UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the Fiscal Year Ended December 31, 2000

                           Commission File No. 1-9259


                 AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
                 -----------------------------------------------
             (Exact name of registrant as specified in its charter)


      California                                         94-3008908
-----------------------                     ------------------------------------
(State of Organization)                     (I.R.S. Employer Identification No.)


          555 California Street, Fourth Floor, San Francisco, CA 94104
          ------------------------------------------------------------
               (Address of principal executive offices) (Zip Code)


       Registrant's telephone number, including area code: (415) 765-1814


           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

         TITLE OF EACH CLASS:                       NAME OF EACH EXCHANGE
    Depositary Units Representing                   ON WHICH REGISTERED:
    Limited Partnership Interests                  New York Stock Exchange


        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE


         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. YES X  NO
                                             ---   ---

         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.

         Aggregate market value of Depositary  Units,  held by non-affiliates of
the registrant as of the close of business at March 19, 2001 was $42,548,610.00.


<PAGE>


                                TABLE OF CONTENTS
                                                                            Page
                                     PART I
ITEM 1.    BUSINESS..........................................................  3

ITEM 2.    PROPERTIES........................................................ 14

ITEM 3.    LEGAL PROCEEDINGS................................................. 14

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............... 14

                                     PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
           MATTERS........................................................... 15

ITEM 6.    SELECTED FINANCIAL DATA........................................... 18

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS......................................... 19

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
           MARKET RISK....................................................... 22

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................... 23

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
           AND FINANCIAL DISCLOSURE.......................................... 23

                                    PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................ 23

ITEM 11.   EXECUTIVE COMPENSATION............................................ 25

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.... 25

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................... 26

                                     PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K. 27

SIGNATURES................................................................... 30

INDEX TO EXHIBITS...........................................................A-12


                                       2


<PAGE>


                 AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
                                    FORM 10-K


                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000


                                     PART I
                                     ------

ITEM 1.  BUSINESS

GENERAL

         Airlease Ltd., A California  Limited  Partnership (the "Partnership" or
"Airlease"),  was formed in 1986. The General  Partner of the  Partnership  (the
"General   Partner")  is  Airlease   Management   Services,   Inc.,  a  Delaware
corporation.  Until  October  31, 1996 the  General  Partner was a wholly  owned
subsidiary  of USL Capital  Corporation  ("USL  Capital"),  which in turn was an
indirect  subsidiary  of Ford Motor  Company.  On October 31, 1996, BA Leasing &
Capital Corporation ("BA Leasing & Capital"), a wholly owned indirect subsidiary
of BankAmerica Corporation,  purchased the stock of the General Partner from USL
Capital and the General Partner became a wholly owned subsidiary of BA Leasing &
Capital. On September 29, 1999, BA Leasing & Capital merged into Banc of America
Leasing and  Capital,  LLC, a Delaware  limited  liability  company  ("BALCAP").
BALCAP is also a wholly owned indirect subsidiary of BankAmerica Corporation.  A
total of 4,625,000 Depository Units representing  limited partnership  interests
("Units") in the Partnership are outstanding, of which 3,600,000 are held by the
public and 1,025,000 are owned by BALCAP and its subsidiaries.

         The Partnership  invests in commercial aircraft and leases the aircraft
to others,  primarily  airlines,  pursuant to finance (full payout) or operating
leases.

PRINCIPAL INVESTMENT OBJECTIVES

         The business of the  Partnership is to acquire and own, either directly
or through  joint  ventures,  aircraft and to lease such  aircraft  primarily to
airlines.  The  Partnership's  principal  investment  objectives are to generate
income for quarterly cash distributions to Unitholders and to own a portfolio of
leased  aircraft.  The  Partnership's  original intent was that until January 1,
2005,  it would use a  substantial  portion of the cash  derived  from the sale,
refinancing or other disposition of aircraft to purchase  additional aircraft if
attractive investment opportunities were available.


                                       3


<PAGE>


         As  previously  reported,  as part of a plan to  mitigate  the  adverse
financial  effects of changes in tax law,  in 1997  Unitholders  authorized  the
General Partner to decide not to make new aircraft investments, to sell aircraft
when attractive opportunities arise, to distribute the proceeds and to liquidate
the  Partnership  when all assets are sold.  The General  Partner will  consider
whether it is in the best interest of  Unitholders  to cease making new aircraft
investments  as  opportunities  arise,  in light of  market  conditions  and the
Partnership's  competitive position.  Based on its investment experience and its
knowledge of the market, the General Partner believes that attractive investment
opportunities  like those made by the  Partnership in the past probably will not
be available.  In the event that aircraft are sold and  appropriate  alternative
investments are not available,  the Partnership will distribute sale proceeds to
Unitholders  (after repaying debt and establishing  appropriate  reserves),  and
this would result in a further reduction of the Partnership's portfolio.

         In September 30, 2001, the leases with US Airways for five of the seven
aircraft in the Partnership's  aircraft  portfolio expire.  Under the leases, US
Airways is required,  by April 2001, to decide whether to renew the leases or to
return the aircraft.  If US Airways elects to renew the leases,  the leases will
continue but perhaps at a lower lease rate. Alternatively, if US Airways decides
to return the aircraft,  the General  Partner will market the aircraft to others
for either sale or a new lease.

         If  the  five  aircraft  on  lease  to  US  Airways,   which  represent
approximately 73% of the Partnership's  portfolio, are sold, the General Partner
would likely seek also to sell the remaining  two aircraft in the  Partnership's
portfolio.  The Partnership intends to distribute the net proceeds from the sale
of any aircraft to Unitholders.

         As the time of lease  expirations  nears,  distributions to Unitholders
will  depend more on the  residual  value of the  aircraft in the  Partnership's
portfolio  than on the rental  payment  obligation  from  existing  lessees (the
booked  residual  value  per  unit  is  $9.74.)  Although  the  Partnership  has
consistently  sold aircraft at prices in excess of book value,  aircraft  values
depend on the supply and demand for  aircraft,  economic  conditions,  and other
factors.  Consequently,  the General Partner cannot precisely  determine the net
proceeds  availablefrom  the sale of aircraft or whether such  proceeds  will be
above or below book value.

AIRCRAFT PORTFOLIO

         The   Partnership's   aircraft   portfolio   consists  of   narrow-body
(single-aisle)  twin and tri-jet commercial aircraft which were acquired as used
aircraft.  Although the Partnership is permitted to do so, the Partnership  does
not own interests in aircraft which were acquired as new aircraft;  nor does the
Partnership own any wide-body aircraft, such as the Boeing 747 and MD-11, or any
turboprop or prop-fan powered aircraft.


                                       4


<PAGE>


         The following table describes the Partnership's  aircraft  portfolio at
December 31, 2000:

<TABLE>
<CAPTION>


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

                   Number &                                  Current      Purchase
                 type; year of   Ownership   Acquired by      lease       price (in       Type           Noise
Lessee              Delivery     Interest    Partnership    expiration    millions)     of lease     compliance(1)
------           -------------   ---------   -----------    ----------    ---------     --------     -------------
<S>                 <C>            <C>           <C>           <C>          <C>         <C>            <C>

USAirways           5 MD-82        100%          1986          2001         $91.0        Direct        Stage III
                    1981 (2)                                                            finance

FedEx             1 727-200FH      100%          1987          2006         $18.5(3)     Direct        Stage III
                      1979                                                              finance

TWA                 1 MD-82        100%          1988(4)       2002         $15.8(4)     Direct        Stage III
                      1984                                                              finance

<FN>

(1)  See "Government Regulation-Aircraft Noise" below, for a description of laws and regulations governing
     aircraft noise.

(2)  The investment tax credits and the accelerated depreciation originally available upon delivery of the
     aircraft on lease to US Airways, Inc. (formerly USAir, Inc.) ("US Airways") were sold in 1981 pursuant to
     a tax benefit transfer lease, which terminated November, 1991.  See Note 8 of Notes to Financial
     Statements.

(3)  The purchase  price  includes $6.9 million of conversion  costs for the upgrade  of the  aircraft
     from a Stage  II  passenger  to a Stage  III freighter aircraft.

(4)  The Partnership  originally acquired a 50% interest in this aircraft in 1988 for a purchase  price of
     $10.1  million.  On January  31, 1997 the Partnership purchased the remaining 50% interest from USL
     Capital for a purchase price of $5.7 million.

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

</FN>
</TABLE>


         At December 31, 2000, the book value of aircraft by lessee as a percent
of total assets was as follows: US Airways, 72.6%; FedEx, 12.8%; and TWA, 14.3%.
Revenues  by  lessee  as a  percentage  of total  revenue  for  2000  and  1999,
respectively,  were as follows:  US  Airways,  76.8% and 77.1%;  TWA,  17.4% and
17.2%; and FedEx, 5.9% and 5.7%.

         TWA filed for Chapter 11 bankruptcy  protection on January 10, 2001 and
failed  to make its lease  payments  under its  lease  with the  Partnership  on
December  22, 2000,  January 22, 2001 and February 22, 2001.  On March 13, 2001,
TWA made its lease  payments  that were due on December 22, 2000 and January 22,
2001.  TWA is expected  to file with the U.S.  Bankruptcy  Court a  stipulation,
agreement  and order  pursuant to which TWA agrees to cure the February 22, 2001
lease payment  default within  certain time limits.  On March 12, 2001, the U.S.
Bankruptcy  Court  approved  the  sale  of  most  assets  of TWA  to the  parent
corporation of American Airlines,  Inc. ("American  Airlines").  Consummation of
the sale is subject to federal antitrust  regulatory  approval and other closing
conditions.

         On February 27, 2001, the  Partnership  and American  Airlines  entered
into an assumption and lease agreement (the  "Assumption  and Lease  Agreement")
pursuant to which  American  Airlines,  subject to  consummation  of the sale to
American Airlines of the TWA assets and other  conditions,  has agreed to assume
or cause one of its subsidiaries to assume the TWA lease. If assumed by American
Airlines, the lease would be amended to reduce the monthly rent from the


                                       5


<PAGE>


present  rent of  $200,000  to a rent of  $90,000  through  January  1, 2002 and
$100,000 thereafter,  and to extend the lease expiration date from 2002 to 2009.
In  addition,  the  Partnership  would  have the right to  exercise a put option
requiring American Airlines to purchase the leased aircraft, on any date between
October 1, 2001 and March 31,  2002,  at a price of $9 million if  purchased  in
2001 or $8.9 million if purchased thereafter.

         See  "MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND
RESULTS OF OPERATIONS" for a further discussion of the Partnership's lessees.

         The Partnership's  lessees have the following fair market value renewal
options:  US Airways has the right to renew its lease as to any of the  aircraft
for up to three additional renewal terms of one year each at a fair market value
rental,  provided  that the number of  aircraft to be returned at the end of any
renewal  term may not be less than  two;  Fedex has the right to renew its lease
for one  six-month  term at the  current  rent  payable  under  the  lease,  and
thereafter for four successive one year terms at a fair market value rental; and
TWA has the right to renew its  lease  for one term of one,  two,  three or four
years at fair market value rentals.

COMPETITIVE POSITION OF THE PARTNERSHIP

         The aircraft leasing industry has become increasingly  competitive.  In
making aircraft investments, leasing aircraft to lessees, and seeking purchasers
of aircraft,  the Partnership  competes with large leasing  companies,  aircraft
manufacturers,  airlines  and other  operators,  equipment  managers,  financial
institutions  and other  parties  engaged in  leasing,  managing,  marketing  or
remarketing  aircraft.  Affiliates of the General Partner are engaged in many of
these  businesses and may be deemed to be in competition  with the  Partnership.
There are many large  leasing  companies  which have the  financial  strength to
borrow at very low rates and to obtain  significant  discounts  when  purchasing
large quantities of aircraft. The lower capital and acquisition costs enjoyed by
these large leasing  companies  permit them to offer  airlines lower lease rates
than smaller  leasing  companies can offer.  The  Partnership  does not have the
resources to purchase newer aircraft or to purchase aircraft at volume discounts
and has only a limited ability to use tax deferrals in its pricing.

         As previously  reported to  Unitholders,  the  Partnership's  access to
capital is limited. Since all Cash Available from Operations,  as defined in the
Limited Partnership  Agreement,  is distributed,  there is no build up of equity
capital,  and acquisitions must be funded from proceeds  available when aircraft
are  sold  or  from  debt.  Access  to  debt  is  limited  because  most  of the
Partnership's aircraft are being used to collateralize  existing borrowings.  In
general, the Partnership's pricing is uncompetitive for new acquisitions because
of its limited sources and high cost of capital.

         Because of these factors,  finding new aircraft  investments like those
made by the  Partnership  in the past and that offer an  appropriate  balance of
risk and reward has been difficult.  During the past seven years the Partnership
has made only two aircraft  investments,  both of


                                       6


<PAGE>


which were possible because of special circumstances.

         In 1996 and 1997, the  Partnership  sold interests in eight aircraft (a
50%  interest in an aircraft  on lease to Finnair,  a one-third  interest in six
aircraft on lease to  Continental,  and a 50% interest in one aircraft leased to
Sun Jet  International,  Inc.) at a profit. See "Disposition of Aircraft" below.
However,  because of the factors  described above, the Partnership was unable to
reinvest  the  proceeds  in aircraft at an  acceptable  return,  and the General
Partner  determined that the best use of the net proceeds was to distribute them
to  Unitholders.  These  sales and  distributions  have  reduced the size of the
Partnership's portfolio.


PARTICIPANTS IN LEASES

         USL Capital originally participated equally with the Partnership in all
aircraft now owned by the Partnership except the aircraft on lease to US Airways
(the "US Airways  Aircraft").  In April 1993 the Partnership leased two aircraft
(held jointly with USL Capital),  which were  previously off lease, to FedEx. In
September  1993 the  Partnership  exchanged its 50% interest in the two aircraft
for a 100%  interest in one  aircraft  and pledged the aircraft and the lease as
collateral  to obtain  funds to upgrade the  aircraft  from a Stage II passenger
aircraft to a Stage III freighter.  In January 1997, the Partnership purchased a
50% interest in the TWA Aircraft  formerly owned by USL Capital,  and now owns a
100% interest in this aircraft.


DESCRIPTION OF LEASES

         All aircraft now owned by the  Partnership  are leased to third parties
pursuant to full-payout (direct finance) leases. Generally, operating leases are
for a shorter term than full-payout  leases and,  therefore,  it is necessary to
remarket  the  aircraft  in order to recover  the full  investment.  Full-payout
leases  are  generally  for a longer  term and hence  provide  more  predictable
revenue than operating leases.

         All of the Partnership's  leases are net leases, which provide that the
lessee will bear the direct operating costs and the risk of physical loss of the
aircraft;  pay sales, use or other similar taxes relating to the lease or use of
the aircraft;  maintain the aircraft;  indemnify the Partnership-lessor  against
any liability  suffered by the  Partnership as the result of any act or omission
of the lessee or its agents;  maintain casualty  insurance in an amount equal to
the  specific  amount  set forth in the lease  (which  may be less than the fair
value of the aircraft);  and maintain liability insurance naming the Partnership
as an additional insured with a minimum coverage which the General Partner deems
appropriate.  In  general,  substantially  all  obligations  connected  with the
ownership  and  operation  of the leased  aircraft are assumed by the lessee and
minimal  obligations are imposed upon the  Partnership.  Default by a lessee may
cause  the  Partnership  to  incur  unanticipated   expenses.   See  "Government
Regulation" below.

         Certain  provisions of the Partnership's  leases may not be enforceable
upon a  default  by a


                                       7


<PAGE>


lessee or in the event of a lessee's  bankruptcy.  The  enforceability of leases
will be  subject  to  limitations  imposed  by  Federal,  California,  or  other
applicable state law and equitable principles.

         In order to encourage  equipment  financing  to certain  transportation
industries,   Federal   bankruptcy  laws  traditionally  have  afforded  special
treatment  to certain  lenders  or lessors  who have  provided  such  financing.
Section 1110 ("Section  1110") of the United States  Bankruptcy Code, as amended
(the  "Bankruptcy  Code"),  implements  this  policy by  creating a category  of
aircraft  lenders and lessors  whose rights to  repossession  are  substantially
improved.  If a transaction  is eligible  under  Section 1110,  the right of the
lender  or  lessor to take  possession  of the  equipment  upon  default  is not
affected by the automatic stay provisions of the Bankruptcy Code,  unless within
60 days after  commencement  of a bankruptcy  proceeding  the trustee  agrees to
perform  all  obligations  of the debtor  under the  agreement  or lease and all
defaults  (except those  relating to insolvency or insolvency  proceedings)  are
cured  within such  60-day  period or 30 days after the  default.  One court has
recently held that Section 1110 does not apply after the 60-day period, and thus
the automatic stay may apply after such 60-day period.

         On October 22, 1994, the President signed the Bankruptcy  Reform Act of
1994 (the "Reform  Act").  The Reform Act made several  changes to Section 1110,
such that it now  protects  all  transactions  involving  qualifying  equipment,
whether the transaction is a lease,  conditional sale,  purchase money financing
or customary  refinancing.  For equipment first placed in service on or prior to
the date of enactment,  the requirement  that the lender provide  purchase money
financing  continues  to apply,  but  there is a "safe  harbor"  definition  for
leases,  so that Section 1110 benefits  will be available to the lessor  without
regard to  whether  or not the  lease is  ultimately  determined  to be a "true"
lease.  This safe harbor is not the exclusive test so that other leases which do
not qualify under the safe harbor,  but which are true leases,  will continue to
be covered as leases by Section 1110. The Partnership may not be entitled to the
benefits of Section 1110 upon  insolvency  of a lessee  airline under all of its
leases.

         In the past,  the  Partnership  had  interests  in  aircraft  leased to
operators based outside the United States. It is possible that the Partnership's
aircraft could be leased or subleased to foreign airlines.  Aircraft on lease to
such foreign  operators  are not  registered  in the United States and it is not
possible  to file  liens on such  foreign  aircraft  with the  Federal  Aviation
Administration  (the  "FAA").  Further,  in the  event  of a lessee  default  or
bankruptcy, repossession and claims would be subject to laws other than those of
the United States.


                                       8


<PAGE>

AIRCRAFT REMARKETING

         On   termination  of  a  lease  and  return  of  the  aircraft  to  the
Partnership,  the  Partnership  must  remarket  the aircraft to realize its full
investment.  Under the Amended and Restated Agreement of Limited Partnership, as
amended ("Limited  Partnership  Agreement"),  the remarketing of aircraft may be
through a lease or sale.  The terms and  conditions  of any such lease  would be
determined  at the  time  of the  re-lease,  and it is  possible  (although  not
anticipated  at this time) that the lease may not be a net  lease.  The  General
Partner will evaluate the risks  associated with leases which are not net leases
prior to entering into any such lease.  The General  Partner has not established
any  standards  for  lessees to which it will lease  aircraft  and, as a result,
there is no  investment  restriction  prohibiting  the  Partnership  from  doing
business with any lessee,  including "start-up"  airlines.  However, the General
Partner  will  analyze  the  credit  of a  potential  lessee  and  evaluate  the
aircraft's potential value prior to entering into any lease.

DISPOSITION OF AIRCRAFT

         The Partnership's original intent was to dispose of all its aircraft by
the year 2011,  subject  to  prevailing  market  conditions  and other  factors.
However,  in 1997  unitholders  authorized  the General  Partner not to make new
investments, to sell aircraft when attractive opportunities arise, to distribute
the proceeds  and to liquidate  the  Partnership  when all assets are sold.  See
"Principal Investment Objectives" above.

         Under the Limited  Partnership  Agreement,  aircraft may be sold at any
time  whether or not the  aircraft  are subject to leases if, in the judgment of
the General Partner, it is in the best interest of the Partnership to do so.

         In March 1996,  the  Partnership  sold its 50% interest in one MD-82 on
lease to Finnair to a third party for approximately $6.9 million, resulting in a
net gain of approximately $556,000. The Partnership had acquired its interest in
this aircraft in April 1992, for  approximately  $8.5 million.  A portion of the
sale proceeds were used to pay off the outstanding  balance under a non-recourse
loan which was collateralized by this aircraft and the balance,  after retaining
a  reserve  for  liquidity  purposes,   was  distributed  to  Unitholders.   See
"Competitive Position of the Partnership" above.

         The Partnership sold its one-third  interest in six 737-200 aircraft on
lease to Continental  at lease  expiration on December 31, 1996, at a sale price
of approximately  $3.1 million,  resulting in a net gain of  approximately  $1.9
million.  The proceeds were  distributed  to Unitholders in the first quarter of
1997. See "Competitive Position of the Partnership" above.

         On  September  29, 1997 the  Partnership  sold its  one-half  ownership
interest in a DC9-51 aircraft on lease to Sun Jet  International,  Inc. The sale
price was $1.2  million,  resulting in a gain of $393,000 even though the lessee
had filed for  bankruptcy in June 1997, and had ceased making the rent payments.
The proceeds were  distributed to Unitholders in the fourth quarter of


                                       9


<PAGE>


1997.  See  "Competitive  Position of the  Partnership"  above.  See  "Principal
Investment  Objectives"  above for a discussion of the General Partner's present
expectations  regarding  the  disposition  of the aircraft in the  Partnership's
portfolio.

         The  Partnership  is permitted to sell  aircraft to  affiliates  of the
General  Partner at the fair market value of the aircraft at the time of sale as
established  by an  independent  appraisal.  The General  Partner will receive a
Disposition or Remarketing Fee for any such sale.

JOINT VENTURES/GENERAL ARRANGEMENTS

         Under the Limited Partnership Agreement, the Partnership may enter into
joint  ventures  with third  parties to acquire or own  aircraft.  No such joint
ventures  presently exist.  Generally,  each party to a joint venture is jointly
responsible for all debts and obligations incurred by the joint venture, and the
joint venture will be treated as a single entity by third parties. If party to a
joint  venture,   the  Partnership  may  become  liable  to  third  parties  for
obligations of the joint venture in excess of those contemplated by the terms of
the joint venture agreement. There can be no assurance that the Partnership will
be able to obtain control in any joint ventures, or that, even with such control
the Partnership  will not be adversely  affected by the decisions and actions of
the  co-venturers.  The  General  Partner  attempts  to  ensure  that  all  such
agreements  will be fair  and  reasonable  to the  Partnership,  although  joint
ventures with affiliates of the General Partner may involve potential  conflicts
of interest.

BORROWING POLICIES

         Under the Limited  Partnership  Agreement,  the  Partnership may borrow
funds or assume  financing in an aggregate  amount equal to less than 50% of the
higher  of the cost or fair  market  value at the time of the  borrowing  of all
aircraft owned by the Partnership. The Partnership may exceed such 50% limit for
short-term  borrowing  so long as the General  Partner  uses its best efforts to
comply with such 50% limit  within 120 days from the date such  indebtedness  is
incurred or if the borrowed  funds are necessary to prevent  foreclosure  on any
Partnership  asset.  There is no  limitation  on the  amount of such  short-term
indebtedness.  The General  Partner is authorized to borrow for working  capital
purposes and to make distributions. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity  and Capital Resources"
and Note 4 of Notes to Financial Statements.

MANAGEMENT OF AIRCRAFT PORTFOLIO

         Aircraft  management  services are provided by the General  Partner and
its affiliates.  The fees and expenses for these services are reviewed  annually
and are subject to approval by the Audit Committee of the Partnership.  See Note
6 of Notes to Financial Statements.


                                       10


<PAGE>


REGISTRATION OF AIRCRAFT; UNITED STATES PERSON

         Under the  Federal  Aviation  Act,  as  amended  (the "FAA  Act"),  the
operation of an aircraft not registered with the Federal Aviation Administration
(the  "FAA") in the  United  States is  generally  unlawful.  Subject to certain
limited  exceptions,  an aircraft may not be registered under the FAA Act unless
it is owned by a "citizen  of the United  States" or a  "resident  alien" of the
United States.  In order to attempt to ensure  compliance  with the  citizenship
requirements of the FAA Act, the Limited Partnership Agreement requires that all
Unitholders (and all transferees of Units) be United States citizens or resident
aliens within the meaning of the FAA Act.

GOVERNMENT REGULATION

         GENERAL

         The  ownership  and  operation  of  aircraft  in the United  States are
strictly  regulated by the FAA, which imposes certain minimum  restrictions  and
economic  burdens upon the use,  maintenance and ownership of aircraft.  The FAA
Act and FAA regulations  contain strict provisions  governing various aspects of
aircraft   ownership  and   operation,   including   aircraft   inspection   and
certification, maintenance, equipment requirements, general operating and flight
rules, noise levels, certification of personnel and record keeping in connection
with  aircraft  maintenance.  FAA  policy has given high  priority  to  aviation
safety,  and a primary  objective  of FAA  regulations  is that an  aircraft  be
maintained properly during its service life. FAA regulations establish standards
for repairs,  periodic  overhauls and  alterations and require that the owner or
operator of an aircraft  establish  an  airworthiness  inspection  program to be
carried out by certified mechanics  qualified to perform aircraft repairs.  Each
aircraft in operation is required to have a Standard  Airworthiness  Certificate
issued by the FAA.

         MAINTENANCE

         The  Partnership,  as the  beneficial  owner  of  aircraft,  bears  the
ultimate   responsibility  for  compliance  with  certain  federal  regulations.
However,  under all of the  Partnership's  aircraft  leases,  the lessee has the
primary obligation to ensure that at all times the use,  operation,  maintenance
and repair of the aircraft are in compliance  with all  applicable  governmental
rules and regulations and that the  Partnership/lessor  is indemnified from loss
by the  lessee for breach of any of these  lessee  responsibilities.  Changes in
government  regulations  after the  Partnership's  acquisition  of aircraft  may
increase the cost to, and other burdens on, the  Partnership  of complying  with
such regulations.

         The  General   Partner   monitors   the   physical   condition  of  the
Partnership's  aircraft and periodically inspects them to attempt to ensure that
the lessees comply with their  maintenance  and repair  obligations  under their
respective  leases.  Maintenance  is  further  regulated  by the FAA which  also
monitors  compliance.  At lease termination,  the lessees are required to return
the aircraft in airworthy  condition.  The Partnership  may incur  unanticipated
maintenance  expenses


                                       11


<PAGE>


if a lessee  were to  default  under a lease  and the  Partnership  were to take
possession  of  the  leased  aircraft  without  such  maintenance   having  been
completed.  If the lessee defaulting is in bankruptcy,  the General Partner will
file a proof of claim for the  required  maintenance  expenses  in the  lessee's
bankruptcy  proceedings and attempt to negotiate  payment and reimbursement of a
portion of these expenses. The bankruptcy of a lessee could adversely impact the
Partnership's ability to recover maintenance expense.

         From time to time,  aircraft  manufacturers issue service bulletins and
the FAA issues airworthiness directives.  These bulletins and directives provide
instructions  to aircraft  operators  in the  maintenance  of  aircraft  and are
intended to prevent the  occurrence of accidents  arising from flaws  discovered
during  maintenance  or as the result of  aircraft  incidents.  Compliance  with
airworthiness directives is mandatory.

         A formal  program to control  corrosion  in all aircraft is included in
the FAA mandatory requirements for maintenance for each type of aircraft.  These
FAA  rules  and  proposed  rules  evidence  the  current  approach  to  aircraft
maintenance  developed  by  the  manufacturers  and  supported  by  the  FAA  in
conjunction with an aircraft  industry group. The Partnership may be required to
pay for these FAA  requirements if a lessee defaults or if necessary to re-lease
or sell the aircraft.

         In  January  1999 the FAA  issued an  airworthiness  directive  setting
payload weight  limitations on the Boeing 727 aircraft which were converted from
passenger to freight configuration.  The directive requires extensive structural
modifications to strengthen the aircraft's floor, if the aircraft is to continue
to operate under the existing  payload limits.  If these  modifications  are not
performed,  the  directive  sets  substantially  reduced  payload  limits.  This
airworthiness  directive  applies to the  aircraft on lease to FedEx.  Under the
lease covering this aircraft,  FedEx is required to take the steps  necessary to
comply with  airworthiness  directives  imposed during the lease term.  However,
airworthiness  directives  may  affect the  residual  value of the  aircraft  or
FedEx's decision to exercise fair market value renewal options under the lease.


         AIRCRAFT NOISE

         The FAA, through regulations, has categorized certain aircraft types as
Stage I, Stage II and Stage III  according  to the noise  level as  measured  at
three  designated  points.  Stage I aircraft  create the highest  measured noise
levels.  Stage I and Stage II  aircraft  are no longer  allowed to operate  from
civil airports in the United States.



         See "Aircraft  Portfolio" above, for a description of the Partnership's
aircraft  portfolio.   At  December  31,  2000,  all  of  the  aircraft  in  the
Partnership's portfolio were Stage III aircraft.


                                       12


<PAGE>


ACQUISITION OF ADDITIONAL AIRCRAFT

         In 1997  Unitholders  authorized  the General  Partner to decide not to
make new aircraft  investments,  to sell aircraft when attractive  opportunities
arise,  to  distribute  the proceeds and to liquidate the  Partnership  when all
assets are sold. See "Principal Investment Objectives" above.

         Not  withstanding  the  above,  if  the  Partnership  were  to  acquire
additional  aircraft,  it  could  do so in  many  different  forms,  such  as in
sale/leaseback  transactions,  by purchasing  interests in existing  leases from
other lessors,  by making loans secured by aircraft or by acquiring or financing
leasehold  interests  in  aircraft.  The  Partnership  is  permitted  to acquire
aircraft from affiliates of the General Partner subject to limitations set forth
in the Limited Partnership Agreement.

         Prior to  September  30,  1991,  the  General  Partner  and USL Capital
("Related  Entities") were required to offer the Partnership a 50% participation
interest in certain aircraft leasing investments made by Related Entities. After
September  30,  1991 and while  the  General  Partner  was an  affiliate  of USL
Capital,  the General Partner and USL Capital could,  but were not obligated to,
offer investment opportunities to the Partnership.  The Partnership was required
to accept suitable  opportunities  provided that the General Partner and Related
Entities made at least 20%  (including  their  investment  through  ownership of
Units  and the  General  Partner's  interest)  of the total  investment  made by
Related Entities and the Partnership in such transactions. In the event that the
Partnership  elected  not to make or to make  only a  portion  of an  investment
offered  to it by an  affiliate,  the  remaining  investment  could  be  made by
affiliates of the General Partner or third parties.

         The General Partner believes that since it is no longer affiliated with
USL Capital,  the  limitation  as to making  investments  with Related  Entities
should no longer apply and that the Partnership  should be able to invest in any
aircraft  leasing  transactions  deemed  suitable  by the  General  Partner.  In
determining  whether an investment is suitable for the Partnership,  the General
Partner will  consider the  following  factors:  the expected cash flow from the
investment and whether  existing  Unitholders'  investment will be diluted;  the
existing  portfolio of the  Partnership  and the effect of the investment on the
diversification  of the Partnership's  assets;  the amount of funds available to
finance the  investment;  the ability of the  Partnership  to obtain  additional
funds through debt financing,  by issuing Units, or otherwise;  the cost of such
additional  funds and the time needed to obtain  such funds;  the amount of time
available  to remove  contingencies  prior to making the  investment;  projected
Federal income tax effect of the investment;  projected  residual value, if any;
any legal or regulatory  restrictions;  and other factors deemed relevant by the
General Partner.

         The General  Partner and its  affiliates  are not obligated to make any
investment  opportunity  available  to the  Partnership,  and if any of them are
presented with a potential investment opportunity, it may be made by any of them
without being offered to the  Partnership.  In addition,  in  determining  which
entity  should  invest  in a  particular  transaction,  it  may be


                                       13


<PAGE>


possible to structure the  transaction  in various ways to make the  acquisition
more or less  suitable  for the  Partnership  or for the General  Partner or its
affiliates.

FEDERAL INCOME TAXATION

         The  Partnership is considered a publicly  traded  partnership  ("PTP")
under the Revenue Act of 1987 with a special tax status, whereby it has not been
subject to federal  income  taxation.  This special tax status was  scheduled to
expire at the beginning of 1998. However, during 1997 federal and California tax
laws were  amended to provide  that PTPs may elect to  continue  to be  publicly
traded and retain their Partnership tax status if they pay a federal tax of 3.5%
and a  California  state  tax of 1% on  their  applicable  annual  gross  income
beginning  in January  1998.  The  Partnership  made an election to pay this tax
beginning in 1998.

EMPLOYEES

         The Partnership has no employees. See "DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT - General"  below.  Employees of the General  Partner  provide
services on behalf of the Partnership.

ITEM 2.  PROPERTIES

         The Partnership does not own any real property, and shares office space
in the offices of BALCAP and its affiliates.

ITEM 3.  LEGAL PROCEEDINGS

         None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.


                                       14


<PAGE>


                                     PART II
                                     -------


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

UNITS OUTSTANDING

         The Units are  traded on the New York Stock  Exchange  under the symbol
FLY. As of February 2, 2001, there were 941 unitholders of record.

MARKET PRICE

         The following  chart sets forth the high and low closing  prices on the
New York Stock  Exchange and the trading  volume for each of the quarters in the
years ended December 31, 2000 and 1999.

                                 Trading Volume
     Quarter Ended               (in thousands)          Unit Prices (high-low)
     -------------               --------------          ----------------------

     March 31, 2000                   227                $12      - $10 5/8

     June 30, 2000                    239                $12 1/4   - $10 9/16

     September 30, 2000               230                $13 1/8   - $11 9/16

     December 31, 2000                291                $12 1/2   - $11 9/16



     March 31, 1999                   309                $12 3/4   - $12 3/16

     June 30, 1999                    293                $12 3/8   - $10 13/16

     September 30, 1999               250                $12 5/16  - $11 1/2

     December 31, 1999                246                $11 14/16 - $10 15/16


DISTRIBUTIONS TO UNITHOLDERS

         CASH DISTRIBUTIONS

         The Partnership makes quarterly cash distributions to Unitholders which
are  based  on  Cash  Available  from  Operations  (as  defined  in the  Limited
Partnership  Agreement) and are partially tax  sheltered.  From time to time the
Partnership  also has made cash  distributions  from Cash Available from Sale or
Refinancing (as defined in the Limited  Partnership  Agreement.)  Information on
the tax  status of such  payments,  which is  necessary  in the  preparation  of
individual  tax  returns,  is prepared and mailed to  Unitholders  as quickly as
practical after the close of each year. The size of the Partnership's  portfolio
and future aircraft sales will affect distributions.


                                       15


<PAGE>


         Distributions declared during 2000 and 1999 were as follows:

     Record Date                 Payment Date               Per Unit
     -----------                 ------------               --------

     March 31, 2000              May 15, 2000               45 cents
     June 30, 2000               August 15, 2000            45 cents
     September 29, 2000          November 15, 2000          45 cents
     December 29, 2000           February 15, 2001          45 cents

     March 31, 1999              May 14, 1999               41 cents
     June 30, 1999               August 13, 1999            41 cents
     September 30, 1999          November 15, 1999          41 cents
     December 31, 1999           February 15, 2000          41 cents



         CASH AVAILABLE FROM OPERATIONS

         The  Partnership  distributes  all Cash Available  from  Operations (as
defined in the Limited Partnership Agreement).  The Partnership is authorized to
make  distributions  from any source,  including  reserves and  borrowed  funds.
Distributions of Cash Available from Operations are allocated 99% to Unitholders
and 1% to the General Partner.  The Partnership makes distributions each year of
Cash Available from Operations generally on the fifteenth day of February,  May,
August and  November to  Unitholders  of record on the last  business day of the
calendar quarter preceding payment.

         CASH AVAILABLE FROM SALE OR REFINANCING

         The Partnership's  original intent was that Cash Available From Sale or
Refinancing (as defined in the Limited Partnership  Agreement) received prior to
January  1,  2005  would  be  retained  for use in the  Partnership's  business,
provided that if the General Partner did not believe that attractive  investment
opportunities  exist for the Partnership,  the Partnership could distribute Cash
Available from Sale or Refinancing.  Any Cash Available from Sale or Refinancing
received  after  January  1,  2005  was  not  to be  reinvested  but  was  to be
distributed.  However,  in 1997,  Unitholders  authorized the General Partner to
decide not to make new aircraft  investments,  to sell aircraft when  attractive
opportunities arise, to distribute the proceeds and to liquidate the Partnership
when all assets are sold. See  "BUSINESS--Principal  Investment Objectives." For
information  as to the sales giving rise to  distributions  from Cash  Available
from Sales or Refinancing, see "BUSINESS--Disposition of Aircraft."


                                       16


<PAGE>


         TAX ALLOCATIONS

         Allocations for tax purposes of income,  gain,  loss deduction,  credit
and tax preference are made on a monthly basis to Unitholders who owned Units on
the first day of each month.  Thus,  for example,  if an aircraft were sold at a
gain,  that gain would be allocated to Unitholders  who owned Units on the first
day of the month in which the sale  occurred.  If  proceeds  from this sale were
distributed  to  Unitholders,  such proceeds would be distributed to Unitholders
who owned  Units on the record  date for such  distribution,  which,  because of
notice  requirements,  likely would not occur in the same month as the sale.  In
addition,  a Unitholder who transfers his or her Units after the commencement of
a quarter  but prior to the record  date for that  quarter  will be  allocated a
share of tax  items  for the  first  two  months  of that  quarter  without  any
corresponding  distribution  of Cash Available from  Operations for, among other
things, payment of any resulting tax.


                                       17


<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

         The following  table sets forth selected  financial data and other data
concerning the Partnership for each of the last five years:

<TABLE>
<CAPTION>



                                                        For years ended December 31,

(In thousands except per-unit amounts)      2000       1999         1998         1997        1996
---------------------------------------------------------------------------------------------------
<S>                                         <C>        <C>          <C>         <C>         <C>

OPERATING RESULTS

Lease and other income                      $ 6,736    $ 7,614      $ 8,400     $ 9,210     $10,747

Gain on disposition of aircraft                  --         --           --         393       2,501
                                            -------------------------------------------------------

Total revenues                                6,736      7,614        8,400       9,603      13,248
                                            -------------------------------------------------------

Interest expense                                909      1,270        1,704       2,028       1,830

Depreciation expense                             --         --           --         273       1,500

Other expenses                                1,082      1,088        1,123       1,820       1,266

Tax on gross income                             548        548          699           0           0
                                            -------------------------------------------------------

Total expenses                                2,539      2,906        3,526       4,121       4,596
                                            -------------------------------------------------------

Net income                                  $ 4,197    $ 4,708      $ 4,874     $ 5,482     $ 8,652
                                            -------------------------------------------------------

Net income per unit(1)                      $  0.90    $  1.01      $  1.04     $  1.17     $  1.85

Cash distributions declared per unit(2)     $  1.80    $  1.64      $  1.64     $  2.02     $  3.28


FINANCIAL POSITION

Total assets                                $61,836    $67,787      $75,813     $82,859     $85,130

Long-term obligations                       $ 7,992    $10,092      $14,505     $19,115     $14,071

Total partners' equity                      $51,135    $55,347      $58,301     $61,089     $65,042

Limited partners' equity per unit           $ 10.95    $ 11.85      $ 12.48     $ 13.08     $ 13.92

<FN>

(1) After allocation of the 1% General Partner's interest.

(2) Includes special cash distributions of $1.43 per unit in 1996, of which $.63 was paid in
    January 1997, and $.22 per unit in 1997.

</FN>
</TABLE>


                                       18


<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS


FORWARD-LOOKING STATEMENTS

         The  information set forth below and elsewhere in this Annual Report on
Form 10-K contains certain forward-looking statements, which reflect the current
view of the Partnership with respect to future events and financial performance.
The words "expect", "intend", "believe",  "anticipate",  "likely" and "will" and
similar  expressions  generally  identify  forward-looking   statements.   These
statements  are subject to certain  risks and  uncertainties,  which could cause
actual  results and events to differ  materially  from those  anticipated in the
forward-looking statements.

         Factors  that could cause the  Partnership's  actual  results to differ
from current  expectations  include,  among  others,  changes in the aircraft or
aircraft leasing market,  economic downturn in the airline industry,  default by
lessees under leases causing the Partnership to incur uncontemplated expenses or
not to receive rental income as and when expected,  the Partnership's  inability
to  re-lease  or sell,  at  favorable  terms,  any  aircraft  returned  at lease
expiration  or any delays in  re-leasing  or selling such  aircraft,  changes in
interest  rates,  consolidation  in the  airline  industry  and  legislative  or
regulatory changes that adversely affect the value of aircraft.

LIQUIDITY AND CAPITAL RESOURCES

         The  Partnership  presently has three  long-term  debt  facilities.  At
December 31, 2000,  the following  amounts were  outstanding:  $4.0 million on a
7.4%  non-recourse  note  collateralized  by one aircraft leased to FedEx;  $2.2
million on a 9.35% non-recourse note  collateralized by one aircraft on lease to
Trans World  Airlines;  and $1.8 million on a long-term  variable rate revolving
loan facility  guaranteed by the Partnership and  collateralized by two aircraft
on lease to US Airways.  At December  31, 2000 and 1999,  $8.0 million and $10.1
million,  respectively, was outstanding under the Partnership's loan facilities.
At December 31, 2000  approximately  $3.3 million  remained  available under the
revolving loan facility.

         Long-term  borrowings  at  December  31, 2000  represented  6.6% of the
original  cost of the aircraft  presently  owned by the  Partnership,  including
capital expenditures for upgrades. The terms of the Partnership Agreement permit
debt to be at a level not exceeding 50% of such cost.

         Total  scheduled  debt service  (principal  and  interest) on the fixed
loans in 2001 is $2.7 million, and the principal payment on the floating loan in
2001 is  projected to be $1.8 million (if no purchase or sale of aircraft or any
unforeseen  business events occur). Debt service will be paid primarily from the
rental payments received under aircraft leases.

         Net cash  provided by operating  activities  was $5.3 million for 1998,
$4.1  million  for 1999,  and $4.5  million  for 2000.  Aside from the cash flow
activity associated with taxes payable,  the net cash flow provided by operating
activities showed moderate  decreases over the


                                       19


<PAGE>


three-year  period.  The  decrease  was due to reduced  rentals as a result of a
smaller portfolio.

         Total  debt  service  on the fixed  loans as a  percentage  of net cash
provided by operating activities was 166%, 78%, and 67% for 1998, 1999 and 2000,
respectively.  However,  cash  flow  from  operating  activities  does not fully
reflect cash receipts from lease  payments.  When the excess of rental  receipts
above finance lease income is added to cash flow from operating activities,  the
ratios become 71%, 26%, and 29%, respectively.  The lower 1999 ratio as compared
with 1998  reflects a greater  rate of debt  repayment  in 1998,  while the cash
received from lease rentals  remained  about the same for each of 1998 and 1999.
The 2000 ratio is  comparable  to the ratio of 1999 as the debt  service and the
cash flow from operating activities for both years were also comparable.

         Cash distributions paid by the Partnership were $7.8 million ($1.68 per
unit) in 1998,  $7.7 million  ($1.64 per unit) in 1999,  and $8.2 million ($1.76
per unit) in 2000. There were no special cash  distributions  paid in 1998, 1999
or 2000.

         Partnership  net income was $4.9 million in 1998, $4.7 million in 1999,
and $4.2  million in 2000.  The decline in net income from 1998 to 1999 and from
1999 to 2000 is primarily  due to a smaller asset base, as the balances due from
the  lessees  declined.  Pursuant  to the  Limited  Partnership  Agreement,  the
Partnership  distributed  all Cash Available from Operations net of expenses and
reserves,  as  described  above.  Since  such  distributions  were in  excess of
earnings, Partnership equity declined from $55.3 million at December 31, 1999 to
$51.1 million at December 31, 2000, and limited partner equity per unit declined
from $11.85 to $10.95.  From a limited partner  perspective,  the portion of the
distribution in excess of net income constitutes a return of capital. Total cash
distributions  declared since inception of the  Partnership  have exceeded total
net income by $7.84 per unit.

RESULTS OF OPERATIONS

2000 vs. 1999
-------------

         The revenue reduction in 2000 as compared with 1999 is primarily due to
the  scheduled  decline in finance  lease  income as the  balances  due from the
lessees declined.

         US Airways,  the Partnership's major lessee (73% of total 2000 year-end
assets)  reported a net loss of $269  million on  revenues  of $9.3  billion for
2000,  compared  with  profits of $197  million on revenues of $8.6  billion for
1999.

         FedEx  (13% of total 2000  year-end  assets)  reported  profits of $688
million on revenues of $18.3  billion for 2000 (fiscal year ended May 31, 2000),
compared with profits of $631 million on revenues of $16.8 billion for 1999.

         TWA (14% of total  2000  year-end  assets)  reported a net loss of $115
million on revenues of $2.7 billion for the first nine months of 2000,  compared
with a net loss of $81 million on revenues  of $2.5  billion for the  comparable
1999 period. TWA filed for Chapter 11 bankruptcy


                                       20


<PAGE>


protection on January 10, 2001 and failed to make its lease  payments  under its
lease with the  Partnership on December 22, 2000,  January 22, 2001 and February
22, 2001. As a result of the lease payment  defaults,  the  Partnership has been
making  debt-service  payments  under  its  long-term  debt  secured  by the TWA
aircraft  from other  sources  of cash.  On March 13,  2001,  TWA made its lease
payments  that were due on  December  22,  2000 and  January  22,  2001.  TWA is
expected to file with the U.S.  Bankruptcy  Court a  stipulation,  agreement and
order  pursuant to which TWA agrees to cure the February 22, 2001 lease  payment
default within certain time limits. On March 12, 2001, the U.S. Bankruptcy Court
approved  the  sale  of  most  assets  of  TWA  to  American   Airlines'  parent
corporation. Consummation of the sale is subject to federal antitrust regulatory
approval and other  closing  conditions.  American  Airlines has entered into an
agreement with the Partnership,  which becomes  effective only upon consummation
of the sale to American  Airlines of the TWA assets,  pursuant to which American
Airlines  would  assume  the TWA lease  subject  to a reduced  lease rate and an
extended  lease term.  The reduction in cash receipts and the  bankruptcy of TWA
have led to a reduction in cash distributions to Unitholders, beginning with the
cash distribution for the first quarter of 2001.


         For information  regarding the percentage of total  Partnership  assets
and revenues  represented by aircraft owned and leased by the  Partnership,  see
"BUSINESS--Aircraft Portfolio."

         The  Partnership  believes  that its  revenues and income have not been
materially affected by inflation and changing prices because its principal items
of revenue  (rental  payments) and a majority of its expenses  (interest) are at
fixed long-term rates.

         Expenses  in 2000 were $2.5  million  or  $367,000  lower than the 1999
expenses of $2.9  million.  The decline in  expenses is  primarily  due to lower
interest expense in 2000 as a result of the Partnership's reduced debt balances.
Debt  balances  declined from $10.1 million at December 31, 1999 to $8.0 million
at December 31, 2000.

1999 vs. 1998
-------------

         The revenue reduction in 1999 as compared with 1998 is primarily due to
the  scheduled  decline in finance  lease  income as the  balances  due from the
lessees  declined.  At year-end  1999,  all of the  Partnership's  lessees  were
current under their lease agreements and none was in bankruptcy.

OUTLOOK

         In September 30, 2001, the leases with US Airways for five of the seven
aircraft in the Partnership's  aircraft  portfolio expire.  Under the leases, US
Airways is required,  by April 2001, to decide whether to renew the leases or to
return the aircraft.  If US Airways elects to renew the leases,  the leases will
continue but perhaps at a lower lease rate. Alternatively, if US Airways decides
to return the aircraft,  the General  Partner will market the aircraft to others
for either sale or a new lease.


                                       21


<PAGE>

         If  the  five  aircraft  on  lease  to  US  Airways,   which  represent
approximately 73% of the Partnership's  portfolio, are sold, the General Partner
would likely seek also to sell the remaining  two aircraft in the  Partnership's
portfolio.  The Partnership intends to distribute the net proceeds from the sale
of any aircraft to Unitholders.

         As the time of lease  expirations  nears,  distributions to Unitholders
will  depend more on the  residual  value of the  aircraft in the  Partnership's
portfolio  than on the rental  payment  obligation  from  existing  lessees (the
booked  residual  value  per  unit  is  $9.74.)  Although  the  Partnership  has
consistently  sold aircraft at prices in excess of book value,  aircraft  values
depend on the supply and demand for  aircraft,  economic  conditions,  and other
factors.  Consequently,  the General Partner cannot precisely  determine the net
proceeds  available  from the sale of aircraft or whether such  proceeds will be
above or below book value.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         The  Partnership's  assets  consist  of  aircraft  subject  to  leases,
accounted  for as finance  leases,  and thus consist of a future stream of fixed
rental payments and a residual interest in the aircraft. See Note 2 to Financial
Statements  for  information  as to finance lease  receivables.  At December 31,
2000, the Partnership had long-term fixed-rate notes payable of $6,227,000 and a
revolving   variable  rate  loan  facility  with   $1,765,000   outstanding  and
approximately $3,275,000 of credit available. See Note 4 to Financial Statements
for  information  as to minimum future  principal  payments due and the interest
rates applicable to the notes and revolving  credit  facility.  Since the rental
payments under its leases are fixed,  but a portion of its liabilities are based
on a variable  interest rate, the assets and  liabilities of the Partnership are
not  perfectly  hedged  and the  Partnership  bears some risk of  interest  rate
fluctuations. Since a portion of its debt under the revolving credit facility is
for variable  working capital needs,  the General Partner believes that the risk
of interest fluctuations is appropriate under the circumstances.


                                       22


<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial statements and Notes to Financial Statements described in
Item 14(a) are set forth in Appendix A and are filed as part of this report.

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

GENERAL

         The  Partnership  has no  directors or  executive  officers.  Under the
Limited Partnership Agreement,  the General Partner has full power and authority
in the  management  and control of the business of the  Partnership,  subject to
certain provisions requiring the consent of the Limited Partners.

DIRECTORS AND EXECUTIVE OFFICERS

         Set  forth  below  is  certain  information  about  the  directors  and
executive  officers of the  General  Partner as of February  28,  2001.  As used
below,  "BALCAP"  refers both to BALCAP and to BA Leasing & Capital prior to its
merger into BALCAP in September 1999.

<TABLE>
<CAPTION>



                                POSITION WITH                               PRINCIPAL OCCUPATION AND
         NAME                  GENERAL PARTNER       AGE                   EMPLOYMENT FOR LAST 5 YEARS
---------------------      ---------------------     ---    ------------------------------------------
<S>                        <C>                       <C>    <C>

David B. Gebler            Chairman of the           51     Mr.  Gebler is a Managing  Director  of Bank of America
                           Board, President,                National   Association   ("Bank  of  America")  and  of
                           Chief Executive                  BALCAP.   He  has  been  with  BALCAP  since  September
                           Officer and a                    1996.  From 1993 to  September  1996 he was Senior Vice
                           Director                         President   of  the   Transportation   and   Industrial
                                                            Financing   business unit of USL Capital. Mr.  Gebler has
                                                            been President of the General Partner since 1989 and a
                                                            Director since 1990, and has been Chairman   and   CEO
                                                            since September 1996. Mr. Gebler holds a bachelor degree
                                                            in mathematics from Clarkson University and graduate
                                                            degrees in Engineering and Management from the University
                                                            of Michigan.

Richard V. Harris          Director                  52     Mr.  Harris  is  Managing  Director  and Head of Global
                                                            Leasing of Bank of America,  and Chairman and President
                                                            of BALCAP.  He was elected  President  and CEO in 1982,
                                                            adding  the title of  Chairman  in 1988.  He has been a
                                                            Director of the General  Partner  since  October  1996.
                                                            Other  assignments  at Bank of  America  have  included
                                                            responsibilities  for Project Finance and  Asset-Backed
                                                            Finance  along  with  Leasing.  Prior to  assuming  his
                                                            present   responsibilities,   Mr.   Harris   held  both
                                                            transactional  and  marketing  management  positions at
                                                            BankAmerica   Leasing.   Mr. Harris  holds  a  B.S.E.E.
                                                            degree in  Electrical  Engineering  from Brigham  Young


                                       23


<PAGE>


                                POSITION WITH                               PRINCIPAL OCCUPATION AND
         NAME                  GENERAL PARTNER       AGE                   EMPLOYMENT FOR LAST 5 YEARS
---------------------      ---------------------     ---    ------------------------------------------

                                                            University  and a  Master  of  Business  Administration
                                                            degree also from BYU.


William A. Hasler          Director                  59     Mr. Hasler has been the Co-Chief  Executive  Officer of
                                                            Aphton  Corporation  ,  a  biopharmaceutical   company,
                                                            since July 1998 and a Director of the  General  Partner
                                                            since  1995.  From  August 1991 to June 1998 he was the
                                                            Dean of the Haas School of  Business at the  University
                                                            of  California  at Berkeley.  From 1984 to 1991, he was
                                                            vice  chairman  and  director of KPMG Peat  Marwick and
                                                            was   responsible   for   its   worldwide    consulting
                                                            business.  He is a member of the board of  governors of
                                                            The  Pacific  Stock   Exchange  and  of  the  board  of
                                                            directors  of Selectron  Corp.,  TCSI,  Tenera,  Walker
                                                            Interactive,  and  Aphton  Corporation.  He serves on a
                                                            presidential  advisory board on critical  technologies.
                                                            He is a graduate  of Pomona  College and earned his MBA
                                                            from Harvard.

Richard P. Powers          Director                  60     Mr.  Powers  is  a  Financial  Consultant  and  Private
                                                            Investor.  From 1996 to 2000 he was an  Executive  Vice
                                                            President  of  Finance  and  Administration  of Eclipse
                                                            Surgical  Technologies,  Inc., a medical device company
                                                            and a  Director  of the  General  Partner  since  1996.
                                                            From 1981 to 1994,  he was with Syntex  Corporation,  a
                                                            pharmaceutical   company,   serving   as  Senior   Vice
                                                            President and Chief  Financial  Officer of that company
                                                            from  1986 to  1994.  From  1994 to 1996 he  served  as
                                                            consultant  to various  companies,  including  advising
                                                            and  assisting  in the sale of  Syntex  Corporation  to
                                                            Roche   Corporation   in  1994.   Mr.  Powers  holds  a
                                                            Bachelor of Science degree in Accounting  from Canisius
                                                            College and a Masters in Business  Administration  from
                                                            the University of Rochester.

K. Thomas Rose             Director                  55     Mr. Rose has been Managing  Director,  Credit of BALCAP
                                                            since  1992.  He has  been a  Director  of the  General
                                                            Partner  since  October  1996.  Prior  to  his  present
                                                            responsibilities,  Mr. Rose was with  Security  Pacific
                                                            Leasing  Corporation  as  Executive  Vice  President  -
                                                            Lease Services  since 1973.  Mr. Rose holds a B.A. from
                                                            California  State  University,  Fullerton  and a  Juris
                                                            Doctorate  degree from Golden Gate  University,  School
                                                            of Law.

Robert A. Keyes            Chief Financial           48     Mr.  Keyes has been  Senior Vice  President  and Senior
                           Officer and a                    Finance  Manager of BALCAP since  December 2000. He has
                           Director                         been Chief  Financial  Officer  and a  Director  of the
                                                            General Partner since March 2001. Prior to assuming his
                                                            present responsibilities at BALCAP, Mr. Keyes was with
                                                            Citicorp Bankers Leasing as Vice President and Head of
                                                            Operations from 1997 to 2000. From 1990 to 1997 Mr. Keyes
                                                            was with USL Capital Corporation (former General Partner
                                                            of the Partnership) as Vice President and Corporate
                                                            Controller. While at USL Capital, Mr. Keyes served as
                                                            Chief Financial Officer and as a Director of the
                                                            Partnership. From 1980 to 1990 Mr. Keyes held various
                                                            Finance positions with Wells Fargo Leasing Corporation,
                                                            including Senior Vice President and Chief Financial
                                                            Officer.  Mr.  Keyes holds a Bachelor of Science degree
                                                            in Economics from Bates College and a Masters in Business
                                                            Administration and Accounting from Rutgers University.

</TABLE>


                                       24


<PAGE>


ITEM 11. EXECUTIVE COMPENSATION

         The  Partnership  does not pay or  employ  directly  any  directors  or
officers.  Each of the  officers  of the  General  Partner is also an officer or
employee of BALCAP and is not separately  compensated by the General  Partner or
the Partnership for services on behalf of the  Partnership.  Thus, there were no
deliberations  of the  General  Partner's  Board of  Directors  with  respect to
compensation of any officer or employee.

         The  Partnership  reimburses  the  General  Partner  for  fees  paid to
Directors  of the General  Partner  who are not  otherwise  affiliated  with the
General Partner or its affiliates.  In 2000,  such  unaffiliated  directors were
paid an annual fee of $14,500 plus $500 for each meeting attended.

         The Partnership has not established any plans pursuant to which cash or
non-cash  compensation has been paid or distributed  during the last fiscal year
or is proposed to be paid or distributed in the future.  The Partnership has not
issued or established  any options or rights  relating to the acquisition of its
securities or any plans therefor.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

UNIT OWNERSHIP BY CERTAIN BENEFICIAL OWNERS

         As of  February  28,  2001,  the  following  persons  were known to the
Partnership  to  be  beneficial   owners  of  more  than  five  percent  of  the
Partnership's equity securities:

<TABLE>
<CAPTION>


                                Name and Address                  Amount and Nature of
   Title of Class              Of Beneficial Owner                Beneficial Ownership          Percent of Class
   --------------              -------------------                --------------------          ----------------
<S>                    <C>                                             <C>                             <C>

  Depositary Units     United States Airlease Holding, Inc.            231,250(1)                      5%
                              555 California Street
                            San Francisco, CA 94104(1)

  Depositary Units                    BALCAP                           793,750(3)                    17.2%
                              555 California Street
                            San Francisco, CA 94104(3)
--------------------

<FN>

(1)      United States Airlease Holding, Inc. ("Holding") reported that it had sole voting and dispositive power
         over these Units.

(2)      BALCAP owns all of the outstanding stock of Holding.  Therefore, BALCAP may be deemed  also to be the
         indirect  beneficial  owner of the Units owned by Holding. In addition, BALCAP owns all the outstanding
         stock of the General Partner. Therefore, BALCAP may be deemed to be the indirect beneficial owner of the


                                       25


<PAGE>


         General  Partner's 1% General Partner interest. BALCAP  is  a  wholly  owned   indirect   subsidiary
         of   BankAmerica Corporation.  Therefore,  BankAmerica  Corporation and each BankAmerica Corporation
         subsidiary which is the direct or indirect parent of BALCAP may also be deemed to be the indirect
         beneficial owner of all Units and of the General  Partner's 1% General  Partner  interest owned or
         deemed owned by BALCAP.

(3)      BALCAP reported that it had sole voting and dispositive power over these Units.

</FN>
</TABLE>


UNIT OWNERSHIP BY MANAGEMENT

         Set forth below is information  regarding  interests in the Partnership
owned by each director of and all directors and executive officers,  as a group,
of the General Partner.  Unless otherwise noted, each person has sole voting and
investment power over all units owned.

<TABLE>
<CAPTION>


                                     Name of                      Amount and Nature of
   Title of Class                Beneficial Owner                 Beneficial Ownership          Percent of Class
   --------------                ----------------                 --------------------          ----------------
<S>                              <C>                                        <C>                       <C>

  Depositary Units               David B. Gebler                            700(1)                    (2)

  Depositary Units              William A. Hasler                         8,700                       (2)

                           All directors and executive                    9,400                       (2)
                               officers as a group
--------------------

<FN>


(1)      Includes 200 Units held by Mr. Gebler as custodian for a minor child as
         to which Mr. Gebler has shared voting and  dispositive  power and as to
         which beneficial ownership is disclaimed.

(2)      Represents less than 1%.

</FN>
</TABLE>



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         For a discussion of certain fees,  expenses and reimbursements  payable
and paid to the General Partner and its affiliates by the Partnership,  see Note
6 of Notes to  Financial  Statements.  From time to time,  the  Partnership  has
borrowed  funds  from  BALCAP or BA Leasing & Capital,  including  advances  for
expense  payments.  All such  borrowings  were  unsecured and bore interest at a
floating  rate not  exceeding the prime rate. At December 31, 2000 Airlease owed
BALCAP $211,542 for such borrowings.

         For a discussion of certain terms of the Limited Partnership  Agreement
regarding the Partnership's  participation in aircraft leasing  investments made
by USL Capital and its Related Entities, see "BUSINESS-Acquisition of Additional
Aircraft."  For a  discussion  of aircraft  formerly  held  jointly  between the
Partnership and USL Capital, see "BUSINESS- Participants in Leases."


                                       26


<PAGE>


                                     PART IV
                                     -------


ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

         (a)      The following  financial  statements of the  Partnership  are
                  included in this report as Appendix A:
                                                                            Page

                  Management's Responsibility for Financial Statements       A-1

                  Report of Independent Auditors .....................       A-2

                  Financial Statements:

                       Statements of Income for the Years Ended
                       December 31, 2000, 1999 and 1998 ..............       A-3

                       Balance Sheets, as of December 31, 2000 and 1999      A-4

                       Statements of Cash Flows for the Years Ended
                       December 31, 2000, 1999 and 1998..............       A-5

                       Statements of Changes in Partners' Equity for
                       the Years Ended December 31, 2000, 1999 and 1998      A-6

                  Notes to Financial Statements ......................       A-6

                  Financial  statement  schedules  other than those listed above
                  are omitted  because the required  information  is included in
                  the  financial  statements  or the notes thereto or because of
                  the absence of conditions under which they are required.

         (b)      The  Partnership  did not file any  reports on Form 8-K during
                  the last quarter of the fiscal year ended December 31, 2000.


                                       27


<PAGE>


         (c)      Exhibits required by Item 601 of Regulation S-K:

Exhibit No.       Description
-----------       -----------

   3.1(1)         Amended and Restated Agreement of Limited Partnership of
                  Partnership.

   3.2(1)         Form of Certificate for Limited Partnership Units of
                  Partnership.

   3.3(1)         Form of Depositary Agreement among Partnership, Chase-Mellon
                  Shareholder Services (formerly Manufacturers Hanover Trust
                  Company),  the General Partner and Limited  Partners  and
                  Assignees  holding  Depositary Receipts.

   3.4(1)         Form of Depositary Receipt for Units of Limited Partners'
                  Interest in the Partnership

   3.5(2)         Amendments to Amended and Restated Partnership Agreement.

   4.1(1)         Form of Application for Transfer of Depositary Unit.

   4.2(2)         Loan and  Security  Agreement  dated as of March 20,  1987
                  between  Meridian Trust Company,  as Trustee,  as Borrower
                  and The World Wing Company Limited, as Lender.

   4.3(2)         8.75% Secured Non-recourse Note of Meridian Trust Company
                  dated March 31, 1987 in favor of The World Wing Company
                  Limited.

   4.4(2)         Instructions and Consent Agreement dated as of March 31, 1987
                  between the Registrant and The World Wing Company Limited.

   10.1(1)        Trust Agreement, together with Trust Agreement Supplement
                  No. 1-5, dated as of July 10, 1986, between the Registrant,
                  Meridian Trust Company and the General Partner.

   10.3(1)        Lease Agreement, together with Lease Supplement Nos. 1-5,
                  dated as of July 10, 1986, between Meridian Trust Company, not
                  in its individual capacity but solely as Trustee, and Pacific
                  Southwest Airlines.

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

(1)     Incorporated by reference to the Partnership's Registration Statement on
        Form S-1 (File No. 33-7985), as amended.

(2)     Incorporated by reference to the Partnership's Annual Report on Form
        10-K for the year ended December 31, 1995.


                                       28


<PAGE>


   10.44          Aircraft Lease Agreement dated as of April 15, 1993 between
                  Taurus Trust Company, Inc. (formerly Trust Company for USL,
                  Inc.) as Owner Trustee, Lessor, and Federal Express Corpora-
                  tion, Lessee with respect to one (1) Boeing 727-2D4 Aircraft,
                  U.S. Registration No. 362PA (manufacture serial no. 21850).

   10.49(3)       Assignment  and Assumption  Agreement  dated as of January 31,
                  1997  between USL Capital   Corporation   and  the Registrant.

   10.50(3)       Lease, together with Lease Supplement No. 1, dated as of March
                  15, 1984 between DC-9T-III, Inc., as Lessor, and Trans World
                  Airlines, Inc., as Lessee, with respect to one (1) McDonnell
                  Douglas DC-9-82 Aircraft, as amended by Amendment Agreement
                  dated as of December 15, 1986.

   10.51(4)       Loan agreement secured by two aircraft leased to US Airways
                  dated  as  of  December  22,  1997,  amended  and restated as
                  of December 15, 1998,6 between  Meridian Trust Company,  as
                  Trustee,  as Borrower and Credit  Lyonnais/PK AIRFINANCE, as
                  Lender.

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

(3)     Incorporated by reference to the Partnership's Annual Report on Form
        10-K for the year ended December 31, 1996.

(4)     Incorporated by reference to the Partnership's Annual Report on Form
        10-K for the year ended December 31, 1998.


                                       29


<PAGE>


                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 26, 2001.

                         AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP
                         (Registrant)

                         By:     Airlease Management Services, Inc.,
                                 General Partner

                         By:      /s/ DAVID B. GEBLER
                                 -----------------------------------------------
                                 David B. Gebler
                                 Chairman, Chief Executive Officer and President







                                       30


<PAGE>


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the  following  persons on behalf of the  Registrant in
the capacities and on the dates indicated.

For Airlease Management
Services, Inc. ("AMSI"), General Partner
----------------------------------------



 /s/ DAVID B. GEBLER                                              March 26, 2001
-------------------------------------------------------------
David B. Gebler
Chairman, Chief Executive Officer, President
and Director of AMSI



 /s/ ROBERT A. KEYES                                              March 26, 2001
-------------------------------------------------------------
Robert A. Keyes
Chief Financial Officer and Director of AMSI



 /s/ RICHARD V. HARRIS                                            March 26, 2001
-------------------------------------------------------------
Richard V. Harris
Director of AMSI



 /s/ K. THOMAS ROSE                                               March 26, 2001
-------------------------------------------------------------
K. Thomas Rose
Director of AMSI



The  foregoing  constitute  a majority of the members of the Board of Directors
of Airlease  Management  Services, Inc. (the General Partner).


                                       31


<PAGE>


MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

Airlease  Management  Services,  Inc.  ("AMSI"),  the  General  Partner  of  the
Partnership is responsible  for the preparation of the  Partnership's  financial
statements  and  the  other   financial   information   in  this  report.   This
responsibility  includes  maintaining  the  integrity  and  objectivity  of  the
financial records and the presentation of the Partnership's financial statements
in  accordance  with  accounting  principles  generally  accepted  in the United
States.

The General Partner maintains an internal control structure designed to provide,
among other things,  reasonable  assurance that Partnership  records include the
transactions  of  its  operations  in  all  material  respects  and  to  provide
protection  against  significant  misuse  or loss  of  Partnership  assets.  The
internal  control  structure is supported by careful  selection  and training of
financial  management  personnel,  by written  procedures  that  communicate the
details of the control structure to the Partnership's  activities,  and by staff
of operating control  specialists of Banc of America Leasing and Capital,  LLC.,
which owns 100% of the stock of AMSI,  who conduct  reviews of  adherence to the
Partnership's procedures and policies.

The  Partnership's  financial  statements  have  been  audited  by Ernst & Young
L.L.P.,  independent  auditors for the years ended  December 31, 2000,  1999 and
1998.  Their  audits  were  conducted  in  accordance  with  auditing  standards
generally  accepted in the United States,  which included  consideration  of the
General Partner's internal control structure. The Report of Independent Auditors
appears on page A-2.

The  board of  directors  of the  General  Partner,  acting  through  its  Audit
Committee  composed  solely of  directors  who are not  employees of the General
Partner, is responsible for overseeing the General Partner's  fulfillment of its
responsibilities  in the preparation of the Partnership's  financial  statements
and the financial control of its operations.  The independent auditors have full
and free access to the Audit  Committee  and meet with it to discuss their audit
work, the Partnership's internal controls, and financial reporting matters.


 /s/ DAVID B. GEBLER
-------------------------------------------------------------
David B. Gebler
Chairman, Chief Executive Officer and President
Airlease Management Services, Inc.


 /s/ ROBERT A. KEYES
-------------------------------------------------------------
Robert A. Keyes
Chief Financial Officer
Airlease Management Services, Inc.


                                      A-1


<PAGE>


REPORT OF INDEPENDENT AUDITORS

To the Partners of Airlease Ltd.,
A California Limited Partnership:

We have audited the accompanying  balance sheets of Airlease Ltd. as of December
31,  2000  and  1999  and  the  related   statements   of  income,   changes  in
Partners'equity,  and cash flows for each of the three years in the period ended
December 31, 2000.  These  financial  statements are the  responsibility  of the
Partnership'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. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial position of Airlease Ltd. at December 31,
2000 and 1999,  and the results of its operations and its cash flows for each of
the three  years in the  period  ended  December  31,  2000 in  conformity  with
accounting principles generally accepted in the United States.


/s/ ERNST & Young L.L.P.
-------------------------------------------
Ernst & Young L.L.P.       .........
San Francisco, California
January 30, 2001, except for note 10, as to which the date is March 13, 2001


                                      A-2


<PAGE>

<TABLE>
<CAPTION>


                 AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP

                              STATEMENTS OF INCOME


                                                                 For the years ended
                                                                     December 31,
(In thousands except per unit amount)                    2000           1999           1998
-------------------------------------------------------------------------------------------
<S>                                                    <C>            <C>            <C>

REVENUES

Finance lease income                                   $6,736         $7,614         $8,400
                                                       ------------------------------------
Total revenues                                          6,736          7,614          8,400
                                                       ------------------------------------


EXPENSES

Interest                                                  909          1,270          1,704
Management fee - general partner                          603            629            651
Investor reporting                                        316            339            298
General and administrative                                163            120            174
Tax on gross income                                       548            548            699
                                                       ------------------------------------
Total expenses                                          2,539          2,906          3,526
                                                       ------------------------------------
NET INCOME                                             $4,197         $4,708         $4,874
                                                       ------------------------------------

NET INCOME ALLOCATED TO:

General partner                                        $   42         $   47         $   49
                                                       ------------------------------------
Limited partners                                        4,155          4,661          4,825
                                                       ------------------------------------
NET INCOME PER LIMITED PARTNERSHIP UNIT                $ 0.90         $ 1.01         $ 1.04
                                                       ------------------------------------


See notes to financial statements

</TABLE>


                                      A-3


<PAGE>


                 AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP

                                 BALANCE SHEETS


                                                            As of December 31,
(IN THOUSANDS)                                           2000              1999
--------------------------------------------------------------------------------

ASSETS

Cash                                                  $    17           $     2
Finance leases - net                                   61,657            67,509
Prepaid expenses and other assets                         162               276
                                                      -------------------------
Total assets                                          $61,836           $67,787
                                                      -------------------------



LIABILITIES AND PARTNERS' EQUITY

LIABILITIES:

Distribution payable to partners                      $ 2,102           $ 1,915
Accounts payable and accrued liabilities                  468               429
Taxes payable                                             139                 4
Long-term notes payable                                 7,992            10,092
                                                      -------------------------
Total liabilities                                      10,701            12,440
                                                      =========================



COMMITMENTS AND CONTINGENCIES

PARTNERS' EQUITY:


Limited partners (4,625,000 units outstanding)         50,624            54,794


General partner                                           511               553



Total partners' equity                                 51,135            55,347


TOTAL LIABILITIES AND PARTNERS' EQUITY                $61,836           $67,787
                                                      =========================



See notes to financial statements


                                      A-4


<PAGE>

<TABLE>
<CAPTION>



                 AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP

                            STATEMENTS OF CASH FLOWS

                                                                                   For the years ended December 31,
(In thousands)                                                                  2000          1999          1998
---------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>           <C>            <C>

CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                                      $ 4,197      $  4,708        $  4,874
Adjustments to reconcile net income to net cash
     provided by operating activities:
      Changes in assets and liabilities:
      Increase/(decrease) in accounts payable and accrued liabilities                39            36            (160)
      Decrease/(increase) in prepaid expenses and other assets                      114            85             (93)
      Increase/(decrease) in taxes payable                                          135          (695)            699
                                                                                -------------------------------------
Net cash provided by operating activities                                         4,485         4,134           5,320
                                                                                -------------------------------------


CASH FLOWS FROM INVESTING ACTIVITIES

Rental receipts in excess of earned finance lease income                          5,852         7,934           7,147
                                                                                -------------------------------------
Net cash provided by investing activities                                         5,852         7,934           7,147
                                                                                -------------------------------------


CASH FLOWS FROM FINANCING ACTIVITIES
Revolving credit borrowing (repayment)-net                                          (18)       (2,474)          2,509
Repayment of long-term notes payable                                             (2,082)       (1,939)         (7,119)
Distributions paid to partners                                                   (8,222)       (7,662)         (7,849)
                                                                                -------------------------------------

Net cash used in financing activities                                           (10,322)      (12,075)        (12,459)
                                                                                -------------------------------------


Increase/(decrease) in cash                                                          15            (7)              8
Cash at beginning of year                                                             2             9               1
                                                                                -------------------------------------

Cash at end of year                                                             $    17      $      2        $      9
                                                                                -------------------------------------
Additional information:
     Cash paid for interest                                                     $   858      $  1,187        $  1,775
                                                                                -------------------------------------

See notes to financial statements

</TABLE>



                                      A-5


<PAGE>

<TABLE>
<CAPTION>



                 AIRLEASE LTD., A CALIFORNIA LIMITED PARTNERSHIP

                    STATEMENTS OF CHANGES IN PARTNERS' EQUITY

                                                                 For the years ended December 31, 2000, 1999 and 1998
                                                                             General       Limited
(In thousands except per unit amounts)                                       Partner      Partners         Total
---------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>         <C>           <C>

Balance, December 31, 1997                                                      611         60,478        61,089
Net Income - 1998                                                                49          4,825         4,874
Distributions to partners declared
     ($1.64 per limited partnership unit)                                       (77)        (7,585)       (7,662)

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

Balance, December 31, 1998                                                      583         57,718        58,301
Net Income - 1999                                                                47          4,661         4,708
Distributions to partners declared
     ($1.64 per limited partnership unit)                                       (77)        (7,585)       (7,662)

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

Balance, December 31, 1999                                                      553         54,794        55,347
Net Income - 2000                                                                42          4,155         4,197
Distributions to partners declared
     ($1.80 per limited partnership unit)                                       (84)        (8,325)       (8,409)

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

BALANCE, DECEMBER 31, 2000                                                     $511        $50,624       $51,135

=====================================================================================================================

See notes to financial statements

</TABLE>


                          NOTES TO FINANCIAL STATEMENTS

1.       ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION   -  Airlease   Ltd.,  A  California   Limited   Partnership   (the
"partnership") engages in the business of acquiring,  either directly or through
joint ventures,  commercial jet aircraft,  spare or separate engines and related
rotable  parts  ("aircraft")  and leasing such  aircraft to domestic and foreign
airlines  and  freight  carriers.  The general  partner is  Airlease  Management
Services,  Inc.,  a wholly  owned  subsidiary  of Banc of  America  Leasing  and
Capital,  LLC.  ("BALCAP").  BALCAP also holds 793,750 limited partnership units
and United States Airlease Holding, Inc. ("Holding"),  a wholly owned subsidiary
of BALCAP,  holds 231,250 limited  partnership  units.  An additional  3,600,000
units are publicly held.

BASIS OF  PRESENTATION - The  preparation of financial  statements in conformity
with  accounting  principles  generally  accepted in the United States  requires
management 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


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and expenses during the reporting period. Actual results could differ from those
estimates.

FINANCE  LEASES  -  Lease  agreements,  under  which  the  partnership  recovers
substantially  all its investment  from the minimum lease payments are accounted
for as finance leases. At lease commencement,  the partnership records the lease
receivable,  estimated residual value of the leased aircraft, and unearned lease
income.  The  original  unearned  income  is  equal to the  receivable  plus the
residual value less the cost of the aircraft (including the acquisition fee paid
to an  affiliate  of the general  partner).  The  remaining  unearned  income is
recognized  as revenue over the lease term so as to  approximate a level rate of
return on the investment.

NET INCOME PER LIMITED  PARTNERSHIP  UNIT is computed by dividing the net income
allocated to the Limited  Partners by the  weighted  average  units  outstanding
(4,625,000).

2.    FINANCE LEASES

As of December 31, 2000, the  partnership  owned seven  aircraft,  which are all
leased under finance leases. Five of the aircraft are leased to US Airways, Inc.
and the lease is due to expire September 2001. In 2000,  1999, and 1998,  leases
with US  Airways,  Inc.  resulted  in  finance  lease  revenues  of  $5,175,000,
$5,873,000, and $6,498,000, respectively.

The sixth aircraft,  wholly owned by the partnership since January 31, 1997 when
it purchased USL  Capital's  50% interest in this aircraft for $5.7 million,  is
leased to Trans World Airlines (TWA) under a finance lease.  In 2000,  1999, and
1998 this  lease  with TWA,  resulted  in finance  lease  income of  $1,172,000,
$1,310,000,  and $1,432,000,  respectively.  TWA filed for chapter 11 bankruptcy
protection on January 10, 2001. See note 10.

The seventh  aircraft is leased to Federal Express  Corporation  (FedEx) under a
13-year finance lease which expires in 2006. In 2000,  1999, and 1998 this lease
with FedEx resulted in finance lease income of $389,000, $431,000, and $470,000,
respectively.

The finance  leases at December 31, 2000 and 1999, are summarized as follows (in
thousands):

                                                      2000               1999
                                                      ----               ----

Receivable in installments                         $22,044            $34,633
Residual valuation                                  45,500             45,500
Unearned lease income                               (5,887)           (12,624)
                                                   -------            -------
NET INVESTMENT                                     $61,657            $67,509
                                                   =======            =======

Residual valuation, which is reviewed annually,  represents the estimated amount
to be received from the  disposition  of aircraft  after lease  termination.  If
necessary,  residual adjustments are made which result in an immediate charge to
earnings and/or a reduction in earnings over the remaining term of the lease.

Finance  lease  receivables  at  December  31, 2000 are due in  installments  of
$15,748,000 in 2001, $1,710,000 in 2002, $1,310,000 in 2003, $1,310,000 in 2004,
and $1,966,000 thereafter.

3.    OPERATING LEASES

At December 31, 2000,  the  partnership  did not own any aircraft  subject to an
operating  lease.  The last aircraft that was subject to an operating  lease was
sold in September 1997.


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<PAGE>


4.    LONG-TERM NOTES PAYABLE

As of December 31, 2000 and 1999 long-term notes payable included the following:


               A 7.4% non-recourse loan facility  collateralized by the aircraft
               leased to FedEx,  due in  semi-annual  installments  of  $451,000
               through April 2006. At December 31, 2000 and 1999, $4,001,000 and
               $4,569,000, were outstanding, respectively.

               A 9.35% non-recourse loan facility collateralized by the aircraft
               leased to TWA, due in monthly  installments  of $150,000  through
               March  2002.  At  December  31,  2000 and  1999,  $2,226,000  and
               $3,740,000,  were  outstanding,  respectively.  During 1998,  the
               partnership renegotiated the terms of the 9.35% loan facility. As
               part of the  re-negotiation,  the  partnership was able to prepay
               $2.0 million in principal  and reduce the interest  rate 50 basis
               points from 9.85% to 9.35%.

                       A  $7.5  million   three-year   revolving  loan  facility
               obtained  in  February   1998.   The   facility   was   initially
               collateralized by one aircraft on lease to US Airways,  Inc., was
               guaranteed  by the  partnership,  and  bore an  interest  rate of
               three-month  Libor plus 225 basis points.  In December 1998, this
               loan  facility  was  expanded by $5.0  million  and the  variable
               interest  rate  was  lowered  to  212.50  basis  points  over the
               three-month  Libor when another aircraft leased to US Airways was
               added as additional  collateral.  At December 31, 2000 $1,765,000
               was outstanding and approximately  $3,275,000 was available under
               this facility. At December 31, 1999, $1,783,000 was outstanding.

Based upon  amounts  outstanding  at  December  31,  2000,  the  minimum  future
principal payments on all outstanding fixed-rate long-term notes payable are due
as follows (in thousands):

             2001                                     $2,419
             2002                                      1,078
             2003                                        710
             2004                                        763
             Thereafter                                1,257
                                                     -------
             Total Fixed Term Debt                     6,227

             Revolving Line of Credit
               Outstanding at 12/31/2000               1,765
                                                     -------
             TOTAL LONG TERM DEBT                     $7,992
                                                     =======


5.    FAIR VALUE OF FINANCIAL INSTRUMENTS

The  following  table  presents   carrying   amounts  and  fair  values  of  the
partnership's  financial


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<PAGE>


instruments  at  December  31,  2000 and  1999.  The fair  value of a  financial
instrument is defined as the amount at which the  instrument  could be exchanged
in a current  transaction  between  willing  parties,  other than in a forced or
liquidation sale.

<TABLE>
<CAPTION>


                                            2000                  2000                   1999                 1999
(In thousands)                        Carrying Amount          Fair Value          Carrying Amount          Fair Value
                                      ---------------          ----------          ---------------          ----------

<S>                                       <C>                    <C>                   <C>                  <C>
Long-term notes payable
       (Note 4)                           $7,992                 $7,983                $10,092              $9,956

</TABLE>


The carrying  amounts  presented in the table are included in the balance  sheet
under the indicated captions.

Long-term  debt is  estimated by  discounting  the future cash flows using rates
that are assumed would be charged to the partnership for debt with similar terms
and remaining maturities.

6.    TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES

In accordance with the Agreement of Limited Partnership, the general partner and
its affiliates  receive expense  reimbursement,  fees and other compensation for
services provided to the partnership.

Amounts  earned by the  general  partner  and  affiliates  for the  years  ended
December 31, 2000, 1999, and 1998, were as follows (in thousands):

                                          2000          1999          1998
                                          ----          ----          ----

Management fees                           $551          $577          $599
Disposition and remarketing fees            52            52            52
Reimbursement of other costs                79            79            79
Reimbursement of interest costs              8             7             7
                                          ----          ----          ----
TOTAL                                     $690          $715          $737
                                          ====          ====          ====

The general partner was allocated its 1% share of the partnership net income and
cash distributions.  Holding and BALCAP, each a limited partner and an affiliate
of the  general  partner,  were also  allocated  their  share of income and cash
distributions.

7.       FEDERAL INCOME TAX STATUS

The  Partnership is considered a publicly traded  partnership  ("PTP") under the
Revenue Act of 1987.  Under that Act, the partnership was not subject to federal
income tax as a partnership  until 1998.  Effective  January 1, 1998, PTP's were
required to choose to retain PTP status and be subjected  to federal  income tax
as a corporation or to delist their units thereby  removing  themselves from the
scope of the PTP rules. Faced with these alternatives, the Partnership initially
recommended that its units be delisted.


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<PAGE>


In August and October 1997,  respectively,  federal and California tax laws were
amended to provide PTP's a third  alternative.  Under these amended laws,  PTP's
are allowed to continue to be publicly  traded during 1998 and subsequent  years
without  becoming  subject to  corporate  income tax if they elect to pay a 3.5%
federal tax and a 1% California tax on their applicable gross income.

The board of  directors  of the General  Partner  unanimously  concluded,  after
authorization  from the  unitholders and  consideration  of a number of factors,
including the 1997 tax law changes and the benefits of liquidity, that is was in
the best interests of the  unitholders  for the  partnership to remain  publicly
traded at that  time.  Accordingly,  in  January  1998 the  partnership  made an
election to pay the annual gross income tax at the partnership level.

8.    RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING (UNAUDITED)

The  aircraft  on lease to US  Airways,  Inc.  were  purchased  subject to a tax
benefit transfer lease ("TBT") which provided for the transfer of Federal income
tax  ownership of these  aircraft to a tax lessor  until 1991.  The transfer was
accomplished  by the sale,  for tax  purposes  only,  of the aircraft to the tax
lessor for cash and a note and a leaseback of the  aircraft for rental  payments
which  equalled the payments on the note.  The rental  payments  resulted in tax
deductions  and the interest was included in taxable  income.  In 1991,  the TBT
lease  agreement  terminated  and the tax attributes  transferred  under the TBT
lease reverted to the partnership.

The difference between the method of accounting for income tax reporting and the
method  of  accounting  used in the  accompanying  financial  statements  are as
follows (in thousands except per unit amounts):

<TABLE>
<CAPTION>


                                                                          2000          1999            1998
                                                                          ----          ----            ----
<S>                                                                     <C>           <C>             <C>

Net income per financial statements:                                    $4,197        $4,708          $4,874
Increases (decreases) resulting from:
      3.5% Gross Income Tax - non deductible                               544           544             544
      Lease rents earned less finance lease income                       8,810         7,934           7,147
Depreciation and amortization                                           (1,840)       (2,605)         (6,071)
                                                                      --------------------------------------
Income per income tax method                                            11,711        10,581           6,494
Allocable to general partner                                              (117)         (106)            (65)
                                                                      --------------------------------------

TAXABLE INCOME ALLOCABLE TO LIMITED PARTNERS                          $ 11,594       $10,475        $  6,429

Taxable  income per  limited  partnership  unit after
giving  effect to taxable income allocable to general
partner (amount based on a unit owned from October 10, 1986)          $   2.51      $   2.26        $   1.39

Partner's equity per financial statements                             $ 51,135      $ 55,347        $ 58,301
Cumulative increases resulting from:
      Lease rents less earned finance lease income                      64,211        55,401          47,467
      Deferred underwriting discounts and commissions,
      and organization costs                                             5,361         5,361           5,361

Accumulated depreciation and amortization                              (66,125)      (64,285)        (61,681)
TBT interest income less TBT rental expense                            (54,030)      (54,030)        (54,030)
                                                                      --------------------------------------

PARTNERS' EQUITY PER INCOME TAX METHOD                                $    552      $ (2,206)        $(4,580)

</TABLE>



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<PAGE>


9.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of the quarterly  results of operations for the years
ended December 31, 2000 and 1999 (in thousands, except per unit amounts):

<TABLE>
<CAPTION>


2000                                                         MARCH 31             JUNE 30        SEPT. 30                  DEC. 31
----                                                         --------             -------        --------                  -------
<S>                                                            <C>                 <C>             <C>                      <C>

Total Revenues                                                 $1,771              $1,712            $1,657                 $1,596
Net Income                                                     $1,097              $1,066            $1,035                 $1,002
Net Income Per Limited Partnership Unit                        $ 0.23              $ 0.23            $ 0.22                 $ 0.21
Unit Trading Data:
Unit Prices (high-low) on NYSE                            $12-$10 5/8    $12 1/4-$10 9/16   13 1/8-$11 9/16      $12 1/2 -$11 9/16
Unit Trading Volumes on NYSE                                      227                 239               230                    291

1999                                                         MARCH 31             JUNE 30        SEPT. 30                DEC. 31
----                                                         --------             -------        --------                -------

Total Revenues                                                 $1,982              $1,928            $1,879                 $1,825
Net Income                                                     $1,192              $1,157            $1,132                 $1,227
Net Income Per Limited Partnership Unit                        $ 0.26              $ 0.25             $0.24                 $ 0.26
Unit Trading Data:
Unit Prices (high-low) on NYSE                       $12 3/4-$12 3/16   $12 3/8-$10 13/16   12 5/16-$11 1/2   $11 14/16 -$10 15/16
Unit Trading Volumes on NYSE                                      309                 293               250                    246

</TABLE>


10.      SUBSEQUENT EVENT

On March 12, 2001, the U.S. Bankruptcy Court approved the sale of most assets of
Trans World Airlines to American Airlines' parent  corporation.  Consummation of
the sale is subject to federal antitrust  regulatory  approval and other closing
conditions.   American   Airlines  has  entered  into  an  agreement   with  the
Partnership,  which  becomes  effective  only upon  consummation  of the sale to
American Airlines of the Trans World Airlines assets, pursuant to which American
Airlines would assume Trans World Airlines'  lease with the Partnership  subject
to a reduced lease rate and an extended lease term.

Additionally,  on March 13, 2001,  Trans World  Airlines made its lease payments
that were due on December 22, 2000 and January 22, 2001.  Also, the  Partnership
expects  Trans  World  Airlines  to  file  with  the  U.S.  Bankruptcy  Court  a
stipulation agreement and order pursuant to which Trans World Airlines agrees to
cure the February 22, 2001 lease payment within certain time limits.


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<PAGE>
                                INDEX TO EXHIBITS


Exhibit No.       Description
-----------       -----------

  10.44          Aircraft Lease Agreement dated as of April 15, 1993 between
                 Taurus Trust Company, Inc. (formerly Trust Company for USL,
                 Inc.)as Owner Trustee, Lessor, and Federal Express Corporation,
                 Lessee with respect to one (1) Boeing 727-2D4 Aircraft, U.S.
                 Registration No. 362PA (manufacture serial no. 21850).









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