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

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

                                  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, 1999

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

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

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

     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 27, 2000,  there were 50,000  shares of the  Company's  common stock
outstanding.

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

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

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


<PAGE>


                                Table of Contents

                                                                         Page
Part I
   Item 1. Business.........................................................3
   Item 2. Properties......................................................18
   Item 3. Legal Proceedings...............................................19
   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.....................24
   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.......................................................50
           Exhibits.........................................................52


---------------------------------
*Omitted pursuant to General Instruction I(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  ("BCSC"),  a wholly owned  subsidiary of
McDonnell Douglas  Corporation  ("McDonnell  Douglas"),  which in turn 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
at December 31, 1999,  included two  financial  reporting  segments:  commercial
aircraft  financing and commercial  equipment leasing and financing.  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, 1999, the Company had 72 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.

On August 1, 1997, the  Boeing-McDonnell  Douglas merger was consummated and the
Company  became an  indirect  wholly  owned  subsidiary  of Boeing.  Boeing then
conducted a review of the  operations of the Company to  determine,  among other
things, the strategic value of the Company to Boeing.

On October 4, 1999,  Boeing  announced its decision to consolidate  its customer
financing under one group. Boeing's press release explained that "Boeing Capital
Corporation  will continue as a wholly owned  subsidiary of The Boeing  Company,
but will now integrate the existing  financial  services  activities  supporting
commercial aircraft, military aircraft and missiles, and space and communication
markets."

The Company and Boeing are presently  working to implement the  consolidation of
financing  activities and additional  strategic decisions are being made as part
of the implementation  process.  A significant  portion of Boeing's portfolio of
commercial aircraft financings having an approximate value of $3,000.0 million
is expected to be  transferred to the Company soon after the filing date hereof,
although the  definitive  transfer  documents  have not yet been  executed.  The
ultimate amount and terms of any such transfer are currently under consideration
and will be  discussed in a Report on Form 8-K expected to be filed early in the
second  quarter  of  2000.  Such  amount  transferred  is  expected  to be  very
significant in relation to the Company's existing portfolio.

In connection with the implementation of the consolidation of customer financing
activities,  the  headquarters  of  the  Company  has  been  moved  to  Seattle,
Washington, from Long Beach, California.

Additionally,  it  is  expected  that  the  Company's  existing  $240.0  million
revolving  credit  facility  will be  replaced  with an  arrangement  giving the
Company  access to $1,000.0  million of Boeing's  364-day  credit  facility soon
after the filing hereof. It is also expected that the Company will enter into an
operating agreement with Boeing, which will be similar to the existing operating
agreement  between the Company and McDonnell  Douglas.  See  "Relationship  With
Boeing and McDonnell Douglas."

As of December 31,  1999,  the Company  operated in  principally  two  segments:
commercial  aircraft  financing and commercial  equipment  leasing and financing
("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.  At December 31, 1999
and 1998, the portfolio  balances for non-core  businesses  totaled $0.6 million
and $1.4 million, respectively.

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

New Business Volume
                                                                             Years ended December 31,
                                     ----------------------------------------------------------------------------
(Dollars in millions)                    1999           1998           1997           1996             1995
<S>                                  <C>            <C>             <C>           <C>             <C>
Commercial aircraft financing        $       7.0    $      201.6    $     176.3   $      475.3    $      349.7
Commercial equipment leasing               664.9           491.0          414.8          392.0           241.1
                                     ----------------------------------------------------------------------------
                                     $     671.9    $      692.6    $     591.1   $      867.3    $      590.8
                                     ============================================================================

Portfolio Balances
                                                                    December 31,
                                     ----------------------------------------------------------------------------
(Dollars in millions)                    1999            1998           1997           1996            1995
Commercial aircraft financing        $ 1,410.8      $ 1,573.5       $ 1,711.5      $  1,814.9      $ 1,405.7
Commercial equipment leasing           1,497.6        1,225.0           976.6           769.8          502.4
                                     ----------------------------------------------------------------------------
                                     $ 2,908.4      $ 2,798.5       $ 2,688.1      $  2,584.7      $ 1,908.1
                                     ============================================================================
</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,  primarily  located at the
Company's  new  headquarters  in  Seattle,   provides  financing  for  customers
acquiring  aircraft.  A  majority  of  the  value  of  the  commercial  aircraft
portfolio,  as of December 31, 1999,  is derived from aircraft  manufactured  by
McDonnell Douglas.  The Company's strategy is to (1) generate and participate in
finance transactions in which the Company's structuring and analysis can provide
high returns on its invested  equity,  and (2) to assist in arranging  financing
for Boeing's  customers and to  participate  in such  financing if the Company's
pricing/credit requirements are met.

In 1999, the commercial  aircraft financing group had negligible business volume
largely due to the fact that the  Company  was  awaiting  the  decision  made by
Boeing in the fourth quarter of 1999 that the Company would have  responsibility
for Boeing's customer financing  efforts.  Now that such decision has been made,
the  Company is  expected  to  experience  a very  significant  increase  in new
commercial aircraft financing volume compared with prior years.

It is  expected  that a  significant  portion of  Boeing's  existing  commercial
aircraft  financing  portfolio will be transferred to the Company soon after the
filing hereof (although the definitive documents have not been signed). Further,
it is expected that a significant  portion of Boeing's existing $4,500.0 million
of commercial aircraft financing commitments will be transferred to the Company,
on a transaction by transaction  basis,  subject to approval of each transaction
by the  Company's  investment  committee  (which may condition its approval upon
credit enhancements or other conditions it deems necessary to meet the Company's
pricing and credit requirements).


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

Commercial Aircraft Portfolio by Aircraft Type
                                                                               December 31,
                                                 -------------------------------------------------------------------------
(Dollars in millions)                                1999          1998           1997           1996           1995
Boeing/McDonnell Douglas aircraft
   financing:
<S>                                              <C>           <C>            <C>            <C>            <C>
    Finance leases                               $     744.7   $     803.3    $      964.9   $   1,132.6    $     857.4
    Operating leases                                   470.0         513.3           495.2         402.0          256.8
    Notes receivable                                    51.8          82.9            61.9          82.9          110.9
                                                 -------------------------------------------------------------------------
                                                     1,266.5       1,399.5         1,522.0       1,617.5        1,225.1
                                                 -------------------------------------------------------------------------

Other commercial aircraft financing:
   Finance leases                                      119.8         131.6           133.3         136.9          126.1
   Operating leases                                     21.3          30.4            51.9          56.0           49.6
   Notes receivable                                      3.2          12.0             4.3           4.5            4.9
                                                 -------------------------------------------------------------------------
                                                       144.3         174.0           189.5         197.4          180.6
                                                 -------------------------------------------------------------------------
                                                 $   1,410.8   $   1,573.5    $    1,711.5   $   1,814.9    $   1,405.7
                                                 =========================================================================
</TABLE>

<TABLE>
<CAPTION>

Commercial Aircraft Portfolio by Product Type
                                                                               December 31,
                                                 -------------------------------------------------------------------------
(Dollars in millions)                               1999           1998           1997           1996           1995
Aircraft leases:
    Finance leases
<S>                                              <C>           <C>            <C>            <C>             <C>
      Domestic                                   $     723.2   $     786.9    $      863.1   $     950.0     $     776.2
      Foreign                                          141.3         148.0           235.1         319.5           207.3
    Operating leases
      Domestic                                         297.8         357.9           319.2         357.2           183.5
      Foreign                                          193.5         185.8           227.9         100.8           122.9
                                                 -------------------------------------------------------------------------
                                                     1,355.8       1,478.6         1,645.3       1,727.5         1,289.9
                                                 -------------------------------------------------------------------------
Aircraft related notes receivable:
    Domestic obligors                                   31.4          33.5             2.2          22.6            31.2
    Foreign obligors                                    23.6          61.4            64.0          64.8            84.6
                                                 -------------------------------------------------------------------------
                                                        55.0          94.9            66.2          87.4           115.8
                                                 -------------------------------------------------------------------------
                                                 $   1,410.8   $   1,573.5    $    1,711.5   $   1,814.9     $   1,405.7
                                                 =========================================================================
</TABLE>

At December 31, 1999, the Company's  commercial aircraft portfolio was comprised
of finance leases to 25 customers (21 domestic and four foreign) with a carrying
amount of $864.5 million (29.7% of total Company  portfolio),  notes  receivable
from four  customers  (two domestic and two foreign)  with a carrying  amount of
$55.0  million  (1.9% of total Company  portfolio)  and  operating  leases to 15
customers (nine domestic and six foreign) with a carrying  amount of $491.3
million (16.9% of total Company portfolio).

At December  31,  1999,  43.6% of the  Company's  total  portfolio  consisted of
financings related to Boeing/McDonnell Douglas aircraft, compared with 50.0% and
56.6% in 1998 and 1997, respectively.

o  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 $840.9 million
   (28.9%  of total  Company  portfolio)  and  $895.4  million  (32.0% of total
   Company portfolio) at December 31, 1999 and 1998, respectively.

   The Company's  largest  customer,  Federal  Express  Corporation  ("FedEx"),
   accounted for $295.8 million  (10.2% of total Company  portfolio) and $303.0
   million  (10.8% of total  Company  portfolio) at December 31, 1999 and 1998,
   respectively.

   The Company's  second  largest  customer,  World  Airways,  Inc.  ("World"),
   accounted for $170.2  million (5.9% of total Company  portfolio)  and $176.4
   million  (6.3% of total  Company  portfolio)  at December 31, 1999 and 1998,
   respectively.  Based on publicly available reports, World experienced losses
   in 1999 of $7.6  million  and its year end cash  balances  fell 31.0%  below
   prior year levels to $11.7 million.

   Trans World Airlines,  Inc.  ("TWA"),  the Company's third largest  customer,
   accounted for $147.3  million (5.1% of total  Company  portfolio)  and $163.3
   million  (5.8% of total  Company  portfolio)  at December  31, 1999 and 1998,
   respectively.  In 1999,  1998 and 1997,  TWA accounted  for 10.5%,  13.6% and
   16.8%,  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 U.S.  Bankruptcy
   Court in 1995, which restructured its indebtedness and leasehold  obligations
   to its creditors.  In addition,  TWA continues to face significant  financial
   and operational challenges. In 1999, based on publicly available reports, TWA
   incurred a net loss of $353.4  million  and its  liquidity  worsened  as cash
   balances fell 29.0% below prior year levels to $180.4 million. In April 1999,
   Moody's  rating  agency  lowered  TWA's  Outlook  from  Stable  to  Negative.
   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, 1999, the maximum  aggregate  coverage under such guaranties was
   $41.7 million.  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.

   In July 1998, the Company  terminated  early a lease agreement  covering one
   used DC-10-30  aircraft.  The Company has repossessed  such aircraft and has
   been remarketing it in a currently weak market for this type of aircraft. On
   February 8, 2000, the Company entered into a modification agreement pursuant
   to which  Boeing will  convert the  aircraft  from  passenger  to  freighter
   configuration for purposes of increased marketability. Taking into account a
   guaranty from McDonnell Douglas,  this transaction is not expected to have a
   material  adverse effect on the Company's  earnings,  cash flow or financial
   position.

   The Company had leased six Embraer EMB-120 aircraft to Westair.  As a result
   of  Westair's  cessation  of  operations  at the end of May 1998,  the lease
   agreements for such aircraft were  terminated and the aircraft were returned
   to the Company.  The Company has been remarketing these aircraft (along with
   other used EMB-120s  it holds for  sale or lease).  During the second
   quarter of 1999,  the Company  adjusted the carrying value of the ex-Westair
   aircraft to  approximate  their fair value,  resulting  in a pre-tax loss of
   approximately  $3.4  million,  which is  included  in Other  Expenses in the
   Consolidated  Statements  of Income  and Income  Retained  for  Growth.  The
   Company does not expect the disposition of these aircraft to have a material
   adverse effect on the Company's earnings, cash flow or financial position.

o  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  worldwide  market for
   commercial  jet  aircraft is  predominantly  driven by  long-term  trends in
   airline  passenger  traffic.  The principal  factors  underlying  long-term,
   traffic growth are sustained economic growth, both in developed and emerging
   countries,  and  political  stability.  The  Company  continues  to look for
   opportunities to expand its commercial  aircraft portfolio while continually
   managing its portfolio with respect to  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  recorded,  but this
   is subject to many  uncertainties  including  those  referred to in "Factors
   Affecting  Commercial 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.

   Boeing has announced that it will not produce MD-80 and MD-90 aircraft after
   early 2000.  Boeing has also stated that it plans to phase out production of
   the MD-11  aircraft  with  final  deliveries  now  scheduled  for 2001.  The
   Company's  commercial aircraft portfolio as of December 31, 1999 included 28
   MD-80s,  three MD-90s and five MD-11s,  representing  an aggregate of $897.6
   million in net asset value (30.9% of total Company portfolio). The Company's
   commercial  aircraft  portfolio as of December 31, 1998  included 32 MD-80s,
   three MD-90s and five MD-11s, representing an aggregate of $963.8 million in
   net asset value (34.4% of total Company 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.

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

o  Commercial 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, 1999, the Company owned or  participated  in the ownership of 122 leased
   commercial  aircraft,  a majority of which were  manufactured  by  McDonnell
   Douglas.

o  Factors Affecting Commercial 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
   was not  available to the Company  since Boeing  historically  conducted  new
   commercial  aircraft  financing  through its  Treasury  Group.  In the fourth
   quarter  of  1999,   Boeing   decided  that  the  Company  would  assist  and
   participate,  as  appropriate,  in Boeing's  customer  financing.  In view of
   Boeing's  decision to consolidate  its customer  financing  activities in the
   Company,  the Company is expected to receive a large  volume of new  business
   opportunities, although such decision could always be altered in the future.

   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)                           1999            1998           1997           1996            1995
Boeing/McDonnell Douglas aircraft
    financing volume:
<S>                                          <C>            <C>            <C>            <C>             <C>
      Finance leases                         $      -       $     78.3     $       7.1    $      234.1    $     220.6
      Operating leases                              -             75.3           146.5           196.9           81.9
      Notes receivable                              7.0           25.5            18.2            24.2           36.2
                                             ---------------------------------------------------------------------------
                                                    7.0          179.1           171.8           455.2          338.7
                                             ---------------------------------------------------------------------------
Other commercial aircraft
    financing volume:
      Finance leases                                -             22.5             4.5            20.1            7.7
      Operating leases                              -              -               -               -              3.3
                                             ---------------------------------------------------------------------------
                                                    -             22.5             4.5            20.1           11.0
                                             ---------------------------------------------------------------------------
                                             $      7.0     $    201.6     $     176.3    $      475.3    $     349.7
                                             ===========================================================================
</TABLE>

   There are no Boeing  commercial  aircraft  in the  Company's  portfolio  from
   transactions  in 1999.  In 1998,  $143.1  million  of the  $179.1  million in
   Boeing/McDonnell  Douglas used aircraft  financing  volume  related to Boeing
   aircraft.  There are no Boeing commercial aircraft in the Company's portfolio
   from  transactions  prior  to  1997.  There  are no  Airbus  aircraft  in the
   Company's portfolio.

o  Commercial Aircraft Financing Guaranties

    At December 31, 1999,  the Company had $267.1  million of  guaranties in its
   favor with respect to its commercial aircraft financing portfolio relating to
   transactions  with  a  carrying  amount  of  $781.0  million  (55.4%  of  the
   commercial aircraft financing portfolio). The following table summarizes such
   guaranties:
<TABLE>
<CAPTION>
                                                                  Domestic             Foreign
(Dollars in millions)                                             Airlines             Airlines             Total
Amounts guaranteed by:
<S>                                                          <C>                   <C>                 <C>
   McDonnell Douglas                                         $       210.7         $        31.1       $       241.8
   Other                                                              13.8                  11.5                25.3
                                                             -----------------------------------------------------------
                                                             $       224.5         $        42.6       $       267.1
                                                             ===========================================================
</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 and Financing Segment

The CEL group provides single-investor, tax-oriented lease financing, as well as
loans secured by personal property and real estate.  In addition,  the CEL group
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 and  financing  of  commercial  equipment  such as  executive  aircraft,
production  equipment,  transportation  equipment,  printing equipment and other
types of  equipment  which it  believes  will  maintain  strong  collateral  and
residual  values.  The  term  is  generally  between  three  and ten  years  and
transaction sizes usually range between $5.0 million and $50.0 million.

Portfolio balances for the Company's CEL segment are summarized as follows:
<TABLE>
<CAPTION>
                                                                               December 31,
                                                 -------------------------------------------------------------------------
(Dollars in millions)                                 1999          1998          1997           1996           1995
<S>                                              <C>          <C>            <C>           <C>            <C>
Finance leases                                   $     508.3  $     430.1    $     410.9   $      361.7   $      266.3
Operating leases                                       336.9        345.5          375.1          231.5          169.1
Notes receivable                                       652.4        449.4          190.6          176.6           67.0
                                                 -------------------------------------------------------------------------
                                                 $   1,497.6  $   1,225.0    $     976.6   $      769.8   $      502.4
                                                 =========================================================================
</TABLE>

o  Factors Affecting CEL Volume

   The  particular  portion of the  commercial  equipment  leasing and financing
   market  in which  the  Company  generally  operates  is  highly  competitive.
   However,  in  1999,  CEL  booked  $664.9  million  of  new  business  volume,
   representing a $173.9 million increase  (35.4%) over 1998 bookings.  As shown
   in the table below, a significant  portion of the new CEL business  volume in
   recent years has consisted of secured loans rather than lease financings.  Of
   the $664.9  million in new business  volume for CEL in 1999,  $374.0  million
   (56.2%) represented loans rather than true leases.

   In 1999, of the $664.9 million in new business volume for CEL, $104.0 million
   (15.6%) represented  business with foreign lessees or borrowers.  In 1998, of
   the $491.0  million in new  business  volume for CEL,  $36.7  million  (7.5%)
   represented  business with foreign lessees or borrowers.  For a discussion of
   additional  risks  associated  with  foreign  financing,   see  "Cross-Border
   Outstandings."  At December  31, 1999,  CEL's  backlog of business was $212.4
   million,  compared to $163.3  million at December  31,  1998.  The  Company's
   ability to compete in the commercial  equipment  leasing and financing market
   is dependent to a significant  extent upon its  comparative  borrowing  costs
   relative to competitors. See "Borrowing Operations."

   The following lists  information on new business volume for the Company's CEL
   segment:
<TABLE>
<CAPTION>
                                                                         Years ended December 31,
                                                 ------------------------------------------------------------------------
(Dollars in millions)                                 1999          1998           1997          1996           1995
<S>                                              <C>          <C>            <C>            <C>           <C>
Finance leases                                   $      194.1 $       91.8   $      109.5   $      160.9  $      102.0
Operating leases                                         96.8         81.9          199.7          107.0          70.5
Notes receivable                                        374.0        317.3          105.6          124.1          68.6
                                                 ------------------------------------------------------------------------
                                                 $      664.9 $      491.0   $      414.8   $      392.0  $      241.1
                                                 ========================================================================
</TABLE>

o  Factors Affecting the CEL Portfolio

   The  Company's  CEL  portfolio  is  diversified  among  executive  aircraft,
   production  equipment,  transportation  equipment,  printing equipment,  and
   other   equipment   types.   Executive   aircraft   represent   the  highest
   concentration,   accounting  for  $286.3  million  (9.8%  of  total  Company
   portfolio) and $326.2 million (11.7% of total Company portfolio) at December
   31, 1999 and 1998,  respectively.  At December 31, 1999 and 1998,  no single
   CEL  customer  represented  a  significant  portion of the  Company's  total
   portfolio.  Executive  aircraft  financing,  as well as the  rest of the CEL
   portfolio,  is dependent in part upon general economic  conditions which may
   affect the  profitability  of the Company's  customers and residual value of
   the  equipment  financed  by  the  CEL  group.  The  Company  believes  that
   realizable  values  at  lease  maturity  for its  commercial  equipment  are
   generally likely to remain above the values actually  recorded,  but this is
   subject to many uncertainties including economic conditions.

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  18.8% of the  total  Company  portfolio  at  December  31,  1999,
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, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                                    December 31,
                                                           -----------------------------------------------------------------
                                                               Finance           Notes         Operating
(Dollars in millions)                                           Leases        Receivable        Leases           Total
Country
1999
<S>                                                        <C>              <C>             <C>             <C>
Mexico                                                     $      126.5     $       34.2    $        -      $      160.7
Brazil                                                             52.6              3.8             -              56.4
India                                                               -               18.1            46.2            64.3
Italy                                                               -                1.7            30.1            31.8
Sweden                                                              -                -              46.5            46.5
Spain                                                               -                -              34.0            34.0
                                                           -----------------------------------------------------------------
                                                           $      179.1     $       57.8    $      156.8    $      393.7
                                                           =================================================================
1998
Mexico                                                     $      132.8     $       48.0    $        -      $      180.8
India                                                               -                -              48.6            48.6
Italy                                                               -                2.6            34.9            37.5
Sweden                                                              -                -              50.1            50.1
Spain                                                               -                -              36.4            36.4
                                                           -----------------------------------------------------------------
                                                           $      132.8     $       50.6    $      170.0    $      353.4
                                                           ==================================================================

1997
Indonesia                                                  $      110.5     $        -      $        -      $      110.5
Mexico                                                             50.1             54.1             -             104.2
Sweden                                                              -                -              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              -              28.2            39.1
                                                           -----------------------------------------------------------------
                                                           $      171.5     $       57.6    $      212.9    $      442.0
                                                           =================================================================
</TABLE>

At December 31, 1999, the Company had customer outstandings between 0.75% and 1%
of the  Company's  total assets in Canada and the British West Indies,  with net
carrying amounts of $23.6 million and $25.6 million,  respectively.  At December
31, 1998,  the Company had  customer  outstandings  between  0.75% and 1% of the
Company's total assets in Canada and the United Kingdom, with net carrying value
amounts of $25.6 million and $25.1 million,  respectively. At December 31, 1997,
there were no countries in which customer outstandings were 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, 1999:
<TABLE>
<CAPTION>

(Dollars in millions)                                                        Domestic          Foreign           Total
Maturity Distribution
<S> <C>                                                                    <C>              <C>             <C>
    2000                                                                   $      264.3     $       46.6    $       310.9
    2001                                                                          242.8             48.0            290.8
    2002                                                                          199.3             42.7            242.0
    2003                                                                          183.0             43.1            226.1
    2004                                                                          208.7             47.5            256.2
    2005 and thereafter                                                           918.4            137.2          1,055.6
                                                                           -------------------------------------------------
                                                                           $    2,016.5     $      365.1    $     2,381.6
                                                                           =================================================

Financing Receivables due 2001 and Thereafter
    Fixed interest rates                                                   $    1,419.4     $      282.2    $     1,701.6
    Variable interest rates                                                       332.8             36.3            369.1
                                                                           -------------------------------------------------
                                                                           $    1,752.2     $      318.5    $     2,070.7
                                                                           =================================================

</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)                                   1999           1998           1997          1996            1995
Allowance for losses on financing
<S>                                                 <C>             <C>            <C>           <C>           <C>
   Receivables at beginning of year                 $      62.1     $      55.9    $     48.6    $    42.3     $      40.7
Provision for losses                                        7.4             7.4          11.5         14.2            12.2
Write-offs, net of recoveries                              (8.8)           (2.5)         (2.5)        (6.0)          (10.6)
Other                                                       -               1.3          (1.7)        (1.9)            -
                                                    ===========================================================================
Allowance for losses on financing
   Receivables at end of year                       $      60.7     $      62.1    $     55.9    $    48.6     $      42.3
                                                    ===========================================================================

Allowance as percent of total receivables                   2.9  %          3.3%          3.1 %        2.5  %          2.8     %
Net write-offs as percent of average
   Receivables                                              0.4  %          0.1%          0.1 %        0.3  %          0.7     %
More than 90 days delinquent:
   Amount of delinquent installments                $       0.1     $       0.5    $      1.8    $     2.1     $      10.0
   Total receivables due from delinquent
      Obligors                                      $       0.8     $       6.7    $     15.5    $    23.4     $      12.1
   Total receivables due from delinquent
      Obligors as a percentage of total
      receivables                                           0.1  %          0.4%          0.9 %        1.2  %          0.8 %

</TABLE>

The  portfolio  at December  31,  1999  includes  two airline  obligors to which
payment extensions have been granted. At December 31, 1999, payments so extended
amounted  to $1.1  million,  and the  aggregate  carrying  amount of the related
receivables was $13.4 million.

Receivable Write-offs, Net of Recoveries by Segment

CEL had $8.2 and $2.3  million in net  write-offs  (0.8% and 0.3% of CEL average
receivables),  while  commercial  aircraft  financing  had no net  write-offs of
receivables  for the years  ended  December  31,  1999 and 1998.  The  Company's
principal  segments  had no net  write-offs  of  receivables  for the year ended
December 31, 1997.

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  $7.4  million in each of the years ended December 31, 1999 and
1998 for losses.  The Company  believes  that the  allowance  for losses on
financing receivables is adequate at December 31, 1999 to cover potential losses
in the Company's total receivables. 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,  increased in 1999, as
compared to 1998, primarily  attributable to certain CEL customer defaults which
occurred in 1999.

Nonaccrual and Past Due Financing Receivables

Financing  receivables accounted for on a nonaccrual basis consisted of domestic
financings  of $26.1  million and $13.0  million at December  31, 1999 and 1998,
respectively.  There were no foreign  financing  receivables  on  nonaccrual  at
December 31, 1999 or December 31, 1998.

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 $0.2
million at December 31, 1999 and 1998.

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 9 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, 1999 and 1998,  there
were no amounts  outstanding under the revolving credit  agreement.  The Company
plans to terminate  the  revolving  credit  agreement  shortly  after the filing
hereof and to replace it with a new arrangement permitting the Company to borrow
up to $1,000.0  million under Boeing's  existing  364-day credit  agreement.  At
December 31, 1999 and 1998,  borrowings  under  commercial paper totaling $138.0
million and $122.0  million,  respectively,  were supported by available  unused
commitments  under the Company's  revolving credit  agreement.  The Company also
expects to replace its  commercial  paper program with a new program  permitting
borrowings of up to $1,000.0 million. At December 31, 1999, the Company also had
available  approximately  $90.0 million in  uncommitted,  short-term bank credit
facilities.

On October  10,  1997,  the  Company  filed  with the  Securities  and  Exchange
Commission  ("SEC") 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  SEC  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 such debt  securities in the form of the Company's
Series X medium-term  notes for the  registered  amount of $1.2  billion.  As of
December 31, 1999, the Company had issued and sold $1,008.4 million in aggregate
principal  amount of such notes,  with $437.0  million of the notes being issued
during 1999 at interest  rates  ranging from 5.56% to 7.64% and with  maturities
ranging from nine months to 14 years.

On July 7,  1999,  the  Company  filed  with  the  SEC a Form  S-3  Registration
Statement for a public shelf registration of $2.5 billion of its debt securities
(SEC File No. 333-82391).  The Company has not requested the SEC to declare such
Registration  Statement  to be  effective.  The  Company  presently  expects  to
commence  utilizing  the  new  shelf  registration  at the  time  of sale of the
remaining   $191.6  million  of  notes  under  its  currently   effective  shelf
registration.

The  following  table sets forth the average  debt of the  Company by  borrowing
classification:

<TABLE>
<CAPTION>

(Dollars in millions)
                                          Average                      Average
         Years ended                     Short-Term                   Long-Term                     Average
        December 31,                        Debt                         Debt                      Total Debt
<S>         <C>                      <C>                            <C>                       <C>
            1999                     $         193.9                $      1,760.4            $        1,954.3
            1998                               134.6                       1,646.2                     1,780.8
            1997                               114.0                       1,606.2                     1,720.2
            1996                                49.5                       1,501.0                     1,550.5
            1995                                71.4                       1,183.6                     1,225.0
</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>
            1999                             5.24%                        6.81%                      6.65%
            1998                             5.83                         7.21                       7.12
            1997                             5.72                         7.34                       7.25
            1996                             5.66                         7.60                       7.56
            1995                             6.34                         8.19                       8.12
</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 October 5, 1999,  Moody's Investors Service  ("Moody's") placed the Company's
long term debt ratings on review for possible upgrade. Moody's said "this rating
action follows the Boeing Company's  announcement  regarding the  reorganization
and consolidation of its product financing  capabilities within the Company, and
its  statement  that the Company will  continue as a wholly owned  subsidiary of
Boeing." The current Moody's ratings for the Company's senior unsecured debt and
subordinated debt are A3 and Baa1, respectively.

On October 5,  1999,  Standard  and  Poor's  Corporation  ("Standard  & Poor's")
announced that it placed the ratings of the Company on creditwatch with positive
implications. On November 23, 1999,  Standard and Poor's  announced  that it
raised its credit ratings on the Company.  The ratings of the  Company's  senior
unsecured  debt, subordinated  debt and commercial  paper were raised from A+ to
AA-, A to A+ and A-1+ from A-1, respectively. Standard and Poor's said, "the
upgrade to the level of the parent,  Boeing Co. is based on a  reorganization
and  consolidation  of Boeing's product financing  activities into a newly
restructured,  wholly owned subsidiary, Boeing Capital."

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 is
also dependent upon, among other factors, the capital equipment  requirements of
United States and foreign businesses and the availability of capital.

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  and  regulations  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.  Additionally,  legislation  and
regulations  may in the future prohibit use in certain parts of the world (e.g.,
Europe) of certain  types of  aircraft  which have been  upgraded by hushkits to
meet the more  stringent  Stage 3  requirements.  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,  1999,  the  Company's  carrying  amount of Stage 2 aircraft  totaled  $13.0
million (0.9% of the Company's total aircraft portfolio,  including any aircraft
held for sale or re-lease);  however, all of the Company's Stage 2 aircraft will
have book values  approximating the aircraft's scrap value by year end 2000. For
a discussion of the effects of the upcoming  discontinuance of MD-80,  MD-90 and
MD-11 aircraft,  see "Commercial  Aircraft Financing Segment - Factors Affecting
Current Commercial Aircraft Market Conditions."

For the five-year period 1995-1999, the average annual growth rate for worldwide
passenger  traffic was  approximately  5.5%.  Boeing's  20-year  forecast of the
average  long-term  growth  rate in  passenger  traffic  is  approximately  4.7%
annually,  based on projected  average  worldwide annual economic real growth of
2.9% over the 20-year 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  $1,000.0  billion in 1999
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, 1999,  Boeing  recorded  revenues of
$58.0 billion and net earnings of $2.3 billion. At December 31, 1999, Boeing had
assets of $36.1 billion and shareholders' equity of $11.5 billion.

At  December  31,  1999,  McDonnell  Douglas  has  provided  $241.8  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 one of the Company's commercial aircraft transactions and as a result
thereof,  at  December  31,  1999,  McDonnell  Douglas  was the lessee for $22.4
million  of the  Company's  commercial  aircraft  portfolio.  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.

For a further  description of significant  factors which may affect Boeing,  see
Boeing's Form 10-K for the year ended December 31, 1999 (SEC File No.
001-00442).

o  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
   is expected that such an agreement will be entered into in the future.

   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,  1999,  the carrying  amount of McDonnell  Douglas  aircraft
   potentially  excluded by this  provision  amounted to  approximately  $539.6
   million.

o  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.

   In addition,  Boeing, BCSC and the Company have entered into agreements (the
   "Boeing  Operating  Agreements").   The  Boeing  Operating  Agreements  have
   provisions  relating to income taxes that are  substantially  similar to the
   Operating Agreement which, as discussed in the preceding paragraph,  remains
   in effect.  Amounts payable under the Boeing Operating  Agreements take into
   account payments made under the Operating  Agreement,  to avoid duplication.
   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.

   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,  Boeing  presently  charges or credits  the
   Company  for the  corresponding  increase  or  decrease  in  Boeing's  taxes
   (disregarding  alternative  minimum  taxes)  resulting  from  the  Company's
   inclusion  in  the  consolidated   federal  income  tax  return  of  Boeing.
   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.

   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 from time to time.  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.

o  Intercompany Services

   Boeing provides to the Company certain payroll, employee benefit,  facilities
   and other  services,  for which the Company  generally pays the actual cost.
   See Note 11 of "Notes to Consolidated Financial Statements" included in Item
   8.

o  Intercompany Credit Arrangements

   The Company has historically  maintained  separate borrowing  facilities and
   there have been no arrangements for joint use of such credit lines by Boeing
   or McDonnell  Douglas.  However,  it is expected  that soon after the filing
   hereof, the Company's existing revolving credit agreement will be terminated
   and  replaced  by an  arrangement  permitting  the  Company  access of up to
   $1,000.0 million under Boeing's existing 364-day revolving credit agreement.
   A default by Boeing  would  constitute  a default by the Company  under such
   agreement.  It is expected that the Company's borrowings,  if any, under the
   contemplated new arrangement would be supported by Boeing.

   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,  the Company had
   borrowings of $43.0 million and $64.7 million were  outstanding  at December
   31, 1999 and 1998, respectively. During 1999, the Company's highest level of
   borrowings  from BCSC was $68.2  million.  The  Company had no loans to BCSC
   during 1999 or 1998.

Item 2.  Properties

The Company leases all of its office space and other  facilities.  In connection
with the  implementation  of the  consolidation  within the  Company of Boeing's
customer financing activities, the headquarters of the Company has been moved to
Seattle,  Washington,  from Long  Beach,  California,  with a  principal  office
remaining in Long Beach,  California.  The  Company's  principal  office in Long
Beach has been  leased from  McDonnell  Douglas  since 1994,  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  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 the three of 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.  Aviaco has
appealed  the Final  Judgment  to the United  States  Court of  Appeals  for the
Eleventh  Circuit.  Taking into account  amounts  reserved for  litigation,  the
Company does not expect this  litigation to have any 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 1999 and
1998,  the  Company  declared  and paid  dividends  of $32.0  million  and $40.0
million,  respectively,  on its  common  stock to BCSC.  The  Company  paid $3.5
million and $3.9 million in dividends on its  preferred  stock in 1999 and 1998,
respectively.  Preferred  stock  dividends of $0.6 million  payable to BCSC were
accrued at December 31, 1999.

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, $150.1 million of
the Company's income retained for growth was available for dividends at December
31, 1999. At December 31, 1999, the Company was in compliance  with all its debt
covenants.



<PAGE>


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, 1999 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)                              1999           1998            1997            1996           1995

<S>                                            <C>            <C>            <C>              <C>            <C>
Financing volume                               $      671.9   $      692.6   $      591.1     $     867.3    $     590.8
                                               ============================================================================

Operating income:
   Finance lease income                        $      114.9   $      119.5   $      136.9     $     118.6    $     104.3
   Interest income on notes receivable                 52.3           36.6           26.3            24.4           27.2
   Operating lease income, net                         64.2           67.7           56.7            55.1           41.1
   Net gain on disposal or re-lease
      of assets                                        51.7           33.4           21.0            19.6            8.7
   Other                                                2.1            2.9            5.5             3.8            9.3
                                               ----------------------------------------------------------------------------
                                                      285.2          260.1          246.4           221.5          190.6
                                               ----------------------------------------------------------------------------

Expenses:
   Interest expense                                   130.0          126.7          124.7           117.3          101.9
   Provision for losses                                 7.4            7.4           11.5            14.2           12.2
   Operating expenses                                  13.8           12.6           13.1            11.7           11.3
   Other                                                7.3            8.8            9.3             3.4            4.9
                                               ----------------------------------------------------------------------------
                                                      158.5          155.5          158.6           146.6          130.3
                                               ----------------------------------------------------------------------------

Income before provision for income
   taxes                                              126.7          104.6           87.8            74.9           60.3
Provision for income taxes                             48.5           33.1           31.7            26.1           21.0
                                               ----------------------------------------------------------------------------
Net income                                     $       78.2   $       71.5   $       56.1     $      48.8    $      39.3
                                               ============================================================================

Dividends declared                             $       35.5   $       43.9   $       28.5     $       3.5    $      31.0

Ratio of income to fixed charges (1)                    1.95           1.80           1.68            1.62           1.57

Balance sheet data:
   Total assets                                $    3,043.6   $    2,861.4   $    2,722.8     $   2,653.6    $   2,049.6
   Total debt                                       2,057.7        1,970.3        1,797.9         1,850.2        1,339.7
   Shareholder's equity                               423.4          380.7          353.1           325.5          280.2

Dividends accrued on preferred
   stock at year end                           $        0.6   $        0.6   $        0.6     $       0.6    $       0.6

(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.
</TABLE>


<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 not be limited  to, the impact on the  Company of
strategic  decisions  of  Boeing,  the  level  of new  financing  business  made
available  to the  Company  by Boeing,  future  earnings,  costs,  expenditures,
losses,  residual values and various business environment trends. In addition to
those contained herein,  forward-looking  statements and projections may be made
by management of the Company 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 Company's
relationship with Boeing, as well as strategic decisions relating to the Company
to be made by Boeing,  the capital  equipment  requirements of United States and
foreign  businesses,  capital  availability  and cost,  changes  in laws and tax
benefits,  the tax  position  of  Boeing  (including  the  applicability  of the
alternative  minimum tax),  competition from other financial  institutions,  the
Company's   successful   execution  of  internal  operating  plans  particularly
including  implementation  of the  Company's  directive  from Boeing to lead the
Boeing-wide  customer  financing  efforts,  defaults  by  customers,  regulatory
uncertainties and legal proceedings.

Impact of Boeing's Customer Financing Consolidation

In 1999, the  commercial  aircraft  financing  group had negligible new business
volume  largely due to the fact that the Company was awaiting the decision  made
by  Boeing  in  the  fourth   quarter  of  1999  that  the  Company  would  have
responsibility for Boeing's customer  financing efforts.  Now that such decision
has been made, the Company is expected to experience a very significant increase
in new commercial aircraft financing volume compared with prior years.

It is  expected  that a  significant  portion of  Boeing's  existing  commercial
aircraft  financing  portfolio will be transferred to the Company soon after the
filing hereof (although the definitive documents have not been signed). Further,
it is expected that a significant  portion of Boeing's existing $4,500.0 million
of commercial aircraft financing commitments will be transferred to the Company,
on a transaction by transaction  basis,  subject to approval of each transaction
by the  Company's  investment  committee  (which may condition its approval upon
credit enhancements or other conditions it deems necessary to meet the Company's
pricing and credit requirements).

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.  There were no amounts  outstanding  under
this  revolving  credit  agreement at December 31,  1999.  The Company  plans to
terminate the revolving credit agreement  shortly after the filing hereof and to
replace  it with a new  arrangement  permitting  the  Company  to  borrow  up to
$1,000.0 million under Boeing's existing 364-day credit  agreement.  At December
31, 1999 and 1998, borrowings under commercial paper totaling $138.0 million and
$122.0 million,  respectively,  were supported by available  unused  commitments
under the  Company's  revolving  credit  agreement.  The Company also expects to
replace its commercial paper program with a new program permitting borrowings of
up to  $1,000.0  million.  At December  31,  1999,  the  Company  had  available
approximately  $90.0 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, 1999 and 1998,  borrowings  under such credit
facilities totaled $90.0 million and $50.0 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
("SEC") 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 such  debt  securities  in the  form of the  Company's  Series  X
medium-term notes for the registered amount of $1.2 billion.  As of December 31,
1999,  the Company had issued and sold $1,008.4  million in aggregate  principal
amount of such notes,  with $437.0 million of the notes being issued during 1999
at interest rates ranging from 5.56% to 7.64% and with  maturities  ranging from
nine months to 14 years.

On July 7,  1999,  the  Company  filed  with  the  SEC a Form  S-3  Registration
Statement for a public shelf registration of $2.5 billion of its debt securities
(SEC File No. 333-82391).  The Company has not requested the SEC to declare such
Registration  Statement  to be  effective.  The  Company  presently  expects  to
commence  utilizing  the  new  shelf  registration  at the  time  of sale of the
remaining   $191.6  million  of  notes  under  its  currently   effective  shelf
registration.

1999 vs. 1998

Interest  on  notes  receivable  increased  $15.7  million  (42.9%)  from  1998,
primarily  attributable to new volume of CEL notes  receivable of $374.0 million
during 1999.

Gain on disposal or re-lease of assets  increased  $18.3  million  (54.8%)  from
1998,  primarily  attributable  to  $28.9  million  of  income  from  the  early
termination  of leases and buyout of four MD-82  aircraft in December  1999. The
remaining  offset is attributable to other sales within the commercial  aircraft
and commercial equipment leasing portfolios.

1998 vs. 1997

Finance lease income  decreased  $17.4 million (12.7%) in 1998 compared to 1997,
primarily  attributable  to a decrease in finance leases as a result of aircraft
sales.

Interest  on  notes  receivable  increased  $10.3  million  (39.2%)  from  1997,
primarily  attributable to new volume of CEL notes  receivable of $317.3 million
during 1998.

Operating lease income increased $11.0 million (19.4%) in 1998 compared to 1997,
primarily  attributable  to the  operating  lease  financing of four used Boeing
aircraft during the last four months of 1997.

Gain on disposal or re-lease of assets  increased  $12.4  million  (59.0%)  from
1997,  primarily  attributable  to sales  within  the  commercial  aircraft  and
commercial equipment leasing portfolios.

Other income decreased $2.6 million (47.3%) from 1997, primarily attributable to
prepayment fees of $2.0 million received in 1997.

Provision  for losses on  receivables  decreased  $4.1  million  (35.7%) in 1998
compared to 1997,  primarily  attributable to the Company's  determination  that
additional  provisions for losses were not necessary or  appropriate  during the
current year, as the Company's  core business  segments did not  experience  net
write-offs during the year ended December 31, 1997.

Year 2000 Readiness Disclosure

During the first week of calendar  2000,  the Company  completed the  transition
from  calendar  1999 to  calendar  2000 with no material  adverse  impact on its
operations.  During the first  quarter of 2000,  the  Company has  continued  to
monitor its products,  business systems and infrastructure to ensure that latent
defects do not manifest  themselves.  The Company has not experienced a material
adverse impact on its operations during this period.

The Company implemented its contingency plan of remediating its historical lease
administration system for Year 2000 compliance and is now considering whether to
continue  using it  (rather  than its new lease  administration  system)  in the
future.

The total  cost of the Year 2000  project to date (not  including  the new lease
administration  system, a project  initiated in 1996 without regard to Year 2000
issues), has been funded through operating cash flows and has not had a material
adverse  effect on the  Company's  earnings,  cash flow or  financial  position.
Monitoring  costs or other Year 2000 project  costs  incurred  after  January 1,
2000, are not expected to be significant.

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 sheets of Boeing Capital
Corporation (a wholly owned subsidiary of Boeing Capital  Services  Corporation)
and subsidiaries as of December 31, 1999 and 1998, and the related  consolidated
statements of income and income retained for growth,  and cash flows for each of
the three years in the period ended  December 31, 1999. Our audits also included
the financial statement schedule listed in Part IV Item 14 (a)2. These financial
statements  and  financial  statement  schedule  are the  responsibility  of the
Corporation's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  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  financial  position of Boeing  Capital
Corporation  and  subsidiaries as of December 31, 1999 and 1998, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period  ended  December 31,  1999,  in  conformity  with  accounting  principles
generally  accepted in the United States of America.  Also, in our opinion,  the
aforementioned  financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

/s/ DELOITTE & TOUCHE LLP

Seattle, Washington
January 28, 2000
(March 23, 2000 as to Note 10)


<PAGE>


Boeing Capital Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                                                                     December 31,
(Dollars in millions, except stated value and par value)                                       1999                1998
-------------------------------------------------------------------------------------------------------------------------------

ASSETS
    Financing receivables:
<S>                                                                                      <C>                <C>
      Investment in finance leases                                                       $      1,372.8     $       1,365.0
      Notes receivable                                                                            708.0               545.7
                                                                                         --------------------------------------
                                                                                                2,080.8             1,910.7
      Allowance for losses on financing receivables                                               (60.7)              (62.1)
                                                                                         --------------------------------------
                                                                                                2,020.1             1,848.6
    Cash and cash equivalents                                                                      26.9                20.3
    Equipment under operating leases, net                                                         828.2               889.2
    Equipment held for sale or re-lease                                                            66.0                62.3
    Accounts due from Boeing and BCSC                                                               2.6                 -
    Other assets                                                                                   99.8                41.0
                                                                                         --------------------------------------
                                                                                         $      3,043.6     $       2,861.4
                                                                                         ======================================

LIABILITIES AND SHAREHOLDER'S EQUITY
    Short-term notes payable                                                             $        271.0     $         236.7
    Accounts payable and accrued expenses                                                          38.5                35.6
    Accounts due to Boeing and BCSC                                                                 -                   6.7
    Other liabilities                                                                              96.5                84.8
    Deferred income taxes                                                                         427.5               383.3
    Long-term debt:
      Senior                                                                                    1,741.8             1,678.7
      Subordinated                                                                                 44.9                54.9
                                                                                         --------------------------------------
                                                                                                2,620.2             2,480.7
                                                                                         --------------------------------------

    Commitments and contingencies - Note 10

    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                                                                  278.9              236.2
                                                                                         --------------------------------------
                                                                                                  423.4              380.7
                                                                                         --------------------------------------
                                                                                         $      3,043.6     $      2,861.4
                                                                                         ======================================

See notes to consolidated financial statements.
</TABLE>


<PAGE>


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

                                                                                         Years ended December 31,
(Dollars in millions)                                                           1999              1998                1997
--------------------------------------------------------------------------------------------------------------------------------

OPERATING INCOME
<S>                                                                        <C>               <C>               <C>
   Finance lease income                                                    $      114.9      $      119.5      $       136.9
   Interest income on notes receivable                                             52.3              36.6               26.3
   Operating lease income, net of depreciation expense of
      $72.0, $70.6 and $61.1 in 1999, 1998 and 1997,
      respectively                                                                 64.2              67.7               56.7
   Net gain on disposal or re-lease of assets                                      51.7              33.4               21.0
   Other                                                                            2.1               2.9                5.5
                                                                           -----------------------------------------------------
                                                                                  285.2             260.1              246.4
                                                                           -----------------------------------------------------

EXPENSES
   Interest expense                                                               130.0             126.7              124.7
   Provision for losses                                                             7.4               7.4               11.5
   Operating expenses                                                              13.8              12.6               13.1
   Other                                                                            7.3               8.8                9.3
                                                                           -----------------------------------------------------
                                                                                  158.5             155.5              158.6
                                                                           -----------------------------------------------------
Income before provision for income taxes                                          126.7             104.6               87.8
Provision for income taxes                                                         48.5              33.1               31.7
                                                                           -----------------------------------------------------
Net income                                                                         78.2              71.5               56.1
Income retained for growth at beginning of year                                   236.2             208.6              181.0
Dividends                                                                         (35.5)            (43.9)             (28.5)
                                                                           -----------------------------------------------------
Income retained for growth at end of year                                  $      278.9      $      236.2      $       208.6
                                                                           =====================================================


See notes to consolidated financial statements.
</TABLE>


<PAGE>


Boeing Capital Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                                          Years ended December 31,
(Dollars in millions)                                                            1999              1998              1997
--------------------------------------------------------------------------------------------------------------------------------

OPERATING ACTIVITIES
<S>                                                                          <C>              <C>               <C>
    Net income                                                               $       78.2     $       71.5      $        56.1
    Adjustments to reconcile net income to net cash
       provided by operating activities:
          Depreciation expense - equipment under operating
             leases                                                                  72.0             70.6               61.1
          Net gain on disposal or re-lease of assets                                (51.7)           (33.4)             (21.0)
          Provision for losses                                                        7.4              7.4               11.5
          Change in assets and liabilities:
             Accounts with Boeing and BCSC                                           (9.3)           (30.5)              37.2
             Other assets                                                           (58.8)            (2.4)               3.1
             Accounts payable and accrued expenses                                    2.9            (13.5)               1.4
             Other liabilities                                                       11.7            (12.4)               7.2
             Deferred income taxes                                                   44.2             (5.0)              48.1
          Other, net                                                                 (3.5)            (1.0)              (0.7)
                                                                             ---------------------------------------------------
                                                                                     93.1             51.3              204.0
                                                                             ---------------------------------------------------

INVESTING ACTIVITIES
    Net change in short-term notes and leases receivable                            (20.6)           (51.9)             101.7
    Purchase of equipment for operating leases                                      (96.8)          (157.2)            (346.2)
    Proceeds from disposition of equipment, notes and leases
       receivable                                                                   211.5            323.7              177.4
    Collection of notes and leases receivable                                       343.1            235.9              209.6
    Acquisition of notes and leases receivable                                     (576.5)          (548.9)            (243.0)
                                                                             ---------------------------------------------------
                                                                                   (139.3)          (198.4)            (100.5)
                                                                             ---------------------------------------------------

FINANCING ACTIVITIES
    Net change in short-term notes payable                                           34.3             87.7              (12.3)
    Long-term debt:
       Proceeds                                                                     437.0            436.8              226.8
       Repayments                                                                  (383.0)          (352.3)            (267.3)
    Payment of cash dividends                                                       (35.5)           (43.9)             (28.5)
                                                                             ---------------------------------------------------
                                                                                     52.8            128.3              (81.3)
                                                                             ---------------------------------------------------
Net increase (decrease) in cash and cash equivalents                                  6.6            (18.8)              22.2
Cash and cash equivalents at beginning of year                                       20.3             39.1               16.9
                                                                             ---------------------------------------------------
Cash and cash equivalents at end of year                                     $       26.9     $       20.3      $        39.1
                                                                             ===================================================

See notes to consolidated financial statements.
</TABLE>



<PAGE>


Boeing Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements
December 31, 1999


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  ("BCSC"),  a wholly owned subsidiary of McDonnell Douglas
Corporation  ("McDonnell Douglas"),  which in turn 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 and financing. The Company's strategy is to (1) generate and participate
in finance  transactions  in which the  Company's  structuring  and analysis can
provide  high  returns on its  invested  equity  and (2) to assist in  arranging
financing for Boeing's  customers and to  participate  in such  financing if the
Company's minimum pricing/credit requirements are met.

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.

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, 1999 and 1998 were $25.8 million and $19.7  million,  respectively.
At December  31,  1999 and 1998,  the Company  has  classified  as other  assets
restricted  cash  deposited  with banks in  interest  bearing  accounts of $37.2
million  and  $34.1  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 of
individual credits,  economic and political conditions,  guaranties,  prior loss
experience,  past-due amounts,  collateral value of the underlying equipment and
results of periodic credit reviews.

Equipment  Held  for  Sale  or  Re-lease   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. The Company reviews these assets for impairment when events or
circumstances  indicate  that the  carrying  amount of these  assets  may not be
recoverable.  These assets are reviewed for impairment by comparing undiscounted
cash flows over  remaining  useful lives to net book value.  When  impairment is
indicated for an asset,  the amount of impairment loss is the excess of net book
value over fair 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. The Company reviews
these  assets for  impairment  when events or  circumstances  indicate  that the
carrying  amount  of these  assets  may not be  recoverable.  These  assets  are
reviewed for  impairment  by comparing  undiscounted  cash flows over  remaining
useful lives to net book value.  When impairment is indicated for an asset,  the
amount of impairment loss is the excess of net book value over fair value.

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  (disregarding  alternative  minimum 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.

Impact of Recently  Issued  Accounting  Standards  The  Statement  of  Financial
Accounting  Standards ("SFAS") No. 133,  "Accounting for Derivative  Instruments
and  Hedging  Activities,"  issued in June 1998,  was  amended by SFAS No.  137,
"Accounting for Derivative  Instruments and Hedging Activities - Deferral of the
Effective  Date of SFAS No. 133," issued in June 1999.  SFAS No. 133, as amended
by SFAS No.  137,  is  effective  for all fiscal  quarters  of all fiscal  years
beginning  after  June 15,  2000.  The  standard  will  require  the  Company to
recognize all derivatives on the balance sheet at fair value.  Derivatives  that
are not hedges must be adjusted to fair value through income.  If the derivative
is a hedge,  depending  on the  nature of the  hedge,  changes  in fair value of
derivatives  will either  offset  against the change in fair value of the hedged
assets,  liabilities,  or firm commitments  through earnings or be recognized in
other comprehensive income until the hedged item is recognized in earnings.  The
change in a  derivative's  fair value  related to the  ineffective  portion of a
hedge,  if any,  will  generally be  immediately  recognized  in  earnings.  The
standard is required to be adopted by the Company as of the  beginning of fiscal
year 2001.  Management is currently in the process of determining  the effect of
the new standard on the financial statements.

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.

On October 4, 1999,  Boeing  announced its decision to consolidate  its customer
financing under one group. Boeing's press release explained that "Boeing Capital
Corporation  will continue as a wholly owned  subsidiary of The Boeing  Company,
but will now integrate the existing  financial  services  activities  supporting
commercial aircraft, military aircraft and missiles, and space and communication
markets."

The Company and Boeing are presently  working to implement the  consolidation of
financing  activities and additional  strategic decisions are being made as part
of the implementation  process.  A significant  portion of Boeing's portfolio of
commercial  aircraft financings having an approximate value of $3,000.0 million
is expected to be transferred to the Company,  although the definitive  transfer
documents have not yet been executed.  The ultimate amount and terms of any such
transfer are currently under consideration.  However, such amount transferred is
expected to be very significant in relation to the Company's existing portfolio.

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.

In addition,  Boeing,  BCSC and the Company have  entered into  agreements  (the
"Boeing Operating Agreements").  The Boeing Operating Agreements have provisions
relating  to  income  taxes  that are  substantially  similar  to the  Operating
Agreement  which,  as discussed in the preceding  paragraph,  remains in effect.
Amounts payable under the Boeing Operating Agreements take into account payments
made under the Operating  Agreement to avoid  duplication.  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.

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,  Boeing  presently  charges or credits the Company for the
corresponding  increase or decrease in Boeing's taxes (disregarding  alternative
minimum  taxes)  resulting  from the  Company's  inclusion  in the  consolidated
federal  income tax return of Boeing.  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.

There  can  be no  assurance,  however,  that  these  (and  other)  intercompany
arrangements will not change from time to time. 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.

Boeing has  announced  that it will not produce MD-80 and MD-90  aircraft  after
early 2000.  Boeing has also stated that it plans to phase out production of the
MD-11,  with final  deliveries now scheduled for 2001. The Company's  commercial
aircraft portfolio as of December 31, 1999 included 28 MD-80s,  three MD-90s and
five MD-11s,  representing  an  aggregate  of $897.6  million in net asset value
(30.9% of total Company portfolio).  The Company's commercial aircraft portfolio
as of  December  31,  1998  included 32 MD-80s,  three  MD-90s and five  MD-11s,
representing  an aggregate of $963.8  million in net asset value (34.4% of total
Company 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)                                                                        1999               1998
<S>                                                                                    <C>                <C>
Minimum lease payments receivable                                                      $    1,678.3       $    1,760.7
Estimated residual value of leased assets                                                     420.2              378.9
Unearned income                                                                              (730.2)            (778.6)
Deferred initial direct costs                                                                   4.5                4.0
                                                                                       ------------------------------------
                                                                                       $    1,372.8       $    1,365.0
                                                                                       ====================================
</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)                                                                        1999               1998
<S>                                                                                    <C>                 <C>
Minimum lease payments receivable                                                      $      468.2        $      501.1
Estimated residual value of leased assets                                                      83.3                83.3
Unearned income                                                                              (229.5)             (252.4)
Deferred initial direct costs                                                                   1.0                 1.0
                                                                                       ------------------------------------
                                                                                       $      323.0        $      333.0
                                                                                       ====================================
</TABLE>

At December  31,  1999,  finance  lease  receivables  of $9.5  million  serve as
collateral to senior long-term debt.

At December 31, 1999,  finance  lease  receivables  are due in  installments  as
follows: 2000, $239.8 million; 2001, $204.8 million; 2002, $184.2 million; 2003,
$168.5 million; 2004, $151.2 million; 2005 and thereafter, $729.8 million.

Under a finance  lease  agreement,  the  Company  leases a DC-10-30  aircraft to
McDonnell  Douglas.  This lease  requires  monthly rent payments of $0.4 million
through  April 14, 2004. At December 31, 1999 and 1998,  the carrying  amount of
this aircraft was $22.4 million and $24.7 million, respectively.

Note 4 -- Notes Receivable

The following lists the components of notes receivable at December 31:
<TABLE>
<CAPTION>

(Dollars in millions)                                                                         1999              1998
<S>                                                                                     <C>               <C>
Principal                                                                               $      703.3      $      542.7
Accrued interest                                                                                 5.2               3.6
Unamortized discount                                                                            (2.0)             (1.6)
Deferred initial direct costs                                                                    1.5               1.0
                                                                                        ------------------------------------
                                                                                        $      708.0      $      545.7
                                                                                        ====================================
</TABLE>

At December 31, 1999,  notes  receivables  are due in  installments  as follows:
2000,  $71.1 million;  2001,  $86.0 million;  2002,  $57.8 million;  2003, $57.6
million; 2004, $105.0 million; 2005 and thereafter, $325.8 million.

Note 5 -- Allowance for Losses on Financing Receivables

Changes in the allowance for losses on financing  receivables were as follows
for the years ended December 31:
<TABLE>
<CAPTION>
(Dollars in millions)                                                                          1999              1998
<S>                                                                                      <C>                <C>
Allowance for losses on financing receivables at beginning of year                       $         62.1     $      55.9
Provision for losses                                                                                7.4             7.4
Write-offs, net of recoveries                                                                      (8.8)           (2.5)
Other                                                                                               -               1.3
                                                                                         -----------------------------------
Allowance for losses on financing receivables at end of year                             $         60.7     $      62.1
                                                                                         ===================================
</TABLE>

Note 6 -- Equipment Under Operating Leases

Equipment under operating leases consisted of the following at December 31:
<TABLE>
<CAPTION>

(Dollars in millions)                                                                          1999              1998
<S>                                                                                      <C>                <C>
Commercial aircraft                                                                      $      622.8       $      668.0
Executive aircraft                                                                              286.3              289.3
Machine tools and production equipment                                                           60.3               56.2
Highway vehicles                                                                                 32.0               33.7
Printing equipment                                                                               10.3               27.2
Other                                                                                            29.0               25.3
                                                                                         -----------------------------------
                                                                                              1,040.7            1,099.7
Accumulated depreciation                                                                       (215.1)            (208.5)
Rentals receivable                                                                               15.8               15.3
Deferred lease income                                                                           (15.8)             (19.5)
Deferred initial direct costs                                                                     2.6                2.2
                                                                                         -----------------------------------
                                                                                         $      828.2       $      889.2
                                                                                         ===================================
</TABLE>

At December 31, 1999,  future minimum rentals scheduled to be received under the
noncancelable portion of operating leases are as follows:  2000, $120.3 million;
2001,  $97.4 million;  2002,  $83.3 million;  2003,  $73.6 million;  2004, $53.1
million; 2005 and thereafter, $312.8 million.

At December 31, 1999,  equipment  under  operating  leases of $68.9  million are
assigned as collateral  to senior  long-term  debt.  Equipment  under  operating
leases of $180.4  million at December 31, 1999,  relate to  commercial  aircraft
leased by the Company under capital lease obligations.

Note 7 -- Equipment Held for Sale or Re-Lease

Equipment held for sale or re-lease consisted of the following at December 31:
<TABLE>
<CAPTION>

(Dollars in millions)                                                                         1999               1998
<S>                                                                                     <C>                 <C>
Commercial aircraft                                                                     $        43.5       $       51.6
Executive aircraft                                                                               22.2                -
Food processing equipment                                                                         -                  8.0
Printing equipment                                                                                -                  2.3
Other                                                                                             0.3                0.4
                                                                                        ------------------------------------
                                                                                        $        66.0       $       62.3
                                                                                        ====================================
</TABLE>

Note 8 -- 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)                                                       1999               1998                1997
Current:
<S>                                                                   <C>                <C>                 <C>
   Federal                                                            $       (3.2)      $        32.1       $      (21.3)
   State                                                                       7.5                 6.0                4.9
                                                                      --------------------------------------------------------
                                                                               4.3                38.1              (16.4)
Deferred:
   Federal                                                                    44.2                (5.0)              48.1
                                                                      --------------------------------------------------------
                                                                      $       48.5       $        33.1       $       31.7
                                                                      ========================================================
</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)                                                                          1999               1998
Deferred tax assets:
<S>                                                                                      <C>                <C>
   Allowance for losses                                                                  $         21.3     $         21.7
   Other                                                                                            7.3                8.0
                                                                                         -------------------------------------
                                                                                                   28.6               29.7
                                                                                         -------------------------------------

Deferred tax liabilities:
   Leased assets                                                                                 (446.8)            (412.9)
   Other                                                                                           (9.3)              (0.1)
                                                                                         -------------------------------------
                                                                                                 (456.1)            (413.0)
                                                                                         -------------------------------------
Net deferred tax liability                                                               $       (427.5)    $       (383.3)
                                                                                         =====================================
</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)                                                          1999              1998              1997
<S>                                                                      <C>               <C>                <C>
Tax computed at federal statutory rate                                   $        44.3     $         36.6     $       30.7
State income taxes, net of federal tax benefit                                     4.9                3.9              3.2
Foreign sales corporation benefit                                                 (0.3)              (6.9)            (1.2)
Effect of investment tax credits                                                  (0.4)              (0.5)            (0.9)
Other                                                                              -                  -               (0.1)
                                                                         ------------------------------------------------------
                                                                         $        48.5     $         33.1     $       31.7
                                                                         ======================================================
</TABLE>

The Company is  currently  under  examination  by the Internal  Revenue  Service
("IRS") for the tax years 1993 through 1995. The results of the  examination for
the years 1986 through 1992 are in Appeals.  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 paid income tax payments to Boeing/McDonnell Douglas of $8.9 million
and $46.6 million in 1999 and 1998,  respectively.  The Company  received income
tax payments from Boeing/McDonnell Douglas of $32.4 million in 1997. The Company
paid  income  tax  payments  to other  federal  and state tax  agencies  of $1.3
million, $1.4 million and $1.7 million in 1999, 1998 and 1997, respectively.

Note 9 -- 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
                                                            ---------------------------------------------------------------
                                                                 1999            1998           1999           1998
<S>                                                         <C>             <C>                    <C>             <C>
Commercial paper                                            $      138.0    $      122.0           5.58  %         5.46 %
Uncommitted credit facilities                                       90.0            50.0           6.06            5.47
BCSC                                                                43.0            64.7           6.57            5.20
                                                            ------------------------------
                                                            $      271.0    $      236.7
                                                            ==============================
</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 floating rate,  generally based on a defined
prime rate,  or fixed rate related to LIBOR.  There were no amounts  outstanding
under this  agreement  at December  31, 1999 and 1998.  At December 31, 1999 and
1998,  borrowings  under  commercial  paper  totaling  $138.0 million and $122.0
million, respectively,  were supported by available unused commitments under the
revolving credit agreement.

At December 31, 1999, the Company, had available  approximately $90.0 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, 1999 and
1998,  borrowings under these credit facilities  totaled $90.0 million and $50.0
million, respectively.

On October  10,  1997,  the Company  filed with the SEC 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  SEC  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 such debt  securities
in the form of the  Company's  Series X  medium-term  notes  for the  registered
amount of $1.2 billion. As of December 31, 1999, the Company had issued and sold
$1,008.4  million in  aggregate  principal  amount of such  notes,  with  $437.0
million of the notes being  issued  during 1999 at interest  rates  ranging from
5.56% to 7.64% and with maturities ranging from nine months to 14 years.

On July 7,  1999,  the  Company  filed  with  the  SEC a Form  S-3  Registration
Statement for a public shelf registration of $2.5 billion of its debt securities
(SEC File No. 333-82391).  The Company has not requested the SEC to declare such
Registration  Statement  to be  effective.  The  Company  presently  expects  to
commence  utilizing  the  new  shelf  registration  at the  time  of sale of the
remaining   $191.6  million  of  notes  under  its  currently   effective  shelf
registration.

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

(Dollars in millions)                                                                   1999                  1998
<C>                                                                              <C>                   <C>
3.9% Notes due through 1999, net of discount based on imputed                    $                     $
   interest rates of 9.15% - 10.6%                                                             -                     1.1
5.75% - 6.875% Notes due through 2000, net of discount based on
   imputed interest rates of 9.75% - 11.4%                                                     -                     3.2
6.9% - 9.43% Notes due through 2001                                                           10.0                  33.5
13.84% - 14.28% Notes due through 2003, including a premium
   based on an imputed interest rate of 6.10%                                                 24.7                  30.0
6.0% - 8.25% Retail medium-term notes due through 2011                                        11.0                  11.3
5.56% - 10.05% Medium-term notes due through 2017                                          1,325.5               1,191.3
Capital lease obligations due through 2008                                                   370.6                 408.3
                                                                                 ------------------------------------------
                                                                                 $         1,741.8     $         1,678.7
                                                                                 ==========================================
</TABLE>

At December 31, 1999 and 1998,  subordinated  long-term  debt consisted of $44.9
million and $54.9 million,  respectively,  in medium-term notes due through 2004
with interest rates ranging from 6.41% to 8.31%.

As  of  December  31,  1999,   $34.7  million  of  senior   long-term  debt  was
collateralized by equipment. This debt is comprised of the 13.84% - 14.28% notes
due through 2003 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>
2000                                                                             $        189.1        $         83.6
2001                                                                                      263.3                  64.2
2002                                                                                      173.9                  55.0
2003                                                                                      172.2                  60.0
2004                                                                                      128.6                  54.2
2005 and thereafter                                                                       494.7                 164.2
                                                                                 ------------------------------------------
                                                                                        1,421.8                 481.2
Deferred debt expenses                                                                     (5.7)                 (0.1)
Imputed interest                                                                            -                  (110.5)
                                                                                 ------------------------------------------
                                                                                 $      1,416.1        $        370.6
                                                                                 ==========================================
</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, $150.1 million of
the Company's income retained for growth was available for dividends at December
31, 1999. At December 31, 1999, the Company was in compliance  with all its debt
covenants.

Interest  payments  totaled $129.8  million in 1999,  $123.0 million in 1998 and
$124.4 million in 1997.

The derivative  financial  instruments held by the Company at December 31, 1999,
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  that  the
derivative  instruments  it holds  present 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,  1999,  the
Company had interest rate swap agreements outstanding as follows:
<TABLE>
<CAPTION>
                                        Contract Maturity    Notional Principal      Receive Rate        Pay Rate
(Dollars in millions)
<S>                                        <C>    <C>          <C>                   <C>             <C>
Capital lease obligations                  2006 - 2008         $   322.6              Floating(1)    6.65% - 7.60%
Medium-term notes                          2000 - 2001              50.0             6.83% - 8.61%      Floating(1)
Medium-term notes                             2003                  30.0              Floating(1)         5.99%

(1)   Floating rates are based on LIBOR.
</TABLE>

Note 10 -- 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  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 the three of 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.  Aviaco has
appealed  the Final  Judgment  to the United  States  Court of  Appeals  for the
Eleventh  Circuit.  Taking into account  amounts  reserved for  litigation,  the
Company does not expect this  litigation to have any 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.

On  October  4,  1999,  the  Company,  together  with  its  new  United  Kingdom
subsidiary,  BCC (Aircraft  Acquisitions) Limited,  entered into an agreement to
purchase  from  British  Airways an aggregate of 34 used Boeing 757 aircraft for
aggregate  consideration of approximately  $500 million.  These aircraft will be
purchased  from  time  to time  over  approximately  a  three-year  time  period
commencing in July 2000.  The rights and  obligations  under this agreement were
assigned to BCSC on March 23, 2000.

In October 1999, the Company, together with Boeing Aircraft Services, a division
of Boeing,  entered into a binding  letter of intent (which is subject to, among
other things,  the negotiation and execution of definitive  documentation)  with
DHL  International  Limited ("DHL") pursuant to which the 34 used 757s purchased
from  British  Airways  will  be  modified  from  a  passenger  to  a  freighter
configuration  and then delivered  (sold and/or leased) to DHL from time to time
over approximately a two-year period commencing approximately the second quarter
of 2001.  Pursuant  to the letter of intent,  eighteen  of the 34  aircraft  are
subject to a firm  commitment  from DHL and the other 16 aircraft are subject to
an option on DHL's part. At December 31, 1999,  the Company had  commitments  of
approximately  $800.0  million to DHL.  The rights  and  obligations  under this
agreement were assigned to BCSC on March 23, 2000.

Trans World Airlines,  Inc. ("TWA")  accounted for $147.3 million (5.1% of total
Company  portfolio)  and $163.3  million  (5.8% of total  Company  portfolio) at
December  31, 1999 and 1998,  respectively.  TWA  continues  to operate  under a
reorganization  plan,  confirmed  by the U.S.  Bankruptcy  Court in 1995,  which
restructured  its indebtedness  and leasehold  obligations to its creditors.  In
addition,   TWA  continues  to  face   significant   financial  and  operational
challenges.  In 1999, based on publicly  available  reports,  TWA incurred a net
loss of $353.4  million and its  liquidity  worsened as cash balances fell 29.0%
below prior year levels to $180.4 million.  In April 1999, Moody's rating agency
lowered  TWA's  Outlook  from Stable to  Negative.  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,  1999,  the maximum
aggregate  coverage  under such  guaranties  was $41.7  million.  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.

World  Airways,  Inc.  ("World")  accounted  for $170.2  million  (5.9% of total
Company  portfolio)  and $176.4  million  (6.3% of total  Company  portfolio) at
December 31, 1999 and 1998,  respectively.  Based on publicly available reports,
World experienced  losses in 1999 of $7.6 million and its year end cash balances
fell 31.0% below prior year levels to $11.7 million.

The Company had leased six Embraer EMB-120  aircraft to Westair.  As a result of
Westair's  cessation of operations at the end of May 1998, the lease  agreements
for such aircraft were terminated and the aircraft were returned to the Company.
The Company has been remarketing  these aircraft (along with other used EMB-120s
it holds for sale or  lease).  During the second  quarter of 1999,  the  Company
adjusted the carrying value of the ex-Westair aircraft to approximate their fair
value,  resulting  in a pre-tax loss of  approximately  $3.4  million,  which is
included in Other Expenses in the  Consolidated  Statements of Income and Income
Retained  for  Growth.  The  Company  does not expect the  disposition  of these
aircraft to have a material adverse effect on the Company's earnings,  cash flow
or financial position.

In July 1998, the Company  terminated early a lease agreement  covering one used
DC-10-30  aircraft.  The  Company has  repossessed  such  aircraft  and has been
remarketing it in a currently weak market for this type of aircraft. On February
8, 2000,  the Company  entered into a modification  agreement  pursuant to which
Boeing will convert the aircraft from passenger to freighter  configuration  for
purposes  of  increased  marketability.  Taking  into  account a  guaranty  from
McDonnell  Douglas,  the  disposition of such aircraft is not expected to have a
material  adverse  effect on the  Company's  earnings,  cash  flow or  financial
position.

At December 31, 1999 and 1998, the Company had  commitments  to provide  leasing
and other financing  totaling  $218.9 million and $163.3 million,  respectively,
excluding the commitments to DHL previously mentioned.

In conjunction with prior asset dispositions and certain guaranties, at December
31, 1999, the Company is subject to a maximum  recourse of $44.9 million.  Based
on trends to date,  any losses  related to such exposure are not expected by the
Company to be significant.

The Company  leases  aircraft  under capital leases which have been subleased to
others.  At December 31, 1999,  the Company had guaranteed the repayment of $3.9
million in capital lease obligations associated with a 50% partner.

In connection with the implementation of the consolidation within the Company of
Boeing's customer financing activities, the headquarters of the Company has been
moved to  Seattle,  Washington,  from Long Beach,  California,  with a principal
office  remaining  in Long Beach,  California.  The  Company's  headquarters  in
Seattle, Washington, is being leased under a month-to-month lease agreement. The
Company's principal office in Long Beach was leased from McDonnell Douglas under
an  operating  lease  agreement  which  expired in 1999.  As of April 1999,  the
Company has been on a month-to-month lease with McDonnell Douglas.  Rent expense
for all office leases under operating  lease  agreements was $0.8 million during
each of the years ended December 31, 1999,  1998 and 1997. At December 31, 1999,
the minimum future rental commitments under these  noncancelable  leases payable
over the remaining lives of the leases aggregated less than $0.1 million.

Note 11 -- Transactions with Boeing, McDonnell Douglas and BCSC

Accounts with Boeing and BCSC consisted of the following at December 31:
<TABLE>
<CAPTION>

(Dollars in millions)                                                                      1999                   1998
<S>                                                                                <C>                    <C>
Federal income tax payable                                                         $           2.7        $           0.7
State income tax (receivable) payable                                                        (11.7)                   5.8
Other payables                                                                                 6.4                    0.2
                                                                                   --------------------------------------------
Accounts (due from) due to Boeing and BCSC                                         $          (2.6)       $           6.7
                                                                                   ============================================
</TABLE>

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,  the Company had borrowings of
$43.0 million and $64.7 million were  outstanding at December 31, 1999 and 1998,
respectively.

In August 1998,  the Company's  lease  agreements  with P.T.  Garuda  ("Garuda")
relating to two MD-11  aircraft were  terminated  and the  aircraft,  which were
returned by Garuda in July 1998,  were sold, at estimated fair value,  to Boeing
for an aggregate  sales price of $162.8 million.  The Company  recorded a pretax
gain of $3.3  million,  which is included in net gain on disposal or re-lease of
assets.

In March 1998,  the  Company  entered  into a lease  agreement  with  Caledonian
Airways Limited (Caledonian) covering a DC-10-30 aircraft which requires monthly
rent  payments  of $0.4  million  through  2004.  Pursuant  to a  guaranty  from
McDonnell  Douglas to the  Company,  McDonnell  Douglas is to make  supplemental
rental  payments to the  Company of  approximately  $0.2 of the $0.4  million in
monthly rental  payments.  At December 31, 1999 and 1998, the carrying amount of
this aircraft was $20.1 million and $23.7  million,  respectively.

During 1997, the Company  purchased  aircraft  subject to leases  from  Boeing
and  McDonnell Douglas in the amount of $51.9  million.  There were no such
aircraft  purchases from Boeing or McDonnell  Douglas in 1998 or 1999.  During
1999,  1998 and 1997, the Company recorded operating income from Boeing and
McDonnell Douglas relating to  financings  aggregating  $4.2  million,  $7.1
million  and  $12.1  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 in 1997,  which was included in
net gain on disposal or re-lease of assets.

At December 31, 1999 and 1998, $241.8 million and $284.5 million,  respectively,
was guaranteed by McDonnell  Douglas for  commercial  aircraft  financing.  Fees
related to these  guaranties  that were paid to McDonnell  Douglas  totaled $0.6
million,  $1.0  million and $1.1 million in 1999,  1998 and 1997,  respectively.
During 1999, 1998 and 1997, the Company  collected $10.9 million,  $12.3 million
and $6.9 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, 1999 and
1998.

Substantially  all  employees  of Boeing  and its  subsidiaries  are  members of
defined benefit pension plans and insurance plans. Boeing also provides eligible
employees  the  opportunity  to  participate  in savings  plans that permit both
pretax and after-tax  contributions.  Boeing generally  charges the Company with
the actual cost of these plans attributable to the Company's employees which are
included  with other  Boeing  charges  for support  services  and  reflected  in
operating  expenses.  Boeing charges for services provided during 1999, 1998 and
1997  totaled  $0.8  million,  $1.6  million  and  $1.3  million,  respectively.
Additionally,  the Company was compensated by certain affiliates for a number of
support services, which are netted against operating expenses, amounting to $0.2
million, $0.6 million and $1.1 million in 1999, 1998 and 1997, respectively.

Note 12 -- 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-Term and Long-Term  Debt Carrying  amounts of borrowings  include  accrued
interest  and  exclude  netting of  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.

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.

Interest  Rate Hedges The fair values of the  Company's  interest rate swaps are
based on quoted market prices of comparable instruments.

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

<TABLE>
<CAPTION>
                                                                 1999                                   1998
                                               -------------------------------------------------------------------------------
                                                                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                    $     -        $    26.9    $   26.9    $   -      $     20.3   $    20.3
    Notes receivable                                   -            708.0       728.4        -           545.7       567.3

LIABILITIES
    Short-term notes payable to banks                  -           (271.6)     (271.6)       -          (237.0)     (237.0)
    Long-term debt:
       Senior, excluding capital lease
          obligations                                  -         (1,399.6)   (1,394.8)       -        (1,295.8)   (1,329.6)
       Subordinated                                    -            (46.5)      (48.7)       -           (56.8)      (60.5)

OFF-BALANCE SHEET INSTRUMENTS
    Commitments to extend credit                    (218.9)           -        (218.9)    (163.3)          -        (163.3)
    Interest rate swaps                              402.6            -           8.0      430.4           -         (16.1)
</TABLE>


Note 13 -- 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 $295.8
million  (10.2% of total Company  portfolio)  and $303.0 million (10.8% of total
Company  portfolio)  at  December  31, 1999 and 1998,  respectively.  The second
largest  commercial  aircraft  financing  customer  accounted for $170.2 million
(5.9% of total Company  portfolio) and $176.4 million (6.3% of total portfolio),
at  December  31,  1999 and  1998,  respectively.  The five  largest  commercial
aircraft  financing  customers  accounted  for  $840.9  million  (28.9% of total
Company  portfolio)  and $895.4  million  (32.0% of total Company  portfolio) at
December 31, 1999 and 1998,  respectively.  At December 31, 1999 and 1998, there
were no significant  concentrations by customer within the commercial  equipment
leasing portfolio.

In 1999,  1998 and 1997, a single  aircraft  financing  customer  accounted  for
10.5%,  13.6% and 16.8%,  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)                                                         1999               1998              1997
Operating income:
<S>                                                                      <C>                <C>               <C>
    Commercial aircraft financing                                        $       156.1      $       145.8     $        155.5
    Commercial equipment leasing                                                 128.5              113.5               88.0
    Other                                                                          0.1                0.3                2.6
    Corporate                                                                      0.5                0.5                0.3
                                                                         -----------------------------------------------------
                                                                         $       285.2      $       260.1     $        246.4
                                                                         =====================================================

Income (loss) before provision for income taxes:
    Commercial aircraft financing                                        $        77.7      $        58.9     $         58.7
    Commercial equipment leasing                                                  57.7               51.5               37.7
    Other                                                                         (0.1)               2.2               (0.2)
    Corporate                                                                     (8.6)              (8.0)              (8.4)
                                                                         -----------------------------------------------------
                                                                         $       126.7      $       104.6     $         87.8
                                                                         =====================================================

Identifiable assets at December 31:
    Commercial aircraft financing                                        $     1,502.5      $     1,632.5     $      1,728.8
    Commercial equipment leasing                                               1,529.8            1,223.1              973.3
    Other                                                                          2.4                1.1               17.9
    Corporate                                                                      8.9                4.7                2.8
                                                                         -----------------------------------------------------
                                                                         $     3,043.6      $     2,861.4     $      2,722.8
                                                                         =====================================================

Portfolio at December 31:
    Commercial aircraft financing                                        $     1,410.8      $     1,573.5     $      1,711.5
    Commercial equipment leasing                                               1,497.6            1,225.0              976.6
    Other                                                                          0.6                1.4               12.2
                                                                         -----------------------------------------------------
                                                                         $     2,909.0      $     2,799.9     $      2,700.3
                                                                         =====================================================

Depreciation expense - equipment under operating leases:
    Commercial aircraft financing                                        $        42.8      $        40.2     $         26.9
    Commercial equipment leasing                                                  29.2               30.4               34.2
                                                                         -----------------------------------------------------
                                                                         $        72.0      $        70.6     $         61.1
                                                                         =====================================================

Equipment acquired for operating leases, at cost:
    Commercial aircraft financing                                        $         -        $        75.3     $        146.5
    Commercial equipment leasing                                                  96.8               81.9              199.7
                                                                         -----------------------------------------------------
                                                                         $        96.8      $       157.2     $        346.2
                                                                         =====================================================
</TABLE>

Operating  income from  financing of assets  located  outside the United  States
totaled $62.2 million,  $64.5 million and $54.2 million in 1999,  1998 and 1997,
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>
       1999          $       62.1       $       7.4         $       -           $       (8.8)        $        60.7

       1998          $       55.9       $       7.4         $       1.3         $       (2.5)        $        62.1

       1997          $       48.6       $      11.5         $      (1.7)        $       (2.5)        $        55.9

   (1)   Write-offs, net of recoveries

</TABLE>

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

   None.


<PAGE>




                                     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' Report...................................25
              Consolidated Balance Sheets at December 31, 1999 and 1998......26
              Consolidated Statements of Income and Income Retained for
              Growth for the Years Ended December 31, 1999,
              1998 and 1997..................................................27
              Consolidated Statements of Cash Flows for the Years Ended
              December 31, 1999, 1998 and 1997...............................28
              Notes to Consolidated Financial Statements.....................29

      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. 33-58989).

      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,  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    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).
      10.4    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.

      10.5    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.

      10.6    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.

      10.7    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.     Computation of Ratio of Earnings to Fixed Charges.

      23.1    Independent Auditors' Consent.

      27.     Financial Data Schedule.

(b)           Reports on Form 8-K

              Form 8-K dated  October 4, 1999,  to report  under Item 5, a press
              release entitled "Boeing Reorganizes Product Financing Services."



<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 27, 2000                 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>                                              <C>
         /s/ DEBORAH C. HOPKINS
------------------------------------------
           Deborah C. Hopkins                              Chairman and Director                     March 27, 2000
                                                                                                  ----------------------


         /s/ THOMAS J. MOTHERWAY
------------------------------------------
           Thomas J. Motherway                            President and Director                     March 27, 2000
                                                                                                  ----------------------
      (Principal Executive Officer)


         /s/ THEODORE J. COLLINS
------------------------------------------
           Theodore J. Collins                                   Director                            March 27, 2000
                                                                                                  ----------------------


           /s/ ALAN R. MULALLY                                   Director                            March 27, 2000
------------------------------------------                                                        ----------------------
             Alan R. Mulally


           /s/ JAMES F. PALMER
------------------------------------------
             James F. Palmer                                     Director                            March 27, 2000
                                                                                                  ----------------------


        /s/ WALTER E. SKOWRONSKI
------------------------------------------
          Walter E. Skowronski                                   Director                            March 27, 2000
                                                                                                  ----------------------


         /s/ STEVEN W. VOGEDING
------------------------------------------
           Steven W. Vogeding                   Vice President and Chief Financial Officer           March 27, 2000
                                                                                                  ----------------------
      (Principal Financial Officer)


         /s/ MAURA R. MIZUGUCHI
------------------------------------------
           Maura R. Mizuguchi                                   Controller                           March 27, 2000
                                                                                                   ----------------------
     (Principal Accounting Officer)

</TABLE>