   deferrals,   is  being  considered  by  the  Company.
Uncertainty for Asia-Pacific  airlines increased during the latter half of 1997,
as currency  devaluations  and continuing  turmoil in Asia's  financial  markets
dimmed the region's near-term prospects for growth.

The $100.0 million used aircraft  purchase bridge facility made available by the
Company to AirTran Airlines  ("AirTran"),  formerly ValuJet  Airlines,  Inc., in
1995, was reduced in maximum scope to $50.0 million by mutual  agreement  during
the third quarter of 1996. This facility expires upon delivery to AirTran of the
first scheduled new Boeing 717-200 (formerly MD-95) aircraft, presently expected
to occur in 1999. Borrowings under this agreement must be repaid within 180 days
and the interest rate is based on the London Interbank  Offering Rate ("LIBOR").
There were no amounts  outstanding under this agreement at December 31, 1997 or
1996.

At December 31, 1997 and 1996, the Company had  commitments  to provide  leasing
and other financing totaling $102.2 million and $76.6 million, respectively.

In conjunction with prior asset dispositions,  at December 31, 1997, the Company
is subject to a maximum recourse of $64.4 million.  Based on trends to date, the
Company's exposure to such loss is not expected to be significant.

The Company  leases  aircraft  under capital leases which have been subleased to
others.  At December 31, 1997,  the Company had guaranteed the repayment of $5.9
million in capital lease obligations associated with a 50% partner.

The  Company's  principal  office  is leased  from  McDonnell  Douglas  under an
operating lease agreement,  expiring in 1999. Rent expense for all office leases
under  operating  lease  agreements in 1997, 1996 and 1995 totaled $0.8 million,
$0.4 million and $0.9 million,  respectively.  At December 31, 1997, the minimum
future rental  commitments  under these  noncancelable  leases  payable over the
remaining lives of the leases aggregate $0.9 million.

Note 9 -- Transactions with Boeing, McDonnell Douglas and BCSC

Accounts with Boeing,  McDonnell  Douglas and BCSC consisted of the following at
December 31:
<TABLE>
<CAPTION>
(Dollars in millions)                                1997                   1996
<S>                                          <C>                    <C>
Note receivable                              $             -        $             1.7
Federal income tax receivable (payable)                  (11.6)                   6.7
State income tax payable                                  (4.1)                  (3.5)
Other payables                                           (21.5)                  (4.9)
                                             --------------------------------------------
                                             $           (37.2)     $             -
                                             ============================================
</TABLE>

The  Company  had  arrangements  with  McDonnell  Douglas,   terminable  at  the
discretion  of either of the  parties,  pursuant to which the Company may borrow
from McDonnell Douglas and McDonnell Douglas may borrow from the Company,  funds
for  periods  up  to  30  days  at  a  market  rate  of  interest.  Under  these
arrangements,  there were no outstanding balances at December 31, 1997 and 1996.
Such  arrangements  have been  terminated  as a result  of the  Boeing-McDonnell
Douglas merger.

Under a similar arrangement,  the Company may borrow from BCSC, and BCSC and its
subsidiaries may borrow from the Company, funds for periods up to 30 days at the
Company's  cost of funds for  short-term  borrowings.  Under  this  arrangement,
borrowings of $51.0 million and $20.3 million were  outstanding  at December 31,
1997 and 1996, respectively.

At December  31,  1996,  the Company had a note  receivable  from Boeing  Realty
Corporation,  a wholly owned subsidiary of McDonnell  Douglas,  of $1.7 million.
The note was paid in full in November 1997.

In December 1997, the Company acquired from Boeing all of the outstanding shares
of a corporation  which had been formed for the exclusive  purpose of owning and
leasing two used Boeing 737-400  aircraft for a purchase price of $51.2 million.
The aircraft continue to be owned by the corporation and are presently leased to
Jet Airways (India) Pvt. Ltd. under leases expiring in 1999.

During 1997,  1996 and 1995, the Company  purchased  aircraft  subject to leases
from Boeing and McDonnell Douglas in the amount of $51.9 million, $501.9 million
and $276.8  million,  respectively.  During  1997,  1996 and 1995,  the  Company
recorded  operating  income  from  Boeing  and  McDonnell  Douglas  relating  to
financings   aggregating  $12.1  million,   $14.9  million  and  $16.2  million,
respectively.

In November  1997,  the Company  sold,  at  estimated  fair value,  an executive
aircraft formerly leased to McDonnell  Douglas to Boeing for $16.8 million.  The
Company recorded a pretax gain of $1.8 million, which is included in net gain on
disposal or re-lease of assets.

At December 31, 1997 and 1996, $334.9 million and $470.2 million,  respectively,
was guaranteed by McDonnell  Douglas for  commercial  aircraft  financing.  Fees
related to these  guaranties  that were paid to McDonnell  Douglas  totaled $1.1
million,  $1.6  million and $1.9 million in 1997,  1996 and 1995,  respectively.
During 1997, 1996 and 1995, the Company collected $6.9 million, $2.1 million and
$0.5 million, respectively, under these guaranties.

The Company's Series A Preferred Stock, owned entirely by BCSC, is redeemable at
the  Company's  option at $5,000  per  share,  has no voting  privileges  and is
entitled to cumulative  semi-annual  dividends of $175 per share. Such dividends
have  priority  over cash  dividends  on the  Company's  common  stock.  Accrued
dividends on preferred  stock  amounted to $0.6 million at December 31, 1997 and
1996.

Substantially  all  employees  of  McDonnell  Douglas and its  subsidiaries  are
members of defined benefit pension plans and insurance plans.  McDonnell Douglas
also provides eligible employees the opportunity to participate in savings plans
that permit both pretax and after-tax contributions. McDonnell Douglas generally
charges the Company  with the actual  cost of these  plans  attributable  to the
Company's  employees which are included with other McDonnell Douglas charges for
support services and reflected in operating expenses.  McDonnell Douglas charges
for services  provided  during 1997,  1996 and 1995 totaled $1.3  million,  $1.3
million  and  $1.1  million,   respectively.   Additionally,   the  Company  was
compensated by certain  affiliates for a number of support  services,  which are
netted against operating expenses,  amounting to $1.1 million,  $0.9 million and
$1.2 million in 1997, 1996 and 1995, respectively.

Note 10 -- Fair Value of Financial Instruments

The estimated  fair value amounts of the Company's  financial  instruments  have
been  determined  by the  Company,  using  appropriate  market  information  and
valuation  methodologies.  The following  methods and  assumptions  were used to
estimate the fair value of each class of financial instruments:

CASH AND CASH EQUIVALENTS  The carrying amount reported in the balance sheet for
cash and cash equivalents approximates its fair value.

NOTES RECEIVABLE Fair values for variable rate notes that reprice frequently and
with no significant change in credit risk are based on carrying values. The fair
values of fixed rate notes are estimated in discounted cash flow analyses,  with
the use of  interest  rates  currently  offered on loans with  similar  terms to
borrowers of similar credit quality.

SHORT AND LONG-TERM DEBT Carrying  amounts of borrowings  include  deferred debt
costs.  Carrying  amounts of borrowings  under the short-term  revolving  credit
agreements  approximate  their fair value.  The fair values of  long-term  debt,
excluding  capital  lease  obligations,   are  estimated   according  to  public
quotations  or  discounted  cash  flow  analyses,  which  are  based on  current
incremental borrowing rates for similar types of borrowing arrangements.

INTEREST RATE HEDGES  The fair values of the  Company's  interest rate swaps are
based on quoted market prices of comparable instruments.

FINANCING COMMITMENTS   Risks  associated  with  changes in  interest  rates are
minimized  during the  commitment  term because the rates are set at the date of
funding based on current  market  conditions,  the fair value of the  underlying
collateral  and the credit  worthiness of the customers.  As a result,  the fair
value of these financings is expected to equal the amounts funded.

The  notional  amounts,  carrying  amounts  and  estimated  fair  values  of the
Company's financial instruments at December 31 were as follows:

<TABLE>
<CAPTION>

                                                           1997                                1996
                                           -------------------------------------------------------------------------
                                                         Assets (Liabilities)                Assets (Liabilities)
                                                       -------------------------           -------------------------
                                             Notional    Carrying      Fair      Notional    Carrying      Fair
(Dollars in millions)                         Amount      Amount      Value       Amount      Amount      Value
ASSETS
<S>                                          <C>         <C>         <C>         <C>         <C>         <C>
    Cash and cash equivalents                $    -      $   39.1    $   39.1    $    -      $   16.9    $   16.9
    Notes receivable                              -         269.0       298.8         -         308.9       317.0

LIABILITIES
    Short-term notes payable to banks             -        (149.0)     (149.0)        -        (161.3)     (161.3)
    Long-term debt:
       Senior, excluding capital lease
         obligations                              -      (1,139.0)   (1,191.0)        -      (1,123.1)   (1,154.3)
       Subordinated                               -         (70.0)      (74.8)        -         (95.0)      (99.2)

OFF BALANCE SHEET INSTRUMENTS
    Commitments to extend credit               (102.2)        -        (102.2)      (76.6)        -         (76.6)
    Interest rate swaps                         426.1         -          (4.7)      469.9         -           3.1
</TABLE>

Note 11 -- Segment Information and Concentration of Credit Risk

A substantial  portion of the Company's total portfolio is concentrated  among a
small number of the Company's largest commercial  aircraft financing  customers.
The single largest  commercial  aircraft financing customer accounted for $309.7
million  (11.5% of total Company  portfolio)  and $316.1 million (12.0% of total
Company  portfolio)  at  December  31, 1997 and 1996,  respectively.  The second
largest  commercial  aircraft  financing  customer  accounted for $196.6 million
(7.3% of total Company  portfolio) and $249.5 million (9.5% of total portfolio),
at  December  31,  1997 and  1996,  respectively.  The five  largest  commercial
aircraft  financing  customers  accounted  for  $994.4  million  (36.8% of total
Company  portfolio) and $1,172.4  million (44.6% of total Company  portfolio) at
December 31, 1997 and 1996,  respectively.  At December 31, 1997 and 1996, there
were no significant  concentrations by customer within the commercial  equipment
leasing portfolio.

In 1997,  1996 and 1995, a single  aircraft  financing  customer  accounted  for
16.8%,  18.0% and 21.6%,  respectively,  of the Company's  operating  income. No
other customer accounted for more than 10% of the Company's operating income.

The Company  generally  holds title to all leased  equipment and generally has a
perfected  security  interest  in the  assets  financed  through  note  and loan
arrangements.

Information about the Company's  operations in its different financial reporting
segments for the past three years ending December 31 is as follows:
<TABLE>
<CAPTION>
(Dollars in millions)                                            1997               1996              1995
Operating income:
<S>                                                         <C>               <C>                <C>
    Commercial aircraft financing                           $       155.5     $         145.2    $        123.5
    Commercial equipment leasing                                     88.0                68.1              52.7
    Other                                                             2.6                 7.5              12.4
    Corporate                                                         0.3                 0.7               2.0
                                                            =====================================================
                                                            $       246.4     $         221.5    $        190.6
                                                            =====================================================

Income (loss) before provision for income taxes:
    Commercial aircraft financing                           $        58.7     $          55.2    $         36.2
    Commercial equipment leasing                                     37.7                25.4              27.2
    Other                                                            (0.2)                0.7               1.4
    Corporate                                                        (8.4)               (6.4)             (4.5)
                                                            =====================================================
                                                            $        87.8     $          74.9    $         60.3
                                                            =====================================================

Identifiable assets at December 31:
    Commercial aircraft financing                           $     1,728.8     $       1,831.6    $      1,443.6
    Commercial equipment leasing                                    973.3               767.0             507.3
    Other                                                            17.9                53.2              97.3
    Corporate                                                         2.8                 1.8               1.4
                                                            =====================================================
                                                            $     2,722.8     $       2,653.6    $      2,049.6
                                                            =====================================================

Portfolio at December 31:
    Commercial aircraft financing                           $     1,711.5     $       1,814.9    $      1,405.7
    Commercial equipment leasing                                    976.6               769.8             502.4
    Other                                                            12.2                44.9              80.6
                                                            =====================================================
                                                            $     2,700.3     $       2,629.6    $      1,988.7
                                                            =====================================================

Depreciation expense - equipment under operating leases:
    Commercial aircraft financing                           $        26.9     $          35.1    $         26.2
    Commercial equipment leasing                                     34.2                22.5              22.0
                                                            =====================================================
                                                            $        61.1     $          57.6    $         48.2
                                                            =====================================================

Equipment acquired for operating leases, at cost:
    Commercial aircraft financing                           $       146.5     $         196.9    $         85.2
    Commercial equipment leasing                                    199.7               107.0              70.5
                                                            =====================================================
                                                            $       346.2     $         303.9    $        155.7
                                                            =====================================================
</TABLE>
Operating  income from  financing of assets  located  outside the United  States
totaled $54.2 million,  $45.5 million and $45.7 million in 1997,  1996 and 1995,
respectively.


<PAGE>




Boeing Capital Corporation and Subsidiaries
Schedule II -- Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
(Dollars in millions)

  Allowance for
    Losses on           Balance at         Charged to
    Financing           Beginning          Costs and                                                 Balance at End
   Receivables           of Year            Expenses           Other           Deductions (1)            of Year
<S>    <C>           <C>                <C>                <C>                <C>                    <C>
       1997          $          48.6    $       11.5       $       (1.7)      $          (2.5)       $          55.9

       1996          $          42.3    $       14.2       $       (1.9)      $          (6.0)       $          48.6

       1995          $          40.7    $       12.2       $        -         $         (10.6)       $          42.3
</TABLE>

--------------------------
         (1)      Write-offs, net of recoveries



Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure

         None.

                                     Part IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

                                                                     Page Number
                                                                    in Form 10-K
(a)   1.    Financial Statements:
              Independent Auditors' Reports ..................................26
              Consolidated Balance Sheets at December 31, 1997 and 1996.......28
              Consolidated Statements of Income and Income Retained for
                 Growth for the Years Ended December 31, 1997,
                 1996 and 1995................................................29
              Consolidated Statements of Cash Flows for the Years Ended
                 December 31, 1997, 1996 and 1995.............................30
              Notes to Consolidated Financial Statements......................31

      2.    Financial Statement Schedules:

            Schedule II -- Valuation and Qualifying Accounts..................45

            Schedules  for  which   provision  is  made  in  the  applicable
            regulation  of  the  Securities  and  Exchange  Commission  (the
            "SEC"),  except Schedule II, which is included herein, have been
            omitted because they are not required, or the information is set
            forth in the financial statements or notes thereto.

      3.    Exhibits:

      3.1   Restated  Certificate of Incorporation of the Company dated June
            29, 1989, incorporated herein by reference to Exhibit 3.1 to the
            Company's Form 10-K for the year ended December 31, 1993.

      3.2   Amendment to Certificate of  Incorporation  of the Company dated
            August 11,  1997,  incorporated  herein by  reference to Exhibit
            3(i) to the Company's  Form 10-Q,  for the period ended June 30,
            1997.

      3.3   By-Laws of the Company, as amended to date,  incorporated herein
            by reference to Exhibit 3.2 to the  Company's  Form 10-K for the
            year ended December 31, 1993.

      4.1   Indenture,  dated as of April 1, 1983,  between  the Company and
            Bankers  Trust  Company,  incorporated  herein by  reference  to
            Exhibit 4(a) to the Company's  Form S-3  Registration  Statement
            (File No. 2-83007).

      4.2   First Supplemental Indenture, dated as of June 12, 1995, between
            the Company and Bankers Trust  Company,  incorporated  herein by
            reference to Exhibit 4(b) to the Company's Form S-3 Registration
            Statement (File No. 33-58989).

      4.3   Subordinated  Indenture,  dated  as of  June  15,  1988,  by and
            between the Company and  Bankers  Trust  Company of  California,
            N.A.,  as  Subordinated   Indenture  Trustee,   incorporated  by
            reference to Exhibit 4(b) to the Company's Form S-3 Registration
            Statement (File No.
            33-26674).

      4.4   First Supplemental Subordinated Indenture,  dated as of June 12,
            1995,  between  the  Company  and  Bankers  Trust  Company,   as
            successor Trustee to Bankers Trust Company of California,  N.A.,
            incorporated   herein  by  reference  to  Exhibit  4(d)  to  the
            Company's Form S-3 Registration Statement (File No. 33-58989).

      4.5   Indenture,  dated as of April 15, 1987,  incorporated  herein by
            reference to Exhibit 4 to the  Company's  Form S-3  Registration
            Statement (File No. 33-26674).

      4.6   Form of Series II Medium Term Note, incorporated by reference to
            Exhibit  4(c) to the Form 8-K of the Company  dated as of August
            22, 1983.

      4.7   Form of Series III  Medium  Term  Note,  incorporated  herein by
            reference to Exhibit 4(b) to the Company's Form S-3 Registration
            Statement (File No. 2-98001).

      4.8   Form of  Series V  Medium  Term  Note,  incorporated  herein  by
            reference to Exhibit 4(b) to the Company's Form S-3 Registration
            (File No. 33-13735).

      4.9   Form of Series VI Medium Term Note, incorporated by reference to
            Exhibit 4 to the Form S-3 Registration Statement of the Company,
            as filed with the SEC on April 24, 1987.

      4.10  Form of Series VII Medium Term Note,  incorporated  by reference
            to  Exhibit  4 to the Form  S-3  Registration  Statement  of the
            Company, as filed with the SEC on April 24, 1987.

      4.11  Form of Series VIII Senior Medium Term Note, incorporated herein
            by  reference  to  Exhibit  4(c)  to  the  Company's   Form  S-3
            Registration Statement (File No. 33-26674).

      4.12  Form of Series VIII Subordinated Medium Term Note,  incorporated
            herein by reference to Exhibit  4(d) to the  Company's  Form S-3
            Registration Statement (File No. 33-26674).

      4.13  Form of Series IX Senior Medium Term Note,  incorporated  herein
            by  reference  to  Exhibit  4(c)  to  the  Company's   Form  S-3
            Registration Statement (File No. 33-31419).

      4.14  Form of  Series  IX  Senior  Federal  Funds  Medium  Term  Note,
            incorporated   herein  by  reference  to  Exhibit  4(d)  of  the
            Company's Form 8-K dated May 16, 1995.

      4.15  Form of Series IX  Subordinated  Medium Term Note,  incorporated
            herein by reference to Exhibit  4(d) to the  Company's  Form S-3
            Registration (File No. 33-31419).

      4.16  Form of General Term Note(R),  incorporated  herein by reference
            to Exhibit 4(c) to the Company's Form 8-K dated May 26, 1993.

      4.17  Form  of  Series  X  Senior   Fixed  Rate   Medium   Term  Note,
            incorporated   herein  by  reference  to  Exhibit  4(e)  to  the
            Company's Form S-3 Registration Statement (File No. 33-58989).

      4.18  Form  of  Series  X  Senior  Floating  Rate  Medium  Term  Note,
            incorporated   herein  by  reference  to  Exhibit  4(h)  to  the
            Company's Form S-3 Registration Statement (File No. 33-58989.)

      4.19  Form of series X  Subordinated  Fixed  Rate  Medium  Term  Note,
            incorporated   herein  by  reference  to  Exhibit  4(f)  to  the
            Company's Form S-3 Registration Statement (File No.
            33-58989).

      4.20  Form of Series X  Subordinated  Floating  Rate Medium Term Note,
            incorporated   herein  by  reference  to  Exhibit  4(g)  to  the
            Company's Form S-3 Registration Statement (File No.
            33-5898

      4.21  Form  of  Series  X  Senior   Fixed   Rate   Medium-Term   Note,
            incorporated  by reference to Exhibit 4(e) to the Company's Form
            S-3 Registration Statement (File No. 333-37635).

      4.22  Form of  Series X  Subordinated  Fixed  Rate  Medium-Term  Note,
            incorporated  by reference to Exhibit 4(f) to the Company's Form
            S-3 Registration Statement (File No. 333-37635).

      4.23  Form  of  Series  X  Senior  Floating  Rate  Medium-Term   Note,
            incorporated  by reference to Exhibit 4(g) to the Company's Form
            S-3 Registration Statement (File No. 333-37635).

      4.24  Form of Series X Subordinated  Floating Rate  Medium-Term  Note,
            incorporated  by reference to Exhibit 4(h) to the Company's Form
            S-3 Registration Statement (File No. 333-37635).


Pursuant to Item 601  (b)(4)(iii)  of Regulation  S-K, the Company is not filing
certain  instruments with respect to its long-term debt because the total amount
of securities  currently  provided for under each of such  instruments  does not
exceed 10 percent of the total assets of the Company and its  subsidiaries  on a
consolidated  basis.  The  Company  hereby  agrees to furnish a copy of any such
instrument to the SEC upon request.

      10.1  Amended and Restated Operating Agreement,  dated as of April 12,
            1993,   among   McDonnell   Douglas,   the   Company  and  MDFS,
            incorporated   herein  by  reference  to  Exhibit  10.1  to  the
            Company's Form 10-K for the year ended December 31, 1993.

      10.2  Amended and Restated Operating Agreement,  dated as of August 1,
            1997,  incorporated  herein by  reference  to  Exhibit 10 to the
            Company's Form 10-Q for the quarter ended September 30, 1997.

      10.3  Operating  Agreement,  effective as of February 8, 1989,  by and
            between the Company and MDFS,  incorporated  herein by reference
            to Exhibit  10.3 to the  Company's  Form 10-K for the year ended
            December 31, 1989.

      10.4  By-Laws  of  McDonnell  Douglas,   as  amended  March  6,  1996,
            incorporated by reference from McDonnell  Douglas's  Exhibit 3.2
            to its Form 10-K  Report for the year ended  December  31,  1995
            (file No. 1-3685).

      10.5  Supplemental Guaranty Agreement,  dated as of December 30, 1993,
            by and between the Company and McDonnell  Douglas,  incorporated
            herein by reference to Exhibit 10.4 to the  Company's  Form 10-K
            for the year ended December 31, 1993.

      10.6  Amendment No. 1 to Supplemental Guaranty Agreement, dated as of
            March  28, 1996.

      10.7  Guaranty Amendment Agreement,  dated as of June 28, 1996, by and
            between the Company and McDonnell Douglas.

      10.8  Supplemental Guaranty Agreement,  dated as of December 30, 1993,
            by and between the Company and McDonnell  Douglas,  incorporated
            herein by reference to Exhibit 10.5 to the  Company's  Form 10-K
            for the year ended December 31, 1994.

      10.9  Amendment No. 1 to Supplemental Guaranty Agreement, dated as of
            March 28, 1996, between the Company and McDonnell Douglas.

      10.10 Agreement,  dated as of December  30,  1994,  by and between the
            Company and McDonnell Douglas  incorporated  herein by reference
            to Exhibit  10.6 to the  Company's  Form 10-K for the year ended
            December 31, 1994.

      10.11 Credit  Agreement,  dated as of September  29,  1994,  among the
            Company,  MDFS and the banks listed therein  incorporated herein
            by reference to Exhibit 10.7 to the Company's  Form 10-K for the
            year ended December 31, 1994.

      10.12 Amendment  No.  1,  dated  as of  August  31,  1995,  to  Credit
            Agreement,  dated as of September  29, 1994,  among the Company,
            MDFS  and the  banks  listed  therein,  incorporated  herein  by
            reference  to  Exhibit  10 to the  Company's  Form  10-Q for the
            quarterly period ended September 30, 1995.

      10.13 Amendment  No.  2,  dated  as of  August  16,  1996,  to  Credit
            Agreement,  dated as of September  29, 1994,  among the Company,
            MDFS and the banks listed therein,  incorporated by reference to
            Exhibit 10 to the Company's  Form 10-Q for the quarterly  period
            ended September 30, 1996.

      12    Statement regarding computation of ratio of earnings to fixed
            charges.

      23.1  Independent Auditors' Consent and Report on Financial Statement
            Schedule.

      23.2  Consent of Independent Auditors.

      27    Financial Data Schedule.

      (b)   Reports on Form 8-K

            None.


<PAGE>


                                   Signatures

Pursuant to the  requirements of Section 13 or 15(d) 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.

                                                   Boeing Capital Corporation

                                                   By  /s/ STEVEN W. VOGEDING

                                                  --------------------------
                                                     Steven W. Vogeding
    March 30, 1998                                   Vice President and
                                                   Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following  persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>

                Signature                                            Title                                    Date
<S>                                              <C>                                                  <C>
          /s/ DAVID A. JAEGER                                                                           March 30, 1998
------------------------------------------                                                            ----------------------

             David A. Jaeger                                 Chairman and Director

         /s/ THOMAS J. MOTHERWAY
------------------------------------------
           Thomas J. Motherway                              President and Director                       March 30, 1998
                                                                                                      ----------------------
      (Principal Executive Officer)

         /s/ STEVEN W. VOGEDING
------------------------------------------
           Steven W. Vogeding                     Vice President and Chief Financial Officer             March 30, 1998
                                                                                                      ----------------------
      (Principal Financial Officer)


------------------------------------------                                                            ----------------------
           Theodore J. Collins                                     Director

            /s/ BOYD E. GIVAN                                                                            March 30, 1998
------------------------------------------                                                            ----------------------
              Boyd E. Givan                                        Director

         /s/ MAURA R. MIZUGUCHI                                                                          March 30, 1998
------------------------------------------                                                            ----------------------
           Maura R. Mizuguchi                                     Controller
     (Principal Accounting Officer)

         /s/ DANIEL O. ANDERSON                                                                          March 30, 1998
------------------------------------------                                                            ----------------------
           Daniel O. Anderson                      Vice President - Operations and Director

</TABLE>