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United States
Securities and Exchange Commission

Washington, D.C. 20549

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Form 10-K

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

For the fiscal year ended December 31, 2002

OR

o Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from  to

Commission
File Number 0-10795

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

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

500 Naches Ave., SW, 3rd Floor  Renton, Washington 98055(Address of principal executive offices)

(425) 393-2914(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 to be filed 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 ý No
o

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. ý

No
Common Stock is held by non-affiliates of the registrant.

Common
shares outstanding at February 27, 2003: 50,000 shares

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.

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Table of Contents

|         |          |            |                                                                                       | Page
|-------- | -------- | ---------- | ------------------------------------------------------------------------------------- | ----
|Part I   |          |            |                                                                                       |     
|         | Item 1.  |            | Business                                                                              |     
|         | Item 2.  |            | Properties                                                                            |     
|         | Item 3.  |            | Legal Proceedings                                                                     |     
|         | 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                 |     
|         | Item 6.  |            | Selected Financial Data                                                               |     
|         | Item 7.  |            | Management's Discussion and Analysis of Financial Condition and Results of Operations |     
|         | Item 7A. |            | Quantitative and Qualitative Disclosures About Market Risk                            |     
|         | Item 8.  |            | Financial Statements and Supplementary Data                                           |     
|         | Item 9.  |            | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |     
|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 *                                      |     
|         | Item 14. |            | Controls and Procedures                                                               |     
|Part IV  |          |            |                                                                                       |     
|         | Item 15. |            | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |     
|         |          | Signatures |                                                                                       | 75  
|         |          | Exhibits   |                                                                                       | 78  

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2

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Part I

Item 1. Business

GENERAL

Boeing Capital Corporation (together with its subsidiaries, the "Company") is an indirect wholly owned subsidiary of 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, 2002 included two principal financial reporting segments: Aircraft Financial Services and Commercial Financial Services. Currently, Aircraft Financial Services is active in
providing lease and debt financing to domestic and international airlines. Commercial Financial Services provides lease and loan financing to a broad range of commercial and industrial customers. The
Company also assists Boeing in arranging and structuring transactions to meet the financing needs of its commercial aircraft and space and defense customers. The principal executive offices of the
Company are located in Renton, Washington.

The
Company's portfolio consists of financing leases, notes and other receivables, equipment under operating leases (net of accumulated depreciation), investments and equipment held for
sale or re-lease (net of accumulated depreciation).

The
Company attempts to fund its business such that scheduled receipts from the portfolio will generally correspond to its expenses and debt payments as they become due. The Company
satisfies a significant portion of its cash requirements from diversified global funding sources and is not dependent on any one lender. The Company increased the diversification of its borrowing this
year by adding retail and foreign medium-term note programs and securitizations as funding sources. The Company plans to finance future activities through internally generated funds,
issuance of debt and
commercial paper and securitization programs. The Company believes it has adequate liquidity and access to the capital markets to allow the Company to fulfill its commitments.

Information
on the Company's principal segments is included in the following tables:

New Business Volume(1)

|                              |  | Years Ended December 31,
|----------------------------- |  | ------------------------
|
|
|Aircraft Financial Services   |  | $                       
|Commercial Financial Services |  |                         
|Other                         |  |                         
|                              |  |                         
|                              |  | $                       
|                              |  |                         

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Portfolio Balances

|                              |  | December 31,
|----------------------------- |  | ------------
|
|
|Aircraft Financial Services   |  | $           
|Commercial Financial Services |  |             
|Other                         |  |             
|                              |  |             
|                              |  | $           
|                              |  |             

3

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Other
is comprised of Space and Defense Financial Services, which provides lease and loan financing and advisory services for military-related products and commercial space systems.

The
following table summarizes the net change in total Company portfolio over the last three years:

|(Dollars in millions)                       |                                 | 2002 |          | 2001    |   | 2000    |        
|------------------------------------------- | ------------------------------- | ---- | -------- | ------- | - | ------- | -------
|New business volume                         |                                 | $    | 3,415.1  |         | $ | 3,906.4 |        
|Financing assets transferred from Boeing(1) |                                 |      | 385.6    |         |   | 583.1   |        
|Asset run-off                               |                                 |      | (1,012.8 | )       |   | (597.9  | )      
|Depreciation expense                        |                                 |      | (223.4   | )       |   | (149.7  | )      
|                                            |                                 |      |          |         |   |         |        
|                                            | Net change in portfolio balance |      | $        | 2,564.5 |   | $       | 3,741.9
|                                            |                                 |      |          |         |   |         |        

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Impact of Boeing's Customer Financing Consolidation

In 2000, Boeing began consolidating all of Boeing's aircraft customer financing portfolio into the Company. The financing portfolio consisted of lease and loan
agreements and the related receivables and assets.

During
the first quarter of 2000, the Company acquired certain tangible assets and assumed certain liabilities of Boeing and certain subsidiaries of Boeing, pursuant to a Term Sheet
dated as of January 1, 2000, as well as the various definitive asset transfer agreements dated as of March 31, 2000 (collectively referred to as the "Transfer Agreements"). Under the
terms of the Transfer Agreements, the Company acquired, effective as of January 1, 2000, a significant portion of Boeing's aircraft customer financing portfolio, including lease and loan
agreements and the related receivables and assets (the "Portfolio"). This transfer was not accounted for as new business volume. The purchase price was paid in the form of promissory notes, dated
January 1, 2000, in the aggregate principal amount of $1,261.9 million, together with an equity contribution to the Company of $50.1 million. The Company recorded an intercompany
receivable for $17.3 million from Boeing in consideration for which the Company assumed Boeing's deferred taxes with respect to the Portfolio. The promissory notes were paid in full during the
third quarter of 2000.

During
2001, the Company acquired certain tangible assets and liabilities of Boeing and certain subsidiaries of Boeing. The net assets transferred were $780.1 million, with equity
contributions of $375.1 million. Of the transfers, $359.5 million was accounted for as new business volume, representing new financing in 2001.

During
2002, the Company acquired certain tangible assets and liabilities of Boeing and certain subsidiaries of Boeing. The net assets transferred were $380.6 million, with equity
contributions of $194.9 million. These transfers were not treated as new business volume as they did not represent new financing in 2002.

AIRCRAFT FINANCIAL SERVICES SEGMENT

Aircraft Financial Services, primarily located at the Company's headquarters in Renton, Washington, provides financing to buy or lease commercial jet airplanes
and represented 77.5% of the Company's total portfolio at December 31, 2002. Services provided by Aircraft Financial Services extend to new and used Boeing and non-Boeing airplanes.
Aircraft Financial Services assists Boeing commercial aircraft customers in arranging financing. This segment also operates in four international offices: Stockholm, Sweden; Brussels, Belgium; Dublin,
Ireland; and Hong Kong, China. The Company's strategy is to generate and participate in finance transactions in which the Company's

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transaction structuring and financial expertise can provide satisfactory returns on its invested capital and to assist in arranging financing for Boeing's customers. Aircraft Financial Services also
invests in used aircraft for lease to commercial airlines where such investments can be structured to provide a satisfactory return on invested capital. The Aircraft Financial Services portfolio also
includes investments in pass-through certificates, such as Enhanced Equipment Trust Certificates ("EETCs"). These investments principally relate to subordinated tranches of the
pass-through arrangements.

Current Commercial Aircraft Market Conditions

The airline industry has been impacted by the worldwide economic downturn that began in 2000 and is continuing. In addition, the industry suffered a tremendous
shock from the terrorist attacks on September 11, 2001, especially the major U.S. domestic airlines. Air travel volume in most regions of the world has not recovered to 2000 levels and
passenger revenue yields remain depressed, which have negatively impacted profitability of the industry, especially full service domestic carriers. Additional costs related to strengthening airline
security in the aftermath of September 11, 2001 have also impacted domestic airline profitability. European full service airlines are performing somewhat better, while Asian carriers are
clearly the strongest. Most low cost carriers are financially healthier than their full service counterparts.

The
domestic airline industry lost an estimated $11.0 billion during 2002. Two major domestic carriers, U.S. Airways and United Airlines, declared bankruptcy. Most other major
airlines are also restructuring by reducing flights, parking aircraft, and implementing cost savings initiatives, including attempting to renegotiate current labor contracts and lease and financing
agreements, in an attempt to generate acceptable profit margins.

Airline
industry conditions directly impact the Company in terms of the number of new aircraft deliveries and financing opportunities, the ability of existing customers to meet current
payment obligations, and the value of aircraft in its portfolio. In addition, traditional financing sources such as EETCs and leveraged leases may not be available to airlines in the near term,
potentially increasing the necessity of the Company to finance aircraft deliveries to airlines that are unable to otherwise obtain financing. The Company attempts to mitigate the increased credit risk
on such lender of last resort financing by reducing the amount financed on an individual aircraft, adjusting payment profiles, cross-collateralizing to other transactions and/or utilizing other risk
mitigation techniques.

The
continuing decline in the credit condition of airline customers, the decline in the value of aircraft collateral, and depressed lease rates were primarily responsible for the Company
recognizing non-cash charges in 2002 to strengthen its allowance for losses on receivables and recognize impairments on certain assets. Any additional impacts may be dependent upon the
duration of the current economic and airline industry decline, or any significant defaults, repossessions or restructuring at a time when depressed aircraft values and lease rates make it difficult to
sell or redeploy such aircraft.

A
war with Iraq would likely cause a further reduction in airline traffic. The impact of such a conflict on the airline industry would likely depend upon its duration; a prolonged
conflict in the region could materially impact the already weak demand for air travel and could also increase the price of jet fuel. Likewise, air travel demand may also be negatively impacted by
additional terrorist threats or attacks.

Aircraft
owned or financed by the Company may become significantly less valuable due to the discontinuation of existing aircraft models or the introduction of new aircraft models that
may be more economical to operate, the aging of particular aircraft or technological obsolescence.

For
a discussion of specific customers within the Aircraft Financial Services portfolio, see "Significant Concentrations and Restructurings."

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Factors Affecting Aircraft Financial Services Volume

At December 31, 2002, the Aircraft Financial Services segment had commitments to provide leasing and other financing related to commercial aircraft
totaling $479.5 million. Of the $479.5 million of commercial aircraft commitments, up to $179.5 million may be funded in less than one year and an additional $300.0 million
may be funded in one to three years. Additionally, Boeing and Boeing Capital Services Corporation (see "Relationship with Boeing and Boeing Capital Services Corporation") had unfunded commercial
aircraft financing commitments of $2,898.0 million at December 31, 2002. The Company anticipates that not all these commitments will be utilized based on its historical experience.
However, if all commitments were to be funded, up to $1,428.0 million may be funded in less than one year, an additional $1,449.0 million may be funded in one to three years and an
additional $21.0 million may be funded after five years. It is expected that the Company will ultimately fund a portion of such commitments. Certain of those funded may be subject to receiving
such credit enhancements or other guarantee support from Boeing as the Company may require in order to meet its underwriting and investment criteria.

The
Company generally enters into agreements or commitments to purchase commercial aircraft only when such aircraft are subject to a signed lease contract or signed commitment letter
from an airline.

The
following table lists information on new business volume(1) by product type for the Company's Aircraft Financial Services segment:

|                                 |  | Years Ended December 31,
|-------------------------------- |  | ------------------------
|
|
|Financing leases                 |  | $                       
|Notes and other receivables      |  |                         
|Equipment under operating leases |  |                         
|Investments                      |  |                         
|                                 |  |                         
|                                 |  | $                       
|                                 |  |                         

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Aircraft Financial Services Portfolio

The Aircraft Financial Services portfolio consisted of the following aircraft types(1) at December 31:

|(Dollars in millions)           |  | Receivables(2) |         | Operating
Leases(2) |   | Investments(5) |  | Held for Sale or
Re-Lease |       | Total
|------------------------------- |  | -------------- | ------- | ------------------- | - | -------------- |  | ------------------------- | ----- | -----
|2002                            |  |                |         |                     |   |                |  |                           |       |      
|B-717                           |  | $              | 1,837.7 |                     | $ | 122.6          |  | $                         |      |      
|B-737                           |  |                | 81.0    |                     |   | 704.7          |  |                           |      |      
|B-747                           |  |                | 240.4   |                     |   | 246.8          |  |                           |      |      
|B-757                           |  |                | 819.6   |                     |   | 332.6          |  |                           |      |      
|B-767                           |  |                | 319.0   |                     |   | 309.2          |  |                           |      |      
|B-777                           |  |                | 1,076.5 |                     |   |               |  |                           |      |      
|DC-9(3)                         |  |                | 95.2    |                     |   | 6.4            |  |                           |      |      
|MD-80(3)                        |  |                | 390.9   |                     |   | 117.7          |  |                           |      |      
|MD-90(3)                        |  |                | 118.7   |                     |   |               |  |                           |      |      
|DC-10(3)                        |  |                | 61.8    |                     |   | 56.9           |  |                           |      |      
|MD-11(3)                        |  |                | 174.7   |                     |   | 717.1          |  |                           |      |      
|Other Aircraft and Equipment(4) |  |                | 418.0   |                     |   | 58.2           |  |                           |      |      
|Asset Pools(6)                  |  |                |        |                     |   |               |  |                           | 474.4 |      
|Other(7)                        |  |                |        |                     |   |               |  |                           | 43.2  |      
|                                |  |                |         |                     |   |                |  |                           |       |      
|                                |  | $              | 5,633.5 |                     | $ | 2,672.2        |  | $                         | 517.6 |      
|                                |  |                |         |                     |   |                |  |                           |       |      

6

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|2001                            |  |   |         |  |   |         |  |   |       |  |   |       |  |   |        
|------------------------------- |  | - | ------- |  | - | ------- |  | - | ----- |  | - | ----- |  | - | -------
|B-717                           |  | $ | 1,390.4 |  | $ | 128.4   |  | $ |      |  | $ |      |  | $ | 1,518.8
|B-737                           |  |   | 121.2   |  |   | 583.0   |  |   |      |  |   | 19.2  |  |   | 723.4  
|B-747                           |  |   | 135.7   |  |   | 143.6   |  |   |      |  |   |      |  |   | 279.3  
|B-757                           |  |   | 505.5   |  |   | 186.8   |  |   |      |  |   | 35.5  |  |   | 727.8  
|B-767                           |  |   | 162.3   |  |   | 227.2   |  |   |      |  |   | 43.2  |  |   | 432.7  
|B-777                           |  |   | 523.9   |  |   |        |  |   |      |  |   |      |  |   | 523.9  
|DC-9(3)                         |  |   | 151.7   |  |   |        |  |   |      |  |   | 1.1   |  |   | 152.8  
|MD-80(3)                        |  |   | 360.9   |  |   | 136.2   |  |   |      |  |   | 13.0  |  |   | 510.1  
|MD-90(3)                        |  |   | 124.2   |  |   | 18.7    |  |   |      |  |   | 19.1  |  |   | 162.0  
|DC-10(3)                        |  |   | 42.7    |  |   | 50.6    |  |   |      |  |   | 16.6  |  |   | 109.9  
|MD-11(3)                        |  |   | 272.0   |  |   | 534.0   |  |   |      |  |   | 231.0 |  |   | 1,037.0
|Other Aircraft and Equipment(4) |  |   | 243.7   |  |   | 62.0    |  |   |      |  |   | 17.4  |  |   | 323.1  
|Asset Pools(6)                  |  |   |        |  |   |        |  |   | 164.7 |  |   |      |  |   | 164.7  
|Other(7)                        |  |   |        |  |   |        |  |   | 40.5  |  |   |      |  |   | 40.5   
|                                |  |   |         |  |   |         |  |   |       | 
|                                |  | $ | 4,034.2 |  | $ | 2,070.5 |  | $ | 205.2 |  | $ | 396.1 |  | $ | 6,706.0
|                                |  |   |         |  |   |         |  |   |       | 
|2000                            |  |   |         |  |   |         |  |   |       |  |   |       |  |   |        
|B-717                           |  | $ | 134.1   |  | $ | 112.5   |  | $ |      |  | $ |      |  | $ | 246.6  
|B-737                           |  |   | 98.2    |  |   | 328.8   |  |   |      |  |   |      |  |   | 427.0  
|B-747                           |  |   | 91.2    |  |   |        |  |   |      |  |   |      |  |   | 91.2   
|B-757                           |  |   | 187.9   |  |   | 143.2   |  |   |      |  |   |      |  |   | 331.1  
|B-767                           |  |   | 151.0   |  |   | 285.8   |  |   |      |  |   |      |  |   | 436.8  
|B-777                           |  |   | 48.2    |  |   |        |  |   |      |  |   |      |  |   | 48.2   
|DC-9(3)                         |  |   | 30.9    |  |   |        |  |   |      |  |   | 6.6   |  |   | 37.5   
|MD-80(3)                        |  |   | 226.3   |  |   | 124.1   |  |   |      |  |   | 12.6  |  |   | 363.0  
|MD-90(3)                        |  |   | 162.7   |  |   |        |  |   |      |  |   |      |  |   | 162.7  
|DC-10(3)                        |  |   | 33.7    |  |   | 38.3    |  |   |      |  |   | 19.1  |  |   | 91.1   
|MD-11(3)                        |  |   | 276.7   |  |   | 659.6   |  |   |      |  |   |      |  |   | 936.3  
|Other Aircraft and Equipment(4) |  |   | 109.0   |  |   | 58.0    |  |   |      |  |   | 20.2  |  |   | 187.2  
|Asset Pools(6)                  |  |   |        |  |   |        |  |   | 128.6 |  |   |      |  |   | 128.6  
|Other(7)                        |  |   |        |  |   |        |  |   | 55.2  |  |   |      |  |   | 55.2   
|                                |  |   |         |  |   |         |  |   |       | 
|                                |  | $ | 1,549.9 |  | $ | 1,750.3 |  | $ | 183.8 |  | $ | 58.5  |  | $ | 3,542.5
|                                |  |   |         |  |   |         |  |   |       | 

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At December 31, 2002, the Company owned 317 commercial aircraft and had partial ownership or security interest in an additional 223 aircraft, including those owned in joint
ventures, EETC and other investment transactions.

At
December 31, 2002, $8,106.9 million (94.3%) of the Aircraft Financial Services portfolio, excluding investments, was collateralized by Boeing products.

At
December 31, 2002, the Aircraft Financial Services portfolio (excluding investments) was comprised of the following aircraft vintages:

20021998

60.4
%19971993

15.219921988

14.419871983

5.81982 and older

3.5Secured by other collateral

0.7100.0
%


Aircraft Financial Services Portfolio by Product Type and Location

|                                                                       |          | December 31,
|---------------------------------------------------------------------- | -------- | ------------
|
|
|Financing leases:                                                      |          |             
|                                                                       | Domestic |             
|                                                                       | Foreign  |             
|                                                                       |          |             
|                                                                       |          |             
|                                                                       |          |             
|Notes and other receivables:                                           |          |             
|                                                                       | Domestic |             
|                                                                       | Foreign  |             
|                                                                       |          |             
|                                                                       |          |             
|                                                                       |          |             
|Equipment under operating leases (net of accumulated depreciation):    |          |             
|                                                                       | Domestic |             
|                                                                       | Foreign  |             
|                                                                       |          |             
|                                                                       |          |             
|                                                                       |          |             
|Investments:                                                           |          |             
|                                                                       | Domestic |             
|                                                                       | Foreign  |             
|                                                                       |          |             
|                                                                       |          |             
|                                                                       |          |             
|Equipment held for sale or re-lease (net of accumulated depreciation): |          |             
|                                                                       | Domestic |             
|                                                                       |          |             
|                                                                       |          | $           
|                                                                       |          |             

Aircraft Financial Services Guarantees

At December 31, 2002, the Company was the beneficiary under $2,662.6 million of guarantees with respect to the Aircraft Financial Services portfolio
relating to transactions totaling $4,135.8 million. Any

8

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guarantee calls by the Company would be net of realization of underlying residual values, partial rent payments, re-lease rental payments or other mitigating value received.

The
guarantees in favor of the Company are both full and partial in nature and include, but are not limited to, residual value guarantees, first loss deficiency guarantees and rental
guarantees. Residual value guarantees provide a specified asset value at the end of a lease agreement in the event of a decline in market value of the financed aircraft. First loss deficiency
guarantees cover a specified portion of the Company's losses on aircraft financed by the Company in the event of a loss upon disposition of the aircraft following a default by the lessee. Rental
guarantees are whole or partial guarantees covering the Company against the lessee's failure to pay rent under the lease agreement or the Company's ability to re-lease these aircraft at or
above a specified rent level.

The
following table summarizes such guarantees:

|(Dollars in millions)  |                         | Domestic
Airlines |         | Foreign
Airlines |   | Total
|---------------------- | ----------------------- | ----------------- | ------- | ---------------- | - | -----
|Amounts guaranteed by: |                         |                   |         |                  |   |      
|                       | Boeing and subsidiaries |                   | $       | 2,180.8          |   | $    
|                       | Other(1)                |                   |         | 18.1             |   |      
|                       |                         |                   |         |                  |   |      
|                       |                         | $                 | 2,198.9 |                  | $ | 463.7
|                       |                         |                   |         |                  |   |      

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Guarantee
amounts by aircraft type at December 31, 2002 are summarized as follows:

|(Dollars in millions)                   |  | Guarantee |         | Net Asset Value
|--------------------------------------- |  | --------- | ------- | ---------------
|B-717                                   |  | $         | 1,196.6 |                
|Out of production twin-aisle aircraft   |  |           | 445.7   |                
|Out of production single-aisle aircraft |  |           | 104.7   |                
|Other Boeing and regional aircraft      |  |           | 915.6   |                
|                                        |  |           |         |                
|                                        |  | $         | 2,662.6 |                
|                                        |  |           |         |                

During
the year ended December 31, 2002, the Company recognized income of $60.1 million under these guarantees, all of which were from Boeing. Additionally, as provided for
under the terms of the intercompany guarantee agreements, Boeing recorded charges of $226.0 million for the year ended December 31, 2002, related to asset impairments and adjustments to
its allowance for losses on receivables in the Company's portfolio.

Significant Concentrations and Restructurings

A substantial portion of the Company's total portfolio is concentrated among the Aircraft Financial Services customers. Four of the Aircraft Financial Services
customers each accounted for more than 5.0% of the total Company portfolio at December 31, 2002.

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The
following table includes the five largest Aircraft Financial Services customers at December 31, 2002, with their related portfolio balances at December 31, 2001:

|          |  | December 31, 2002 |         | December 31, 2001 |     
|--------- |  | ----------------- | ------- | ----------------- | ----
|
|United    |  | $                 | 1,190.2 |                   | 10.1
|AirTran   |  |                   | 1,068.7 |                   | 9.1 
|Boeing(1) |  |                   | 878.4   |                   | 7.5 
|ATA       |  |                   | 610.6   |                   | 5.2 
|Hawaiian  |  |                   | 476.1   |                   | 4.0 
|          |  |                   |         |                   |     
|          |  | $                 | 4,224.0 |                   |     
|          |  |                   |         |                   |     

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At
December 31, 2002 and 2001, the Company's largest customer, United Airlines ("United"), accounted for $1,190.2 million and $741.8 million, respectively, of total
Company portfolio. At December 31, 2002, the United portfolio was secured by security interests in two B-767s and 13 B-777s and by an ownership and security interest in
five B-757s.

United
filed for Chapter 11 bankruptcy protection on December 9, 2002. Although on February 7, 2003 United agreed to perform under the loan agreements securing the
B-767s and B-777s bringing its payments under those agreements current, negotiations with United continue on a full restructuring of the various transactions. Future
negotiations may result in changes to the agreements under which United has agreed to perform, as well as to the B-757 transactions. So long as United remains in bankruptcy, United has the
right to reject or abandon its transactions with the Company. In the event that future negotiations or proceedings result in the return of a substantial number of aircraft, there could be a material
adverse effect on the Company's earnings, cash flows or financial position at least until such time as the aircraft are sold or redeployed for adequate consideration.

At
December 31, 2002 and 2001, the Company's second largest customer, AirTran Holdings, Inc. ("AirTran"), accounted for $1,068.7 million and $651.5 million,
respectively, of total Company portfolio. Investments in AirTran EETCs, securities convertible into common stock and common stock
aggregating $40.0 million and $46.4 million at December 31, 2002 and 2001, respectively, are also included in the AirTran portfolio. On October 23, 2002, Boeing announced
that AirTran signed an agreement with the Company to lease 22 of the 24 B-717 aircraft returned by American Airlines, Inc. ("American"). The aircraft are scheduled for delivery in
2003.

At
December 31, 2002 and 2001, the Company's third largest customer, Boeing, accounted for $878.4 million and $217.9 million, respectively, of total Company
portfolio. The majority of this customer's balance is related to the Aircraft Financial Services portfolio. During the second quarter of 2002, American returned 24 B-717 aircraft. Boeing
guarantees a substantial portion of the rental streams of these aircraft; thus, in effect, Boeing became the lessee under these leases. On October 23, 2002, Boeing announced that AirTran signed
an agreement with the Company to lease 22 of the 24 aircraft returned by American. The aircraft are scheduled for delivery in 2003. The remaining two aircraft were placed on lease to another airline
during October 2002.

At
December 31, 2002 and 2001, the Company's fourth largest customer, American Trans Air Holdings Corp. ("ATA"), accounted for $610.6 million and $311.0 million,
respectively, of total Company portfolio. An investment in ATA mandatorily redeemable preferred stock with a face amount of $50.0 million is also included in the ATA portfolio at its carrying
value. On November 20, 2002, ATA received a loan of $168.0 million administered by the Airline Transportation Stabilization Board

10

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("ATSB"). Based on publicly available reports, ATA experienced a net loss of $169.3 million for the year ended December 31, 2002.

At
December 31, 2002 and 2001, the Company's fifth largest customer, Hawaiian Holdings, Inc. ("Hawaiian"), accounted for $476.1 million and $330.3 million,
respectively, of total Company portfolio. Hawaiian's results for the year ended December 31, 2002 were not publicly available as of the filing date. Hawaiian has requested a significant
restructuring of its transactions with the Company. If Hawaiian defaults under these transactions or a significant restructuring occurs, it may result in a material adverse impact on the Company's
earnings, cash flows or financial position.

At
December 31, 2002 and 2001, one of the Company's ten largest customers, American, accounted for $381.3 million and $987.4 million, respectively, of total Company
portfolio. Based on publicly available reports, American experienced a net loss of $3.5 billion for the year ended December 31, 2002. At December 31, 2002, the American portfolio
consisted of leases of 39 MD-83s, four MD-82s, two B-757s and subordinated debt in one B-777. In addition, Boeing has provided backstop loan
financing for 2003 deliveries that are comprised of nine B-767 and two B-777 aircraft in the maximum amount of $575.0 million. The backstop loan financing for the final
delivery payments that may be exercised on individual deliveries at the option of American is secured by the delivered aircraft. As of the filing date, American has exercised the option for delivery
financing on three B-767 aircraft. The Company believes that such delivery payment loans are adequately collateralized.

As
part of American's internal restructuring and cost reduction initiatives, American has recently publicly stated its intention to approach its labor unions, aircraft lessors, lenders
and suppliers for cost reductions. The Company has recently been requested to reduce lease rates on certain American leases. The Company is in the process of evaluating this request and has not yet
formulated a response.

At
December 31, 2002 and 2001, another one of the Company's ten largest customers, Viacao Aerea Rio-Grandense ("VARIG"), accounted for $451.9 million and
$378.7 million, respectively, of total Company portfolio. VARIG has defaulted on its obligations under leases with the Company in recent years, which has resulted in deferrals and
restructurings. Boeing, on behalf of its affiliates, and VARIG entered into a memorandum of understanding to restructure several existing leases in 2001. Some of the lease amendments contemplated by
the memorandum of understanding are still being finalized. Certain leases will have their terms extended and rents reduced. VARIG is not current on payments due under its transactions with the
Company. On November 25, 2002, VARIG announced that its board of directors resigned after a major stakeholder of VARIG rejected an accord to renegotiate $900.0 million of debt. VARIG
also announced that the airline will undergo a restructuring effort and that it may enter into a merger with TAM Linhas Aereas, SA, another major Brazilian airline. Boeing has provided the Company
with first loss deficiency and partial lease rental guarantees covering $338.9 million of the VARIG obligations. Taking into account these guarantees, the Company does not expect the VARIG
transactions, including the impact of any restructurings, to have a material adverse effect on the Company's earnings, cash flows or financial position.

The
Company has reviewed its obligations due from its customers for collectibility and has established specific or general allowances as deemed necessary by the Company. A number of the
Company's customers, including several of its larger customers, have requested a restructuring of their transactions with the Company. While the Company has not reached agreement on any restructuring
requests that would have a material adverse impact on the Company's earnings, cash flows or financial position, there can be no assurance that such requests, negotiations or defaults (including
bankruptcies) by the Company's customers will not have a material adverse impact on the Company's earnings, cash flows or financial position.

11

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COMMERCIAL FINANCIAL SERVICES SEGMENT

Commercial Financial Services offers lease and loan financing, secured primarily by personal property. In addition, Commercial Financial Services participates in
senior secured bank loans. Commercial Financial Services seeks to obtain business through direct solicitation by its marketing personnel and maintains its principal operations in Long Beach,
California with marketing offices in Atlanta, Georgia; Chicago, Illinois; Detroit, Michigan; Long Beach, California; Austin, Texas; Boston, Massachusetts; Baltimore, Maryland; and New York, New York.
Commercial Financial Services' portfolio encompasses multiple industries and a wide range of equipment, including executive aircraft, machine tools and production equipment, containers and marine
equipment, chemical, oil and gas equipment and other equipment types. Terms are generally between three and ten years, and transaction sizes usually range
between $5.0 million and $50.0 million. Commercial Financial Services represented 21.6% of the Company's total portfolio at December 31, 2002.

Current Commercial Finance Market Conditions

The commercial finance market has been negatively affected by the sluggish global economy. This environment has resulted in a decline in capital expenditures and
overall customer credit degradation.

The
Commercial Financial Services portfolio is diversified with no one industry comprising a majority of the portfolio. Executive aircraft and manufacturing equipment represented 37.4%
and 21.7%, respectively, of the Commercial Financial Services portfolio at December 31, 2002; however, these equipment types are financed over a wide range of industries, and no other equipment
type represented more than 10.0% of the Commercial Financial Services portfolio. The new business volume for Commercial Financial Services fell from $936.5 million to $539.5 million from
2001 to 2002 primarily as a result of the current economic climate.

Factors Affecting Commercial Financial Services Volume

The commercial finance market in which the Company generally operates is highly competitive. A key factor in the Company's ability to compete in the commercial
finance market is its comparative borrowing costs relative to its competitors. See "Borrowing Operations" for further discussion on the Company's borrowing activities. The following table lists
information on new business volume for the Company's Commercial Financial Services segment:

|                                 |  | Years Ended December 31,
|-------------------------------- |  | ------------------------
|
|
|Financing leases                 |  | $                       
|Notes and other receivables      |  |                         
|Equipment under operating leases |  |                         
|                                 |  |                         
|                                 |  | $                       
|                                 |  |                         

New
business volume related to business with foreign lessees or borrowers was $22.3 million (4.1%), $332.5 million (35.5%) and $99.0 million (13.9%) for 2002, 2001
and 2000, respectively. For discussion of additional risks associated with foreign financing, see "Cross-Border Outstandings."

At
December 31, 2002, Commercial Financial Services had commitments to provide leasing and other financing of $81.4 million. The Company anticipates that not all these
commitments will be utilized based on its historical experience. However, if all commitments were to be funded, it would occur in less than one year.

12

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Commercial Financial Services Portfolio

Portfolio balances for the Company's Commercial Financial Services segment are summarized as follows:

|                                                                     |  | December 31,
|-------------------------------------------------------------------- |  | ------------
|
|
|Financing leases                                                     |  | $           
|Notes and other receivables                                          |  |             
|Equipment under operating leases, net of accumulated depreciation    |  |             
|Equipment held for sale or re-lease, net of accumulated depreciation |  |             
|                                                                     |  |             
|                                                                     |  | $           
|                                                                     |  |             

CONSOLIDATED PORTFOLIO

Portfolio Quality

|                                                                     |                                                                                  | December 31,    |        
|-------------------------------------------------------------------- | -------------------------------------------------------------------------------- | --------------- | -------
|
|
|Receivables:                                                         |                                                                                  |                 |        
|                                                                     | Financing leases                                                                 |                 | $      
|                                                                     | Notes and other receivables                                                      |                 |        
|                                                                     |                                                                                  |                 |        
|                                                                     |                                                                                  |                 | 7,427.5
|Equipment under operating leases, net of accumulated depreciation    |                                                                                  |                 | 3,506.3
|Investments                                                          |                                                                                  |                 | 517.6  
|Equipment held for sale or re-lease, net of accumulated depreciation |                                                                                  |                 | 310.8  
|                                                                     |                                                                                  |                 |        
|                                                                     |                                                                                  | Total portfolio |        
|                                                                     |                                                                                  |                 |        
|Non-performing assets:                                               |                                                                                  |                 |        
|                                                                     | Nonaccrual receivables                                                           |                 | $      
|                                                                     | Non-performing equipment under operating leases, net of accumulated depreciation |                 |        
|                                                                     | Equipment held for sale or re-lease, net of accumulated depreciation             |                 |        
|                                                                     |                                                                                  |                 |        
|                                                                     |                                                                                  | $               | 545.1  
|                                                                     |                                                                                  |                 |        
|Ratio of nonaccrual receivables to total receivables                 |                                                                                  |                 | 2.3    
|Ratio of total non-performing assets to total portfolio              |                                                                                  |                 | 4.6    

At
December 31, 2002, 2001 and 2000, receivables greater than 90 days past due with income still accruing, based on the strength of the collateral, were
$1.6 million, $33.8 million and $116.8 million, respectively.For the year ended December 31, 2002, the Company did not
receive any significant cash related to the 2002 receivables. In addition, at December 31, 2002, 2001 and 2000, equipment under operating leases with a carrying amount of $19.2 million,
$531.7 million and $94.4 million, respectively, had amounts greater than 90 days past due with income still accruing. For the year ended December 31, 2002, the Company
received cash of $4.6 million related to the 2002 operating leases.

13

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Allowance For Losses On Receivables and Credit Loss Experience

|                                                         |                                                                                     | December 31, |      
|-------------------------------------------------------- | ----------------------------------------------------------------------------------- | ------------ | -----
|
|
|Allowance for losses on receivables at beginning of year |                                                                                     | $            | 139.5
|Provision for losses                                     |                                                                                     |              | 136.2
|Write-offs, net of recoveries                            |                                                                                     |              | (17.8
|Allowance transferred from Boeing and BCSC               |                                                                                     |              | 2.1  
|Other                                                    |                                                                                     |              |     
|                                                         |                                                                                     |              |      
|Allowance for losses on receivables at end of year       |                                                                                     | $            | 260.0
|                                                         |                                                                                     |              |      
|Allowance as percent of total receivables                |                                                                                     |              | 3.5  
|Net write-offs as percent of average receivables         |                                                                                     |              | 0.3  
|More than 90 days delinquent:                            |                                                                                     |              |      
|                                                         | Amount of delinquent installments                                                   |              | $    
|                                                         | Total receivables due from delinquent obligors                                      |              | $    
|                                                         | Total receivables due from delinquent obligors as a percentage of total receivables |              |      

The
Company's portfolio at the end of 2002 totaled $11.8 billion, of which $8.5 billion was related to Boeing products, primarily commercial aircraft. The continuing
effects of the current airline industry downturn have caused significant reductions in commercial aircraft values. Older and/or out-of-production aircraft types have
experienced the most significant declines in value, while newer aircraft types have seen more moderate declines. Published sources and recent market transactions indicate that values for various
aircraft types used as collateral in the Company's portfolio remain depressed. At the same time, the credit ratings of many airlines, particularly in the United States, have continued to deteriorate.
Each quarter, the Company reviews customer credit ratings, published historical credit default rates and third-party aircraft valuations as a basis to validate the reasonableness of the allowance for
losses on receivables. Although there were no significant airline-related receivable write-offs in 2002, the Company determined that an increase in the allowance for losses on receivables
was warranted in light of deteriorating customer credit ratings and liquidity, as well as the decline in aircraft values. At December 31, 2002, United was not 90 days delinquent and
therefore not included in the delinquency amounts. During 2002, the Company recorded an additional provision for losses of $100.0 million to strengthen the allowance for losses on receivables.
As a result of these adjustments, the allowance at December 31, 2002 increased to 3.5% of total receivables, up from 2.4% at December 31, 2001.

14

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Receivable Write-Offs and Recoveries, by Segment

|                               |            | Years Ended December 31, |     
|------------------------------ | ---------- | ------------------------ | ----
|
|
|Aircraft Financial Services:   |            |                          |     
|                               | Write-offs |                          | $   
|                               | Recoveries |                          |     
|                               |            |                          |     
|                               |            |                          | 6.6 
|                               |            |                          |     
|Commercial Financial Services: |            |                          |     
|                               | Write-offs |                          |     
|                               | Recoveries |                          |     
|                               |            |                          |     
|                               |            |                          | 11.2
|                               |            |                          |     
|                               |            | $                        | 17.8
|                               |            |                          |     

A
specific receivable is reviewed for impairment when, based on current information and events, it is probable that the Company will be unable to collect amounts due according to the
contractual terms of the receivable agreement. Factors considered in assessing uncollectibility include a customer's extended delinquency, requests for restructuring and filing for bankruptcy. A
specific impairment allowance is provided based on the difference between the carrying value of the receivable and the estimated fair value of the related collateral.

At
December 31, 2002, the carrying amount of impaired receivables was $1,367.2 million. Of the $1,367.2 million, receivables from United represented
$1,190.2 million, of which $1,097.2 million of these receivables related to B-767 and B-777 aircraft financed for United. The Company believes this amount is
adequately collateralized; therefore, no specific reserve has been established. Impaired receivables of $145.7 million had specific impairment allowance for losses of $49.8 million. As a
result, 19.2% of the Company's allowance for losses on receivables was allocated to specific reserves. The remaining $210.2 million (80.8% of the allowance for losses on receivables) is
designated for general purposes and represents the Company's best estimate of losses in the remaining receivables considering delinquencies, loss experience, collateral, guarantees, risk of individual
credits, historical default rates, results of periodic credit reviews and the general state of the economy and airline industry. As of December 31, 2002, the Company had $2,724.7 million
of guarantees principally from Boeing with respect to the portfolio relating to transactions totaling $4,197.9 million (35.7% of total Company portfolio). At December 31, 2001, the
carrying amount of impaired receivables was $195.3 million. The specific impairment allowance for losses at December 31, 2001 was $11.0 million for $55.3 million of
impaired receivables. Actual results could differ from estimates and values, and there can be no assurance that the allowance for losses will be sufficient to cover losses on receivables.

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 that may affect the borrower's ability or
willingness to pay principal and interest or otherwise perform according to contractual terms. Other risks associated with these credits include changes in exchange rates and the possibility of
insufficient foreign exchange and/or restrictions on its availability or funds transfer.

At
December 31, 2002, 24.1% of the total Company portfolio consisted of net amounts due from customers outside the United States. These amounts are payable in U.S. dollars.
Overall, the Company

15

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has not experienced materially adverse financial consequences as a result of sales and financing activities outside the United States. The following table represents the countries in which the
Company's cross-border outstandings exceeded 0.75% of consolidated assets, net of domestic guarantees, security deposits and maintenance reserves. Domestic guarantees were $455.1 million,
$274.2 million and $384.9 million for the years ended December 31, 2002, 2001 and 2000, respectively.

|(Dollars in millions) |  |   |       |  |   |       |  |   |         |  |   |     | 
|--------------------- |  | - | ----- |  | - | ----- |  | - | ------- |  | - | --- | 
|
|
|2002                  |  |   |       |  |   |       |  |   |         |  |   |     | 
|South Korea           |  | $ |      |  | $ | 263.2 |  | $ | 325.9   |  | $ |    | 
|United Kingdom        |  |   |      |  |   | 179.8 |  |   | 353.8   |  |   |    | 
|Mexico                |  |   | 128.3 |  |   | 107.8 |  |   | 84.3    |  |   |    | 
|Brazil                |  |   | 49.3  |  |   | 12.5  |  |   | 193.6   |  |   | 4.3 | 
|Austria               |  |   |      |  |   |      |  |   | 123.9   |  |   |    | 
|China                 |  |   |      |  |   |      |  |   | 97.3    |  |   |    | 
|                      |  |   |       |  |   |       |  |   |         |  |   |     | 
|                      |  | $ | 177.6 |  | $ | 563.3 |  | $ | 1,178.8 |  | $ | 4.3 | 
|                      |  |   |       |  |   |       |  |   |         |  |   |     | 
|2001                  |  |   |       |  |   |       |  |   |         |  |   |     | 
|South Korea           |  | $ |      |  | $ | 164.8 |  | $ | 277.5   |  | $ |    | 
|United Kingdom        |  |   |      |  |   | 166.5 |  |   | 216.8   |  |   |    | 
|Mexico                |  |   | 137.2 |  |   | 115.9 |  |   | 87.4    |  |   |    | 
|Brazil                |  |   | 50.4  |  |   | 14.2  |  |   | 238.8   |  |   | 4.6 | 
|Austria               |  |   |      |  |   |      |  |   | 143.4   |  |   |    | 
|China                 |  |   |      |  |   |      |  |   | 142.0   |  |   |    | 
|Spain                 |  |   | 68.4  |  |   | 4.8   |  |   | 16.2    |  |   |    | 
|                      |  |   |       |  |   |       |  |   |         |  |   |     | 
|                      |  | $ | 256.0 |  | $ | 466.2 |  | $ | 1,122.1 |  | $ | 4.6 | 
|                      |  |   |       |  |   |       |  |   |         |  |   |     | 
|2000                  |  |   |       |  |   |       |  |   |         |  |   |     | 
|Mexico                |  | $ | 118.1 |  | $ | 80.6  |  | $ | 38.4    |  | $ |    | 
|Austria               |  |   |      |  |   | 76.6  |  |   | 153.9   |  |   |    | 
|Belgium               |  |   |      |  |   |      |  |   | 143.8   |  |   |    | 
|Brazil                |  |   | 51.5  |  |   | 16.3  |  |   | 71.6    |  |   | 4.0 | 
|Spain                 |  |   | 70.1  |  |   | 24.7  |  |   | 25.3    |  |   |    | 
|South Korea           |  |   |      |  |   | 67.2  |  |   | 41.0    |  |   |    | 
|Egypt                 |  |   |      |  |   | 31.3  |  |   | 39.9    |  |   |    | 
|United Kingdom        |  |   |      |  |   | 26.4  |  |   | 37.5    |  |   |    | 
|India                 |  |   |      |  |   | 18.1  |  |   | 43.9    |  |   |    | 
|Germany               |  |   |      |  |   |      |  |   | 56.3    |  |   |    | 
|Australia             |  |   |      |  |   |      |  |   | 46.8    |  |   |    | 
|Sweden                |  |   |      |  |   |      |  |   | 44.2    |  |   |    | 
|China                 |  |   |      |  |   |      |  |   | 43.8    |  |   |    | 
|                      |  |   |       |  |   |       |  |   |         |  |   |     | 
|                      |  | $ | 239.7 |  | $ | 341.2 |  | $ | 786.4   |  | $ | 4.0 | 
|                      |  |   |       |  |   |       |  |   |         |  |   |     | 

16

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Maturities and Interest Rate Structures

The following table shows the maturity distribution and interest rate structures of the Company's domestic and foreign minimum lease payments and principal
payments for receivables at December 31, 2002:

|(Dollars in millions) |                         | Domestic |         | Foreign |   | Total  
|--------------------- | ----------------------- | -------- | ------- | ------- | - | -------
|2003                  |                         | $        | 754.8   |         | $ | 163.5  
|2004                  |                         |          | 1,185.0 |         |   | 184.3  
|2005                  |                         |          | 642.8   |         |   | 179.4  
|2006                  |                         |          | 634.9   |         |   | 168.2  
|2007                  |                         |          | 561.3   |         |   | 220.2  
|2008 and thereafter   |                         |          | 4,583.0 |         |   | 530.4  
|                      |                         |          |         |         |   |        
|                      |                         | $        | 8,361.8 |         | $ | 1,446.0
|                      |                         |          |         |         |   |        
|Receivables based on: |                         |          |         |         |   |        
|                      | Fixed interest rates    |          | $       | 7,110.0 |   | $      
|                      | Variable interest rates |          |         | 1,251.8 |   |        
|                      |                         |          |         |         |   |        
|                      |                         | $        | 8,361.8 |         | $ | 1,446.0
|                      |                         |          |         |         |   |        

BORROWING OPERATIONS

The Company principally relies on funds from operations, portfolio run-off (collections and proceeds from dispositions) and borrowings to operate its
business. Borrowings generally include commercial paper, unsecured senior debt and securitizations. The Company also utilizes interest rate swap agreements to manage interest costs and risk associated
with changing interest rates.

During
2002, the Company issued $2,475.5 million in new senior debt and raised $299.2 million through the securitization of a portfolio of assets selected from the
Commercial Financial Services portfolio, primarily to finance new business. The Company also relies on the issuance of commercial paper as a short-term funding source. During 2002, the
Company's outstanding commercial paper balances ranged from zero to $631.0 million, with a weighted average effective interest rate (including the cost of the backup credit facilities) of 2.81%
and a daily average outstanding balance for the period of $257.6 million. Due to the limited use of the commercial paper program during 2002, the cost of the backup credit facilities increased
the weighted average effective interest rate from 1.92% to 2.81%. Commercial paper borrowings totaled $72.8 million at December 31, 2002, and were supported by the Company's
$2.0 billion of undrawn credit facility.

On
December 27, 2002, a subsidiary of the Company entered into an asset securitization that raised $299.2 million of secured debt through the use of a
bank-sponsored Commercial Paper Conduit ("C/P Conduit"). As collateral for the debt, the Company's subsidiary transferred $330.7 million of portfolio
assets from the Commercial Financial Services portfolio to the C/P Conduit, which the Company's subsidiary will re-acquire upon payment of the debt in full. These portfolio assets consisted of the
cash flows associated with specific financing leases, notes and other receivables and operating leases. The Company's subsidiary also assigned to the C/P Conduit perfected security interests in
$278.1 million of collateral underlying the transferred portfolio assets. The collateral pledged indirectly provides the C/P Conduit with additional protection in the event that the cash flows
from the leases and notes are insufficient to cover the total debt outstanding under the transaction. The secured debt and securitized assets remain on the Company's balance sheet.

The
provisions of various debt agreements require the Company to (a) limit the payment of cash dividends to the extent that the Company's consolidated assets would be less than
115% of its consolidated liabilities (excluding deferred taxes) after dividend payments and (b) restrict the amount

17

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of liens on the Company's property, other than liens specifically excluded, to secure indebtedness such that those restricted liens not exceed 15% of consolidated assets. At December 31, 2002,
as well as during the year, the Company was in compliance with all its debt covenants.

The
following table sets forth the Company's average debt and weighted average effective interest rates:

|                                                                       |  | Years Ended December 31,
|---------------------------------------------------------------------- |  | ------------------------
|
|
|Average short-term debt outstanding                                    |  | $                       
|Weighted average effective interest rate for issuances during the year |  |                         
|Average long-term debt outstanding                                     |  | $                       
|Weighted average effective interest rate                               |  |                         
|Average total debt outstanding                                         |  | $                       
|Weighted average effective interest rate                               |  |                         

The
weighted average effective interest rates presented in the preceding table include costs of commitment fees, backup credit facilities and related borrowing costs. They do not
necessarily predict future costs of funds. Due to the limited use of the commercial paper program during 2002, the cost of the backup credit facilities increased the weighted average effective
interest rate from 1.92% to 2.81%.

Intercompany Credit Arrangements

As of November 4, 2002, $500.0 million of Boeing's five-year revolving credit line expiring in 2005 was made exclusively available to
the Company. In addition, as of November 4, 2002, $1.5 billion of Boeing's $3.0 billion 364-day revolving credit line continues to be exclusively available to the
Company. This lengthening of the average term of the credit lines available to the Company improved the Company's liquidity position. At December 31, 2002, there were no amounts outstanding
under these agreements.

The
Company may borrow from Boeing, and Boeing and its subsidiaries may borrow from the Company, short-term funds at agreed upon rates and maturities. Under this arrangement,
neither the Company nor Boeing had borrowings outstanding at December 31, 2002 or 2001. During 2002, the Company's highest level of borrowings from Boeing was $241.8 million under this
arrangement. During 2002, Boeing had no borrowings from the Company.

The
Company may borrow from BCSC, and BCSC may borrow from the Company, short-term funds at agreed upon rates and maturities. Under this arrangement, the Company had
borrowings of $60.0 million outstanding at December 31, 2002 and no borrowings outstanding at December 31, 2001. BCSC had no borrowings outstanding from the Company at
December 31, 2002 and $59.3 million outstanding from the Company at December 31, 2001. During 2002, the Company's highest level of borrowings from BCSC was $70.0 million.
During 2002, BCSC's highest level of borrowings from the Company was $61.6 million.

CREDIT RATINGS

The Company's access to capital at rates that allow for a reasonable return on new business can be affected by credit rating agencies' ratings of the Company's
debt.

18

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The
Company has the following credit ratings as of the filing date:

|Debt         |  | Standard & Poor's |  | Moody's Investors
Service |  | Fitch Ratings
|------------ |  | ----------------- |  | ------------------------- |  | -------------
|Short-term   |  | A-1               |  | P-2                       |  | F-1          
|Senior       |  | A+                |  | A3                        |  | A+           
|Subordinated |  | A                 |  | Baa1                      |  | A            

Although
credit ratings may impact the rate at which the Company can borrow funds, a credit rating is not a recommendation to buy, sell or hold securities. In addition, a credit rating
is subject to revision or withdrawal at any time by the assigning rating organization.

RELATIONSHIP WITH BOEING AND BOEING CAPITAL SERVICES CORPORATION

Boeing operates in the following principal areas: commercial aircraft, military aircraft and missile systems, space and communications and customer and commercial
financing. For the year ended December 31, 2002, Boeing recorded revenues of $54.1 billion and net earnings of $0.5 billion. At December 31, 2002, Boeing had assets of
$52.3 billion and shareholders' equity of $7.7 billion.

At
December 31, 2002, Boeing provided various types of partial and full guarantees of $2,698.0 million on the Company's portfolio, including first loss guarantees, residual
value guarantees and rental loss guarantees. In addition, Boeing is the Company's third largest customer, accounting for $878.4 million of the Company's portfolio at December 31, 2002,
as previously discussed in "Significant Concentrations and Restructurings."

Boeing
Capital Services Corporation ("BCSC") is a largely inactive holding company, which owns 100% of the Company and is an indirect wholly owned subsidiary of Boeing.

For
a further description of significant factors that may affect Boeing, see Boeing's Form 10-K for the year ended December 31, 2002.

Operating Agreement

An operating agreement (the "Operating Agreement") governs certain important aspects of the relationship between the Company, BCSC and Boeing relating to the
purchase and sale of commercial aircraft receivables, the leasing of commercial aircraft, the remarketing of such aircraft returned to or repossessed by the Company under leases or secured loans and
the allocation of federal income taxes between the companies.

The
Operating Agreement provides, subject to certain exceptions, that Boeing will make available to the Company the opportunity to provide financing of Boeing products including
commercial aircraft. Additionally, under certain limited circumstances, the Company is given the option to tender to Boeing commercial aircraft it is attempting to remarket, at a price equal to the
fair market value of the aircraft less 5%.

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Federal Income Taxes

The Company and Boeing presently file a consolidated federal income tax return with the 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 by Boeing to the Company or by the Company to Boeing, as appropriate, equal to the difference between the
consolidated tax liability and Boeing's tax liability computed without consolidation with the Company. If, subsequent to any such payments by Boeing, it incurs tax losses that may be carried back to
the year for which such payments were made, the Company nevertheless will not be obligated to repay to Boeing any portion of such payments. Furthermore, the Company has 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 the parent allocated to the Company. This has been
important in planning the volume of and pricing for the Company's leasing activities. Under the informal arrangement, alternative minimum taxes are disregarded and intercompany payments are made when
such taxes are due or tax benefits are realized by Boeing based on the assumption that taxes are due or tax benefits are realized up to 100% of the amounts forecasted by the Company with the amounts
varying from such forecast settled in the year realized by Boeing. There can be no assurance that this (and other) intercompany arrangements will not change from time to time.

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. 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 generate satisfactory returns 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.

Intercompany Services

Boeing provides to the Company certain payroll, employee benefit, facilities and other services, for which the Company generally pays an allocated cost. The
Company assists Boeing in arranging and structuring transactions to meet the financing needs of its commercial aircraft and space and defense customers.

EMPLOYEES

At December 31, 2002, the Company had 238 employees, compared with 201 at December 31, 2001. The increase is related to the growth in the business.
No employees are covered by collective bargaining agreements. The Company believes its employee relations are satisfactory. As of the filing date, the Company had 237 employees.

Item 2. Properties

The Company leases all of its office space and other facilities under operating leases. The Company's headquarters is located in Renton, Washington, with a
principal office located in Long Beach, California. The Company also has eight regional marketing offices located throughout the United States and four international offices in Stockholm, Sweden;
Brussels, Belgium; Dublin, Ireland; and Hong Kong, China. 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

Various legal proceedings and claims are pending or have been asserted against the Company, many of which 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 flows or financial position.

Item 4. Submission of Matters to a Vote of Security Holders

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

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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. Accordingly, there is no public trading market for the Company's stock. In 2002 and 2001, the
Company did not declare or pay dividends on its common stock to BCSC.

In
the second quarter of 2002, the Company redeemed all 10,000 outstanding shares of its Series A Preferred Stock at a price of $5,000 per share, which was the stock's stated
value, plus accrued and unpaid dividends. The Series A Preferred Stock was owned entirely by BCSC. The Company paid $2.3 million and $3.5 million in dividends on its preferred
stock in 2002 and 2001, respectively.

The
provisions of various debt agreements require the Company to (a) limit the payment of cash dividends to the extent that the Company's consolidated assets would be less than
115% of its consolidated liabilities (excluding deferred taxes) after dividend payments and (b) restrict the amount of liens on the Company's property, other than liens specifically excluded,
to secure indebtedness such that those restricted liens not exceed 15% of consolidated assets. At December 31, 2002, as well as during the year, the Company was in compliance with all its debt
covenants.

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, 2002 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:

|                                    |                      | Years Ended December 31,
|----------------------------------- | -------------------- | ------------------------
|
|
|Financing volume(1)                 |                      | $                       
|Statement of income data:           |                      |                         
|                                    | Revenues             |                         
|                                    | Expenses             |                         
|                                    | Net income           |                         
|Dividends paid                      |                      | $                       
|Ratio of income to fixed charges(2) |                      |                         
|Balance sheet data:                 |                      |                         
|                                    | Total assets         |                         
|                                    | Total debt           |                         
|                                    | Shareholder's equity |                         
|Ratio of debt-to-equity             |                      |                         

---

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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.

Forward-Looking Information Is Subject to Risk and Uncertainty

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. The words "aim", "plan", "likely", "believe", "expect", "anticipate", "intend", "estimate", "will", "should", "could", "may" and other
expressions that indicate future events and trends identify forward-looking statements. These statements are not guaranties of future performance and involve risks, uncertainties and assumptions that
are difficult to predict. Forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Actual outcomes and results may differ materially from what is
expressed or forecasted in these forward-looking statements. As a result, these statements speak only as of the date they were made and the Company undertakes no obligation to publicly update or
revise any forward-looking statements. Certain statements in this Form 10-K and particularly in Items 1, 2, 3, 7, 7A and 8 may contain forward-looking information. The subject
matter of such statements may include, but not be limited to, wars, the effects of the September 11, 2001 terrorist attacks or future terrorist threats or attacks, the impact on the Company of
strategic decisions by Boeing, the level of new financing opportunities made available to the Company by Boeing, future earnings, costs, expenditures, losses, liquidity, residual values and various
business environment trends including the state of the economy, in general, and the airline industry, in particular. In addition to those contained herein, forward-looking statements and projections
may be made by 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 by Boeing relating to the Company, the effects of the September 11, 2001 terrorist attacks or future terrorist threats or attacks and their continuing impact on the
airline industry, wars, the capital equipment requirements of United States domestic and foreign businesses, general economic conditions, 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, defaults or bankruptcies by
customers (especially airlines), adverse developments in the value of collateral or owned assets (especially aircraft), regulatory uncertainties and legal proceedings.

Critical Accounting Policies and Estimates

The following is a summary of accounting policies the Company believes are most critical to help put in context a discussion concerning the results of operations.
The Company believes its interpretation and application related to these accounting policies are appropriate.

Asset ValuationThe fair value of owned assets (equipment under operating leases and assets held for sale or
re-lease) and collateral on receivables is periodically assessed to determine if the fair value is less than the carrying value. Differences between carrying value and fair value are
considered in determining the allowance for losses on receivables and, in certain circumstances, recorded as impairment for owned assets.

The
Company uses the average published fair value from multiple sources based on the type and age of the aircraft to determine the fair value of aircraft. Under certain circumstances,
the Company's judgment is based on the attributes of the specific aircraft or equipment to determine fair value, usually

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when the features or utilization of the aircraft varies significantly from the more generic aircraft attributes covered by outside publications.

Impairment Review for Equipment Under Operating Leases, Held for Sale or Re-leaseThe Company reviews these assets for
impairment when events or circumstances indicate that the carrying amount of these assets may not be recoverable. An asset held for sale is considered impaired if the carrying value exceeds the fair
value less costs to sell. An asset under operating lease or held for re-lease is considered impaired when the expected undiscounted cash flow over the remaining useful life is less than
the book value. Various assumptions are used when determining the expected undiscounted cash flow. These assumptions include lease rates, lease term(s), periods in which the asset may be held in
preparation for a follow-on lease, maintenance costs, remarketing costs and the life of the asset. The determination of expected lease rates is generally based on outside publications. The
Company uses historical information and current economic trends to determine the remaining assumptions. When impairment is indicated for an asset, the amount of impairment loss is the excess of
carrying value over fair value. The Company estimates that had the fair value of such assets deemed impaired during 2002 been 10% higher or lower at the time each specific impairment had been taken,
the impairment expense would have decreased or increased by approximately $5.7 million, respectively. The Company is unable to predict the magnitude of any future impairments.

Allowance for Losses on ReceivablesThe allowance for losses on receivables is a valuation account used to provide for
potential impairment of receivables on the balance sheet. The balance is an accounting
estimate of probable but unconfirmed losses in the receivables portfolio. The allowance for losses on receivables relates to two components of receivables: (a) specifically identified
receivables that are evaluated individually for impairment and (b) pools of receivables that are evaluated for impairment.

A
specific receivable is reviewed for impairment when, based on current information and events, it is probable that the Company will be unable to collect amounts due according to the
contractual terms of the receivable agreement. Factors considered in assessing uncollectibility include a customer's extended delinquency, requests for restructuring and filing for bankruptcy. A
specific impairment allowance is provided based on the difference between the carrying value of the receivable and the estimated fair value of the related collateral.

The
Company reviews the adequacy of the general allowance attributable to the remaining pool of receivables by assessing both the collateral exposure and the applicable default rate.
Collateral exposure for a particular receivable is the excess of the carrying value over the applicable collateral value of the related asset. A receivable with an estimated collateral value in excess
of the carrying value is considered to have no collateral exposure. The applicable default rate is determined using two components: customer credit ratings and weighted-average remaining portfolio
term. Credit ratings are identified for each customer in the portfolio. Customer credit ratings are updated based on current rating agency information or the Company's best estimates.

For
each credit rating category, the collateral exposure is multiplied by an applicable historical default rate, yielding a credit-adjusted collateral exposure. Historical default rates
are those published by Standard & Poor's reflecting both the customer credit rating and the weighted-average remaining portfolio term. The sum of the credit-adjusted collateral exposures
generates an initial estimate of the general allowance. In recognition of the uncertainty of the ultimate loss experience and relatively long duration of the portfolio, a range of reasonably possible
outcomes of the portfolio's credit-adjusted collateral exposure is calculated by varying the applicable default rate by approximately plus and minus 15%. The allowance recorded represents the best
estimate within the resulting range of credit-adjusted collateral exposure, factoring in considerations of risk of individual credits, current and projected economic and political conditions and prior
loss experience.

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The
resulting range of the credit-adjusted collateral exposure as of December 31, 2002, was approximately $230.0 million to $290.0 million. The Company adjusted the
allowance for losses on receivables to $260.0 million at December 31, 2002.

Standards Issued and Not Yet Implemented

In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of the Indebtedness of Others," which clarifies the requirements of SFAS No. 5, "Accounting for Contingencies," relating to a guarantor's accounting for and
disclosures of certain guarantees issued. FIN 45 requires enhanced disclosures for certain guarantees. FIN 45 also requires certain guarantees that are issued or modified after December 31,
2002, to be initially recorded on the balance sheet at fair value. For guarantees issued on or before December 31, 2002, liabilities are recorded when and if payments become probable and
estimable. As the financial statement recognition provisions are effective prospectively, the Company cannot reasonably estimate the impact of adopting FIN 45 until guarantees are issued or modified
in future periods, at which time the related results will be initially reported in the financial statements.

In
January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities," which clarifies the application of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements," relating to consolidation of certain entities. FIN 46 will require identification of the Company's participation in variable
interest entities ("VIEs"), which are defined as entities with a level of invested equity that is not sufficient to fund future activities to permit it to operate on a standalone basis. For entities
identified as a VIE, FIN 46 sets forth a model to evaluate potential consolidation based on an assessment of which party to the VIE (if any) bears a majority of the exposure to its expected losses, or
stands to gain from a majority of its expected returns. FIN 46 also sets forth certain disclosures regarding interests in VIEs that are deemed significant, even if consolidation is not required. The
Company is currently assessing the application of FIN 46 as it relates to its variable interests in certain pass-through certificate arrangements, such as ETCs and EETCs. For further
discussion, see "Off-Balance Sheet Arrangements."

Consolidated Results of Operations

The following table summarizes the Company's operating results for the years ended December 31:

|(Dollars in millions)                      |  | 2002 |       | 2001 |   | 2000 
|------------------------------------------ |  | ---- | ----- | ---- | - | -----
|Finance lease income                       |  | $    | 286.0 |      | $ | 247.6
|Interest income on notes receivable        |  |      | 221.9 |      |   | 141.0
|Operating lease income                     |  |      | 434.8 |      |   | 343.0
|                                           |  |      |       |      |   |      
|                                           |  |      | 942.7 |      |   | 731.6
|                                           |  |      |       |      |   |      
|Investment income                          |  |      | 24.9  |      |   | 20.4 
|Net gain on disposal                       |  |      | 8.3   |      |   | 34.0 
|Other                                      |  |      | 18.3  |      |   | 29.0 
|                                           |  |      |       |      |   |      
|                                           |  |      | 994.2 |      |   | 815.0
|Equity in income (loss) from joint venture |  |      | (44.0 | )    |   | 0.4  
|                                           |  |      |       |      |   |      
|                                           |  |      | 950.2 |      |   | 815.4
|                                           |  |      |       |      |   |      
|Interest expense                           |  |      | 410.0 |      |   | 324.1
|Depreciation expense                       |  |      | 223.4 |      |   | 149.7
|Provision for losses                       |  |      | 136.2 |      |   | 36.3 
|Operating expenses                         |  |      | 57.6  |      |   | 47.3 
|Other                                      |  |      | 50.6  |      |   | 19.8 
|                                           |  |      |       |      |   |      
|                                           |  |      | 877.8 |      |   | 577.2
|                                           |  |      |       |      |   |      
|Income before provision for income taxes   |  |      | 72.4  |      |   | 238.2
|Provision for income taxes                 |  |      | 23.3  |      |   | 86.5 
|                                           |  |      |       |      |   |      
|Net income                                 |  | $    | 49.1  |      | $ | 151.7
|                                           |  |      |       |      |   |      

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Overview

The Company's net income was $49.1 million for 2002 compared with $151.7 million for 2001, a decrease of $102.6 million (67.6%).
Pre-tax non-cash charges of $200.4 million (see the following paragraph) recorded to strengthen the allowance for losses on receivables and to recognize impairment of
certain assets in the Company's portfolio was principally responsible for the decrease in net income. These charges reflect the continuing downturn in the economy and were primarily related to the
pressure on airline credit rating downgrades and declining collateral values, particularly for older and/or out of production aircraft types in the Company's financing portfolio. Excluding this
charge, net income for 2002 would have increased by $135.9 million to $185.0 million as compared with $151.7 million in 2001. This increase was primarily attributable to growth in
financing assets, lower interest expense as a result of lower interest rates and leverage, offset by lower gains on disposals and higher depreciation expense related to the growth in equipment under
operating leases and equipment held for re-lease.

The
allowance and impairment charges of $200.4 million consists of:



The
Company's net income was $151.7 million for 2001 compared with $107.2 million for 2000, an increase of $44.5 million (41.5%). The increase was primarily
attributable to growth in financing assets and higher other income and income earned on investments; offset by increases from higher depreciation related to the growth in equipment under operating
leases, interest expense and allowance for losses on receivables.

The
Company's portfolio at December 31, 2002 totaled $11.8 billion, compared with $9.2 billion at December 31, 2001. New business volume of
$3.4 billion compared with $3.9 billion in 2001 and financing asset transfers from Boeing of $385.6 million, offset by portfolio runoff, were responsible for the increase in the
portfolio during 2002. New business volume is expected to be moderate through 2003 as a result of reduced demand for commercial aircraft deliveries.

The
Company's portfolio at December 31, 2001 totaled $9.2 billion compared with $5.5 billion at December 31, 2000. New business volume of $3.9 billion
in 2001, up from $1.7 billion in 2000, and financing asset transfers from Boeing of $942.6 million, offset by portfolio runoff, were responsible for the increase in the portfolio.

Results of Operations

Financing revenues(revenue from financing leases, notes and other receivables and equipment under operating
leases) for 2002 were $942.7 million compared with $731.6 million in 2001, an increase of $211.1 million (28.9%). A larger financing portfolio, which was a result of new business
volume and portfolio transfers from Boeing, was primarily responsible for the higher revenue. The higher 2002 revenues were partially offset by lower interest rates, reflecting the current interest
rate environment. The lower interest rates affected revenues on existing floating rate assets and on all new business.

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The
higher financing revenues in 2001 compared with 2000 principally reflect a larger financing portfolio, which was a result of new business volume and portfolio transfers from Boeing,
offset by higher non-performing assets and lower interest rates.

Investment incomefor 2002 was $24.9 million compared with $20.4 million in 2001, an increase of $4.5 million
(22.1%). The investment portfolio grew by $312.4 million during 2002. Higher investment income related to the larger investment portfolio was principally offset by an impairment of
$13.1 million related to an investment in ETCs secured by aircraft on lease to United. These investments, secured by aircraft on lease to United, were written off in 2002. This
write-down resulted in an impairment of $79.1 million, of which $13.1 million was recognized by the Company and $66.0 million was recognized by Boeing and paid to the
Company. These write-downs were based on the decline in credit ratings of United, the long-term maturity of the investments, the decline in the underlying aircraft collateral valuations
and guarantees on these investments. Excluding the total pre-tax charges of $15.6 million, investment income for the year ended December 31, 2002 would have increased by
$20.1 million or 98.5%, compared with the year ended December 31, 2001.

The
higher investment income in 2001 compared with 2000 principally reflects a larger investment portfolio.

Net gain on disposalfor 2002 was $8.3 million compared with $34.0 million in 2001, a decrease of $25.7 million
(75.6%). A $24.0 million gain on sale within the Aircraft Financial Services portfolio in 2001 was primarily responsible for the decrease. These gains are sporadic in nature and depend in part
on market conditions at the time of disposal and the Company's decision to sell or re-lease when equipment are returned. There can be no assurance that the Company will recognize gains in
the future.

The
higher net gain on disposal in 2001 compared with 2000 was attributable to higher sales of equipment coming off lease, equipment from early terminations and equipment classified as
equipment held for sale or re-lease.

Other incomefor 2002 was $18.3 million compared with $29.0 million in 2001, a decrease of $10.7 million (36.9%).
Lower interest income with Boeing and higher realized losses on derivatives, offset by higher commitment and broker fee income were primarily responsible for lower other income.

The
higher other income in 2001 compared with 2000 was primarily attributable to higher interest with Boeing and realized gains on derivatives, offset by lower commitment and broker fee
income.

Equity in income (loss) from joint venturefor 2002 was a loss of ($44.0) million compared with income of $0.4 million in 2001. The
Company holds an investment in a joint venture that was established to lease and eventually convert 24 B-727 passenger aircraft to full cargo configuration. Based on the Company's
assessment of current market conditions and the average age of these aircraft (averaging over twenty years old), the resulting estimated future cash flows generated from the aircraft in their current
passenger configuration were less than the joint venture's carrying value. Accordingly, the Company recorded an impairment loss of $47.9 million for its share of the adjustment to estimated
fair
market value for the joint venture's B-727 aircraft. Additionally, a $1.2 million loss from operations in the joint venture was recognized and $5.5 million of fees received
were applied as a basis adjustment to the carrying amount of the investment. The Company's portfolio does not include any B-727 aircraft other than those held through this joint venture.

Interest expensefor 2002 was $410.0 million compared with $324.1 million in 2001, an increase of $85.9 million
(26.5%). Higher debt associated with the growth in the portfolio, offset by lower effective interest rates and lower average leverage, was primarily responsible for the increase.

The
higher interest expense in 2001 compared with 2000 was primarily attributable to higher debt associated with the growth in the portfolio and higher leverage offset by lower effective
interest rates.

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Depreciation expense(on equipment under operating leases and equipment held for
re-lease)for 2002 was $223.4 million compared with $149.7 million in 2001, an increase of $73.7 million (49.2%).
Growth in depreciable assets was responsible for the higher depreciation expense.

The
higher depreciation expense in 2001 compared with 2000 was attributable to growth in depreciable assets.

Provision for lossesfor 2002 was $136.2 million compared with $36.3 million in 2001, an increase of $99.9 million.
The provision for losses was comprised of a general provision and an additional provision. The general provision, which relates to the growth in the receivables portfolio, was $36.2 million in
2002 compared with $16.3 million in 2001. The additional provision was $100.0 million in 2002 compared with $20.0 million in 2001, and reflects the weakening in the economy,
increases in rating agency published default rates and lower aircraft collateral values. The provision for losses maintains the allowance for losses on receivables at a level deemed by the Company to
be adequate to cover related losses.

The
higher provision for losses in 2001 compared with 2000 was principally attributable to an additional $20.0 million provision recorded in the Commercial Financial Services
segment to increase and strengthen the allowance for losses on receivables.

Operating expenses, which consists of general and administrative expenses, for 2002 was $57.6 million compared with
$47.3 million in 2001, an increase of $10.3 million (21.8%). Higher compensation and travel expenses for additional staff necessary to support business growth are principally responsible
for the higher operating expenses.

The
higher operating expenses in 2001 compared with 2000 was principally related to higher compensation and travel expenses for additional staff necessary to support business growth and
for outside legal services.

Other expensesfor 2002 were $50.6 million compared with $19.8 million in 2001, an increase of $30.8 million. The
increase was primarily attributable to $30.6 million in charges for the impairment of equipment under operating leases and equipment held for sale or re-lease.

The
higher other expenses in 2001 compared to 2000 were primarily related to increased costs incurred to maintain and refurbish aircraft held for sale or re-lease.

Provision for income taxesfor 2002 were $23.3 million compared with $86.5 million in 2001, a decrease of
$63.2 million. A lower pre-tax income was principally responsible for the lower provision for income taxes.

The
higher income taxes in 2001 compared to 2000 were primarily related to higher pre-tax income.

Business Environment and Trends

The airline industry has been impacted by the worldwide economic downturn that began in 2000 and is continuing. In addition, the industry suffered a tremendous
shock from the terrorist attacks on September 11, 2001, especially the major U.S. domestic airlines. Air travel volume in most regions of the world has not recovered to 2000 levels and
passenger revenue yields remain depressed, and have negatively impacted profitability of the industry, especially full service domestic carriers. Additional costs related to strengthening airline
security in the aftermath of September 11, 2001 have also impacted domestic airline profitability. European full service airlines are performing somewhat better, while Asian carriers are
clearly the strongest. Most low cost carriers are financially healthier than their full service counterparts.

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The
domestic airline industry lost an estimated $11.0 billion during 2002. Two major domestic carriers, U.S. Airways and United Airlines, declared bankruptcy. Most other major
airlines are also restructuring by reducing flights, parking aircraft and implementing cost savings initiatives, including attempting to renegotiate current labor contracts and lease and financing
agreements, in an attempt to generate acceptable profit margins.

Airline
industry conditions directly impact the Company in terms of the number of new aircraft deliveries and financing opportunities, the ability of existing customers to meet current
payment obligations and the value of aircraft in its portfolio. In addition, traditional financing sources such as EETCs and leveraged leases may not be available to airlines in the near term,
potentially increasing the necessity of the Company to finance aircraft deliveries to airlines that are unable to otherwise obtain financing. The Company attempts to mitigate the increased credit risk
on such lender of last resort financing by reducing the amount financed on an individual aircraft, adjusting payment profiles, cross-collateralizing to other transactions and/or utilizing other risk
mitigation techniques.

The
continuing decline in the credit condition of airline customers, the decline in the value of aircraft collateral and depressed lease rates were primarily responsible for the Company
recognizing non-cash charges in 2002 to strengthen its allowance for losses on receivables and recognize impairments on certain assets. Any additional impacts may be dependent upon the
duration of the current economic and airline industry decline, or any significant defaults, repossessions or restructuring at a time when depressed aircraft values and lease rates make it difficult to
sell or redeploy such aircraft.

A
war with Iraq would likely cause a further reduction in airline traffic. The impact of such a conflict on the airline industry would likely depend upon its duration; a prolonged
conflict in the region could materially impact the already weak demand for air travel and could also increase the price of jet fuel. Likewise, air travel demand may also be negatively impacted by
additional terrorist threats or attacks.

At
December 31, 2002, the Company had $310.8 million of assets that were held for sale or re-lease, of which $308.4 million were not yet identified with
a firm contract to sell or place on lease. Additionally, approximately $207.4 million of the Company's total portfolio is currently scheduled to come off lease in 2003 and become subject to
replacement into the market. The inability to place or sell such assets of the portfolio into revenue-generating service could pose a potential risk to results of operations should some of these
assets be deemed to be impaired.

Capital Resources and Liquidity

The Company attempts to fund its business such that scheduled receipts from the portfolio will generally correspond to its expenses and debt payments as they
become due. The Company satisfies a significant portion of its cash requirements from diversified global funding sources and is not dependent on any one lender. The Company increased the
diversification of its borrowing this year by adding retail and foreign medium-term note programs and securitizations as funding sources. The Company plans to finance future activities
through internally generated funds, issuance of debt and commercial paper and securitization programs. The Company believes it has adequate liquidity and access to the capital markets to allow the
Company to fulfill its commitments.

The
Company has significant liquidity requirements and sources. The Company believes that, absent a severe or prolonged economic downturn or war with Iraq resulting in defaults
materially in excess of those anticipated, receipts from the portfolio, together with the committed credit facilities, are expected to cover expenses and debt payments when due. If cash provided by
operations, issuance of commercial paper, borrowings under bank credit lines, term borrowings and securitizations does not provide the necessary liquidity, the Company would be required to restrict
its new business volume,

28

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unless it obtained access to other sources of capital at rates that allow for a reasonable return on new business.

During
2002, the Company issued $2,475.5 million in new senior debt and raised $299.2 million through the securitization of a portfolio of assets selected from the
Commercial Financial Services portfolio, primarily to finance new business. The Company also relies on the issuance of commercial paper as a short-term funding source. During 2002, the
Company's outstanding commercial paper balances ranged from zero to $631.0 million, with a weighted average effective interest rate (including the cost of the backup credit facilities) of 2.81%
and a daily average outstanding balance for the period of $257.6 million. Due to the limited use of the commercial paper program during 2002, the cost of the backup credit facilities increased
the weighted average effective interest rate from 1.92% to 2.81%. Commercial paper borrowings totaled $72.8 million at December 31, 2002, and were supported by the Company's
$2.0 billion of undrawn credit facility.

Funds
raised through the Company's recent asset securitization transaction represent a defined percentage of a pool of pledged assets, and the outstanding balance of the funding is
scheduled to amortize pro rata with that asset pool. The securitization was accomplished through the use of a C/P Conduit. The cost of the funds supplied by the C/P Conduit includes a fee that
compensates the bank sponsor for its liquidity facility that supports the commercial paper. This fee and the renewal of the liquidity line are subject to renegotiation annually. If bank liquidity
should become unavailable or if the commercial paper market itself should fail to provide funding in the future, the sponsor bank is obligated to replace the commercial paper funding itself, albeit at
a pre-determined higher cost to the Company. In that case or in the case that bank liquidity remains available but at a price that the Company does not find attractive, the Company has the
option of paying the higher cost or of terminating the securitization. In such a situation where the conduit sponsor funds the transaction itself, the amortization of the funding will be accelerated.
If so accelerated, all proceeds from the asset pool would be applied to the payment of principal, interest and fees of the securitization. Also, failure of the Company to perform ongoing duties
related to the servicing of the pool of assets, failure of the Company to maintain certain minimum credit ratings, or failure of the assets themselves to perform to minimum standards, could also
result in accelerated amortization and higher costs, or in the Company's exercising the option to terminate the securitization.

The
Company's assets and liabilities expose the Company to interest rate risk to the extent that those assets and liabilities are not exactly matched according to currency or maturity
and repricing characteristics. The types and terms of borrowing and hedging instruments that are available to the Company in the market and possible changes in asset terms limit the Company's ability
to match assets and liabilities. The Company attempts to keep this mismatch risk small, partly through the use of interest rate and currency swaps, and does not believe it is materially exposed to
gains or losses due to interest rate or currency changes.

At
December 31, 2002 and 2001, the Company's balance of cash and cash equivalents was $686.0 million and $400.2 million, respectively. In recent years, the Company
has maintained a higher year end cash position due to traditionally high seasonal customer demands and commonly reduced seasonal capital markets availability at that time of year. In 2002, the Company
completed a securitization transaction in late December, later than the Company could have relied upon the proceeds for year end customer needs.

As
of November 4, 2002, $500.0 million of Boeing's five-year revolving credit line expiring in 2005 was made exclusively available to the Company. In addition,
as of November 4, 2002, $1.5 billion of Boeing's $3.0 billion 364-day revolving credit line continues to be exclusively available to the Company. This lengthening of
the average term of the credit lines available to the Company improved the Company's liquidity position. At December 31, 2002, there were no amounts outstanding under these agreements.

29

---

On
February 16, 2001, the Company filed a public shelf registration of $5.0 billion of debt securities with the Securities and Exchange Commission ("SEC"), which was
declared effective on February 26, 2001. As of December 31, 2002, the Company had received proceeds from the issuance of $3.25 billion, in aggregate, of senior notes. Effective
October 31, 2001, the Company allocated $1.0 billion to the Series XI medium-term note program. Effective June 20, 2002, the remaining $750.0 million
under the shelf registration was allocated to this program. As of the filing date, an aggregate amount of $426.5 million remains available under the Series XI medium-term
program for potential debt issuance.

On
February 22, 2002, the Company filed a public shelf registration of $5.0 billion of debt securities with the SEC, which was declared effective on March 4, 2002.
The Company allocated $1.0 billion to establish a new retail medium-term note program involving the sale of notes with a minimum denomination of $1,000. As of the filing date, an
aggregate amount of $3.9 billion ($489.3 million of retail notes) remains available for potential debt issuance.

On
June 6, 2002, the Company established a $1.5 billion Euro medium-term note program. As of the filing date, an aggregate amount of $1.4 billion remains
available for potential debt issuance.

Financing-related
interest expense for the year ended December 31, 2002 was $410.0 million, compared with $324.1 million in the prior year. Leverage
(debt-to-equity ratio) at the end of 2002 was 5.7-to-1, up from 5.3-to-1 at the end of 2001.

The
Company had commitments to provide leasing and other financing totaling $611.4 million, of which $479.5 million related to commercial aircraft financing commitments.
The Company anticipates that not
all of these commitments will be utilized based on its historical experience. However, if all commitments were to be funded, up to $272.6 million may be funded in less than one year, an
additional $314.6 million may be funded in one to three years and an additional $24.2 million may be funded after five years. Additionally, Boeing and BCSC had unfunded commercial
aircraft financing commitments of $2,898.0 million at December 31, 2002. The Company anticipates that not all these commitments will be utilized based on its historical experience.
However, if all commitments were to be funded, up to $1,428.0 million may be funded in less than one year, an additional $1,449.0 million may be funded in one to three years and an
additional $21.0 million may be funded after five years. It is expected that the Company will ultimately fund a portion of such commitments. Certain of those funded may be subject to receiving
such credit enhancements or other guarantee support from Boenig as the Company may require in order to meet its underwriting and investment criteria.

The
following are ratios of income to fixed charges for each of the past five years:

Years Ended December 31,2002

2001

2000

1999

19981.18

1.72

1.72

1.93

1.79


Income
consists of income from continuing operations before provision for income taxes and fixed charges. Fixed charges include interest and related debt expense, and preferred stock
dividends on a pre-tax basis. The decrease in the ratio in 2002 as compared with 2001 was attributable to lower net income in 2002 due to pre-tax non-cash charges
of $200.4 million that were recorded to strengthen the allowance for losses on receivables and to recognize impairment of certain assets in the Company's portfolio.

30

---



Credit Ratings

The Company's access to capital at rates that allow for a reasonable return on new business can be affected by credit rating agencies' ratings of the Company's
debt.

The
Company has the following credit ratings as of the filing date:

|Debt         |  | Standard & Poor's |  | Moody's Investors
Service |  | Fitch Ratings
|------------ |  | ----------------- |  | ------------------------- |  | -------------
|Short-term   |  | A-1               |  | P-2                       |  | F-1          
|Senior       |  | A+                |  | A3                        |  | A+           
|Subordinated |  | A                 |  | Baa1                      |  | A            

Although
credit ratings may impact the rate at which the Company can borrow funds, a credit rating is not a recommendation to buy, sell or hold securities. In addition, a credit rating
is subject to revision or withdrawal at any time by the assigning rating organization.

Off-Balance Sheet Arrangements

The Company is a party to certain off-balance sheet arrangements as defined by the SEC, including certain guarantor obligations and variable interests
in unconsolidated entities.

Airlines
regularly utilize a special purpose entity ("SPE") called a Pass Through Trust to finance aircraft. The Pass Through Trust enables the airline to aggregate a large number of
aircraft secured notes into one trust vehicle, facilitating the issuance of larger bonds called pass-through certificates. The most common form of pass-through certificates
issued by airlines are EETCs. EETCs provide investors with tranched rights to cash flows from a financial instrument, as well as a collateral position in the related asset. While the underlying
classes of equipment notes vary by maturity and/or coupon depending upon tenor or level of subordination of the specific equipment notes and their corresponding claim on the aircraft, the basic
function of the Pass Through Trust in an EETC remains: to passively hold separate debt investments to enhance liquidity for investors, who in turn pass this liquidity benefit directly to the airline
in the form of a lower coupon and/or greater debt capacity. The Company participates in several EETCs as an investor. EETCs are secured by assets on lease to commercial airlines.

The
Company also utilizes certain SPEs to isolate individual transactions for legal liability, perfect security interests from the perspective of the Company and a third-party lender in
certain leveraged lease transactions and realize certain income and sales tax benefits. These SPEs are fully consolidated in the Company's financial statements.

The
Company is currently assessing the application of FIN 46 as it relates to its variable interests in certain pass-through certificates, such as ETCs and EETCs. While the Company is
currently not required to consolidate the full amount of the ETCs and EETCs in the Trusts in which it has invested, it is unable to definitively conclude at this time whether consolidation or
disclosure will be required for these investments upon full adoption of FIN 46. The Company's investment in ETCs and EETCs aggregated $0.5 billion at December 31, 2002. During the year
ended December 31, 2002, the Company recorded revenues of $23.6 million and had cash inflows of $40.8 million relating to these investments. At December 31, 2002, the VIEs
(ETCs and EETCs) in which the Company has invested had total assets of approximately $4.2 billion and related debt (which is non-recourse to the Company) of approximately
$3.7 billion.

31

---

Guarantor Obligations

The
following table provides quantitative data regarding the Company's third party guarantees. The maximum potential payment amounts represent a "worst-case scenario," and do
not necessarily reflect results expected by the Company. Estimated proceeds from collateral and recourse represent the anticipated values of assets the Company could liquidate or receive from other
parties to offset its payments under guarantees. The carrying amount of liabilities recorded on the balance sheet reflects the Company's best estimate of future payments it may be required to make as
part of fulfilling its guarantor obligations.

|(Dollars in millions)     |  | Maximum Potential
Payments |       | Estimated Proceeds From
Collateral/Recourse |   | Carrying Amount of
Liabilities(2)
|------------------------- |  | -------------------------- | ----- | ------------------------------------------- | - | ---------------------------------
|December 31, 2002         |  |                            |       |                                             |   |                                  
|Residual value guarantees |  | $                          | 90.1  |                                             | $ | 89.6                             
|Credit guarantees         |  |                            | 25.0  |                                             |   | 25.0                             
|Delinquency guarantees(1) |  |                            | 7.4   |                                             |   |                                 
|                          |  |                            |       |                                             |   |                                  
|                          |  | $                          | 122.5 |                                             | $ | 114.6                            
|                          |  |                            |       |                                             |   |                                  
|December 31, 2001         |  |                            |       |                                             |   |                                  
|Residual value guarantees |  | $                          | 91.9  |                                             | $ | 91.9                             
|Credit guarantees         |  |                            | 22.5  |                                             |   | 5.9                              
|Delinquency guarantees(1) |  |                            | 7.4   |                                             |   |                                 
|                          |  |                            |       |                                             |   |                                  
|                          |  | $                          | 121.8 |                                             | $ | 97.8                             
|                          |  |                            |       |                                             |   |                                  

---

The
Company has issued various residual value guarantees. Under these arrangements, the Company is obligated to make payments to a guaranteed party in the event the related aircraft or
equipment fair values fall below a specified amount at a future point in time. These obligations are collateralized principally by commercial aircraft.

The
Company has issued credit and deficiency guarantees. Under these arrangements, the Company is obligated to make payments to a guaranteed party in the event that payments are not made
by the original debtor or lessee.

32

---

Disclosures About Contractual Obligations and Commercial Commitments

The following table summarizes the Company's known obligations to make future payments or consideration pursuant to certain contracts as of December 31,
2002, as well as an estimate of the timing in which these obligations are expected to be satisfied:

Contractual Obligations

|                                  |  | Payments By Period
|--------------------------------- |  | ------------------
|
|Debt                              |  | $                 
|Capital lease obligations         |  |                   
|Minimum future rental commitments |  |                   
|                                  |  |                   
|                                  |  | $                 
|                                  |  |                   

The
Company expects to meet its current obligations through internally generated cash flows (which includes scheduled receipts from the portfolio) and from future borrowings.

The
following table summarizes the Company's commercial commitments outstanding as of December 31, 2002, as well as an estimate of the timing in which these commitments are
expected to expire:

Commercial Commitments

|                         |  | Amount By Period
|------------------------ |  | ----------------
|
|Guarantor obligations(1) |  | $               
|Financing commitments(2) |  |                 
|                         |  |                 
|                         |  | $               
|                         |  |                 

---

Financing
commitments decreased 61.0% from December 31, 2001. Overall approvals for commercial aircraft and equipment financing were down in 2002 compared with the high volume in
2001, as a result of the continuing effects of the current airline industry downturn and the overall state of the domestic and foreign economies.

Segment Operations

The Company provides financial services through two primary reporting segments: Aircraft Financial Services and Commercial Financial Services. Other is comprised
of Space and Defense Financial Services. The determination of segments is based upon the Company's internal organization.

Aircraft
Financial Services provides financing to buy or lease commercial jet airplanes and represented 77.5% of the Company's total portfolio at December 31, 2002. Services
provided by Aircraft Financial Services extend to new and used Boeing and non-Boeing airplanes. Aircraft Financial Services also assists Boeing commercial aircraft customers in arranging
financing. At December 31, 2002, the Company owned 317 commercial aircraft and had partial ownership or security interest in an

33

---

additional 223 aircraft, including those owned in joint ventures, EETC and other investment transactions.

Commercial
Financial Services' portfolio encompasses multiple industries and a wide range of equipment, including executive aircraft, machine tools and production equipment, containers
and marine equipment, chemical, oil and gas equipment and other equipment types. Commercial Financial Services represented 21.6% of the Company's total portfolio at December 31, 2002.

While
Boeing has long been in the business of assisting its space and defense customers in obtaining financing, Space and Defense Financial Services was formed in 2000 to handle funding
arrangements for satellites, military airplanes and other advanced technology products. This portfolio represented 0.9% of the Company's total portfolio at December 31, 2002.

The
Company evaluates the performance of its reporting segments based on results of operations. Information about the Company's operations in its different financial reporting segments
for the past three years ended December 31 is summarized as follows:

|(Dollars in millions)                            |                               | 2002 |       | 2001  |   | 2000  |      
|------------------------------------------------ | ----------------------------- | ---- | ----- | ----- | - | ----- | -----
|Revenues:                                        |                               |      |       |       |   |       |      
|                                                 | Aircraft Financial Services   |      | $     | 750.5 |   | $     | 585.6
|                                                 | Commercial Financial Services |      |       | 234.3 |   |       | 228.0
|                                                 | Other                         |      |       | 9.4   |   |       | 1.4  
|                                                 |                               |      |       |       |   |       |      
|                                                 |                               | $    | 994.2 |       | $ | 815.0 |      
|                                                 |                               |      |       |       |   |       |      
|Interest expense (allocated):                    |                               |      |       |       |   |       |      
|                                                 | Aircraft Financial Services   |      | $     | 315.9 |   | $     | 242.6
|                                                 | Commercial Financial Services |      |       | 91.1  |   |       | 80.4 
|                                                 | Other                         |      |       | 3.0   |   |       | 1.1  
|                                                 |                               |      |       |       |   |       |      
|                                                 |                               | $    | 410.0 |       | $ | 324.1 |      
|                                                 |                               |      |       |       |   |       |      
|Depreciation expense:                            |                               |      |       |       |   |       |      
|                                                 | Aircraft Financial Services   |      | $     | 174.1 |   | $     | 111.5
|                                                 | Commercial Financial Services |      |       | 46.9  |   |       | 38.2 
|                                                 | Other                         |      |       | 2.4   |   |       |     
|                                                 |                               |      |       |       |   |       |      
|                                                 |                               | $    | 223.4 |       | $ | 149.7 |      
|                                                 |                               |      |       |       |   |       |      
|Income (loss) before provision for income taxes: |                               |      |       |       |   |       |      
|                                                 | Aircraft Financial Services   |      | $     | 30.8  |   | $     | 178.8
|                                                 | Commercial Financial Services |      |       | 40.6  |   |       | 60.6 
|                                                 | Other                         |      |       | 1.0   |   |       | (1.2 
|                                                 |                               |      |       |       |   |       |      
|                                                 |                               | $    | 72.4  |       | $ | 238.2 |      
|                                                 |                               |      |       |       |   |       |      

Aircraft Financial Services

Revenuesfor 2002 were $750.5 million compared with $585.6 million in 2001, an increase of
$164.9 million (28.2%). A larger portfolio, resulting from new business volume and portfolio transfers from Boeing, was primarily responsible for the increased revenues. The increase was offset
by impairments related to an investment in ETCs secured by aircraft on lease to United, lower gains on disposal, lower gains on warrants and convertible securities, write-down of residual
values, lower interest earned on floating rate assets as well as on new business recorded at rates reflecting the current lower interest rate environment.

34

---

The
higher revenues in 2001 compared with 2000 were primarily driven by a substantial increase in the portfolio, resulting from new business volume and portfolio transfers from Boeing,
higher gains on asset sales and revenues on investments.

Interest expense(allocated) for 2002 was $315.9 million compared with $242.6 million in 2001, an increase of
$73.3 million (30.2%). Higher debt associated with the growth in the portfolio, offset by lower effective interest rates and lower average leverage, was primarily responsible for the increase.

The
higher allocated interest expense in 2001 compared with 2000 was primarily attributable to higher debt associated with the growth in the portfolio, offset by lower effective interest
rates.

Depreciation expense(on equipment under operating leases and equipment held for re-lease) for 2002 was $174.1 million
compared with $111.5 million in 2001, an increase of $62.6 million (56.1%). Growth in depreciable assets was responsible for the higher depreciation expense.

The
higher depreciation expense in 2001 compared with 2000 was primarily attributable to growth in depreciable assets.

Income before provision for income taxesfor 2002 was $30.8 million compared with $178.8 million in 2001, a decrease of
$148.0 million. In addition to the aforementioned items, income before provision for income taxes was reduced by:



The
higher income before provision for income tax in 2001 compared with 2000 was principally attributable to increased revenues, gains from asset sales and investment gains partially
offset by higher interest and depreciation expense.

Commercial Financial Services

Revenuesfor 2002 were $234.3 million compared with $228.0 million in 2001, an increase of
$6.3 million (2.8%). A larger average portfolio outstanding during the year, resulting from new business volume, offset by lower interest earned on floating rate assets as well as on new
business recorded at rates reflecting the current lower interest rate environment was primarily responsible for the increase.

The
higher revenue in 2001 compared with 2000 principally reflects a larger portfolio, resulting from new business volume offset slightly by lower gains on sale.

Interest expense(allocated) for 2002 was $91.1 million compared with $80.4 million in 2001, an increase of
$10.7 million (13.3%). Higher debt associated with the growth in the portfolio, partially offset by lower effective interest rates and reduced average leverage, was primarily responsible for
the increase.

The
higher allocated interest expense in 2001 compared with 2000 was primarily attributable to higher debt associated with the growth in the portfolio and offset by lower effective
interest rates.

Depreciation expense(on equipment under operating leases and equipment held for re-lease) for 2002 was $46.9 million
compared with $38.2 million in 2001, an increase of $8.7 million (22.8%). Growth in depreciable assets was responsible for the higher depreciation expense.

The
higher depreciation expense in 2001 compared with 2000 was attributable to growth in depreciable assets.

35

---

Income before provision for income taxesfor 2002 was $40.6 million compared with $60.6 million in 2001, a decrease of
$20.0 million (33.0%). In addition to the aforementioned items, income before provision for income taxes was reduced by:



The
lower income before provision for income taxes in 2001 compared with 2000 was principally attributable to an additional $20.0 million provision recorded to increase and
strengthen the allowance for losses on receivables.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company's assets and liabilities, both fixed-rate and floating-rate, may be subject to interest rate and foreign exchange risk to the
extent that the currency denominations, maturities and repricing
characteristics of the liabilities do not perfectly match those of the assets. Nearly all of the Company's assets and liabilities are denominated in U.S. dollars. The types and terms of borrowing and
hedging instruments that are available to the Company in the market and possible changes in assets terms limit the Company's ability to match assets and liabilities. The Company attempts to keep this
mismatch risk small, partly through the use of interest rate and currency swaps, and does not believe it is materially exposed to gains or losses due to interest rate or currency changes.

The
Company has used public market information and common valuation methods to determine the fair value of its assets and liabilities. The estimates are not necessarily indicative of the
amounts the Company could realize in a current market exchange, and the use of different assumptions or valuation methods could have a material effect on the estimated fair value amounts.

At
December 31, 2002, the book values of the Company's assets and liabilities were $12.6 billion and $10.9 billion, respectively. The Company uses duration gap
analysis to estimate the impact of changes in interest rates. Potential changes in twelve-month net interest income and in the current discounted value of the assets and liabilities are calculated
based on the amount and timing of cash flows projected from each.

At
December 31, 2002, the Company estimated that if market interest rates for all maturities were affected by an immediate, one-time, 100-basis-point
increase, the Company's net earnings, taking into account increases in both revenue and interest expense, would have increased by an amount that is immaterial to the results of operations.
Additionally, although the assets and liabilities impacted by a change in interest rates are generally not traded, the Company estimated that the net present value of these assets and liabilities
would have changed by an amount that is immaterial to its financial position.

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.

36

---

Independent Auditors' Report

Shareholder and Board of Directors
Boeing Capital Corporation

We
have audited the accompanying consolidated balance sheets of Boeing Capital Corporation and subsidiaries as of December 31, 2002 and 2001, and the related consolidated
statements of income, statements of shareholder's equity and comprehensive income and cash flows for each of the three years in the period ended December 31, 2002. These financial statements
are the responsibility of Boeing Capital 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, such consolidated financial statements present fairly, in all material respects, the financial position of Boeing Capital Corporation and subsidiaries as of
December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.

/s/
DELOITTE & TOUCHE LLP

Seattle,
Washington
January 30, 2003

37

---

Boeing Capital Corporation and Subsidiaries
Consolidated Balance Sheets

|                                     |                                                                      | December 31,                                                                                                                                                                                             |         
|------------------------------------ | -------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------
|
|
|ASSETS                               |                                                                      |                                                                                                                                                                                                          |         
|                                     | Cash and cash equivalents                                            |                                                                                                                                                                                                          | $       
|                                     | Receivables:                                                         |                                                                                                                                                                                                          |         
|                                     |                                                                      | Financing leases                                                                                                                                                                                         |         
|                                     |                                                                      | Notes and other receivables                                                                                                                                                                              |         
|                                     |                                                                      |                                                                                                                                                                                                          |         
|                                     |                                                                      |                                                                                                                                                                                                          | 7,427.5 
|                                     |                                                                      | Allowance for losses on receivables                                                                                                                                                                      |         
|                                     |                                                                      |                                                                                                                                                                                                          |         
|                                     |                                                                      |                                                                                                                                                                                                          | 7,167.5 
|                                     | Equipment under operating leases, net of accumulated depreciation    |                                                                                                                                                                                                          |         
|                                     | Investments                                                          |                                                                                                                                                                                                          |         
|                                     | Equipment held for sale or re-lease, net of accumulated depreciation |                                                                                                                                                                                                          |         
|                                     | Accounts due from Boeing and BCSC                                    |                                                                                                                                                                                                          |         
|                                     | Other assets                                                         |                                                                                                                                                                                                          |         
|                                     |                                                                      |                                                                                                                                                                                                          |         
|                                     |                                                                      | $                                                                                                                                                                                                        | 12,563.3
|                                     |                                                                      |                                                                                                                                                                                                          |         
|LIABILITIES AND SHAREHOLDER'S EQUITY |                                                                      |                                                                                                                                                                                                          |         
|                                     | Liabilities:                                                         |                                                                                                                                                                                                          |         
|                                     |                                                                      | Accounts payable and accrued expenses                                                                                                                                                                    |         
|                                     |                                                                      | Other liabilities                                                                                                                                                                                        |         
|                                     |                                                                      | Accounts due to Boeing and BCSC                                                                                                                                                                          |         
|                                     |                                                                      | Deferred income taxes                                                                                                                                                                                    |         
|                                     | Debt:                                                                |                                                                                                                                                                                                          |         
|                                     |                                                                      | Senior                                                                                                                                                                                                   |         
|                                     |                                                                      | Subordinated                                                                                                                                                                                             |         
|                                     |                                                                      |                                                                                                                                                                                                          |         
|                                     |                                                                      |                                                                                                                                                                                                          | 10,906.7
|                                     |                                                                      |                                                                                                                                                                                                          |         
|                                     | Commitments and contingenciesNote 13                                |                                                                                                                                                                                                          |         
|                                     | Shareholder's equity:                                                |                                                                                                                                                                                                          |         
|                                     |                                                                      | Preferred stockno par value; authorized 100,000 shares: Series A; $5,000 stated value; no shares issued and outstanding at December 31, 2002, 10,000 shares issued and outstanding at December 31, 2001 |         
|                                     |                                                                      | Common stock$100 par value; authorized 100,000 shares; issued and outstanding 50,000 shares                                                                                                             |         
|                                     |                                                                      | Capital in excess of par value                                                                                                                                                                           |         
|                                     |                                                                      | Accumulated other comprehensive loss, net of tax                                                                                                                                                         |         
|                                     |                                                                      | Income retained for growth                                                                                                                                                                               |         
|                                     |                                                                      |                                                                                                                                                                                                          |         
|                                     |                                                                      |                                                                                                                                                                                                          | 1,656.6 
|                                     |                                                                      |                                                                                                                                                                                                          |         
|                                     |                                                                      | $                                                                                                                                                                                                        | 12,563.3
|                                     |                                                                      |                                                                                                                                                                                                          |         

See
Notes to Consolidated Financial Statements.

38

---

Boeing Capital Corporation and Subsidiaries
Consolidated Statements of Income

|                                           |                                     | Years Ended December 31,
|------------------------------------------ | ----------------------------------- | ------------------------
|
|
|REVENUES                                   |                                     |                         
|                                           | Finance lease income                |                         
|                                           | Interest income on notes receivable |                         
|                                           | Operating lease income              |                         
|                                           | Investment income                   |                         
|                                           | Net gain on disposal                |                         
|                                           | Other                               |                         
|                                           |                                     |                         
|                                           |                                     |                         
|Equity in income (loss) from joint venture |                                     |                         
|                                           |                                     |                         
|                                           |                                     |                         
|                                           |                                     |                         
|EXPENSES                                   |                                     |                         
|                                           | Interest expense                    |                         
|                                           | Depreciation expense                |                         
|                                           | Provision for losses                |                         
|                                           | Operating expenses                  |                         
|                                           | Other                               |                         
|                                           |                                     |                         
|                                           |                                     |                         
|                                           |                                     |                         
|Income before provision for income taxes   |                                     |                         
|Provision for income taxes                 |                                     |                         
|                                           |                                     |                         
|Net income                                 |                                     | $                       
|                                           |                                     |                         

See
Notes to Consolidated Financial Statements.

39

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Boeing Capital Corporation and Subsidiaries
Consolidated Statements of Shareholder's Equity and Comprehensive Income

|(Dollars in millions)                                                 |  | Preferred
Stock |       | Common
Stock |   | Capital in
Excess of
Par Value |  | Accumulated
Other
Comprehensive
Income (Loss) |         | Income
Retained
for Growth |   | Comprehensive
Income |  
|--------------------------------------------------------------------- |  | --------------- | ----- | ------------ | - | ------------------------------ |  | --------------------------------------------- | ------- | -------------------------- | - | -------------------- | -
|Balance at January 1, 2001                                            |  | $               | 50.0  |              | $ | 5.0                            |  | $                                             | 234.5   |                            | $ |                     |  
|                                                                      |  |                 |       |              |   |                                |  |                                               |         |                            |   |                      |  
|Capital contributions from Boeing(1)                                  |  |                 |      |              |   |                               |  |                                               | 569.3   |                            |   |                     |  
|Net income                                                            |  |                 |      |              |   |                               |  |                                               |        |                            |   |                     |  
|Cash dividend declared                                                |  |                 |      |              |   |                               |  |                                               |        |                            |   |                     |  
|Cumulative effect of accounting change, net of tax of $3.3 million    |  |                 |      |              |   |                               |  |                                               |        |                            |   | (5.9                 | )
|Unrealized loss on derivative instruments, net of tax of $0.2 million |  |                 |      |              |   |                               |  |                                               |        |                            |   | (0.4                 | )
|Unrealized loss on investments, net of tax of $7.2 million            |  |                 |      |              |   |                               |  |                                               |        |                            |   | (12.8                | )
|                                                                      |  |                 |       |              |   |                                |  |                                               |         |                            |   |                      |  
|Balance at December 31, 2001                                          |  | $               | 50.0  |              | $ | 5.0                            |  | $                                             | 803.8   |                            | $ | (19.1                | )
|                                                                      |  |                 |       |              |   |                                |  |                                               |         |                            |   |                      |  
|Preferred stock redemption                                            |  |                 | (50.0 | )            |   |                               |  |                                               |        |                            |   |                     |  
|Capital contributions from Boeing and BCSC(2)                         |  |                 |      |              |   |                               |  |                                               | 286.3   |                            |   |                     |  
|Net income                                                            |  |                 |      |              |   |                               |  |                                               |        |                            |   |                     |  
|Cash dividends declared                                               |  |                 |      |              |   |                               |  |                                               |        |                            |   |                     |  
|Unrealized loss on derivative instruments, net of tax of $0.3 million |  |                 |      |              |   |                               |  |                                               |        |                            |   | (1.4                 | )
|Unrealized gain on investments, net of tax of $3.1 million            |  |                 |      |              |   |                               |  |                                               |        |                            |   | 3.8                  |  
|                                                                      |  |                 |       |              |   |                                |  |                                               |         |                            |   |                      |  
|Balance at December 31, 2002                                          |  | $               |      |              | $ | 5.0                            |  | $                                             | 1,090.1 |                            | $ | (16.7                | )
|                                                                      |  |                 |       |              |   |                                |  |                                               |         |                            |   |                      |  

---

See
Notes to Consolidated Financial Statements.

40

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Boeing Capital Corporation and Subsidiaries
Consolidated Statements of Cash Flows

|                                               |                                                                                   | Years Ended December 31, |                                             
|---------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------ | --------------------------------------------
|
|
|OPERATING ACTIVITIES                           |                                                                                   |                          |                                             
|                                               | Net income                                                                        |                          | $                                           
|                                               | Adjustments to reconcile net income to net cash provided by operating activities: |                          |                                             
|                                               |                                                                                   |                          | Depreciation and amortization expense       
|                                               |                                                                                   |                          | Net gain on disposal                        
|                                               |                                                                                   |                          | Provision for losses                        
|                                               |                                                                                   |                          | Non-cash investment/asset impairment charges
|                                               |                                                                                   |                          | Share-based plans expense                   
|                                               |                                                                                   |                          | Deferred income taxes                       
|                                               |                                                                                   |                          | Change in assets and liabilities:           
|                                               |                                                                                   |                          |                                             
|                                               |                                                                                   |                          |                                             
|                                               |                                                                                   |                          |                                             
|                                               |                                                                                   |                          |                                             
|                                               |                                                                                   |                          |                                             
|                                               |                                                                                   |                          | Other, net                                  
|                                               |                                                                                   |                          |                                             
|                                               |                                                                                   |                          | 784.6                                       
|                                               |                                                                                   |                          |                                             
|INVESTING ACTIVITIES                           |                                                                                   |                          |                                             
|                                               | Net change in short-term leases, notes and other receivables                      |                          |                                             
|                                               | Transfer of net assets from Boeing                                                |                          |                                             
|                                               | Purchase of investments                                                           |                          |                                             
|                                               | Principal reduction on available-for-sale investments                             |                          |                                             
|                                               | Principal reduction on held-to-maturity investments                               |                          |                                             
|                                               | Purchase of equipment for operating leases                                        |                          |                                             
|                                               | Proceeds from disposition of equipment and receivable                             |                          |                                             
|                                               | Collection of leases, notes and other receivables                                 |                          |                                             
|                                               | Origination of leases, notes and other receivables                                |                          |                                             
|                                               |                                                                                   |                          |                                             
|                                               |                                                                                   |                          | (2,476.3                                    
|                                               |                                                                                   |                          |                                             
|FINANCING ACTIVITIES                           |                                                                                   |                          |                                             
|                                               | Net change in commercial paper and short-term bank debt                           |                          |                                             
|                                               | Intercompany debt issuance for transfer of net assets from Boeing                 |                          |                                             
|                                               | Proceeds from issuance of debt                                                    |                          |                                             
|                                               | Repayment of debt                                                                 |                          |                                             
|                                               | Payment of cash dividends                                                         |                          |                                             
|                                               | Capital contributions from Boeing                                                 |                          |                                             
|                                               |                                                                                   |                          |                                             
|                                               |                                                                                   |                          | 1,977.5                                     
|                                               |                                                                                   |                          |                                             
|Net increase in cash and cash equivalents      |                                                                                   |                          | 285.8                                       
|Cash and cash equivalents at beginning of year |                                                                                   |                          | 400.2                                       
|                                               |                                                                                   |                          |                                             
|Cash and cash equivalents at end of year       |                                                                                   | $                        | 686.0                                       
|                                               |                                                                                   |                          |                                             

See
Notes to Consolidated Financial Statements.

41

---

Boeing Capital Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Continued)

|                                             |                                                        | Years Ended December 31, |  
|-------------------------------------------- | ------------------------------------------------------ | ------------------------ | -
|
|
|NON-CASH INVESTING AND FINANCING ACTIVITIES: |                                                        |                          |  
|                                             | Transfer of receivables (See Note 3)                   |                          | $
|                                             |                                                        |                          |  
|                                             | Addition of available-for-sale investments             |                          | $
|                                             |                                                        |                          |  
|                                             | Assumption of accounts payable (See Note 3)            |                          | $
|                                             |                                                        |                          |  
|                                             | Transfer of accounts with Boeing and BCSC (See Note 3) |                          | $
|                                             |                                                        |                          |  
|                                             | Assumption of debt (See Note 3)                        |                          | $
|                                             |                                                        |                          |  
|                                             | Mark-to-market for derivatives on underlying debt      |                          | $
|                                             |                                                        |                          |  
|                                             | Transfer of net assets from Boeing                     |                          | $
|                                             |                                                        |                          |  
|                                             | Capital contributions from Boeing and BCSC             |                          | $
|                                             |                                                        |                          |  

The
following table represents the transfer of net assets from Boeing. In 2002, transfers of net assets from Boeing is comprised of cash transfers of $185.7 million and
non-cash transfers of $194.9 million. There were no non-cash transfers of net assets from Boeing in 2001 or 2000.

|                                                                |                                     | Years Ended December 31,           |  
|--------------------------------------------------------------- | ----------------------------------- | ---------------------------------- | -
|
|
|SUPPLEMENTAL DISCLOSURE FOR TRANSFER OF NET ASSETS FROM BOEING: |                                     |                                    |  
|                                                                | Financing assets                    |                                    | $
|                                                                | Allowance for losses on receivables |                                    |  
|                                                                | Accounts due from Boeing and BCSC   |                                    |  
|                                                                | Other liabilities                   |                                    |  
|                                                                | Deferred income taxes               |                                    |  
|                                                                |                                     |                                    |  
|                                                                |                                     | Transfer of net assets from Boeing |  
|                                                                |                                     |                                    |  

See
Notes to Consolidated Financial Statements.

42

---

Boeing Capital Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2002 and 2001

Note 1Organization and Summary of Significant Accounting Policies

OrganizationBoeing Capital Corporation (the "Company") is an indirect wholly owned subsidiary of 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 principal financial reporting segments: Aircraft Financial Services and Commercial Financial Services. The Company's strategy is to generate and participate in finance
transactions in which the Company's transaction structuring and financial expertise can provide satisfactory returns on its invested capital and to assist in arranging financing for Boeing's
customers.

Principles of ConsolidationThe accompanying consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to the prior years' financial
statements to conform to the 2002 presentation.

Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions could change as more information becomes available, which
could impact the amounts reported and disclosed herein.

Cash EquivalentsThe Company considers all cash investments with original maturities of three months or less to be cash
equivalents. Cash equivalents at December 31, 2002 and 2001 were $681.8 million and $396.8 million, respectively. At December 31, 2002 and 2001, the Company had classified
as other assets restricted cash deposited with banks in interest bearing accounts of $38.0 million and $25.6 million, respectively, for specific lease rents and contractual purchase
options related to certain aircraft leased by the Company under capital lease obligations.

PortfolioThe Company's portfolio consists of financing leases, notes and other receivables, equipment under operating leases
(net of accumulated depreciation), investments and equipment held for sale or re-lease (net of accumulated depreciation).



43

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Asset ValuationThe fair value of owned assets (equipment under operating leases and assets held for sale or
re-lease) and collateral on receivables is periodically assessed to determine if the fair value is less than the carrying value. Differences between carrying value and fair value are
considered in determining the allowance for losses on receivables and, in certain circumstances, recorded as impairment for owned assets.

The
Company uses the average published fair value from multiple sources based on the type and age of the aircraft to determine the fair value of aircraft. Under certain circumstances,
the Company's judgment is based on the attributes of the specific aircraft or equipment to determine fair value, usually when the features or utilization of the aircraft varies significantly from the
more generic aircraft attributes covered by outside publications.

Impairment Review for Equipment Under Operating Leases, Held for Sale or ReleaseThe Company reviews these assets for
impairment when events or circumstances indicate that the carrying amount of these assets may not be recoverable. An asset held for sale is considered impaired if the

44

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carrying value exceeds the fair value less costs to sell. An asset under operating lease or held for re-lease is considered impaired when the expected undiscounted cash flow over the
remaining useful life is less than the book value. Various assumptions are used when determining the expected undiscounted cash flow. These assumptions include lease rates, lease term(s), periods in
which the asset may be held in preparation for a follow-on lease, maintenance costs, remarketing costs and the life of the asset. The determination of expected lease rates is generally
based on outside publications. The Company uses historical information and current economic trends to determine the remaining assumptions. When impairment is indicated for an asset, the amount of
impairment loss is the excess of carrying value over fair value.

Allowance for Losses on ReceivablesThe allowance for losses on receivables is a valuation account used to provide for
potential impairment of receivables on the balance sheet. The balance is an accounting estimate of probable but unconfirmed losses in the receivables portfolio. The allowance for losses on receivables
relates to two components of receivables: (a) specifically identified receivables that are evaluated individually for impairment and (b) pools of receivables that are evaluated for
impairment.

A
specific receivable is reviewed for impairment when, based on current information and events, it is probable that the Company will be unable to collect amounts due according to the
contractual terms of the receivable agreement. Factors considered in assessing uncollectibility include a customer's extended delinquency, requests for restructuring and filing for bankruptcy. A
specific impairment allowance is provided based on the difference between the carrying value of the receivable and the estimated fair value of the related collateral.

The
Company reviews the adequacy of the general allowance attributable to the remaining pool of receivables by assessing both the collateral exposure and the applicable default rate.
Collateral exposure for a particular receivable is the excess of the carrying value over the applicable collateral value of the related asset. A receivable with an estimated collateral value in excess
of the carrying value is considered to have no collateral exposure. The applicable default rate is determined using two components: customer credit ratings and weighted-average remaining portfolio
term. Credit ratings are identified for each customer in the portfolio. Customer credit ratings are updated based on current rating agency information or the Company's best estimates.

For
each credit rating category, the collateral exposure is multiplied by an applicable historical default rate, yielding a credit-adjusted collateral exposure. Historical default rates
are those published by Standard & Poor's reflecting both the customer credit rating and the weighted-average remaining portfolio term. The sum of the credit-adjusted collateral exposures
generates an initial estimate of the general allowance. In recognition of the uncertainty of the ultimate loss experience and relatively long duration of the portfolio, a range of reasonably possible
outcomes of the portfolio's credit-adjusted collateral exposure is calculated by varying the applicable default rate by approximately plus and minus 15%. The allowance recorded represents the best
estimate within the resulting range of credit-adjusted collateral exposure, factoring in considerations of risk of individual credits, current and projected economic and political conditions and prior
loss experience.

Nonaccrual ReceivablesIncome recognition is generally suspended for leases and notes and other receivables at the date when
a full recovery of income and principal becomes doubtful in the opinion of the Company. Income recognition is resumed when the lease or notes and other receivables become contractually current and
performance is demonstrated to be resumed.

Derivative Financial InstrumentsAs more fully described in Note 12, the Company uses derivative financial instruments
as part of its market risk management policy. The derivative instruments used include interest rate and foreign currency swaps, which are subject to hedge accounting determination. The Company also
holds certain instruments for economic purposes that do

45

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not qualify for hedge accounting treatment. The Company records its interest rate and foreign currency swaps at fair value based on discounted cash flow analysis and for warrants and other
option-type instruments based on option pricing models.

Income TaxesThe operations of the Company are included in the consolidated federal income tax return of Boeing. 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 varying from such forecast settled 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 (a) arise because of temporary differences between the time when items of income and expense are recognized for financial reporting and income tax purposes and
(b) are assumed in connection with intercompany transactions with Boeing. 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 financial statements.

Note 2Standards Issued and Not Yet Implemented

In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of the Indebtedness of Others," which clarifies the requirements of SFAS No. 5, "Accounting for Contingencies," relating to a guarantor's accounting for and
disclosures of certain guarantees issued. FIN 45 requires enhanced disclosures for certain guarantees. FIN 45 also requires certain guarantees that are issued or modified after December 31,
2002, to be initially recorded on the balance sheet at fair value. For guarantees
issued on or before December 31, 2002, liabilities are recorded when and if payments become probable and estimable. As the financial statement recognition provisions are effective
prospectively, the Company cannot reasonably estimate the impact of adopting FIN 45 until guarantees are issued or modified in future periods, at which time the related results will be initially
reported in the financial statements.

In
January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities," which clarifies the application of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements," relating to consolidation of certain entities. FIN 46 will require identification of the Company's participation in variable
interest entities ("VIEs"), which are defined as entities with a level of invested equity that is not sufficient to fund future activities to permit it to operate on a standalone basis. For entities
identified as a VIE, FIN 46 sets forth a model to evaluate potential consolidation based on an assessment of which party to the VIE (if any) bears a majority of the exposure to its expected losses, or
stands to gain from a majority of its expected returns. FIN 46 also sets forth certain disclosures regarding interests in VIEs that are deemed significant, even if consolidation is not required. The
Company is currently assessing the application of FIN 46 as it relates to its variable interests in certain pass-through certificate arrangements, such as ETCs and EETCs. For further
discussion, see Note 13.

46

---

Note 3Relationship and Transactions With Boeing and Boeing Capital Services Corporation

Operating Agreement

An operating agreement (the "Operating Agreement") governs certain important aspects of the relationship between the Company, Boeing Capital Services Corporation
("BCSC") (an indirect wholly owned subsidiary of Boeing and parent of the Company) and Boeing relating to the purchase and sale of commercial aircraft receivables, the leasing of commercial aircraft,
the remarketing of such aircraft returned to or repossessed by the Company under leases or secured loans and the allocation of federal income taxes between the companies.

Federal Income Taxes

The Company and Boeing presently file a consolidated federal income tax return with the 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 by Boeing to the Company or by the Company to Boeing,
as appropriate, equal to the difference between the consolidated tax liability and Boeing's tax liability computed without consolidation with the Company. If, subsequent to any such payments by
Boeing, it incurs tax losses that may be carried back to the year for which such payments were made, the Company nevertheless will not be obligated to repay to Boeing any portion of such payments.
Furthermore, the Company has 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 the parent allocated to the Company. This has been important in planning the volume of and pricing for the Company's leasing activities. Under the informal arrangement, alternative minimum
taxes are disregarded and intercompany payments are made when such taxes are due or tax benefits are realized by Boeing based on the assumption that taxes are due or tax benefits are realized up to
100% of the amounts forecasted by the Company, with the amounts varying from such forecast settled in the year realized by Boeing. There can be no assurances that this (and other) intercompany
arrangements will not change from time to time.

Intercompany Transfers

In 2000, Boeing began consolidating all of Boeing's aircraft customer financing portfolio into the Company. The financing portfolio consisted of lease and loan
agreements and the related receivables and assets.

During
the first quarter of 2000, the Company acquired certain tangible assets and assumed certain liabilities of Boeing and certain subsidiaries of Boeing, pursuant to a Term Sheet
dated as of January 1, 2000, as well as various definitive asset transfer agreements dated as of March 31, 2000 (collectively referred to as the "Transfer Agreements"). Under the terms
of the Transfer Agreements, the Company acquired, effective as of January 1, 2000, a significant portion of Boeing's aircraft customer financing portfolio, including lease and loan agreements
and the related receivables and assets (the "Portfolio"). This transfer was not accounted for as new business volume. The purchase price was paid in the form of promissory notes, dated
January 1, 2000, in the aggregate principal amount of $1,261.9 million, together with an equity contribution to the Company of $50.1 million. The Company recorded an intercompany
receivable for $17.3 million from Boeing in consideration for which the Company assumed Boeing's deferred taxes with respect to the Portfolio. The promissory notes were paid in full in the
third quarter of 2000.

During
2001, the Company acquired certain tangible assets and liabilities of Boeing and certain subsidiaries of Boeing. The net assets transferred were $780.1 million with equity
contributions of $375.1 million. Of the transfers, $359.5 million was accounted for as new business volume, representing new financing in 2001.

47

---

During
2002, the Company acquired certain tangible assets and liabilities of Boeing and certain subsidiaries of Boeing. The net assets transferred were $380.6 million, with equity
contributions of
$194.9 million. These transfers were not treated as new business volume as they did not represent new financing in 2002.

Intercompany Transactions

Accounts with Boeing and BCSC consisted of the following at December 31:

|(Dollars in millions)                     |  | 2002 |       | 2001 |  
|----------------------------------------- |  | ---- | ----- | ---- | -
|Notes receivable (payable) from (to) BCSC |  | $    | (60.0 | )    | $
|Federal income tax receivable             |  |      | 38.1  |      |  
|State income tax payable                  |  |      | (2.9  | )    |  
|Other receivables                         |  |      | 2.6   |      |  
|                                          |  |      |       |      |  
|                                          |  | $    | (22.2 | )    | $
|                                          |  |      |       |      |  

The
Company may borrow from BCSC, and BCSC may borrow from the Company, short-term funds at agreed upon rates and maturities. Under this arrangement, the Company had
borrowings of $60.0 million outstanding at December 31, 2002 and no borrowings outstanding at December 31, 2001. BCSC had no borrowings outstanding at December 31, 2002 and
$59.3 million outstanding from the Company at December 31, 2001.

The
Company may borrow from Boeing, and Boeing and its subsidiaries may borrow from the Company, short-term funds at agreed upon rates and maturities. Under this arrangement,
neither the Company nor Boeing had borrowings outstanding at December 31, 2002 or 2001.

During
2002, 2001 and 2000, the Company recorded revenues from Boeing, exclusive of guarantees and subsidies, of $31.4 million, $16.7 million and $7.8 million,
respectively.

During
2001, the Company entered into a purchase agreement with Boeing Commercial Airplanes for four B-767 aircraft. As of December 31, 2002, two of these aircraft
have been purchased by the Company, and the remaining purchase commitment, net of advances made as of December 31, 2002, totaled $73.6 million. The Company has a firm commitment from an
airline to lease these aircraft under a long-term lease agreement. This commitment is included in the Company's total financing commitments as described in Note 13.

During
2002, the Company has a commitment to fund a portion of the advance payments to Boeing Commercial Airplanes for a B-777 aircraft on behalf of one of the Company's
customers. The Company has a firm commitment to an airline to lease this aircraft under a long-term lease agreement. This commitment is included in the Company's total financing
commitments as described in Note 13.

During
2002, the Company entered into an agreement with Boeing to purchase two used Boeing Business Jet aircraft from an unrelated third party and then lease them back to Boeing under a
head lease structure. Boeing manages this operating lease and a concurrent sublease with a government customer. The Company maintains a firm commitment to fund an additional $26.3 million in
aircraft upgrades. The commitments to fund the aircraft upgrades are included in the Company's total financing commitments as described in Note 13.

The
Company entered into certain transactions with Boeing in the form of intercompany guarantees and other subsidies.

Intercompany
guarantees primarily relate to residual value guarantees, first loss deficiency guarantees and rental guarantees. At December 31, 2002 and 2001, the Company was the
beneficiary

48

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under $2,698.0 million and $1,405.8 million, respectively, of guarantees from Boeing. The Company recorded the following activity under the intercompany guarantee agreements:

|                                                                 |                                        | December 31, |      
|---------------------------------------------------------------- | -------------------------------------- | ------------ | -----
|
|
|Guarantees applied to income                                     |                                        | $            | 60.1 
|Guarantees applied to reduce net asset value of related aircraft |                                        |              | 74.5 
|                                                                 |                                        |              |      
|                                                                 |                                        |              | 134.6
|Fees paid                                                        |                                        |              | (2.2 
|                                                                 |                                        |              |      
|                                                                 | Net guarantees received by the Company |              | $    
|                                                                 |                                        |              |      

For
a period of time, Boeing has agreed to provide interest rate subsidies, non-guarantee concessions and rental payments on restructured third party leases. For the years
ended December 31, 2002 and 2001, the Company recognized income of $47.9 million and $7.1 million, respectively, under such subsidies. There was no income recognized under such
agreement for the year ended December 31, 2000.

Additionally,
as provided for under the terms of the intercompany guarantee agreements, Boeing recorded charges of $226.0 million for the year ended December 31, 2002,
related to asset impairments and adjustments to its allowance for losses on receivables in the Company's portfolio.

Boeing
and BCSC had unfunded aircraft financing commitments of $2,898.0 million at December 31, 2002. The Company anticipates that not all of these commitments will be
utilized based on its historical experience. However, if all commitments were to be funded, up to $1,428.0 million may be funded in less than one year, an additional $1,449.0 million may
be funded in one to three years and an additional $21.0 million may be funded after five years. It is expected that the Company will ultimately fund a portion of such commitments. Certain of
those funded may be subject to receiving such credit enhancements or other guarantee support from Boeing as the Company may require in order to meet its underwriting and investment criteria.

Other Intercompany Transactions

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 pre-tax and after-tax contributions. Executive compensation includes performance shares, options and other
compensation programs. Boeing generally charges the Company with the actual costs of these plans attributable to the Company's employees and such expenses are reflected in operating expenses.

The
Company receives support services from Boeing and its subsidiaries. The charges for such services during 2002, 2001 and 2000 totaled $6.2 million, $3.9 million and
$1.9 million, respectively. The Company also assists Boeing in arranging and structuring transactions to meet the financing needs of its commercial aircraft and space and defense customers.
While the Company received no compensation from other Boeing affiliates for services provided by the Company in 2002 and 2001, the Company was compensated by certain affiliates for a number of support
services, which were netted against operating expenses and amounted to $0.1 million in 2000.

49

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Note 4Portfolio Quality

|                                                                     |                                                                                  | December 31, |        
|-------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ------------ | -------
|
|
|Receivables:                                                         |                                                                                  |              |        
|                                                                     | Financing leases                                                                 |              | $      
|                                                                     | Notes and other receivables                                                      |              |        
|                                                                     |                                                                                  |              |        
|                                                                     |                                                                                  |              | 7,427.5
|Equipment under operating leases, net of accumulated depreciation    |                                                                                  |              | 3,506.3
|Investments                                                          |                                                                                  |              | 517.6  
|Equipment held for sale or re-lease, net of accumulated depreciation |                                                                                  |              | 310.8  
|                                                                     |                                                                                  |              |        
|                                                                     | Total portfolio                                                                  |              | $      
|                                                                     |                                                                                  |              |        
|Non-performing assets:                                               |                                                                                  |              |        
|                                                                     | Nonaccrual receivables                                                           |              | $      
|                                                                     | Non-performing equipment under operating leases, net of accumulated depreciation |              |        
|                                                                     | Equipment held for sale or re-lease, net of accumulated depreciation             |              |        
|                                                                     |                                                                                  |              |        
|                                                                     |                                                                                  | $            | 545.1  
|                                                                     |                                                                                  |              |        
|Ratio of nonaccrual receivables to total receivables                 |                                                                                  |              | 2.3    
|Ratio of total non-performing assets to total portfolio              |                                                                                  |              | 4.6    

At
December 31, 2002 and 2001, receivables greater than 90 days past due with income still accruing, based on the strength of the collateral, were $1.6 million and
$33.8 million, respectively.For the year ended December 31, 2002, the Company did not receive any significant cash related to the 2002
receivables. In addition, at December 31, 2002 and 2001, equipment under operating leases with a carrying amount of $19.2 million and $531.7 million, respectively, had amounts
greater than 90 days past due with income still accruing. For the year ended December 31, 2002, the Company received cash of $4.6 million related to the 2002 operating leases.

Note 5Investment in Receivables

The investment in receivables at December 31 consisted of the following:

|(Dollars in millions)                                                |                       | 2002 |         | 2001    |  
|-------------------------------------------------------------------- | --------------------- | ---- | ------- | ------- | -
|Investment in financing leases:                                      |                       |      |         |         |  
|                                                                     | Direct finance leases |      | $       | 4,373.3 |  
|                                                                     | Leveraged leases      |      |         | 176.5   |  
|                                                                     |                       |      |         |         |  
|                                                                     |                       |      | 4,549.8 |         |  
|Notes and other receivables                                          |                       |      | 2,877.7 |         |  
|                                                                     |                       |      |         |         |  
|Total investment in financing leases and notes and other receivables |                       |      | 7,427.5 |         |  
|Less allowance for losses on receivables                             |                       |      | (260.0  | )       |  
|                                                                     |                       |      |         |         |  
|                                                                     |                       | $    | 7,167.5 |         | $
|                                                                     |                       |      |         |         |  

50

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The
investment in direct finance leases at December 31 consisted of the following:

|(Dollars in millions)                            |  | 2002 |          | 2001 |  
|------------------------------------------------ |  | ---- | -------- | ---- | -
|Minimum lease payments                           |  | $    | 6,323.0  |      | $
|Estimated residual value of leased assets        |  |      | 1,351.1  |      |  
|Unearned income and deferred initial direct cost |  |      | (3,300.8 | )    |  
|                                                 |  |      |          |      |  
|                                                 |  | $    | 4,373.3  |      | $
|                                                 |  |      |          |      |  

At
December 31, 2002, financing lease receivables of $187.5 million, and equipment relating to these financing lease receivables of $105.1 million, were assigned as
collateral to secure senior debt. Financing lease receivables of $272.2 million at December 31, 2002 relate to commercial aircraft leased by the Company under capital lease obligations.

Under
a financing lease agreement, the Company leases a DC-10-30 aircraft to Boeing, who in turn subleases it to an airline. This lease requires monthly rent
payments of $0.4 million through April 14, 2004. At December 31, 2002 and 2001, the carrying amount of this aircraft was $13.0 million and $17.5 million,
respectively.

Boeing
guarantees a substantial portion of the rental streams of various B-717 and MD-90 aircraft that were returned by the original lessee. In effect, Boeing
became the lessee under these leases. At December 31, 2002 and 2001, the carrying amounts of aircraft effectively leased to Boeing were $614.4 million and $91.2 million,
respectively. Boeing has announced that AirTran Holdings, Inc. ("AirTran") signed an agreement with the Company to lease the majority of these B-717 aircraft. The aircraft are
scheduled for delivery in 2003.

The
net investment in leveraged leases at December 31 consisted of the following:

|(Dollars in millions)                                    |  | 2002 |         | 2001 |  
|-------------------------------------------------------- |  | ---- | ------- | ---- | -
|Minimum lease payments                                   |  | $    | 1,208.9 |      | $
|Less principal and interest payable on non-recourse debt |  |      | (573.6  | )    |  
|                                                         |  |      |         |      |  
|Net rental receivables                                   |  |      | 635.3   |      |  
|Estimated residual value                                 |  |      | 58.5    |      |  
|Unearned income and deferred initial direct cost         |  |      | (517.3  | )    |  
|                                                         |  |      |         |      |  
|Investment in leveraged lease                            |  |      | 176.5   |      |  
|Less deferred taxes from leveraged leases                |  |      | (197.2  | )    |  
|                                                         |  |      |         |      |  
|                                                         |  | $    | (20.7   | )    | $
|                                                         |  |      |         |      |  

The
components of revenue from leveraged leases, after the effects of interest on non-recourse debt and other related expenses for the years ended December 31 were as
follows:

|(Dollars in millions)   |  | 2002 |      | 2001 |   | 2000 
|----------------------- |  | ---- | ---- | ---- | - | -----
|Lease income            |  | $    | 3.7  |      | $ | 34.7 
|Less income tax expense |  |      | (1.4 | )    |   | (12.9
|                        |  |      |      |      |   |      
|                        |  | $    | 2.3  |      | $ | 21.8 
|                        |  |      |      |      |   |      

51

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On May 24, 2001, American Airlines, Inc. ("American") issued EETCs, and the Company received proceeds attributable to monetization of receivables associated with 32
MD-83 aircraft on lease to American. These borrowings of $566.2 million as of December 31, 2002, are non-recourse to the Company and are collateralized by the
aircraft. The effective interest rates range from 6.82% to 7.69%. This transaction is accounted for as a leveraged lease, therefore, this debt balance is netted against the receivables.

The
investment in notes and other receivables at December 31 consisted of the following:

|(Dollars in millions)                                 |  | 2002 |         | 2001 |  
|----------------------------------------------------- |  | ---- | ------- | ---- | -
|Principal                                             |  | $    | 2,849.5 |      | $
|Accrued interest                                      |  |      | 36.6    |      |  
|Unamortized discount and deferred initial direct cost |  |      | (8.4    | )    |  
|                                                      |  |      |         |      |  
|                                                      |  | $    | 2,877.7 |      | $
|                                                      |  |      |         |      |  

At
December 31, 2002, notes and other receivables of $154.5 million, and equipment relating to these notes and other receivables of $19.5 million, were assigned as
collateral to secure senior debt.

During
2001, the Company entered into a notes receivable agreement with Boeing for a Boeing Business Jet. At December 31, 2002 and 2001, the carrying amount of this note was
$23.2 million and $24.9 million, respectively.

Aggregate
installments of minimum lease payments and principal payments on receivables at December 31, 2002 are contractually due or anticipated during each of the years ending
December 31, 2003 to 2007 and thereafter as follows:

|(Dollars in millions)       |                       | 2003 |       | 2004  |   | 2005    |       | 2006 |       | 2007  |   | Thereafter
|--------------------------- | --------------------- | ---- | ----- | ----- | - | ------- | ----- | ---- | ----- | ----- | - | ----------
|Financing leases:           |                       |      |       |       |   |         |       |      |       |       |   |           
|                            | Direct finance leases |      | $     | 563.4 |   | $       | 538.5 |      | $     | 509.0 |   | $         
|                            | Leveraged leases      |      |       | 36.3  |   |         | 36.3  |      |       | 36.3  |   |           
|Notes and other receivables |                       |      | 318.6 |       |   | 794.5   |       |      | 276.9 |       |   | 288.2     
|                            |                       |      |       |       |   |         |       |      |       |       |   |           
|                            |                       | $    | 918.3 |       | $ | 1,369.3 |       | $    | 822.2 |       | $ | 803.1     
|                            |                       |      |       |       |   |         |       |      |       |       |   |           

Included
in receivables balances are $359.0 million and $419.5 million at December 31, 2002 and 2001, respectively, of investments in entities engaged in financing
accounted for under the equity method.

Note 6Allowance for Losses on Receivables

Allowance for losses on receivables were as follows for the years ended December 31:

|(Dollars in millions)                                    |  | 2002 |       | 2001 |   | 2000  |  
|-------------------------------------------------------- |  | ---- | ----- | ---- | - | ----- | -
|Allowance for losses on receivables at beginning of year |  | $    | 139.5 |      | $ | 136.4 |  
|Provision for losses                                     |  |      | 136.2 |      |   | 36.3  |  
|Write-offs, net of recoveries                            |  |      | (17.8 | )    |   | (36.5 | )
|Allowance transferred from Boeing and BCSC               |  |      | 2.1   |      |   | 3.3   |  
|                                                         |  |      |       |      |   |       |  
|Allowance for losses on receivables at end of year       |  | $    | 260.0 |      | $ | 139.5 |  
|                                                         |  |      |       |      |   |       |  

A
specific receivable is reviewed for impairment when, based on current information and events, it is probable that the Company will be unable to collect amounts due according to the
contractual terms of the receivable agreement. Factors considered in assessing uncollectibility include a customer's

52

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extended delinquency, requests for restructuring and filing for bankruptcy. A specific impairment allowance is provided based on the difference between the carrying value of the receivable and the
estimated fair value of the related collateral.

At
December 31, 2002, the carrying amount of impaired receivables was $1,367.2 million. Of the $1,367.2 million, receivables from United Airlines, Inc.
("United") represented $1,190.2 million, of which $1,097.2 million of these receivables related to B-767 and B-777 aircraft financed for United. The Company
believes this amount is adequately collateralized; therefore, no specific reserve has been established. Impaired receivables of $145.7 million had a specific impairment allowance for losses of
$49.8 million. As a result, 19.2% of the Company's allowance for losses on receivables was allocated to specific reserves. The remaining $210.2 million (80.8% of the allowance for losses
on receivables) is designated for general purposes and represents the Company's best estimate of losses in the remaining receivables considering delinquencies, loss experience, collateral, guarantees,
risk of individual credits, historical default rates, results of periodic credit reviews and the general state of the economy and airline industry. As of December 31, 2002, the Company had
$2,724.7 million of guarantees principally from Boeing with respect to the portfolio relating to transactions totaling $4,197.9 million (35.7% of total Company portfolio). At
December 31, 2001, the carrying amount of impaired receivables was $195.3 million. The specific impairment allowance for losses at December 31, 2001 was $11.0 million for
$55.3 million of impaired receivables. Actual results could differ from estimates and values, and there can be no assurance that the allowance for losses will be sufficient to cover losses on
receivables.

The
average recorded investment in impaired receivables was $277.3 million in 2002 and $154.9 million in 2001. The amount of interest income recognized on such receivables
during the period in which they were considered impaired was $23.5 million and $6.8 million for the years ended December 31, 2002 and 2001, respectively, of which,
$16.7 million and $3.7 million was recognized on a cash basis. Interest income recognized on impaired receivables in 2000 was insignificant.

Note 7Equipment Under Operating Leases, Net of Accumulated Depreciation

Equipment under operating leases, net of accumulated depreciation consisted of the following at December 31:

|(Dollars in millions)                  |  | 2002 |         | 2001 |  
|-------------------------------------- |  | ---- | ------- | ---- | -
|Commercial aircraft                    |  | $    | 3,078.1 |      | $
|Executive aircraft                     |  |      | 722.6   |      |  
|Marine vessels                         |  |      | 94.2    |      |  
|Food processing equipment              |  |      | 45.1    |      |  
|Highway vehicles                       |  |      | 31.1    |      |  
|Construction equipment                 |  |      | 26.2    |      |  
|Machine tools and production equipment |  |      | 19.0    |      |  
|Other                                  |  |      | 6.6     |      |  
|                                       |  |      |         |      |  
|                                       |  |      | 4,022.9 |      |  
|Accumulated depreciation               |  |      | (516.6  | )    |  
|                                       |  |      |         |      |  
|                                       |  | $    | 3,506.3 |      | $
|                                       |  |      |         |      |  

At
December 31, 2002, future minimum rentals scheduled to be received under the noncancelable portion of operating leases are as follows: 2003, $467.5 million; 2004,
$383.1 million; 2005, $350.8 million; 2006, $312.9 million; 2007, $247.4 million; 2008 and thereafter, $1,031.1 million.

At
December 31, 2002, equipment under operating leases of $200.7 million, including projected future cash flows of $55.1 million, were assigned as collateral to
secure senior debt. Equipment under

53

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operating leases of $147.9 million at December 31, 2002 relates to commercial aircraft leased by the Company under capital lease obligations.

Included
in equipment under operating lease balances are $40.0 million and $33.0 million at December 31, 2002 and 2001, respectively, of leases that generate
contingent rentals, which are recorded in income as received. Income recognized on these assets for the years ended December 31, 2002 and 2001 was not significant.

Included
in equipment under operating leases balances are $18.6 million and $32.8 million at December 31, 2002 and 2001, respectively, of investments in entities
engaged in equipment leasing accounted for under the equity method.

Note 8Investments

The following table shows the impact of investments accounted for pursuant to SFAS No. 115. Available-for-sale securities are
recorded in investments at estimated fair value. Unrealized gains/losses of available-for-sale securities are recorded in accumulated other comprehensive income; however,
losses deemed other than temporary are recorded as a reduction to investment income. Held-to-maturity securities are recorded at amortized cost. The unrealized gains/losses of
held-to-maturity securities are not recorded in the consolidated financial statements and are shown in the table below for informational purposes only.

Fair
values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on pricing models or quoted
market prices of comparable instruments. The majority of the Company's securities are illiquid non-traded securities; therefore, the fair values are generally based on pricing models. In
order to use pricing models, the Company requests spread levels over certain benchmark interest rates from external sources to use for calculations in the pricing models. Those spread levels over
certain benchmark interest rates are estimates based on similar public securities, senior tranches in the transaction or other relevant pricing information.

54

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Available-for-sale
and held-to-maturity investments at December 31, 2002 and 2001 consisted of the following:

|(Dollars in millions) |         | Amortized
Cost |       | Gross
Unrealized Gain |     | Gross
Unrealized Loss |     | Estimated
Fair Value
|--------------------- | ------- | -------------- | ----- | --------------------- | --- | --------------------- | --- | --------------------
|2002                  |         |                |       |                       |     |                       |     |                     
|Available-for-Sale:   |         |                |       |                       |     |                       |     |                     
|                      | Equity  |                | $     | 2.4                   |     | $                     | 0.3 |                     
|                      | Debt    |                |       | 4.2                   |     |                       | 0.2 |                     
|Held-to-Maturity:     |         |                |       |                       |     |                       |     |                     
|                      | Debt(1) |                |       | 490.4                 | (2) |                       |    |                     
|                      |         |                |       |                       |     |                       |     |                     
|                      |         | $              | 497.0 |                       | $   | 0.5                   |     | $                   
|                      |         |                |       |                       |     |                       |     |                     
|2001                  |         |                |       |                       |     |                       |     |                     
|Available-for-Sale:   |         |                |       |                       |     |                       |     |                     
|                      | Equity  |                | $     | 4.9                   |     | $                     | 1.6 |                     
|                      | Debt    |                |       | 4.2                   |     |                       | 0.4 |                     
|Held-to-Maturity:     |         |                |       |                       |     |                       |     |                     
|                      | Debt(1) |                |       | 159.0                 |     |                       |    |                     
|                      |         |                |       |                       |     |                       |     |                     
|                      |         | $              | 168.1 |                       | $   | 2.0                   |     | $                   
|                      |         |                |       |                       |     |                       |     |                     

---

At
December 31, 2002, available-for-sale and held-to-maturity investments totaled $497.4 million, of which none were
considered investment grade securities.

At
December 31, 2001, an available-for-sale security was transferred to held-to-maturity at its fair value with
$20.1 million of unrealized loss recorded as a component of accumulated other comprehensive income/loss. As of December 31, 2002, $1.4 million of that $20.1 million
unrealized loss was amortized from accumulated other comprehensive income/loss to investment income.

At
July 1, 2002, two available-for-sale securities were transferred to held-to-maturity at their fair values with
$6.2 million of net unrealized gain recorded as a component of accumulated other comprehensive income/loss. As of December 31, 2002, $0.9 million of that $6.2 million net
unrealized gain was amortized from accumulated other comprehensive income/loss to investment income.

At
October 1, 2002, an available-for-sale security was transferred to held-to-maturity at its fair value, which was equal to its
amortized cost.

Investment
in United ETCs and other trust-related interests of $75.7 million were included in the United portfolio at December 31, 2001. These investments, secured by
aircraft on lease to United, had declined in value for a period determined to be other than temporary and were written down in 2002. This write-down resulted in an impairment of
$79.1 million, of which $13.1 million was recognized by the Company and $66.0 million was recognized by Boeing and paid to the Company. These write-downs were based on the decline
in credit ratings of United, the long-term maturity of the investments, the decline in the underlying aircraft collateral valuations and guarantees on these investments.

The
Company also has a 50% partnership with American Trans Air Holdings Corp. ("ATA") in BATA Leasing, LLC with a carrying value of $19.0 million and $35.8 million at
December 31, 2002 and 2001, respectively, which is recorded in investments on the balance sheet. The joint venture was

55

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established to lease and eventually convert 24 B-727 passenger aircraft to full cargo configuration. Based on the Company's assessment of current market conditions and the average age of
the aircraft (averaging over twenty years old), the resulting estimated future cash flows generated from the aircraft in their current passenger configuration were less than the joint venture's
carrying value. Accordingly, for the year ended December 31, 2002, the Company recorded an impairment loss of $47.9 million for its share of the adjustment to estimated fair market value
for the joint venture's B-727 aircraft. The Company's portfolio does not include any B-727 aircraft other than those held through this joint venture.

Maturities
of debt investments during the years ending December 31 are as follows:

|                           |  | Available-for-Sale |     | Held-to-Maturity
|-------------------------- |  | ------------------ | --- | ----------------
|
|Due in less than one year  |  | $                  |    |                 
|Due from one to five years |  |                    | 0.4 |                 
|Due from six to ten years  |  |                    |    |                 
|Due after ten years        |  |                    | 3.8 |                 
|                           |  |                    |     |                 
|                           |  | $                  | 4.2 |                 
|                           |  |                    |     |                 

Note 9Income Taxes

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

|(Dollars in millions) |         | 2002 |        | 2001   |   | 2000  
|--------------------- | ------- | ---- | ------ | ------ | - | ------
|Current:              |         |      |        |        |   |       
|                      | Federal |      | $      | (229.5 | ) | $     
|                      | State   |      |        | 1.7    |   |       
|                      |         |      |        |        |   |       
|                      |         |      | (227.8 | )      |   | (119.4
|Deferred:             |         |      |        |        |   |       
|                      | Federal |      |        | 251.1  |   |       
|                      |         |      |        |        |   |       
|                      |         | $    | 23.3   |        | $ | 86.5  
|                      |         |      |        |        |   |       

56

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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:

|(Dollars in millions)                      |                      | 2002 |          | 2001     |  
|------------------------------------------ | -------------------- | ---- | -------- | -------- | -
|Deferred tax assets:                       |                      |      |          |          |  
|                                           | Allowance for losses |      | $        | 124.4    |  
|                                           | Other                |      |          | 22.7     |  
|                                           |                      |      |          |          |  
|                                           |                      |      | 147.1    |          |  
|                                           |                      |      |          |          |  
|Deferred tax liabilities:                  |                      |      |          |          |  
|                                           | Leased assets        |      |          | (1,194.4 | )
|                                           | Other                |      |          | (33.9    | )
|                                           |                      |      |          |          |  
|                                           |                      |      | (1,228.3 | )        |  
|                                           |                      |      |          |          |  
|                                           |                      |      | (1,081.2 | )        |  
|Deferred tax on other comprehensive income |                      |      | 7.9      |          |  
|                                           |                      |      |          |          |  
|Net deferred tax liability                 |                      | $    | (1,073.3 | )        | $
|                                           |                      |      |          |          |  

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:

|(Dollars in millions)                                         |  | 2002 |      | 2001 |      | 2000 |  
|------------------------------------------------------------- |  | ---- | ---- | ---- | ---- | ---- | -
|Tax computed at federal statutory rate                        |  | $    | 25.4 |      | 35.0 | %    | $
|State income taxes, net of federal tax benefit                |  |      | 1.3  |      | 1.8  |      |  
|Foreign sales corporation/extraterritorial income tax benefit |  |      | (3.3 | )    | (4.6 | )    |  
|Effect of investment tax credits                              |  |      | (0.1 | )    | (0.1 | )    |  
|                                                              |  |      |      |      |      |      |  
|                                                              |  | $    | 23.3 |      | 32.1 | %    | $
|                                                              |  |      |      |      |      |      |  

The
Company is currently under examination by the Internal Revenue Service ("IRS") for the tax years 1996 through 1997. The outcome of the IRS audit is not expected to have a material
adverse effect on the Company's financial condition, cash flows or results of operations.

The
Company paid income tax payments to or had (receipts) from Boeing of ($247.9) million, ($198.5) million and $10.7 million in 2002, 2001 and 2000, respectively. The Company
paid income tax payments to or had (receipts) from other federal, state and foreign tax agencies of ($0.4) million, $3.6 million and $2.5 million in 2002, 2001 and 2000, respectively.

57

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Note 10Debt and Credit Agreements

Debt consisted of the following at December 31:

|(Dollars in millions) |                                                                                                                   | 2002 |         | 2001   
|--------------------- | ----------------------------------------------------------------------------------------------------------------- | ---- | ------- | -------
|Senior debt:          |                                                                                                                   |      |         |        
|                      | Commercial paper                                                                                                  |      | $       | 72.8   
|                      | Variable rate (three-month LIBOR plus 0.06%) note due 2012                                                        |      |         | 5.0    
|                      | Variable rate (three-month LIBOR plus 0.09%) note due 2002                                                        |      |         |       
|                      | 5.65% note due 2006                                                                                               |      |         | 1,041.6
|                      | 5.75% note due 2007                                                                                               |      |         | 748.1  
|                      | 5.80% note due 2013                                                                                               |      |         | 616.6  
|                      | 6.10% note due 2011                                                                                               |      |         | 781.2  
|                      | 6.50% note due 2012                                                                                               |      |         | 765.9  
|                      | 7.10% note due 2005                                                                                               |      |         | 498.9  
|                      | 7.375% note due 2010                                                                                              |      |         | 548.9  
|                      | 3.41% Euro medium-term note due 2004                                                                              |      |         | 51.3   
|                      | Non-recourse variable rate (one-month LIBOR plus 1.1%) note due 2012                                              |      |         | 44.0   
|                      | 13.84%14.28% non-recourse notes due through 2003, including a premium based on an imputed interest rate of 6.10% |      |         | 5.5    
|                      | 3.15%6.75% retail medium-term notes due through 2017                                                             |      |         | 487.4  
|                      | 1.44%7.53% medium-term notes due through 2017                                                                    |      |         | 3,113.4
|                      | 1.78% secured debt, proceeds of securitization due through 2012                                                   |      |         | 299.2  
|                      | Capital lease obligations due through 2008                                                                        |      |         | 361.5  
|                      |                                                                                                                   |      |         |        
|                      |                                                                                                                   |      | 9,441.3 |        
|                      |                                                                                                                   |      |         |        
|Subordinated debt:    |                                                                                                                   |      |         |        
|                      | 8.31% medium-term note due 2004                                                                                   |      |         | 20.0   
|                      | Non-recourse variable rate note due 2012 (one-month LIBOR plus 2.46%)                                             |      |         | 4.0    
|                      |                                                                                                                   |      |         |        
|                      |                                                                                                                   |      | 24.0    |        
|                      |                                                                                                                   |      |         |        
|                      |                                                                                                                   | $    | 9,465.3 |        
|                      |                                                                                                                   |      |         |        

At
December 31, 2002 and 2001, borrowings under commercial paper, totaling $72.8 million and $43.4 million, respectively, were supported by available undrawn
commitments under Boeing's revolving credit lines.

As
of November 4, 2002, $500.0 million of Boeing's five-year revolving credit line expiring in 2005 was made exclusively available to the Company. In addition,
as of November 4, 2002, $1.5 billion of Boeing's $3.0 billion 364-day revolving credit line continues to be exclusively available to the Company. This lengthening of
the average term of the credit lines available to the Company improved the Company's liquidity position. At December 31, 2002, there were no amounts outstanding under these agreements.

At
December 31, 2002, $304.7 million of senior debt was collateralized by portfolio assets and underlying equipment. The debt consists of the 13.84% to 14.28% notes due
through 2003 and the 1.78% secured debt, proceeds of securitization due through 2012.

58

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The following table includes data on commercial paper at December 31:

|(Dollars in millions)                                                     |  | 2002 |       | 2001
|------------------------------------------------------------------------- |  | ---- | ----- | ----
|Weighted average effective interest rate at year end                      |  |      | 1.63% |     
|Maximum amount outstanding at any month end                               |  | $    | 631.0 |     
|Average amount outstanding during the year                                |  | $    | 257.6 |     
|Weighted average effective interest rate for issuances during the year(1) |  |      | 2.81% |     

---

On
February 16, 2001, the Company filed a public shelf registration of $5.0 billion of debt securities with the Securities and Exchange Commission ("SEC"), which was
declared effective on February 26, 2001. As of December 31, 2002, the Company had received proceeds from the issuance of $3.25 billion, in aggregate, of senior notes. Effective
October 31, 2001, the Company allocated $1.0 billion to the Series XI medium-term note program. Effective June 20, 2002, the remaining $750.0 million
under the shelf registration was allocated to this program. As of the filing date, an aggregate amount of
$426.5 million remains available under the Series XI medium-term note program for potential debt issuance.

On
February 22, 2002, the Company filed a public shelf registration of $5.0 billion of debt securities with the SEC, which was declared effective on March 4, 2002.
The Company allocated $1.0 billion to establish a new retail medium-term note program involving the sale of notes with a minimum denomination of $1,000. As of the filing date, an
aggregate amount of $3.9 billion ($489.3 million of retail notes) remains available for potential debt issuance.

On
June 6, 2002, the Company established a $1.5 billion Euro medium-term note program. As of the filing date, an aggregate amount of $1.4 billion remains
available for potential debt issuance.

On
December 27, 2002, a subsidiary of the Company entered into an asset securitization that raised $299.2 million of secured debt through the use of a
bank-sponsored Commercial Paper Conduit ("C/P Conduit"). As collateral for the debt, the Company's subsidiary transferred $330.7 million of portfolio assets from the Commercial
Financial Services portfolio to the C/P Conduit, which the Company's subsidiary will re-acquire upon payment of the debt in full. These portfolio assets consisted of the cash flows associated with
specific financing leases, notes and other receivables and operating leases. The Company's subsidiary also assigned to the C/P Conduit perfected security interests in $278.1 million of
collateral underlying the transferred portfolio assets. The collateral pledged indirectly provides the C/P Conduit with additional protection in the event that the cash flows from the leases and notes
are insufficient to cover the total debt outstanding under the transaction. The secured debt and securitized assets remain on the Company's balance sheet.

59

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Maturities
of debt and capital lease obligations during the years ending December 31 are as follows:

|(Dollars in millions)                          |  | Debt |         | Capital Leases |  
|---------------------------------------------- |  | ---- | ------- | -------------- | -
|2003                                           |  | $    | 1,010.5 |                | $
|2004                                           |  |      | 999.4   |                |  
|2005                                           |  |      | 1,030.7 |                |  
|2006                                           |  |      | 1,178.5 |                |  
|2007                                           |  |      | 1,148.0 |                |  
|2008 and thereafter                            |  |      | 3,595.8 |                |  
|                                               |  |      |         |                |  
|                                               |  |      | 8,962.9 |                |  
|Deferred debt expenses                         |  |      | (37.7   | )              |  
|Market value adjustments for fair value hedges |  |      | 178.6   |                |  
|Imputed interest                               |  |      |        |                |  
|                                               |  |      |         |                |  
|                                               |  | $    | 9,103.8 |                | $
|                                               |  |      |         |                |  

The
provisions of various debt agreements require the Company to (a) limit the payment of cash dividends to the extent that the Company's consolidated assets would be less than
115% of its consolidated liabilities (excluding deferred taxes) after dividend payments and (b) restrict the amount of liens on the Company's property, other than liens specifically excluded,
to secure indebtedness such that those restricted liens not exceed 15% of consolidated assets. At December 31, 2002, as well as during the year, the Company was in compliance with all its debt
covenants.

Interest
payments were $397.5 million, $267.0 million and $211.5 million in 2002, 2001 and 2000, respectively. Of these amounts, $5.0 million,
$1.8 million and $52.6 million was paid to Boeing and BCSC for the respective years.

Note 11Preferred Stock

In the second quarter of 2002, the Company redeemed all 10,000 outstanding shares of its Series A Preferred Stock at a price of $5,000 per share, which was
the stock's stated value, plus accrued and unpaid dividends. The Series A Preferred Stock was owned entirely by BCSC.

Note 12Derivative Financial Instruments

As adopted January 1, 2001, the Company accounts for derivatives pursuant to SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended. This standard requires that all derivative instruments be recognized in the financial statements and measured at fair value regardless of the purpose or intent for holding
them.

The
Company is exposed to a variety of market risks, including the effects of changes in interest rates and foreign currency exchange rates. These exposures are managed, in part, with
the use of derivatives. Interest rate swap and cross currency swap contracts are entered into with a number of major financial institutions in order to minimize counterparty credit risk. The Company
generally does not require collateral or other security supporting derivative contracts with its counterparties as it believes it is unlikely that any of its counterparties will be unable to perform
under the terms of derivative financial instruments.

The
Company uses interest rate swap agreements and interest exchange agreements to manage interest costs and risks associated with changing interest rates. The Company believes that
these derivative instruments it holds present no market rate risk, as the interest rate swaps are matched with specific debt and capital lease obligations. Additionally, the Company uses cross
currency swaps to

60

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manage its exposure to foreign currency exchange risk. At December 31, 2002, the Company had the following outstanding:

Hedged Item (Hedged by)

|(Dollars in millions)                       |  | Contract
Maturity |  | Notional
Principal(1) |         | Receive Rate |             | Pay Rate
|------------------------------------------- |  | ----------------- |  | --------------------- | ------- | ------------ | ----------- | --------
|Capital lease obligations (Swap)            |  | 20062008         |  | $                     | 224.2   | (2)          | Floating(3) |         
|Capital lease obligations (IEA(4))          |  | 20062008         |  |                       | 224.2   | (2)          | 8.0%8.50%  |         
|Firm Commitments (Forward starting swap)(5) |  | 2021              |  |                       | 145.3   |              | Floating(3) |         
|Medium-term notes (Swap)                    |  | 20032009         |  |                       | 472.0   |              | Floating(3) |         
|Medium-term notes (Cross currency swap)     |  | 2004              |  |                       | 51.3    |              | 3.44%       |         
|Senior notes (Swap)                         |  | 20062013         |  |                       | 1,400.0 |              | 5.65%7.38% |         
|Internotes (Swap)                           |  | 2017              |  |                       | 38.6    |              | 6.65%6.75% |         

---

Fair Value Hedges

Interest rate swaps, under which the Company agrees to pay variable rates of interest, are designated as fair value hedges of fixed-rate debt. The
Company also holds forward-starting interest rate swap agreements to fix the cost of funding a firmly committed lease for which payment terms are determined in advance of funding. This hedge
relationship mitigates the changes in fair value of the hedged portion of the firm commitment caused by changes in interest rates. The net change in fair value of the swap and the hedged portion of
the firm commitment is reported in earnings.

For
the years ended December 31, 2002 and 2001, $4.6 million and $0.8 million, respectively, of gains related to the basis adjustment of certain terminated interest
rate swaps were recorded in interest expense. For the years ended December 31, 2002 and 2001, $7.7 million and $0.2 million, respectively, of losses related to ineffectiveness due
to the forward-starting interest rate swaps were recorded in interest expense. During the next twelve months, the Company expects to amortize an $8.4 million gain from the amount recorded in
the basis adjustment of certain terminated fair value hedge relationships to interest expense.

Cash Flow Hedges

Cash flow hedges used by the Company include certain interest rate swaps and cross currency swaps. Interest rate swap and cross currency swap contracts under
which the Company agrees to pay fixed rates of interest are designated as cash flow hedges of variable-rate debt obligations. In addition, cross swap contracts under which the Company
agrees to pay fixed functional currency rates of interest are designated as cash flow hedges of fixed non-functional currency debt obligations. As of

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December 31, 2002 and 2001, net unrecognized losses of $11.4 million ($7.8 million net of tax) and $9.8 million ($6.3 million net of tax), respectively, were
recorded in accumulated other comprehensive income/loss associated with the Company's cash flow hedging transactions. Of these amounts, a net unrecognized loss of $9.2 million
($5.9 million net of tax) was due to the Company's transition adjustment upon implementation of SFAS No. 133, at January 1, 2001.

For
the years ended December 31, 2002 and 2001, unrecognized losses (net of tax) included in accumulated other comprehensive income/loss of $0.6 million and
$0.7 million, respectively, were reclassified to interest expense. During the next twelve months, the Company expects to reclassify to interest expense a loss (net of tax) of
$0.5 million from the amount recorded in accumulated other comprehensive income/loss. In addition, the Company recorded a loss of $0.6 million in December 31, 2001 related to
certain terminated swaps.

Non-hedging Derivative Instruments

The Company holds certain interest exchange agreements and related interest rate swaps. The intent of these interest rate swaps is to economically hedge the
exposures created by the interest exchange agreements. However, since the exposures being hedged are derivative instruments, this relationship does not qualify for hedge accounting. As a result,
changes in fair value of both instruments are immediately recognized in income. For the years ended December 31, 2002 and 2001, the interest exchange agreements resulted in gains of
$6.9 million and $7.5 million, respectively, and the related interest rate swaps resulted in losses of $8.9 million and $9.2 million, respectively. For the years ended
December 31, 2002 and 2001, unrecognized losses (net of tax) of $1.1 million and $0.7 million, respectively, from accumulated other comprehensive income/loss and gains of
$3.9 million in both years from the basis adjustment to underlying liabilities was amortized to interest expense. During the next twelve months, the Company expects to amortize to interest
expense a $0.7 million loss (net of tax) from the amount recorded in accumulated other comprehensive income/loss and a $2.8 million gain from the basis adjustment to underlying
liabilities.

During
2001, the Company received a conversion option on notes and warrants in connection with a certain financing transaction. As of December 31, 2002 and 2001, the conversion
features of certain convertible debt and warrants were reflected in other assets at their combined fair values of $4.3 million and $12.3 million, respectively. The initial fair values of
the conversion option on notes and warrants were recorded as a discount to notes receivable of $19.9 million and are being amortized to other income. For the years ended December 31,
2002 and 2001, the Company amortized gains from the discount on notes receivable to other income of $5.8 million and $1.7 million, respectively. For the years ended December 31,
2002 and 2001, the conversion feature of the convertible debt and warrants recorded in other assets had changes in fair value, resulting in a reduction to other income of $8.3 million and an
addition to other income of $2.4 million, respectively.

Note 13Commitments and Contingencies

Litigation

Various legal proceedings and claims are pending or have been asserted against the Company, many of which 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 flows or financial position.

Restructuring Requests

United accounted for $1,190.2 million and $741.8 million (10.1% and 8.1% of total Company portfolio) at December 31, 2002 and 2001,
respectively. At December 31, 2002, the United portfolio was secured by security interests in two B-767s and 13 B-777s and by an ownership and security interests in five
B-757s. As of December 31, 2002, United was the Company's largest customer. United

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filed for Chapter 11 bankruptcy protection on December 9, 2002. Although on February 7, 2003 United agreed to perform under the loan agreements securing the B-767s and
B-777s bringing its payments under those agreements current, negotiations with United continue on a full restructuring of the various transactions. Future negotiations may result in
changes to the agreements under which United has agreed to perform, as well as to the B-757 transactions. So long as United remains in bankruptcy, United has the right to reject or abandon
its transactions with the Company. In the event that future negotiations or proceedings result in the return of a substantial number of aircraft, there could be a material adverse effect on the
Company's earnings, cash flows or financial position at least until such time as the aircraft are sold or redeployed for adequate consideration.

Hawaiian
Holding, Inc. ("Hawaiian"), accounted for $476.1 million and $330.3 million (4.0% and 3.6% of total Company portfolio) at December 31, 2002 and 2001,
respectively. Hawaiian's results for the year ended December 31, 2002 were not publicly available as of the filing date. Hawaiian has requested a significant restructuring of its transactions
with the Company. If Hawaiian defaults under these transactions or a significant restructuring occurs, it may result in a material adverse impact on the Company's earnings, cash flows or financial
position.

American
accounted for $381.3 million and $987.4 million (3.2% and 10.7% of total Company portfolio) at December 31, 2002 and 2001, respectively. Based on publicly
available reports, American experienced a net loss of $3.5 billion for the year ended December 31, 2002. At December 31, 2002, the American portfolio consisted of leases of 39
MD-83s, four MD-82s, two B-757s and subordinated debt in one
B-777. In addition, Boeing has provided backstop loan financing for 2003 deliveries that are comprised of nine B-767 and two B-777 aircraft in the maximum amount of $575.0 million. The backstop
loan financing for the final delivery payments that may be exercised on individual deliveries at the option of American is secured by the delivered aircraft. As of the filing date, American has
exercised the option for delivery financing on three B-767 aircraft. The Company believes that such delivery payment loans are adequately collateralized.

As
part of American's internal restructuring and cost reduction initiatives, American has recently publicly stated its intention to approach its labor unions, aircraft lessors, lenders
and suppliers for cost reductions. The Company has recently been requested to reduce lease rates on certain American leases. The Company is in the process of evaluating this request and has not yet
formulated a response.

Viacao
Aerea Rio-Grandense ("VARIG") accounted for $451.9 million and $378.7 million (3.8% and 4.1% of total Company portfolio) at December 31, 2002 and
2001, respectively. VARIG has defaulted on its obligations under leases with the Company in recent years, which has resulted in deferrals and restructurings. Boeing, on behalf of its affiliates, and
VARIG entered into a memorandum of understanding to restructure several existing leases in 2001. Some of the lease amendments contemplated by the memorandum of understanding are still being finalized.
Certain leases will have their terms extended and rents reduced. VARIG is not current on payments due under its transactions with the Company. On November 25, 2002, VARIG announced that its
board of directors resigned after a major stakeholder of VARIG rejected an accord to renegotiate $900.0 million of debt. VARIG also announced that the airline will undergo a restructuring
effort and that it may enter into a merger with TAM Linhas Aereas, SA, another major Brazilian airline. Boeing has provided the Company with first loss deficiency and partial lease rental guarantees
covering $338.9 million of the VARIG obligations. Taking into account these guarantees, the Company does not expect the VARIG transactions, including the impact of any restructurings, to have a
material adverse effect on the Company's earnings, cash flows or financial position.

The
Company has reviewed its obligations due from its customers for collectibility and has established specific or general allowances as deemed necessary by the Company. A number of the
Company's customers, including several of its larger customers, have requested a restructuring of their transactions with the Company. While the Company has not reached agreement on any restructuring
requests that would have a material adverse impact on the Company's earnings, cash flows or financial

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position, there can be no assurance that such requests, negotiations or defaults (including bankruptcies) by the Company's customers will not have a material adverse impact on the Company's earnings,
cash flows or financial position.

Commitments

In addition to Boeing and BCSC's unfunded aircraft financing commitments discussed in Note 3, the Company had commitments to provide leasing and other
financing totaling $611.4 million at
December 31, 2002. The Company anticipates that not all of these commitments will be utilized based on its historical experience. However, if all commitments were to be funded, up to
$272.6 million may be funded in less than one year, an additional $314.6 million may be funded in one to three years and an additional $24.2 million may be funded after five
years.

In
conjunction with prior asset dispositions and certain guarantees, the Company was subject to maximum guarantor obligations of $122.5 million at December 31, 2002;
however, $7.4 million of such amount has been indemnified by Boeing and is included in the amount guaranteed by Boeing as discussed in Note 3. Guarantor obligations are primarily
comprised of residual value and other guarantees provided by the Company. Losses, if any, relating to such exposure, net of collateral, are not expected to be significant to the Company.

The
Company's headquarters is located in Renton, Washington, with a principal office located in Long Beach, California, eight domestic regional marketing offices and four international
offices. Rent expense for office leases under operating lease agreements was $2.4 million, $2.2 million and $1.5 million for the years ended December 31, 2002, 2001 and
2000, respectively. At December 31, 2002, the minimum future rental commitments under these noncancelable leases payable over the remaining lives of the leases aggregated $8.5 million
and are due as follows: less than one year, $2.5 million; one to three years, $4.6 million; and four to five years, $1.4 million.

Off-Balance Sheet Arrangements

The Company is a party to certain off-balance sheet arrangements as defined by the SEC, including certain guarantor obligations and variable interests
in unconsolidated entities.

Guarantor Obligations

The following table provides quantitative data regarding the Company's third party guarantees. The maximum potential payment amounts represent a
"worst-case scenario," and do not necessarily reflect results expected by the Company. Estimated proceeds from collateral and recourse represent the anticipated values of assets the
Company could liquidate or receive from other parties to offset its payments under guarantees. The carrying amount of liabilities recorded on the balance sheet reflects the Company's best estimate of
future payments it may be required to make as part of fulfilling its guarantor obligations.

|(Dollars in millions)     |  | Maximum Potential
Payments |       | Estimated Proceeds From
Collateral/Recourse |   | Carrying Amount of
Liabilities(2)
|------------------------- |  | -------------------------- | ----- | ------------------------------------------- | - | ---------------------------------
|December 31, 2002         |  |                            |       |                                             |   |                                  
|Residual value guarantees |  | $                          | 90.1  |                                             | $ | 89.6                             
|Credit guarantees         |  |                            | 25.0  |                                             |   | 25.0                             
|Delinquency guarantees(1) |  |                            | 7.4   |                                             |   |                                 
|                          |  |                            |       |                                             |   |                                  
|                          |  | $                          | 122.5 |                                             | $ | 114.6                            
|                          |  |                            |       |                                             |   |                                  
|December 31, 2001         |  |                            |       |                                             |   |                                  
|Residual value guarantees |  | $                          | 91.9  |                                             | $ | 91.9                             
|Credit guarantees         |  |                            | 22.5  |                                             |   | 5.9                              
|Delinquency guarantees(1) |  |                            | 7.4   |                                             |   |                                 
|                          |  |                            |       |                                             |   |                                  
|                          |  | $                          | 121.8 |                                             | $ | 97.8                             
|                          |  |                            |       |                                             |   |                                  

---

64

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The
Company has issued various residual value guarantees. Under these arrangements, the Company is obligated to make payments to a guaranteed party in the event the
related aircraft or equipment fair values fall below a specified amount at a future point in time. These obligations are collateralized principally by commercial aircraft, and expire within the next
14 years.

The
Company has issued credit and deficiency guarantees. Under these arrangements, the Company is obligated to make payments to a guaranteed party in the event that payments are not made
by the original debtor or lessee. Current outstanding credit and deficiency guarantees expire within the next 10 years.

Material Variable Interests in Unconsolidated Entities

Airlines regularly utilize a special purpose entity ("SPE") called a Pass Through Trust to finance aircraft. The Pass Through Trust enables the airline to
aggregate a large number of aircraft secured notes into one trust vehicle, facilitating the issuance of larger bonds called pass-through certificates. The most common form of
pass-through certificates issued by airlines are EETCs. EETCs provide investors with tranched rights to cash flows from a financial instrument, as well as a collateral position in the
related asset. While the underlying classes of equipment notes vary by maturity and/or coupon depending upon tenor or level of subordination of the specific equipment notes and their corresponding
claim on the aircraft, the basic function of the Pass Through Trust in an EETC remains: to passively hold separate debt investments to enhance liquidity for investors, who in turn pass this liquidity
benefit directly to the airline in the form of a lower coupon and/or greater debt capacity. The Company participates in several EETCs as an investor. EETCs are secured by assets on lease to commercial
airlines.

The
Company also utilizes certain SPEs to isolate individual transactions for legal liability, perfect security interests from the perspective of the Company and a third-party lender in
certain leveraged lease transactions and realize certain income and sales tax benefits. These SPEs are fully consolidated in the Company's financial statements.

The
Company is currently assessing the application of FIN 46 as it relates to its variable interests in certain pass-through certificate arrangements, such as ETCs and EETCs. While the
Company is currently not required to consolidate the full amount of the ETCs and EETCs in the Trusts in which it has invested, it is unable to definitively conclude at this time whether consolidation
or disclosure will be required for these investments upon full adoption of FIN 46. The Company's investment in ETCs and EETCs aggregated $0.5 billion at December 31, 2002. During the
year ended December 31, 2002, the Company recorded revenues of $23.6 million and had cash inflows of $40.8 million relating to these investments. At December 31, 2002, the
VIEs (ETCs and EETCs) in which the Company has invested had total assets of approximately $4.2 billion and related debt (which is non-recourse to the Company) of approximately
$3.7 billion.

65

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Note 14Fair Value of Financial Instruments

The following information is required by SFAS No. 107, "Disclosures About Fair Value of Financial Instruments." The estimated fair value amounts of the
Company's financial instruments have been determined by the Company using market information and valuation methodologies, such as discounted cash flows. The estimates are not necessarily indicative of
the amounts the Company could realize in a current market exchange, and the use of different market assumptions or methodologies could have a material effect on the estimated fair value amounts. The
following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash and Cash EquivalentsThe carrying amount reported in the balance sheet for cash and cash equivalents approximates its
fair value.

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

InvestmentsThe fair values of investments are based on quoted market prices, where available. If quoted market prices are
not available, fair values are based on pricing models or quoted market prices of comparable instruments.

Interest Rate Swaps and Other Derivative InstrumentsThe fair values of the Company's interest rate swaps and other
derivative instruments are based on quoted market prices of comparable instruments.

IndebtednessThe fair values of debt, excluding capital lease obligations, are estimated according to public quotations or
discounted cash flow analysis, which are based on current incremental borrowing rates for similar types of borrowing arrangements. The Company's debt is generally not callable until maturity.

Accounts Payable and Accrued InterestThe carrying amounts of accounts payable and accrued interest approximate their fair
values.

Financing Commitments and GuaranteesIt is not practicable to estimate the fair value of future financing commitments and
guarantees to the Company as there is not a market for such future commitments or guarantees. For residual value, credit and other guarantees where the Company is the guarantor, the present value of
the expected liability has been used to approximate fair value.

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

|                              |                                                       | 2002                                        |   | 2001    |  
|----------------------------- | ----------------------------------------------------- | ------------------------------------------- | - | ------- | -
|
|
|ASSETS                        |                                                       |                                             |   |         |  
|                              | Cash and cash equivalents                             |                                             |   |         |  
|                              | Notes and other receivables                           |                                             |   |         |  
|                              | Investments                                           |                                             |   |         |  
|                              | Interest rate swaps                                   |                                             | $ | 1,712.7 |  
|                              | Other derivative instruments                          |                                             |   |         |  
|                              | Firm commitments                                      |                                             |   |         |  
|LIABILITIES                   |                                                       |                                             |   |         |  
|                              | Debt:                                                 |                                             |   |         |  
|                              |                                                       | Senior, excluding capital lease obligations |   |         |  
|                              |                                                       | Subordinated                                |   |         |  
|                              | Accounts payable                                      |                                             |   |         |  
|                              | Accrued interest, excluding capital lease obligations |                                             |   |         |  
|                              | Interest rate swaps                                   |                                             |   | (842.9  | )
|OFF-BALANCE SHEET INSTRUMENTS |                                                       |                                             |   |         |  
|                              | Commitments to extend credit                          |                                             |   | (611.4  | )
|                              | Guarantees to the Company on portfolio assets         |                                             |   | 2,724.7 |  
|                              | Guarantor obligations from the Company                |                                             |   | (122.5  | )

Note 15Concentration of Risk

The following table includes the five largest customers at December 31, 2002, with their related balances at December 31, 2001:

|         |  | 2002 |          | 2001 |      
|-------- |  | ---- | -------- | ---- | -----
|
|United   |  | $    | 1,190.2  |      | 10.1 
|AirTran  |  |      | 1,068.7  |      | 9.1  
|Boeing   |  |      | 878.4    |      | 7.5  
|ATA      |  |      | 610.6    |      | 5.2  
|Hawaiian |  |      | 476.1    |      | 4.0  
|Other    |  |      | 7,538.2  |      | 64.1 
|         |  |      |          |      |      
|         |  | $    | 11,762.2 |      | 100.0
|         |  |      |          |      |      

In
2002 and 2000, no customer accounted for more than 10% of the Company's revenues. In 2001, a single Aircraft Financial Services customer accounted for more than 10% of the Company's
revenues.

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Revenues
from customers by geographic region for the past three years ended December 31 were as follows:

|(Dollars in millions)       |  | 2002 |       | 2001 |   | 2000 
|--------------------------- |  | ---- | ----- | ---- | - | -----
|United States               |  | $    | 622.5 |      | $ | 495.0
|Latin America and Caribbean |  |      | 138.8 |      |   | 121.4
|Europe                      |  |      | 122.9 |      |   | 101.9
|Asia                        |  |      | 94.0  |      |   | 78.7 
|Others                      |  |      | 16.0  |      |   | 18.0 
|                            |  |      |       |      |   |      
|                            |  | $    | 994.2 |      | $ | 815.0
|                            |  |      |       |      |   |      

The
Company generally holds title to all leased assets and generally has a perfected security interest in the assets financed through note and loan arrangements. The Company assigned
perfected security interests in $278.1 million of portfolio assets pledged as collateral for a secured borrowing transaction.

Note 16Segment Information

The Company's primary operations at December 31, 2002 included two principal financial reporting segments: Aircraft Financial Services and Commercial
Financial Services. Currently, Aircraft Financial Services is active in providing lease and debt financing to domestic and international airlines. Commercial Financial Services provides lease and loan
financing to a broad range of commercial and industrial customers.

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The
Company evaluates the performance of its reporting segments based on results of operations. Information about the Company's operations in its different financial reporting segments
for the past three years ended December 31 is summarized as follows:

|(Dollars in millions)                            |                               | 2002 |       | 2001  |   | 2000  |      
|------------------------------------------------ | ----------------------------- | ---- | ----- | ----- | - | ----- | -----
|Revenues:                                        |                               |      |       |       |   |       |      
|                                                 | Aircraft Financial Services   |      | $     | 750.5 |   | $     | 585.6
|                                                 | Commercial Financial Services |      |       | 234.3 |   |       | 228.0
|                                                 | Other                         |      |       | 9.4   |   |       | 1.4  
|                                                 |                               |      |       |       |   |       |      
|                                                 |                               | $    | 994.2 |       | $ | 815.0 |      
|                                                 |                               |      |       |       |   |       |      
|Interest expense (allocated):                    |                               |      |       |       |   |       |      
|                                                 | Aircraft Financial Services   |      | $     | 315.9 |   | $     | 242.6
|                                                 | Commercial Financial Services |      |       | 91.1  |   |       | 80.4 
|                                                 | Other                         |      |       | 3.0   |   |       | 1.1  
|                                                 |                               |      |       |       |   |       |      
|                                                 |                               | $    | 410.0 |       | $ | 324.1 |      
|                                                 |                               |      |       |       |   |       |      
|Depreciation expense:                            |                               |      |       |       |   |       |      
|                                                 | Aircraft Financial Services   |      | $     | 174.1 |   | $     | 111.5
|                                                 | Commercial Financial Services |      |       | 46.9  |   |       | 38.2 
|                                                 | Other                         |      |       | 2.4   |   |       |     
|                                                 |                               |      |       |       |   |       |      
|                                                 |                               | $    | 223.4 |       | $ | 149.7 |      
|                                                 |                               |      |       |       |   |       |      
|Income (loss) before provision for income taxes: |                               |      |       |       |   |       |      
|                                                 | Aircraft Financial Services   |      | $     | 30.8  |   | $     | 178.8
|                                                 | Commercial Financial Services |      |       | 40.6  |   |       | 60.6 
|                                                 | Other                         |      |       | 1.0   |   |       | (1.2 
|                                                 |                               |      |       |       |   |       |      
|                                                 |                               | $    | 72.4  |       | $ | 238.2 |      
|                                                 |                               |      |       |       |   |       |      

The
portfolio assets by segment at December 31 were as follows:

|(Dollars in millions)         |                                                                      | 2002 |          | 2001   
|----------------------------- | -------------------------------------------------------------------- | ---- | -------- | -------
|Aircraft Financial Services   |                                                                      |      |          |        
|                              | Financing leases                                                     |      | $        | 3,669.9
|                              | Notes and other receivables                                          |      |          | 1,963.6
|                              | Equipment under operating leases, net of accumulated depreciation    |      |          | 2,672.2
|                              | Investments                                                          |      |          | 517.6  
|                              | Equipment held for sale or re-lease, net of accumulated depreciation |      |          | 287.5  
|                              |                                                                      |      |          |        
|                              |                                                                      |      | 9,110.8  |        
|                              |                                                                      |      |          |        
|Commercial Financial Services |                                                                      |      |          |        
|                              | Financing leases                                                     |      |          | 879.9  
|                              | Notes and other receivables                                          |      |          | 875.4  
|                              | Equipment under operating leases, net of accumulated depreciation    |      |          | 759.5  
|                              | Equipment held for sale or re-lease, net of accumulated depreciation |      |          | 23.3   
|                              |                                                                      |      |          |        
|                              |                                                                      |      | 2,538.1  |        
|                              |                                                                      |      |          |        
|Other                         |                                                                      |      | 113.3    |        
|                              |                                                                      |      |          |        
|                              |                                                                      | $    | 11,762.2 |        
|                              |                                                                      |      |          |        

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The
total assets by segment at December 31 were as follows:

|(Dollars in millions)         |  | 2002 |          | 2001
|----------------------------- |  | ---- | -------- | ----
|Aircraft Financial Services   |  | $    | 9,761.4  |     
|Commercial Financial Services |  |      | 2,677.6  |     
|Other                         |  |      | 124.3    |     
|                              |  |      |          |     
|                              |  | $    | 12,563.3 |     
|                              |  |      |          |     

Note 17Quarterly Financial Information (Unaudited)

|                                                |  | Three Months Ended
|----------------------------------------------- |  | ------------------
|
|
|2002                                            |  |                   
|Revenues                                        |  | $                 
|Income (loss) before provision for income taxes |  |                   
|Net income (loss)                               |  |                   
|2001                                            |  |                   
|Revenues                                        |  | $                 
|Income before provision for income taxes        |  |                   
|Net income                                      |  |                   

70

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

None.

Part III

Item 10. Directors and Executive Officers of the Registrant

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

Item 11. Executive Compensation

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

Item 12. Security Ownership of Certain Beneficial Owners and Management

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

Item 13. Certain Relationships and Related Transactions

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

Item 14. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company's principal executive officer and its principal financial officer, based on their evaluation of the Company's disclosure controls and procedures (as
defined in Exchange Act Rules 13a14c) as of a date within 90 days prior to the filing of this Annual Report on Form 10-K, have concluded that the
Company's disclosure controls and procedures are adequate and effective for the purposes set forth in the definition in Exchange Act rules.

Change in Internal Controls

There were no significant changes in the Company's internal controls or in other factors that could significantly affect the Company's internal controls
subsequent to the date of their evaluation.

71

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Part IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

|    |  |     |  |                                                                                                                                                                                                                                                                                                                |  | Page Number in Form 10-K
|--- |  | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------
|(a) |  | 1.  |  | Financial Statements:                                                                                                                                                                                                                                                                                          |  |                         
|    |  |     |  | Independent Auditors' Report                                                                                                                                                                                                                                                                                   |  | 37                      
|    |  |     |  | Consolidated Balance Sheets at December 31, 2002 and 2001                                                                                                                                                                                                                                                      |  | 38                      
|    |  |     |  | Consolidated Statements of Income for the Years Ended
December 31, 2002, 2001 and 2000                                                                                                                                                                                                                         |  | 39                      
|    |  |     |  | Consolidated Statements of Shareholder's Equity and Comprehensive Income at December 31, 2002 and 2001                                                                                                                                                                                                         |  | 40                      
|    |  |     |  | Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000                                                                                                                                                                                                                     |  | 41                      
|    |  |     |  | Notes to Consolidated Financial Statements                                                                                                                                                                                                                                                                     |  | 43                      
|    |  | 2.  |  | Financial Statement Schedule:                                                                                                                                                                                                                                                                                  |  |                         
|    |  |     |  | None.                                                                                                                                                                                                                                                                                                          |  |                         
|    |  | 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 |  | 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).                                                                                
|    |  | 4.2 |  | 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).                               
|    |  | 4.3 |  | 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).
|    |  | 4.4 |  | 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).                                                                                                                                                    
|    |  | 4.5 |  | Senior Indenture, dated as of August 31, 2000, incorporated by reference to Exhibit 4(a) to the Company's Amendment No. 2 to Form S-3 Registration Statement, dated August 30, 2000 (File No. 333-82391).                                                                                                     
|    |  |     |  |                                                                                                                                                                                                                                                                                                                |  |                         

72

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|                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 4.6  |  | Subordinated Indenture, dated as of August 31, 2000, incorporated by reference to Exhibit 4(b) to the Company's Amendment No. 2 to Form S-3 Registration Statement, dated August 30, 2000 (File No. 333-82391).
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 4.7  |  | 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).                                              
|                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 4.8  |  | 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.                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 4.9  |  | 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).                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 4.10 |  | 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).                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 4.11 |  | 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).                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 4.12 |  | 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).                              
|                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 4.13 |  | 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).                           
|                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 4.14 |  | 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).                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 4.15 |  | 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).                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 4.16 |  | 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).                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 4.17 |  | 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).                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 4.18 |  | Form of Series XI Senior Fixed Rate Medium-Term Note, incorporated by reference to Exhibit 4(c) to the Company's Form S-3 Registration Statement (File No. 333-82391).                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 4.19 |  | Form of Series XI Subordinated Fixed Rate Medium-Term Note, incorporated by reference to Exhibit 4(d) to the Company's Form S-3 Registration Statement (File No. 333-82391).                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 4.20 |  | Form of Series XI Senior Floating Rate Medium-Term Note, incorporated by reference to Exhibit 4(e) to the Company's Form S-3 Registration Statement (File No. 333-82391).                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 4.21 |  | Form of Series XI Subordinated Floating Rate Medium-Term Note, incorporated by reference to Exhibit 4(f) to the Company's Form S-3 Registration Statement (File No. 333-82391).                                
|Pursuant to Item 601 (b)(4)(iii) of Regulation S-K, the Company is not filing certain instruments with respect to its debt, as 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.
|                                                                                                                                                                                                                                                                                                                                                                                                                            |  |      |  |                                                                                                                                                                                                                

73

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|    |  | 10.1                |  | Amended and Restated 364-Day Credit Agreement, dated November 22, 2002, between Boeing and the banks listed therein.                                                                                
|--- |  | ------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | 10.2                |  | Borrower Subsidiary Letter relating to the 364-Day Credit Agreement, dated November 22, 2002, from Boeing and the Company to the banks listed therein.                                              
|    |  | 10.3                |  | Five-Year Credit Agreement, dated as of September 25, 2000, between Boeing and the banks listed therein.                                                                                            
|    |  | 10.4                |  | Borrower Subsidiary Letter relating to the Five-Year Credit Agreement, dated as of November 4, 2002, from Boeing and the Company to the banks listed therein.                                       
|    |  | 10.5                |  | Letter agreement relating to the 364-Day Credit Agreement and the Five-Year Credit Agreement, dated as of November 22, 2002, between Boeing and the Company.                                        
|    |  | 10.6                |  | Operating Agreement, dated as of September 13, 2000, by and among the Company, BCSC and Boeing, incorporated herein by reference to Exhibit 10.1 to the Company's Form 8-K filed September 19, 2000.
|    |  | 10.7                |  | Operating Agreement, dated as of September 13, 2000, by and among BCSC and Boeing, incorporated herein by reference to Exhibit 10.2 to the Company's Form 8-K filed September 19, 2000.             
|    |  | 12.                 |  | Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                                  
|    |  | 23.1                |  | Independent Auditors' Consent.                                                                                                                                                                      
|    |  | 99.1                |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                              
|    |  | 99.2                |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                              
|(b) |  | Reports on Form 8-K
|    |  | 1.                  |  | Form 8-K dated October 4, 2002, for the purpose of filing the press release, dated October 4, 2002, related to the non-cash charges recorded in the third quarter of 2002.                          
|    |  | 2.                  |  | Form 8-K dated October 18, 2002, to release earnings for the quarterly period ended September 30, 2002.                                                                                             

74

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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                                                        
|----------------- |  | ----------------------------------------------------------------------------------
|February 27, 2003 |  | /s/STEVEN W. VOGEDINGSteven W. Vogeding 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.

|Signature                                                             |  | Title                                      |  | Date             
|--------------------------------------------------------------------- |  | ------------------------------------------ |  | -----------------
|/s/MICHAEL M. SEARSMichael M. Sears                                   |  | Chairman and Director                      |  | February 27, 2003
|/s/JAMES F. PALMERJames F. Palmer
(Principal Executive Officer)       |  | President and Director                     |  | February 27, 2003
|/s/DOUGLAS G. BAINDouglas G. Bain                                     |  | Director                                   |  | February 27, 2003
|/s/MICHAEL J. CAVEMichael J. Cave                                     |  | Director                                   |  | February 27, 2003
|/s/WALTER E. SKOWRONSKIWalter E. Skowronski                           |  | Director                                   |  | February 27, 2003
|/s/STEVEN W. VOGEDINGSteven W. Vogeding
(Principal Financial Officer) |  | Vice President and Chief Financial Officer |  | February 27, 2003
|/s/JILL C. RICHLINGJill C. Richling
(Principal Accounting Officer)    |  | Controller                                 |  | February 27, 2003

75

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CERTIFICATION
(pursuant to Rule 13a-14 of the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)

I,
James F. Palmer, certify that:





|February 27, 2003 |  | /s/JAMES F. PALMERJames F. Palmer President and Director
|----------------- |  | --------------------------------------------------------

76

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CERTIFICATION
(pursuant to Rule 13a-14 of the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)

I,
Steven W. Vogeding, certify that:





|February 27, 2003 |  | /s/STEVEN W. VOGEDINGSteven W. Vogeding Vice President and Chief
Financial Officer
|----------------- |  | ----------------------------------------------------------------------------------

77

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