<PAGE>
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
       ------------------------------------------------------------------

                                    FORM 10-K

                  FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
           SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
       ------------------------------------------------------------------

     (MARK ONE)

        [X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2001
                                       OR

        [ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                  For the transition period from _____ to _____

                          Commission File No. 333-82153

                             AIRCRAFT FINANCE TRUST
                             ----------------------
             (Exact name of registrant as specified in its charter)

                                   51-6512392
                             (IRS Employer I.D. No.)

                                    DELAWARE
         (State or other jurisdiction of incorporation or organization)

    1100 North Market Street, Rodney Square North, Wilmington, Delaware 19890
                                 (302) 651-1000
          (Address and telephone number of principal executive offices)

         --------------------------------------------------------------
        Securities registered pursuant to Section 12(b) of the Act: None

        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. [X]

                      This document consists of 112 pages.


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<PAGE>

                             AIRCRAFT FINANCE TRUST

                          2001 FORM 10-K ANNUAL REPORT

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                        Page
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<S>       <C>                                                                           <C>
PART I

Item 1.   Business....................................................................     3
Item 2.   Properties..................................................................    24
Item 3.   Legal Proceedings...........................................................    24
Item 4.   Submission of Matters to a Vote of Security Holders.........................    24

PART II

Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters.......    25
Item 6.   Selected Financial Data.....................................................    26
Item 7.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations.......................................................    26
Item 7A.  Quantitative and Qualitative Disclosures about Market Risk..................    36
Item 8.   Financial Statements and Supplementary Data.................................    39
Item 9.   Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure........................................................    56

PART III

Item 10.  Directors and Executive Officers of the Registrant..........................    56
Item 11.  Executive Compensation......................................................    63
Item 12.  Security Ownership of Certain Beneficial Owners and Management..............    63
Item 13.  Certain Relationships and Related Transactions..............................    64

PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.............    65
</TABLE>


                                       2
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                                     PART I

ITEM 1. BUSINESS

INTRODUCTION

     Aircraft Finance Trust was formed on April 13, 1999 as a Delaware business
trust and is a special purpose company. The authorized business of Aircraft
Finance Trust and its present and future subsidiaries is limited to buying,
owning, leasing and selling commercial jet aircraft and related activities.
Aircraft Finance Trust currently has three subsidiaries: AFT Trust-Sub I, which
is a Delaware business trust, Aircraft Finance Trust Ireland Limited, which is
an Irish corporation, and Aircraft Finance France S.A.R.L., which is a French
Corporation (collectively "Aircraft Finance"). All of Aircraft Finance's
aircraft are owned by AFT Trust-Sub I. Three of these aircraft are leased by AFT
Trust-Sub I to Aircraft Finance Trust Ireland Limited and one is leased to
Aircraft Finance France S.A.R.L. for sublease to the ultimate user. Aircraft
Finance's principal executive offices are located at 1100 North Market Street,
Rodney Square North, Wilmington, Delaware 19890. Its telephone number is (302)
651-1000.

        The beneficial interests in Aircraft Finance were originally purchased
by UniCapital AFT-I, Inc. (51%) and UniCapital AFT-II, Inc. (49%), each of which
were wholly-owned indirect subsidiaries of UniCapital Air Group, Inc., a
wholly-owned subsidiary of UniCapital Corporation ("UniCapital"). During 1999,
2000, and 2001, UniCapital sold all of its ownership of AFT-I, Inc., and AFT-I,
Inc. and AFT-II, Inc. sold certain of their beneficial interests in Aircraft
Finance to financial services companies. In addition, during 2001, AFT-II, Inc.
transferred certain of its remaining interests to AFT-III, Inc., a wholly-owned
indirect subsidiary of UniCapital. Also during 2001, AFT-III, Inc. transferred
certain of its remaining interests in Aircraft Finance to one of the financial
services companies. As of December 31, 2001, financial services companies owned
71.0% of Aircraft Finance, AFT-II, Inc. owned 1.6% of Aircraft Finance and
AFT-III, Inc. owned 27.4% of Aircraft Finance. On December 11, 2000, UniCapital
and the entity that directly owns AFT-II, Inc. and AFT-III, Inc. filed petitions
for reorganization under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") in the U. S. Bankruptcy Court for the Southern District of
New York (the "Bankruptcy Court"). On January 9, 2002, the Bankruptcy Court
entered a Confirmation Order in which it approved a plan for Unicapital,
including substantially all of its direct and indirect subsidiaries, to emerge
from reorganization under Chapter 11 of the Bankruptcy Code.

     On May 5, 1999, Aircraft Finance issued $1,209 million of asset-backed
notes (the "Initial Notes"). As of that date, the Initial Notes consisted of
$512.5 million of Class A-1 Notes, $400 million of Class A-2 Notes, $126.5
million of Class B Notes, $106 million of Class C Notes and $64 million of Class
D Notes. On January 20, 2000, Aircraft Finance completed an exchange offer
whereby Aircraft Finance issued four classes of new notes, also designated Class
A-1, Class A-2, Class B and Class C (the "Exchange Notes"), in exchange for the
four corresponding classes of the Initial Notes. The terms of the Exchange Notes
are identical in all material respects to the Initial Notes, except that the
Exchange Notes are registered under the Securities Act of 1933, as amended. The
Class D Notes were not exchanged and remain unregistered. $3 million of the
Class A-2 Initial Notes were not tendered in the exchange offer and remain
outstanding. The remaining outstanding Initial Notes and the outstanding
Exchange Notes are together referred to as the Notes.

     Also on May 5, 1999, Aircraft Finance and its subsidiaries agreed with
General Electric Capital Corporation to purchase 36 commercial jet aircraft from
General Electric Capital Corporation and some


                                       3
<PAGE>

of its affiliates under a master aircraft purchase agreement. Aircraft Finance
paid the purchase price of approximately $1,196 million in full for these
initial aircraft with the proceeds from the sale of the Initial Notes and from
the sale of its beneficial interests. Remaining proceeds were used to fund cash
reserves of $52 million. At December 31, 2001, 34 of the initial aircraft were
on lease to 21 lessees based in 13 countries. Two of the initial aircraft were
off-lease. For a detailed discussion of the value of the aircraft, see "The
Aircraft Portfolio".

     The trust agreement governing Aircraft Finance provides for four trustees.
One of the four trustees of Aircraft Finance is Wilmington Trust Company, which
is acting as the statutory trustee and the owner trustee. The remaining three
trustees are the "controlling trustees" and have the authority to manage the
property and affairs of Aircraft Finance under the trust agreement. All of the
controlling trustees are independent from General Electric Capital Corporation.
One of the controlling trustees, called the "equity trustee", has been appointed
by the holders of Aircraft Finance's beneficial interests, while the two other
controlling trustees, called the "independent controlling trustees", are
independent of those holders. The holders of the beneficial interests of
Aircraft Finance may remove and replace the equity trustee. Each independent
controlling trustee may designate a replacement for the other controlling
trustee if such other controlling trustee resigns or his office is deemed
vacant.

     The trust agreement requires that any decision relating to insolvency
proceedings, mergers or other reorganizations of Aircraft Finance must be
approved by a unanimous vote of the controlling trustees. Any sale of aircraft,
decisions requiring Aircraft Finance's approval under the servicing agreement
for the aircraft or under the agreement with the administrative agent, and the
reduction of any required level of reserves must be approved by the equity
trustee and at least one of the independent controlling trustees. In order for
the controlling trustees to approve an aircraft sale on other than pre-approved
terms, they must confirm to the indenture trustee, prior to the sale, that the
sale will not materially and adversely affect the holders of the Notes. The
acquisition of additional aircraft by Aircraft Finance and the terms of any
related financing need only be approved by the equity trustee, subject to the
terms of the trust agreement and the indenture, including confirmation by the
rating agencies that the transaction will not adversely affect the rating on the
Notes.

     As is common with many other special purpose companies, Aircraft Finance
will not have any officers or other employees, except, in the case of a
subsidiary, as may be required by applicable law. Aircraft Finance has arranged
for third-party service providers to provide aircraft servicing, managerial
services and financial advice. See "Item 10. Directors and Executive Officers of
the Registrant" for further information regarding the management of Aircraft
Finance.

     Aircraft Finance may acquire additional commercial passenger or freight
aircraft from General Electric Capital Corporation or UniCapital or their
respective affiliates. The indenture under which the Notes were issued contains
a number of conditions for the acquisition of additional aircraft and for the
financing of such an acquisition. If these conditions are met, there is no limit
under the indenture to the number of additional aircraft that Aircraft Finance
may acquire.

     All of the net revenues of Aircraft Finance and its subsidiaries are used
to pay principal, interest and other amounts due on the Notes or to provide for
cash reserves for some or all of the subclasses of Notes. Except for accruals
for the payment of anticipated expenses and required reserves, none of the
revenues will be re-used or retained in the business of Aircraft Finance or its
subsidiaries. In addition, none of the earnings of Aircraft Finance may be
distributed to the holders of its beneficial interests until all Notes are
repaid in full with the limited exception of reimbursing any payments made by
those holders to cure interest shortfalls.


                                       4
<PAGE>

     Because the Notes do not provide for fixed principal payments, the ultimate
repayment of the Notes, the amount of individual payments over time and the
speed of repayment are fully a function of Aircraft Finance's ability to collect
revenues from the portfolio of the 36 aircraft and, if acquired, additional
aircraft. Set forth below in the Risk Factors section are a variety of factors
that, in addition to general economic conditions, could influence materially the
collection of revenues -- principally lease rents and sale proceeds -- available
for debt repayment.

     References in this Form 10-K to the appraised value of aircraft at December
31, 2001 means the average of three appraisals of the aircraft as of December
31, 2001 obtained in accordance with the indenture relating to the Notes. For
further discussion of the appraisals, see "The Aircraft Portfolio - Appraisal of
Aircraft".

RISK FACTORS

     The following summarizes certain risks that may materially affect the
business operations of Aircraft Finance and its ability to pay the interest,
principal and premium, if any, on the Notes in full at or before their final
maturity dates and to make cash distributions to the beneficial interest
holders. There may be additional risks and uncertainties not known at the
present. There can be no assurance that payments under the aircraft leases will
be adequate to pay the interest, principal and premium, if any, on the Notes in
accordance with their terms.

     It should be noted that this Annual Report on Form 10-K (Form 10-K)
contains, in addition to historical information, forward-looking statements that
involve risks and uncertainties. These statements relate to Aircraft Finance's
future plans, objectives, expectations and intentions, and the assumptions
underlying or relating to any of these statements. These statements may be
identified by the use of words such as "expect", "may", "anticipate", "intend",
"plan", "should", "believe", "estimate", "predict", "potential", "continue" or
similar terms that relate to the future or express uncertainty. Aircraft Finance
assumes no obligation to update any forward-looking statements to reflect actual
results or changes in the factors affecting such forward-looking statements.
Aircraft Finance's actual results may differ materially from those discussed in
the forward-looking statements contained in this Form 10-K based on risks,
including those discussed below.

The September 11, 2001 terrorist action may harm the overall industry which may
adversely affect Aircraft Finance's business.

     On September 11, 2001, terrorists hijacked and crashed four United States
commercial aircraft, with attendant significant loss of life, property damage
and economic disruption. Two of the four aircraft crashed into and caused the
World Trade Center towers in New York City to collapse, and a third crashed into
and caused significant damage to the Pentagon in Washington, D.C. As a result,
air travel in the United States was suspended for several days, restrictions
were placed on United States air travel, airline costs such as aircraft
insurance and aircraft security have increased and passenger demand for air
travel has significantly declined. Consequently, Aircraft Finance's lessees are
likely to incur higher costs and lower revenues, which are expected to adversely
impact their financial position. Any additional terrorist attacks, the current
anti-terrorist activity in Afghanistan and throughout the world, any military or
economic responses by the United States, including any changes to the United
States aircraft industry by way of law, regulation or otherwise, may further
increase airline costs and cause further declines in air travel demand.


                                       5
<PAGE>
     These events may also affect the ability of airlines to obtain insurance or
otherwise comply with terms of their leases. The inability to obtain insurance
and non-compliance with other lease terms could result in aircraft groundings.
Any such actions may further impair a lessee's financial condition and ability
to pay rent. Accordingly, these conditions, particularly should they continue,
may impair the ability of Aircraft Finance to re-lease aircraft on a timely
basis and at favorable rates and may reduce the value of the aircraft for
possible sale. These factors may have an adverse effect on the amount and timing
of payments that will be made by Aircraft Finance on the Notes.

Aircraft Finance is a special purpose entity and therefore is relying on only a
limited number of revenue sources for its business.

     It is unlikely that Aircraft Finance would be able to obtain any alternate
source of funds if any of its limited sources of funds prove to be insufficient
to pay the Notes and its other obligations. The sole sources of payment for the
Notes and the other obligations of Aircraft Finance and its subsidiaries are:

        (1)    funds derived from the aircraft owned or to be acquired by them,
               including: rents, deposits, maintenance reserves and other
               payments under existing leases and any future leases, insurance
               proceeds and proceeds from the sale of aircraft;

        (2)    liquidity reserves funded out of the proceeds of the Initial
               Notes or that may be funded out of the proceeds of any future
               Notes or beneficial interests in Aircraft Finance or provided
               through any future credit facilities;

        (3)    net payments under swap or other hedging agreements;

        (4)    investment earnings; and

        (5)    net proceeds from the sale of any Notes issued to refinance other
               Notes.

Aircraft Finance has no employees or managers of its own, and therefore its
ability to generate revenues depends on contracts with, and performance by,
independent third party service providers.

     Inadequate performance and/or resignations by service providers may
materially and adversely affect revenues and costs. In the absence of an
ownership stake, third party service providers may have no incentive to perform
beyond the strict requirements of their contract. Aircraft Finance is especially
dependent on service providers because neither Aircraft Finance nor its
subsidiaries have any employees or executive managers of their own.

     Aircraft Finance relies on contracts with GE Capital Aviation Services,
Limited, an affiliate of General Electric Capital Corporation, as the servicer,
Phoenix American Financial Services, Inc. as the administrative agent, Bankers
Trust Company as the financial advisor and security trustee, Lehman Brothers
Inc. as the capital markets advisor and other service providers for all asset
servicing, executive and administrative functions.

     From time to time, Aircraft Finance may engage, on an arm's-length basis,
service providers in which the controlling trustees of Aircraft Finance have a
financial interest. In 2001, Aircraft Finance engaged Simat, Helliesen &
Eichner, Inc. ("SH&E") to provide services in connection with the assessment of
strategic alternatives and provision of source materials for certain economic
descriptions in this annual report. David Treitel, the controlling trustee of
Aircraft Finance appointed by the holders


                                       6
<PAGE>

of the beneficial interests, is the Chairman and Chief Executive Officer of
SH&E. Neither of the foregoing engagements involved over $60,000 in amounts
payable to SH&E in 2001.

     Regarding these arrangements, please note that:

        (1)    any of these organizations may fail to perform its contractual
               obligations adequately;

        (2)    any of these organizations may exercise contract termination
               rights;

        (3)    Aircraft Finance may find it difficult to recover damages for
               poor performance in light of contractual limitations;

        (4)    Aircraft Finance may not be able to terminate the contract itself
               -- in particular its rights to terminate the aircraft servicing
               agreement are very limited; and

        (5)    Aircraft Finance may not have the legal right to locate
               satisfactory replacements on favorable terms.

The aircraft servicer may face conflicts of interest that could result in
preferential treatment for a third party at the expense of Aircraft Finance. If
the servicer did prefer a third party in a conflict of interest, it could
adversely affect Aircraft Finance's revenues.

     GE Capital Aviation Services, Limited will from time to time have conflicts
of interest that may adversely affect its ability to perform its obligations as
the servicer for Aircraft Finance because it manages aircraft and other assets
of other entities, in particular for its affiliate, General Electric Capital
Corporation and its group. These conflicts will arise if the servicer leases
Aircraft Finance's aircraft to the same entities that are also the lessees of
other aircraft managed by the servicer. In this circumstance, decisions
affecting some aircraft may unavoidably be adverse to others. If the servicer
makes a decision adverse to Aircraft Finance's interests, Aircraft Finance's
revenues could suffer.

     These conflicts may be particularly acute when a lessee in financial
distress needs to return some of its aircraft. Conflicts will also arise when
the aircraft of Aircraft Finance are being marketed for re-lease or sale at a
time when other aircraft managed by the servicer are being similarly marketed.
These circumstances may be especially sensitive where General Electric Capital
Corporation is providing financing for the marketed aircraft or where the
servicer's contractual arrangements have the effect of requiring preferential
treatment for other aircraft.

     Under the terms of its servicing agreement with the servicer, Aircraft
Finance is not necessarily entitled to be informed of all conflicts of interest
involving the servicer and is limited in its right to replace the servicer
because of conflicts of interest.

Because Aircraft Finance's contract limits its remedies against the servicer for
poor performance, Aircraft Finance may at some point bear costs that will reduce
its available revenues.

     Under the aircraft servicing agreement, Aircraft Finance may not in all
cases have the right to recover damages for inadequate performance. Aircraft
Finance's right to terminate the servicing agreement by reason of a failure of
the servicer to perform is, moreover, limited to those failures to perform that
materially and adversely affect Aircraft Finance and its subsidiaries as a
whole.


                                       7
<PAGE>

     In particular, the servicer is not contractually responsible for, among
other things:

        (1)    the transfer of aircraft, leases or other assets to any person
               within Aircraft Finance;

        (2)    the adequacy of the terms of any aircraft lease, including rent
               payments, maintenance reserves or security deposits;

        (3)    the reliability or creditworthiness of any lessee; and

        (4)    the terms of the Notes and the ability of Aircraft Finance to
               comply with the terms of the Notes.

     Aircraft Finance has agreed to indemnify the servicer and its affiliates
for broad categories of losses arising out of the performance of services for
the aircraft and leases held by subsidiaries of Aircraft Finance, unless the
losses arise from the servicer's gross negligence or willful misconduct.

Market interest rate fluctuations could change expected cash flows.

     Interest rate exposure arises to the extent that Aircraft Finance's fixed
and floating rate obligations under the Notes do not correlate to either or both
of the mix of fixed and floating rate rental payments for different periods and
the timing of those payments. Although Aircraft Finance will attempt to hedge
that exposure as described in "Item 7A. Quantitative and Qualitative Disclosures
about Market Risk", it makes no assurance that it will be effective in
implementing its hedging goals. In addition, the premature termination of any
lease may result in Aircraft Finance incurring prepayment or cancellation costs
under its hedging agreements.

Changes in the aircraft portfolio could change expected cash flows.

     The assumptions regarding the expected cash flow of Aircraft Finance are
subject not only to a variety of economic factors, but also to any substantial
change in the composition of the aircraft portfolio from that initially
contemplated. Any substantial change in that composition could significantly
alter expected cash flows and the nature and degree of risks affecting cash
flows. Three principal factors could affect the fleet composition.

        (1)    The exercise of purchase options by lessees. The exercise of a
               lessee purchase option may result in sale proceeds lower than
               target sale prices of the aircraft if payments on the Notes have
               not been made as assumed. One lessee with respect to one of the
               aircraft, representing 7.3% of the aggregate appraised value at
               December 31, 2001, has unexpired options to purchase aircraft.

        (2)    The loss of aircraft through casualty or governmental taking. The
               proceeds of insurance and taking awards may not be sufficient to
               compensate for the loss of the revenue otherwise available from
               the affected aircraft.

        (3)    The purchase of additional aircraft. Aircraft Finance may acquire
               additional commercial passenger or freight aircraft from General
               Electric Capital Corporation or UniCapital or their respective
               affiliates. Although any additional aircraft may add to the cash
               flow of Aircraft Finance and such acquisitions are subject to
               confirmation by the rating agencies rating the Notes that the
               agencies will not lower, qualify or withdraw any rating on the



                                       8
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               Notes as a result and other requirements of the indenture
               governing the Notes, Aircraft Finance cannot predict the effect
               of additional aircraft on its cash flows and ability to repay the
               Notes.

        (4)    Sale of Aircraft. Aircraft Finance may determine to sell or
               otherwise dispose of aircraft from time to time to the extent
               permitted under the indenture relating to the Notes. Any decision
               to sell or otherwise dispose of the aircraft would result in the
               distribution of net proceeds thereof and Aircraft Finance would
               thereafter receive no future lease payments with respect to such
               aircraft.

Aircraft Finance will not receive enough revenues from its current aircraft
leases to repay the Notes in full and therefore it will have to re-lease or sell
the aircraft in order to repay the Notes in full.

     Aircraft Finance will need to re-lease aircraft as current leases expire in
order to continue to generate enough revenue to pay the Notes in full. Failing
re-leasing, it will need to attempt to sell the aircraft to provide funds for
Note payments. Aircraft Finance may be unable to sell the aircraft at
satisfactory prices if market conditions decline.

Over the life of the aircraft portfolio, it is likely that some of the aircraft
lessees will experience financial difficulties which will cause them to delay or
miss rental payments to Aircraft Finance.

     The ability of each aircraft lessee to perform its lease obligations will
depend not only on the managerial skills of its employees but also on general
economic conditions in the country or region in which it operates as well as
competition, fare levels, passenger demand, and operating costs, including, but
not limited to, the cost of fuel. Some of Aircraft Finance's existing lessees
are in a weak financial position, and this is likely to be the case with future
aircraft lessees as well. As the aircraft approach the end of their economic
useful lives, it is increasingly likely that the aircraft will be leased to less
creditworthy lessees. In a portfolio the size of Aircraft Finance's, it should
be expected that some aircraft lessees may at some point be slow in paying or
may fail to pay in full. In most instances, late payments are recovered,
together with default interest or other similar payments required by the leases.
In other instances, a restructuring of the lease is required, involving anything
from a simple rescheduling of payments to the termination of a lease.

     A delayed or missed rental payment from a lessee decreases Aircraft
Finance's revenues, adversely affecting the timely or full repayment of the
Notes. A certain level of delinquency has been assumed for purposes of
estimating the final payment dates for the Notes. Aircraft Finance cannot
assure, however, that default levels will not increase over time.

Increased fuel prices could have a negative financial impact on Aircraft
Finance's current lessees and could adversely affect its ability to re-lease the
aircraft.

     Oil prices increased significantly during 1999 and 2000, and many airlines
reported reduced levels of profitability due to higher fuel prices. However, by
December 31, 2001, oil prices had fallen in part as a result of the September 11
crisis. Any future increases in fuel prices could cause lessees to experience
financial difficulties which could cause them to delay or miss their rental
payments. High fuel prices could also adversely affect Aircraft Finance's
ability to re-lease or sell aircraft on advantageous terms.


                                       9
<PAGE>
Aircraft Finance faces competition from a variety of entities.

     In leasing and selling aircraft in its portfolio, Aircraft Finance faces
competition from a variety of entities. These include:

        (1)    the manufacturers of aircraft, such as Boeing and Airbus;

        (2)    financial institutions engaged in the leasing business and other
               leasing companies, such as General Electric Capital Corporation
               and International Lease Finance Corporation;

        (3)    banks and other financial institutions that have foreclosed on
               aircraft collateral;

        (4)    airlines which are disposing of aircraft; and

        (5)    other aircraft portfolio entities formed for purposes similar to
               those of Aircraft Finance.

     Many, if not most, of these entities have greater resources, greater
financial flexibility and longer operating histories than Aircraft Finance.

Operational restrictions may harm Aircraft Finance's ability to compete.

     The indenture governing the Notes and other governing documents impose
restrictions on how Aircraft Finance operates its business. These restrictions
may limit the ability to compete effectively in the aircraft leasing market
under certain circumstances. For example, there are concentration limits
contained in the indenture that restrict Aircraft Finance's ability to lease a
certain percentage of aircraft to any individual lessee, to lessees in
particular countries, or to lessees in particular geographical regions. Most of
Aircraft Finance's competitors do not operate under such restrictions.

The concentration of lessees in a particular geographical region may amplify
Aircraft Finance's exposure to local economic and geopolitical conditions.

     The commercial aviation industry throughout the world generally is highly
sensitive to general economic conditions. Because a substantial portion of
business and, especially, leisure airline travel is discretionary, the industry
has tended to suffer during economic downturns. In addition, local economic and
political conditions can influence the performance of a lessee located in a
particular region. Recent increases in armed hostilities, political tensions and
risks of war as a result of terrorist attacks and other hostilities in the
United States, Afghanistan, Pakistan, India, the Philippines, Bosnia, Israel,
Palestine and elsewhere may disrupt and continue to disrupt the commercial
aviation industry throughout the world generally, and in particular, may impact
the financial strength of Aircraft Finance's lessees. The effect of those local
conditions on Aircraft Finance will be more or less intense depending on the
concentration of the number of its lessees in the regions affected.

     European concentration. As of December 31, 2001, lessees based in Europe
operated aircraft having 45.3% of the aggregate appraised value. All of these
lessees are based in "developed" European markets as opposed to "emerging"
European markets. The financial prospects for European lessees can be expected
to depend largely on the level of economic activity in Europe generally and in
the specific countries in which these lessees operate. Germany, France and Italy
experienced negative economic growth in the fourth quarter of 2001. While this
has been mitigated somewhat by the moderate growth in peripheral economies such
as Spain and Ireland, the Euro area economy likely contracted in the fourth


                                       10
<PAGE>
quarter. Despite the weak fourth quarter, the Euro economies finished 2001 with
low but positive economic growth. France and Italy are widely expected to resume
low to moderate growth rates in 2002 and the UK remains relatively healthy. One
area of concern for European lessees is the continued weakness of the euro. Low
or negative growth rates and currency weakness, combined with a possible upward
movement in fuel prices, may have an adverse effect on the ability of lessees to
meet their obligations under the leases. In addition, commercial airlines in
Europe continue to face increased competitive pressures from international
carriers, EU domestic airlines and low cost carriers. Several major airlines in
Europe have experienced severe financial difficulties in the wake of the
terrorist attacks and several continue to operate at or near bankruptcy levels.
There can be no assurance that competitive pressures resulting from deregulation
and continued slow growth of the Euro economies will not have a material adverse
impact on the operations of our European lessees.

     Asia Pacific region concentration. As of December 31, 2001, lessees based
in the Asia Pacific region, including China, India, the Philippines, and
Indonesia, operated aircraft having 14.7% of the aggregate appraised value. The
commercial aircraft industry in Asia was adversely affected by the severe
economic and financial difficulties experienced in the region during 1998 and
1999. Since 1999, there has been some stabilization and recovery in the
economies of this region. Thus far, with the exception of Japan, the economic
outlook of the Asian economies has remained relatively positive. China and
India, two rapidly growing aviation markets, continue to experience high
economic growth. South Korea and Indonesia also continue to experience healthy
growth. Despite being politically unstable and highly dependent on the United
States export market, the Philippine economy showed resilience by growing by
2.80% in 2001. If a sudden loss of confidence in Asian currencies or economies
recurs as in 1998, there could be a significant adverse impact on global
aircraft demand in this region.

     Latin American concentration. As of December 31, 2001, lessees based in
Latin America operated aircraft having 10.4% of the aggregate appraised value.
The prospects for lessee operations in Latin American countries depend in part
on the general level of political stability and economic activity and policies
in those countries. Future developments in the political systems or economies of
these countries or the implementation of future government policies may
materially affect lessee operations in those countries.

     The Brazilian economy recovered somewhat from its economic woes of 1999,
but the fallout from the recent Argentine devaluation and last year's energy
crisis could cause growth for 2002 to be significantly lower than otherwise
expected. Continued depreciation of the Real, and other Latin American
currencies, could lead to difficulties for lessees in paying dollar denominated
obligations. Mexico's economy, being more exposed to the United States economy,
contracted significantly in the fourth quarter. The airlines were adversely
affected by September 11 and required a government aid package similar to that
administered in the United States Further volatility and continuing low growth
rates in Latin America could lead to a material decrease in Aircraft Finance's
leasing revenues and an increase in default related costs.

     North American concentration. As of December 31, 2001, lessees based in
North America operated aircraft having 24.6% of the aggregate appraised value. A
United States economic downturn began in April 2001 and airlines were
experiencing a reduction in traffic and softening of yields. The terrorist
attacks compounded these problems and United States and Canadian carriers,
citing reduced air travel demand and increased costs, posted record losses in
the fourth quarter of 2001. Over the last decade, a number of the major North
American passenger airlines have entered into plans of reorganization or sought
protection through bankruptcy, insolvency or other similar proceedings, and
several major United


                                       11
<PAGE>
States airlines have ceased operations. One airline ceased operations
immediately after the recent terrorist attacks, and several others remain in
danger of bankruptcy. Another pressure area for North American airline costs is
evident in increased labor costs. The United Airlines pilots agreement and
recently ratified mechanics agreement have re-established historical parity
levels and opened the door for other groups to seek contractual wage increases
at similar levels.

     The effects of the terrorist attacks on the United States, increasing
competition from low-cost carriers and an inability to reduce labor and other
costs to sustainable levels continue to put pressure on North American airline
margins, and consequently, several major North American passenger airlines have
announced deep losses. Many lessees are returning aircraft and the number United
States fleet in storage has reached record numbers. Further bankruptcy or
similar proceedings by low-cost or other North American carriers may adversely
affect the ability of North American lessees of the Aircraft Finance group to
make timely and full rental payments. In the early months of 2002, however, the
United States economy is beginning to show signs of a business recovery.

     Off lease aircraft. As of December 31, 2001, two aircraft representing 5.0%
of the aggregate appraised value at December 31, 2001 were off lease.

Lease defaults will result in additional costs for Aircraft Finance.

     Although Aircraft Finance has the right to repossess aircraft and to
exercise remedies upon a lease default, it may incur significant costs in the
process. Those costs include legal and other expenses of court or other
governmental proceedings, particularly if the lessee is contesting the
proceeding or is in bankruptcy, to obtain possession and re-registration of the
aircraft and flight and export permissions. Delays resulting from any such
proceedings could also increase the period of time during which the relevant
aircraft are not productively under lease. Aircraft Finance may, moreover, incur
substantial maintenance or repair costs that a defaulting lessee has failed to
pay and may need to pay off liens and governmental charges on the aircraft to
obtain clear possession and to re-market the aircraft effectively. Any such cost
or delays may adversely affect the amounts available to pay to the holders of
the Notes.

Maintenance costs may at times be paid by Aircraft Finance.

     Any failure of an aircraft to be maintained or modified properly in
accordance with manufacturer's requirements or airworthiness directives and
other governmental requirements, including those relating to noise and emissions
standards, can impair the safety of the aircraft, result in grounding or
penalties and affect the ability to re-lease or to sell the aircraft. The costs
of maintenance can be substantial and may have a higher payment priority than
that of the Notes. In many cases, the lessee is required to provide for
maintenance or modifications. Lessees could, however, fail to pay those costs,
and the burden would fall on Aircraft Finance. In addition, Aircraft Finance as
the lessor is, in some instances, required to bear a portion of the maintenance
costs, and the pressure of competition may require it to bear an increasing
portion of those costs in the future. Although Aircraft Finance established a
cash reserve which is $52 million as of December 31, 2001, any significant
variations in the costs required to be paid directly by Aircraft Finance may
materially impair the ability of Aircraft Finance to make payments on the Notes.

Other operating costs may at times be paid by Aircraft Finance.

     As in the case of maintenance costs, Aircraft Finance may incur other
operational costs upon a lessee default or where the terms of the lease require
it to pay a portion of those costs. Those costs include:


                                       12
<PAGE>
        (1)    the costs of casualty, liability and political risk insurance and
               the liability costs or losses when insurance coverage has not
               been or cannot be obtained as required or is insufficient in
               amount or scope;

        (2)    the costs of licensing, exporting or importing an aircraft,
               airport taxes, customs duties, air navigation charges and similar
               governmental or quasi-governmental impositions, which can be
               substantial; and

        (3)    penalties and costs associated with the failure of lessees to
               keep the aircraft registered under all appropriate local
               requirements.

     The failure to pay some of these costs can result in liens on the aircraft,
and the failure to register can result in a loss of insurance. These matters can
prevent the re-lease, sale or other use of the aircraft until the problem is
cured.

Aircraft Finance will need to re-lease or sell aircraft to maintain its
revenues.

     The number and types of the aircraft that Aircraft Finance must place with
lessees through December 31, 2006 is presented in the table below. That table
shows the years in which the leases for those aircraft are contractually
scheduled to expire or have terminated. The table illustrates that the leases
for 33 of the aircraft, representing approximately 92.2% of the aggregate
appraised value at December 31, 2001, are scheduled to expire or permit early
termination on or before December 31, 2006. The table assumes that, except as
indicated, no lease terminates prematurely, no aircraft are sold and no
additional aircraft are purchased. More aircraft will need to be re-leased to
the extent leases terminate prematurely.

<TABLE>
<CAPTION>
                                               Year Ending December 31,
                       ------------------------------------------------------------------------
Aircraft Type              2002           2003           2004            2005          2006
--------------------   ------------   ------------   ------------   ------------   ------------
<S>                    <C>            <C>            <C>            <C>            <C>
B737-300 ...........           2(a)              -              5              3              -
B737-400 ...........           3(b)              -              -              2              -
B767-300ER .........              1              1              1              1              -
A310-300 ...........           1(c)              -              -              -              -
A320-200 ...........              -              2              4              1              -
DC-10-30 ...........           2(d)              -              -              -              -
MD-83 ..............              1              1              -              1              1
                       ------------   ------------   ------------   ------------   ------------
Total ..............             10              4             10              8              1
</TABLE>

(a)   One of these aircraft has a contract which has been signed with a lessee
      based in the United Kingdom for a five-year lease following the expiration
      in March 2002 .

(b)   One of these aircraft was repossessed in October 2001. A letter of intent
      has been signed for this aircraft with a lessee based in Portugal for a
      three-year lease with delivery in March 2002.

(c)   The lease of this aircraft with Royal Aviation was terminated in December
      2001. This aircraft is physically located in France undergoing a C-check
      which is expected to complete by mid-March 2002.

(d)   These two aircraft are scheduled to come off lease in May and August 2002.
      If the current market for this type of aircraft does not improve, Aircraft
      Finance may pursue other strategies, such as the sale thereof.


                                       13
<PAGE>
Aircraft Finance may have difficulty in re-leasing or selling aircraft at
favorable terms.

     The servicer, GE Capital Aviation Services, Limited, has agreed to seek to
re-lease aircraft serviced by it as they become available upon the termination
of any lease. The servicer has not assured Aircraft Finance, and Aircraft
Finance makes no assurances, that it will be able to re-lease aircraft on a
timely basis, at equally favorable rental rates or otherwise on favorable lease
terms. Aircraft Finance's ability to obtain timely and favorable lease terms or
to sell aircraft at attractive prices may be adversely affected by unpredictable
changes in general economic and geopolitical conditions, passenger demand and
the competitive strength of the airline industry. The availability of commercial
jet aircraft for lease or sale has periodically experienced cycles of over
supply and under supply, resulting in sharp decreases and increases in aircraft
values and lease rates. Among other factors that could influence lease terms and
sales prices are the following:

        (1)    cyclical changes in interest rates and the availability of
               credit;

        (2)    fluctuations in the cost of fuels and other materials, labor
               costs, costs associated with changing governmental regulations
               and air traffic control constraints;

        (3)    manufacturer production levels, which make older, used models
               less attractive;

        (4)    the cessation or announced cessation of production of particular
               aircraft models, such as, after the merger of Boeing and
               McDonnell Douglas, the MD-83, of which there are four in Aircraft
               Finance's initial portfolio, representing approximately 6.35% of
               the aggregate appraised value at December 31, 2001 of the
               portfolio;

        (5)    the operating history of particular aircraft, the identity of its
               operators and legal and regulatory requirements affecting its
               operation and transfer or leasing;

        (6)    changes in aircraft technology, either significant advances by
               manufacturers or governmentally mandated modifications, that may
               render older models substantially less attractive or may result
               in modification costs that reduce net sales prices or rentals;
               and

        (7)    competition from aircraft manufacturers, airlines, aircraft
               leasing companies, financial institutions, aircraft broker and
               special purpose leasing vehicles that may have greater financial
               resources and greater legal and financial flexibility to
               structure and offer more favorable leasing, pricing or financing
               alternatives.

Aircraft type concentrations may amplify other risk factors.

     The concentration of the types of aircraft held by Aircraft Finance may
amplify some of the factors noted above. The aircraft owned by Aircraft Finance
include eight aircraft types, three of which represent together 71.3% of the
aggregate appraised value at December 31, 2001, with Boeing 737-300s
constituting 27.4%, Boeing 767-300ERs constituting 24.7% and Airbus A320-200s
constituting 19.2% of that aggregate appraised value. Also, narrowbody aircraft
constitute 65.5% of the aggregate appraised value at December 31, 2001.


                                       14
<PAGE>

THE AIRCRAFT PORTFOLIO

     The following tables set forth details of the aircraft owned by Aircraft
Finance as of December 31, 2001. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Recent Developments"
for further information about events that have occurred subsequent to December
31, 2001.

     The following table identifies the 36 aircraft by type of aircraft.

<TABLE>
<CAPTION>
                                                                                    % of Aircraft by
                             Type of          Number of                          Appraised Value as of
Manufacturer                Aircraft          Aircraft           Body Type        December 31, 2001
------------               ----------         ---------         -----------      ---------------------
<S>                        <C>                <C>               <C>              <C>
Boeing                     B737-300               11            Narrowbody                 27.4%
                           B737-400                5            Narrowbody                 12.6%
                           B767-200ER              2            Widebody                    5.3%
                           B767-300ER              4            Widebody                   24.7%

Airbus                     A310-300                1            Widebody                    2.3%
                           A320-200                7            Narrowbody                 19.2%
McDonnell Douglas          DC-10-30                2            Widebody                    2.2%
                           MD-83                   4            Narrowbody                  6.3%
                                                 ---                                  ----------
Total                                             36                                      100.0%
</TABLE>


                                       15
<PAGE>
     All of the aircraft hold or are capable of holding a noise certificate
issued under Chapter 3 of Volume I, Part II of Annex 16 of the Chicago
Convention or have been shown to comply with the Stage 3 noise levels set out in
Section 36.5 of Appendix C of Part 36 of the United States Federal Aviation
Regulations.

     The following table identifies the countries in which the lessees of the 36
aircraft are based, calculated as of December 31, 2001.

<TABLE>
<CAPTION>
                                                                         % of Aircraft by
                                                      Number of        Appraised Value as of
Country                                               Aircraft           December 31, 2001
-------                                               --------         ---------------------
<S>                                                   <C>              <C>
U.K..................................................     7                      22.3%
U.S..................................................     6                      14.7%
Italy................................................     2                       9.1%
Brazil...............................................     3                       7.8%
Canada...............................................     3                       9.9%
China................................................     2                       5.0%
France...............................................     2                       6.7%
Indonesia............................................     1                       2.8%
India................................................     2                       4.4%
Philippines..........................................     1                       2.5%
Spain................................................     3                       4.5%
Ireland..............................................     1                       2.7%
Mexico...............................................     1                       2.6%
Off lease............................................     2                       5.0%
                                                        ---                  ---------
Total................................................    36                     100.0%
</TABLE>


     The following table identifies the regions in which the 36 aircraft are
based, calculated as of December 31, 2001.

<TABLE>
<CAPTION>
                                                                        % of Aircraft by
                                                     Number of        Appraised Value as of
Region                                               Aircraft           December 31, 2001
------                                               --------         ---------------------
<S>                                                  <C>              <C>
Developed Markets
     Europe..........................................    15                     45.3%
     North America...................................     9                     24.6%
Emerging Markets
     Asia............................................     6                     14.7%
     Latin America...................................     4                     10.4%
Off lease............................................     2                      5.0%
                                                       ----                   -------
Total................................................    36                    100.0%
</TABLE>



                                       16
<PAGE>
     The following table identifies the current lessees of the 36 aircraft,
calculated as of December 31, 2001.

<TABLE>
<CAPTION>
                                                                        % of Aircraft by
                                                     Number of        Appraised Value as of
Lessee                                               Aircraft           December 31, 2001
------                                               --------         ---------------------
<S>                                                  <C>              <C>
Air 2000 Limited.....................................    1                       7.3%
Airtours International Airways Limited...............    2                       5.0%
America West Airlines, Inc...........................    1                       2.6%
Linee Aeree Italiane S.p.A...........................    1                       7.3%
British Airways......................................    1                       2.6%
British Midland Airways PLC..........................    3                       7.4%
Canadian Airlines International Ltd..................    3                       9.9%
China Eastern Airlines Corporation Limited...........    2                       5.0%
Continental Airlines, Inc............................    2                       2.2%
Eurofly S.p.A........................................    1                       1.8%
Frontier Airlines, Inc...............................    1                       2.5%
Garuda Indonesian Airlines, pt.......................    1                       2.8%
Jet Airways (India) Limited..........................    2                       4.4%
Mexicana.............................................    1                       2.6%
Pace Airlines........................................    1                       2.4%
Philippine Airlines..................................    1                       2.5%
Spanair S.A..........................................    3                       4.5%
Societe de Transport Aerien Regional.................    2                       6.7%
TWA Airlines, LLC....................................    1                       5.0%
VARIG................................................    3                       7.8%
Virgin Express S.A. N.V..............................    1                       2.7%
Off lease............................................    2                       5.0%
                                                       ---                  ---------
Total................................................   36                     100.0%
</TABLE>

Total Number of Lessees: 21

     The following table lists the 36 aircraft by seat category.

<TABLE>
<CAPTION>
                                                                             % of Aircraft by
                                                          Number of        Appraised Value as of
Seat Category            Aircraft Types                   Aircraft           December 31, 2001
-------------            --------------                   --------         ---------------------
<S>               <C>                                     <C>              <C>
121-170                  B737-300, B737-400, MD-83           20                      46.4%
135-180                                   A320-200            7                      19.2%
171-240           A310-300, B767-200ER, B767-300ER            7                      32.3%
240+                                      DC-10-30            2                       2.1%
                                                            ---                  ---------
Total                                                        36                     100.0%
</TABLE>



                                       17
<PAGE>
     The following table identifies the aircraft by year of aircraft
manufacture. The weighted average age of the 36 aircraft as of December 31, 2001
is approximately 7.3 years.

<TABLE>
<CAPTION>
                                                                        % of Aircraft by
                                                     Number of        Appraised Value as of
Year of Manufacture                                  Aircraft           December 31, 2001
-------------------                                  --------         ---------------------
<S>                                                  <C>              <C>
1980.................................................    1                       1.1%
1982.................................................    1                       1.1%
1986.................................................    1                       1.3%
1987.................................................    2                       5.3%
1988.................................................    1                       2.3%
1989.................................................    1                       1.5%
1991.................................................    6                      16.6%
1992.................................................    4                      11.2%
1993.................................................    1                       2.6%
1996.................................................    5                      13.0%
1997.................................................   10                      26.7%
1998.................................................    1                       2.6%
1999.................................................    2                      14.7%
                                                      ----                  ---------
Total................................................   36                     100.0%
</TABLE>

     Further particulars of the 36 aircraft, calculated as of December 31, 2001,
are contained in the table below:

<TABLE>
<CAPTION>
                                                                                                     Date         Appraised
                                                                                                      of         Value as of
             Country in which                          Aircraft           Engine          Serial     Manu-       December 31,
Region       Aircraft is based      Lessee               Type              Type           Number    facture          2001
------       -----------------   -------------         ---------        ----------        ------    -------      ------------
<S>          <C>                 <C>                   <C>              <C>               <C>       <C>          <C>
Europe (Developed)                                                                                                  ($000)
             France              STAR Airlines         A320-200         CFM56-5B4           737       9/97          35,255
             France              STAR Airlines         A320-200         CFM56-5B4           749       9/97          35,836
             Ireland             Virgin Express        B737-400         CFM56-3C1         28489      11/96          28,888
             Italy               Alitalia              B767-300ER       CF6-80C2B7F       30008       3/99          78,297
             Italy               Eurofly S.p.A.        MD-83            JT8D-219          53199       3/92          19,303
             Spain               Spanair S.A.          MD-83            JT8D-219          49398      11/86          13,692
             Spain               Spanair S.A.          MD-83            JT8D-219          49791       9/89          16,362
             Spain               Spanair S.A.          MD-83            JT8D-219          53198       4/91          18,519
             United Kingdom      Air 2000              B767-300ER       CF6-80C2B7F       29617       3/99          78,264
             United Kingdom      Airtours              A320-200         CFM56-5A3           221       9/91          26,698
             United Kingdom      Airtours              A320-200         CFM56-5A3           222      10/91          26,464
             United Kingdom      British Airways       B737-300         CFM56-3C1         28548      12/97          27,202
             United Kingdom      British Midland       B737-300         CFM56-3C1         28554      12/96          25,727
             United Kingdom      British Midland       B737-300         CFM56-3C1         28557       3/97          26,423
             United Kingdom      British Midland       B737-300         CFM56-3C1         28558       4/97          26,496
North America (Developed)
             United States       America West          B737-300         CFM56-3C1         28740       6/98          28,328
             United States       Continental           DC-10-30         CF6-50C2          46584       2/80          11,611
             United States       Continental           DC-10-30         CF6-50C2          48292       2/82          11,339
             United States       Frontier Airlines     B737-300         CFM56-3C1         28563       8/97          26,861
</TABLE>

                                       18
<PAGE>

<TABLE>
<CAPTION>
<S>          <C>                 <C>                   <C>              <C>               <C>       <C>         <C>
             United States       Pace Airlines         B737-300         CFM56-3C1            28333    8/96          25,209
             United States       TWA Airlines          B767-300ER       PW4060               25403    1/92          53,415
             Canada              Canadian Airlines     A320-200         CFM56-5A1              210    7/91          26,144
             Canada              Canadian Airlines     A320-200         CFM56-5A1              231    9/91          26,525
             Canada              Canadian Airlines     B767-300ER       CF6-80C2B6F          25221    7/91          53,556
Asia (Emerging)
             China               China Eastern         B737-300         CFM56-3C1            28561    6/97          26,805
             China               China Eastern         B737-300         CFM56-3C1            28562    7/97          26,881
             India               Jet Airways           B737-400         CFM56-3C1            25663   11/92          23,696
             India               Jet Airways           B737-400         CFM56-3C1            25664   11/92          23,637
             Indonesia           Garuda                B737-400         CFM56-3C1            28490   11/96          29,449
             Philippines         Philippine            B737-300         CFM56-3C1            28559    5/97          26,266
Latin America (Emerging)
             Brazil              VARIG                 B737-300         CFM56-3C1            28564   11/97          26,798
             Brazil              VARIG                 B767-200ER       CF6-80C2B            23805    7/87          28,643
             Brazil              VARIG                 B767-200ER       CF6-80C2B            23806    7/87          27,714
             Mexico              Mexicana              A320-200         V2500-A1               373    1/93          27,969
Off lease                                              A310-300         CF6-80C2A2             448    2/88          24,811
Off lease                                              B737-400         CFM56-3C1            28491   11/96          28,849
                                                                                                                ----------
Total                                                                                                           $1,067,932
                                                                                                                ==========
</TABLE>

Appraisal of Aircraft.

     Aircraft Finance has agreed to deliver to Bankers Trust Company, as the
security trustee, appraisals of the base value of each of the aircraft at least
once each year no later than 30 days prior to May 31. The appraisals must come
from at least three independent appraisers that are members of the International
Society of Transport Aircraft Trading or any similar organization and be dated
within 30 days prior to their delivery to the trustee.

     Three appraisers, Aircraft Information Services, Inc., BK Associates, Inc.
and Morten Beyer & Agnew, Inc., provided appraisals of the value of each of the
aircraft as of December 31, 2001. The appraisals assume, among other things,
that the aircraft are utilized normally in an open, unrestricted and stable
market, adjusted where necessary to account for the reported maintenance
standard of the aircraft. Values calculated under these assumptions are "base
values". The current appraised value of each aircraft is determined by taking
the average of the base values contained in the three appraisals. The appraisals
were not based on a physical inspection of the aircraft.

     Based on the appraisals, the aggregate of the current appraised values for
the aircraft as of December 31, 2001 is $1,067,932,000 compared to
$1,177,403,333 and $1,256,133,667 as of December 31, 2000 and 1999,
respectively. These base values should not be relied upon as a measure of the
market or realizable value of any initial aircraft. In addition, the base values
of the aircraft are expected to decline over time due to the aging of the
aircraft, increasing maintenance expenses and similar factors. The appraisals
listed above were as of December 31, 2001, and the base values of the aircraft,
if determined as of any date subsequent to December 31, 2001, would be expected
to be lower than the base values in the appraisals.

     The appraised base values obtained and to be obtained assume an "open,
unrestricted stable market environment with a reasonable balance of supply and
demand" and other factors common for like appraisals. At any point in the
aircraft leasing cycle, however, there will be imbalances of aircraft supply


                                       19
<PAGE>
and demand and there may be particularly pronounced imbalances for specific
aircraft types. Consequently, although some initial aircraft may have current
market values approximating or exceeding the appraised values given them,
others, such as the older aircraft, may have current market values below, and in
some cases significantly below, those appraised base values. At a cyclical low,
the market value of most aircraft types is likely to be less than, and in some
cases significantly less than, the appraised base values. Accordingly, you
should not place undue reliance on the indicated appraised values as an accurate
depiction of current market or realizable values at any one point in time.

The Leases.

     As of December 31, 2001, there were 21 lessees under leases for the
aircraft in 13 different countries. Two aircraft were off lease at December 31,
2001. Aircraft Finance recognized $142 million and $145 million of rental and
other income from operating leases during the year ended December 31, 2001
("2001 Period) and during the year ended December 31, 2000 ("2000 Period"),
respectively. This was comprised of $20 million in the 2001 Period and $22
million in the 2000 Period from lessees based in the United States of America
and $122 million in the 2001 Period and $123 million in the 2000 Period from
lessees based outside the United States of America. During the 2001 Period, 14%
of the rental and other income was derived from lessees based in the United
States of America, and 86% from lessees based outside the United States of
America, including 23% from the United Kingdom, 12% from Canada, 9% from Italy,
7% from Brazil and 7% from France. The following description relates to the
leases for the aircraft in effect on December 31, 2001. Any leases of additional
aircraft and any future leases entered into for the re-lease of any aircraft may
differ from the description provided below.

     As a general matter, weakly capitalized airlines are more likely than well
capitalized airlines to seek operating leases. Consequently, it should be
expected that varying numbers of lessees at any point in time will experience
payment difficulties.

     The servicer has advised Aircraft Finance that in the servicer's experience
some lessees of aircraft similar to the aircraft owned by Aircraft Finance and
its affiliates fail to make timely lease, maintenance and other payments from
time to time over the course of their leases. In most instances, late payments
are recovered, together with default interest or other similar payments required
by the leases. In some instances, the financial difficulties of a portfolio's
lessees may result in a formal or informal restructuring. Restructurings may
involve the voluntary termination of a lease prior to its expiration and the
arrangement of subleases from the lessee to another aircraft operator. In
addition, restructurings may involve reduced rental payments for a specified
period, which may be several months.

Management, Lease Terms.

     All leases of the aircraft will be managed by the servicer under the
servicing agreement. All of the leases for the initial aircraft are operating
leases. Under those leases, the lessees agreed to lease the aircraft for a fixed
term, although in some cases the lessees have purchase options, termination
rights and extension rights. Although most of the lease documentation for the
initial aircraft is fairly standardized in many respects, significant variations
do exist as a result of lessee negotiation.

Lease Payments and Security.

     Each lease for an initial aircraft requires the lessee to pay periodic
rentals during the lease term. A number of the leases require the lessee to pay
periodic amounts as maintenance reserves.


                                       20
<PAGE>
     The lessees are required to make payments without withholding payment on
account of any amounts the lessor may owe the lessee or any claims the lessee
may have against the lessor for any breach of contract. Each lease includes an
obligation of the lessee to gross-up payments under the lease where lease
payments are subject to withholdings and other taxes, although sometimes the
gross-up amount will be limited to the amount that would have been payable if
such lease had never been transferred to Aircraft Finance. The leases for the
initial aircraft also require the lessee to indemnify the lessor for some tax
liabilities including, in some leases, value added tax and stamp duties, but
generally excluding income tax or its equivalent imposed on the lessor. The
lessees must also pay default interest on any overdue amounts. In the lease with
British Airways, the lessee may exercise remedies if the lessor breaches its
covenant not to interfere with the lessee's use of the aircraft.

     Under the leases for the initial aircraft, the lessee must pay operating
expenses accrued or payable during the term of the lease, which would normally
include maintenance, operating, overhaul, airport and navigation charges,
certain taxes, licenses, consents and approvals, aircraft registration and hull
"all risks" and public liability insurance premiums. The lessees are obliged to
remove liens on the aircraft other than liens permitted under the leases.

     Under all but eight of the leases for the initial aircraft, the lessee has
provided security deposits to secure its obligations. In nine of the leases, the
lessee has provided only cash security deposits. In nine of the leases, the
lessee has provided only a letter of credit. In the remaining ten leases, the
lessee has provided both letters of credit and a cash security deposit.

Rentals.

     Most of the rental payments are payable on a fixed rate basis and are not
adjustable by reference to market interest rate changes. Rentals under most of
the leases for the initial aircraft are payable monthly in advance.

Operation of the Original Aircraft.

     The leases require the lessees to operate the aircraft in compliance with
all applicable laws and regulations. The initial aircraft generally must remain
in the possession of the lessees, and any subleases of the aircraft must be
approved by the lessor. Under some of the leases, the lessee may enter into
charter or other arrangements for the aircraft if the lessee does not part with
operational control of the aircraft. Generally, the lessees are not allowed to
re-register the aircraft without the lessor's permission, except in connection
with a permitted sublease if operating in specified countries.

     All of the leases for the initial aircraft permit the lessees to remove or
replace the engines and in some cases other equipment or components. Sometimes
lessees are allowed to enter into pooling arrangements for the temporary
borrowing of equipment, in some cases without the lessor's consent. Under all of
the leases, the lessees may deliver the aircraft, engines and other equipment or
components to their manufacturer for testing or similar purposes, or to other
parties for service, maintenance, repair or other work required or permitted
under the lease. The lessor's ability to repossess the aircraft or engines,
equipment or components from any sublessee, transferee, manufacturer or other
person may be restricted by liens or similar rights and by applicable bankruptcy
and similar laws.


                                       21
<PAGE>
Maintenance and Maintenance Reserves.

     The leases for the aircraft specify maintenance standards and the required
condition of the aircraft upon redelivery to the lessor. In addition, under some
of the leases, depending on the condition of the aircraft, including the
airframe, engines, the auxiliary power unit or landing gear at redelivery, the
lessee may have to make adjustment payments to the lessor. During the term of
each lease, the lessee must ensure that the aircraft is maintained in accordance
with an agreed maintenance program designed to provide that the aircraft meets
applicable airworthiness and other regulatory requirements. Under the leases for
the initial aircraft, maintenance is generally performed by the lessee or, for
some of the regional lessees, by a designated airline or other air authority
approved maintenance provider. Under some of the leases for the initial
aircraft, the lessee must provide monthly maintenance reserves. In most cases
where the lessee has paid maintenance reserves, those payments will be used to
reimburse the lessee for maintenance charges, including major airframe and
engine overhauls.

     Some of the leases for the initial aircraft do not require maintenance
reserves to be paid. In those cases the lessor must rely on the credit of the
lessee or any credit support the lessee provides to ensure that the lessee
returns the aircraft in the condition required by the lease upon termination,
makes any payments required based on the aircraft's return condition upon
termination of the lease and performs scheduled maintenance throughout the lease
term, based on reports provided by the lessee during the term.

     Some of the leases for the initial aircraft require the lessor to
contribute to the cost of the first maintenance event in respect to the
airframe, engines, auxiliary power unit or landing gear. Such lessor
contributions are generally determined on a pro-rata basis, based upon the
condition of these components at delivery to the lessee.

     The leases for the initial aircraft require the lessees to comply with the
airworthiness directives of the relevant aviation authorities and with
manufacturers' service bulletins. The lessees primarily bear the cost of
compliance. Some of the leases, however, require the lessor to contribute to the
cost of compliance with selected airworthiness directives or manufacturers'
service bulletins if compliance costs are above a specified threshold.

Lessees' Options.

     The leases or side agreements between the lessor and the lessee for one of
the aircraft, representing 7.3% of the aggregate appraised value at December 31,
2001 of the aircraft, grant purchase options to the lessee or its affiliates. No
purchase options had been exercised as of December 31, 2001. The latest date on
which the purchase option may be exercised is December 31, 2003 for a purchase
on April 30, 2005, or if all lease extension options are exercised, April 30,
2010. If a purchase option is exercised, the proceeds realized from the exercise
may not, in some circumstances, equal the estimated remaining principal of the
Notes allocable to the relevant aircraft.

     Five of the leases for the 36 aircraft give the lessee the option to extend
the term of the lease. The rent payable during the extension period varies from
lease to lease. Three of the leases allow the lessee to terminate its lease
prior to the scheduled expiration date, though in some cases the lessee must pay
a fee or fulfill other requirements.


                                       22
<PAGE>
Indemnification and Insurance of the Aircraft.

     Insurance Requirements. The leases for the initial aircraft require the
lessees to bear responsibility and carry insurance for liabilities arising out
of the operation of the aircraft. These include liabilities for death or injury
to persons and damage to property that would ordinarily attach to the operator
of the aircraft, subject to customary exclusions. In addition, the lessees must
carry other types of insurance that are customary in the air transportation
industry. These include aircraft hull all risks and hull war risks insurance at
a value stipulated in the lease and aircraft spares insurance on a replacement
cost basis, in each case subject to customary deductibles. The servicer must
monitor the lessees' compliance with the insurance provisions of the leases.

     In addition, Aircraft Finance also has in place its own contingent
liability coverage. That coverage covers both a liability that exceeds the
coverage provided by a lessee's policy and instances in which a lessee's policy
lapses for any reason. Aircraft Finance and its subsidiaries' contingent
third-party liability insurance covers all of the aircraft, and their contingent
hull and hull war risks insurance covers some of the aircraft. The amount of the
contingent liability policies may or may not exceed the amount required under
the relevant lease. The amount of war third-party contingent liability insurance
is subject to limitations imposed by the air transportation insurance industry.

     If any of the existing insurance policies are canceled or terminated and if
an aircraft is re-leased, the servicer may from time to time engage insurance
experts at Aircraft Finance's expense to advise and recommend the appropriate
amount of insurance coverage Aircraft Finance should procure.

     Liability Insurance. The leases for the initial aircraft require third
party liability insurance for a combined single limit for bodily injury and
property damage in minimum amounts ranging between $500 million and $750 million
for each aircraft. In general, liability coverage on each aircraft includes
third party legal liability, passenger legal liability, baggage legal liability,
cargo legal liability, mail and aviation general third party (including
products) legal liability. Post-September 11, the aviation insurance market
generally has applied a $50 million limit on war third party (non-passenger)
liability insurance. Lessees must either buy additional insurance in the limited
commercial market or obtain protection under applicable government schemes in
order to comply with their respective leases. There can be no assurance that
such insurance will remain available or be available at commercially reasonable
rates. Failure by lessees to obtain such insurance could result in the grounding
of the related aircraft and delinquencies in or losses of lease payments to
Aircraft Finance.

     In some jurisdictions Aircraft Finance may be liable, as owner of an
aircraft, for obligations that may be insured against by the lessees even if
Aircraft Finance is not responsible for the loss that results in the obligation.
In addition, claims may be made against Aircraft Finance or its subsidiary on
the basis of alleged responsibility for a loss, even if such claim is not
ultimately sustained.

     The losses for which coverage is provided include both operating costs
relating to the actual operation of the aircraft as well as losses to persons
and property resulting from the operation of the aircraft. The latter types of
losses are generally covered by the lessees' liability insurance.

     Aircraft Property Insurance. In addition to hull risk, hull war and allied
peril risk and aircraft spares insurance coverage obtained by the lessees,
Aircraft Finance purchases "total loss only" coverage with respect to some
initial aircraft. Aircraft Finance is required to maintain aircraft property
insurance on its aircraft in an amount equal to the greatest of a) the Note
target price, b) the appraised value for such aircraft or c) 110% of the net
book value of such aircraft. In some cases, the lessor is allowed to increase


                                       23
<PAGE>
the insured value above the stipulated loss value consistent with industry
practice. In those cases the lessee is responsible for any increased premium
that results. Permitted deductibles range from $100,000 to $1,000,000; the
deductibles, however, apply only in the case of a partial loss.

     The leases for the initial aircraft include provisions defining an event of
loss or a casualty occurrence so that upon total loss of the aircraft, an agreed
value is payable by the lessee. This payment is generally funded with insurance
proceeds. The air transportation insurance industry practice, however, is to
treat only a loss with likely repair costs of greater than 75% of the insured
value of the aircraft, including the engines, as a total loss.

     All insurance policies currently in place contain a breach of warranty
endorsement so that the additional insureds continue to be protected even if the
lessee violates one or more of the provisions of the insurance policies. In many
cases, these endorsements also provide that this protection will only apply if
the additional insured has not caused, contributed to or knowingly condoned the
breach.

     Generally, the leases for the initial aircraft require the lessee to
maintain as part of its hull war and allied perils insurance coverage for loss
or damage resulting from a governmental confiscation or requisition of the
applicable aircraft. In some countries, however, such as France and China, that
type of insurance may not be obtainable by the lessee as it is not permitted
under the laws of such jurisdictions. Coverage for confiscation of the
applicable aircraft by the state of registration generally has not been
available in the insurance markets since January 1, 2002 and may adversely
affect the ability of lessees to renew their insurance policies. However, this,
like other "war" related issues, remains uncertain and such cover may again
become generally available in the future.

ITEM 2. PROPERTIES

     Aircraft Finance has no ownership or leasehold interest in any real
property. For a description of Aircraft Finance's interest in other property,
including its aircraft, see "Item 1. Business."

ITEM 3. LEGAL PROCEEDINGS

     None.

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

     None.


                                       24
<PAGE>
                                     PART II

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

a)   Market Information.

     As of the date of this Annual Report on Form 10-K (Form 10-K), no equity
securities of Aircraft Finance have been registered with, or are listed, on any
national exchange or traded in any established market.

b)   Holders.

     There were eleven beneficial interest holders of Aircraft Finance's
beneficial interest certificates at December 31, 2001.

c)   Dividends.

     As of the date of this Form 10-K, no distributions to the beneficial
interest holders have been paid or declared by Aircraft Finance. Under the terms
of the indenture, Aircraft Finance is restricted from making distributions to
the beneficial interest holders until, among other things, all outstanding
principal and interest balances due on the outstanding Notes have been paid in
full.

Recent Sales of Unregistered Securities.

     On May 5, 1999, Aircraft Finance issued $1,209 million of the Initial Notes
to Qualified Institutional Buyers as such term is defined in Rule 144A under the
Securities Act of 1933, as amended, and to non-United States persons in offshore
transactions in accordance with Regulations thereunder. Lehman Brothers Inc.,
Credit Suisse First Boston Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated acted as initial purchasers. As of that date, the Initial Notes
consisted of $512.5 million of Class A-1 Notes, $400 million of Class A-2 Notes,
$126.5 million of Class B Notes, $106 million of Class C Notes and $64 million
of Class D Notes. On January 20, 2000, Aircraft Finance completed an exchange
offer whereby Aircraft Finance issued four classes of new Notes, also designated
Class A-1, Class A-2, Class B and Class C of Exchange Notes for the four
corresponding classes of the Initial Notes. The terms of the Exchange Notes are
identical in all material respects to the Initial Notes, except that the
Exchange Notes are registered under the Securities Act of 1933, as amended. The
Class D Notes were not exchanged and remain unregistered. $3 million of the
Class A-2 Initial Notes were not tendered in the exchange offer and remain
outstanding.

     The Exchange Notes were registered on Form S-4 (file number 333-82153)
which became effective on December 20, 1999. The exchange offer commenced on
December 20, 1999 and ended on January 20, 2000. All Initial Notes that were
tendered were exchanged and global Notes representing the Exchange Notes were
deposited with the trustee and book-entry depository on January 25, 2000.

     The proceeds from the sale of the beneficial interests and the Initial
Notes of $39.1 million and $1,209 million, respectively, were used to purchase
the initial aircraft for $1,196.1 million and to fund the initial cash reserves
of $52 million. Issuance related costs incurred in connection with the offering
were paid by the seller of the aircraft.


                                       25
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

     The selected financial data in the following table have been derived from,
and should be read in conjunction with the consolidated financial statements and
notes thereto appearing elsewhere in this Form 10-K, of Aircraft Finance.

<TABLE>
<CAPTION>
                                                                           December 31,
                                                        -------------------------------------------------
                                                            2001               2000             1999
                                                        -------------     -------------    --------------
                                                        (in thousand)     (in thousands)   (in thousands)
<S>                                                     <C>               <C>              <C>
Balance Sheet Data:
   Aircraft, net                                        $  1,041,199       1,129,322
   Total assets                                            1,131,775       1,227,224
   Notes payable                                           1,072,767       1,126,843
   Total liabilities                                       1,154,522       1,174,266
   Total beneficial interest holders' equity                 (22,747)         52,958

Statement of  Income (Loss)  Data (1):
   Rental and other income from operating leases             142,306         145,117        100,331
   Interest expense                                           73,283          78,100         51,482
   Depreciation expense                                       43,855          42,784         28,488
   Impairment expense                                         46,522               -              -
   Net (loss) income                                         (43,014)          5,414          8,457
</TABLE>

(1) Income statement data for 1999 is the period from Inception (April 13, 1999)
through December 11, 1999.

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

     On May 5, 1999, Aircraft Finance issued $1,209 million of the Initial
Notes. The Initial Notes were issued in five classes; Class A-1, Class A-2,
Class B, Class C and Class D. The Initial Notes were issued simultaneously with
the execution of an agreement for the sale of the beneficial interests of
Aircraft Finance for $39 million and an agreement to acquire 36 commercial jet
aircraft for $1,196 million. On January 20, 2000, Aircraft Finance completed an
exchange offer whereby Aircraft Finance issued four classes of new Exchange
Notes in exchange for the four corresponding classes of the Initial Notes. The
terms of the Exchange Notes are identical in all material respects to the
Initial Notes, except that the Exchange Notes are registered under the
Securities Act of 1933, as amended. The Class D Notes remain unchanged. $3
million of the Class A-2 Initial Notes were not tendered in the exchange offer
and remain outstanding.

     Aircraft Finance is a special purpose entity, which owns aircraft subject
to operating leases. Aircraft Finance's business consists of aircraft leasing
activities. Aircraft Finance may also engage in acquisitions of additional
aircraft and sales of aircraft. Any acquisitions of additional aircraft and the
related issuance of additional Notes will require confirmation by the rating
agencies that they will not lower, qualify or withdraw their ratings on the
outstanding Notes as a result. Aircraft Finance's cash flows from such
activities will be used to service the interest and principal on the outstanding
Notes and to make distribution of remaining amounts to the holders of the
beneficial interest certificates, after the payment of expenses incurred by
Aircraft Finance.


                                       26
<PAGE>
     Aircraft Finance's ability to generate sufficient cash from its aircraft
assets to service the Notes will depend primarily on the rental rates it can
achieve on leases, the lessees' ability to perform according to the terms of the
leases and the prices it can achieve on any aircraft sales. Aircraft Finance's
ability to service the Notes will also depend on the level of Aircraft Finance's
operating expenses, including maintenance obligations that are expected to
increase as the aircraft age, and any unforseen contingent liabilities. The
indenture governing the Notes requires that Aircraft Finance maintain a cash
reserve balance on deposit in the Collections Account and permits Aircraft
Finance to establish a credit facility, in order to provide a source of
liquidity for Aircraft Finance's obligations.

     Any statements contained herein that are not historical facts, or that
might be considered an opinion or projection, whether expressed or implied, are
meant as, and should be considered, forward-looking statements as that term is
defined in the Private Securities Litigation Reform Act of 1995 (as amended).
Forward-looking statements are based on assumptions and opinions concerning a
variety of known and unknown risks. If any assumptions or opinions prove
incorrect, any forward-looking statements made on that basis may also prove
materially incorrect. Aircraft Finance assumes no obligation to update any
forward-looking statements to reflect actual results or changes in the factors
affecting such forward-looking statements.

RECENT DEVELOPMENTS

The Aircraft and Lessees

     Under the terms of the indenture, Aircraft Finance is required to obtain
annual appraisals of its aircraft. In February 2002, Aircraft Finance received
final appraisals of the adjusted base values of the aircraft as of December 31,
2001 from three independent appraisers that are members of the International
Society of Transport Aircraft Trading. The average of the three appraisals was
$1,067.9 million. Such average is below the assumed portfolio values set forth
in the indenture relating to the Notes for certain months in 2002. This
reduction in the appraised value of the portfolio resulted in an increase in
scheduled principal payments to the Class A Notes in March 2002.

      Future annual appraisals of the aircraft may result in further reductions
of the adjusted base values of the aircraft over time as a result of sales or
dispositions of aircraft, changes in the composition of the types, geographical
concentrations and lessees of the aircraft portfolio, the aging of the aircraft
and related increased maintenance expenses, economic or other events affecting
the commercial aviation industry, and other factors. The annual appraisals
required under the indenture are determined as described in "Item 1.
Business-Appraisal of Aircraft" and should not be relied upon as a measure of
the market or realizable value of any initial aircraft.

     The book value of Aircraft Finance's may differ from the base value of the
aircraft determined in accordance with the Indenture relating to the Notes.

     Aircraft are periodically reviewed for impairment in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". An
impairment loss is recognized when the fair value of the undiscounted future
cash flows of the aircraft is less than its net book value. The fair value of
the aircraft is based on independent appraisals of the aircraft and estimates of
undiscounted future cash flows. The appraisals assume, among other things, that
the aircraft are utilized normally in an open, unrestricted and stable market.
Short-term fluctuations in the market place are disregarded and it is


                                       27
<PAGE>
assumed that there is no necessity either to dispose of a significant number of
aircraft simultaneously or to dispose of aircraft quickly.

     On January 10, 2001, Trans World Airlines, Inc. ("TWA"), one of Aircraft
Finance's lessees, filed for Chapter 11 bankruptcy protection in the United
States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court").
TWA leases one aircraft from Aircraft Finance, which represents 5.0% of the
aircraft by aggregate appraised value as of December 31, 2001. By order of Judge
Peter J. Walsh dated March 12, 2001, the Bankruptcy Court authorized American
Airlines, Inc.'s ("American") bid, submitted on February 28, 2001, to sell
substantially all of TWA's assets to American. As of March 12, 2001, Aircraft
Finance has entered into a new agreement with American with respect to the TWA
lease. The new lease term has an expiration date of September 22, 2002. At
December 31, 2001, TWA was current in its payments, which are due in arrears.

     In January 2001, a B737-300 aircraft formerly leased by a lessee based in
Ireland was returned early. In March 2001, Aircraft Finance delivered this
aircraft to a lessee based in Switzerland for a short-term lease ending October
31, 2001. In December 2001, this aircraft was delivered to a lessee based in the
United States for a three-year lease of this aircraft beginning December 15,
2001. This aircraft represents approximately 2.4% of the aggregate appraised
value at December 31, 2001.

     In February 2001, Aircraft Finance restructured the lease agreement with a
lessee based in Spain with respect to two MD-83 aircraft and this agreement was
amended in December 2001. These agreements extend the lease for an average of 27
months and reduce the rents. These aircraft represent approximately 3.2% of the
aggregate appraised value at December 31, 2001.

    City Bird Belgium filed for bankruptcy in a Brussels Commercial Court and
has been in bankruptcy protection since July 2001. Aircraft Finance's B737-400
aircraft formerly leased to City Bird France, a subsidiary of and guaranteed by
City Bird Belgium, was repossessed in October 2001. A letter of intent was
signed with a lessee based in Portugal for a three-year lease commencing in
March 2002. This aircraft represents 2.7% of the aggregate appraised value at
December 31, 2001.

     In September 2001, Aircraft Finance entered into a rent and maintenance
reserves deferral agreement with a lessee based in Brazil with respect to two
B767-200ER aircraft and one B737-300 aircraft. This agreement allows this lessee
to defer overdue rent payments and maintenance reserves during the period from
and including June 25, 2001 to and including August 31, 2001 and the deferral is
repaid with interest over six months beginning September 2001. In October 2001,
Aircraft Finance also issued notices of default to this lessee after this lessee
failed to make payments to Aircraft Finance. As a result, in March 2002,
Aircraft Finance entered into a restructured lease agreement with respect to
these aircraft to reduce the rent starting from September 2001 to the end of the
lease term and to extend the leases for 24 months. The aircraft with respect to
this lessee represents approximately 7.8% of the aggregate appraised value at
December 31, 2001.

     In November 2001, Canada 3000 (Royal Aviation) filed for bankruptcy
protection in Canada. In December 2001, the lease of one A310-300 aircraft was
terminated. The aircraft is physically located in France undergoing a C-check
which is expected to complete by mid-March 2002. This aircraft represents
approximately 2.3% of the aggregate appraised value at December 31, 2001.

     In December 2001, Aircraft Finance restructured the lease agreement with a
lessee based in Ireland with respect to one B737-400 aircraft. This agreement
allows this lessee to defer rental payments during the period of November 2001
to February 2002 and the deferral is repaid over 24 months starting from


                                       28
<PAGE>
April 2002 with interest. This aircraft represents approximately 2.7% of the
aggregate appraised value at December 31, 2001.

     In January 2002, Aircraft Finance restructured the lease agreement with a
lessee based in the United States with respect to a B737-300 aircraft to reduce
the rents starting from January 2002 and give the lessor an extension option for
31 months. This aircraft represents approximately 2.7% of the aggregate
appraised value at December 31, 2001.

     In March 2002, Aircraft Finance restructured the lease agreement with a
lessee based in Mexico with respect to one A320-200 aircraft. This agreement
allows this lessee to defer rental payments during the period of December 2001
to March 2002 and the deferral is repaid over 24 months beginning April 2002
with interest. This aircraft represents approximately 2.6% of the aggregate
appraised value at December 31, 2001.

     British Midland will be returning one B737-300 aircraft in March 2002 at
the lease expiration. This aircraft was originally subject to a lease agreement
with a lessee based in the Ukraine. The lease was to begin when the aircraft was
returned from British Midland in March 2002. A termination letter was signed in
January 2002 with this lessee based in the Ukraine. In February 2002, a contract
was signed with a lessee based in the United Kingdom for a five-year lease of
one B737-300 aircraft, which will be returned from British Midland in March
2002. This aircraft represents approximately 2.5% of the aggregate appraised
value at December 31, 2001.

     In April 2002, one MD-83, which is currently undergoing maintenance, is
expected to return from a lessee based in Italy. This aircraft represents
approximately 1.8% of the aggregate appraised value at December 31, 2001.

     The events discussed above caused a reduction in the Aircraft Finance's
revenues by $0.3 million in year 2001 and are likely to decrease Aircraft
Finance's 2002 revenues as well. Such reductions of revenues, restructurings, or
any similar future events could negatively impact Aircraft Finance's ability to
timely pay scheduled interest on certain Note classes and/or to repay the
principal of certain Note classes at the scheduled maturity dates of those
classes. These restructurings were accounted for according to SFAS No. 13:
"Accounting for Leases".

OTHER DEVELOPMENTS

     Under the terms of the indenture, Aircraft Finance is required to obtain
annual appraisals of its aircraft. In February 2002, Aircraft Finance received
appraisals of the adjusted base values of the aircraft as of December 31, 2001
from three independent appraisers that are members of the International Society
of Transport Aircraft Trading, as required by the indenture. The aggregate of
the average of the three appraisals (the current appraised value) of the
aircraft at December 31, 2001 was $1,067.9 million. Such average is below the
assumed portfolio values set forth in the indenture relating to the Notes for
certain months in 2002. This reduction in the appraised value of the portfolio
resulted in an increased scheduled principal payment to the Class A Notes in
March 2002.

     On January 20, 2000, Aircraft Finance completed an exchange offer whereby
Aircraft Finance issued four classes of new Notes, the Exchange Notes,
designated Class A-1, A-2, B and C, in exchange for the four corresponding
classes of the Initial Notes. The terms of the Exchange Notes are identical in
all material respects to the Initial Notes, except that the Exchange Notes are
registered under the


                                       29
<PAGE>
Securities Act of 1933, as amended. The Class D Notes were not exchanged and
remain unchanged. $3 million of the Class A-2 Initial Notes were not tendered in
the exchange offer and remain outstanding.

     As of December 31, 2001, the concentration of the five largest lessees was
39.8% of the most recent appraised value of the portfolio. One of the
concentration limits in the indenture requires the five largest lessees not to
exceed 35% of the most recent appraised value of the portfolio. Under the
indenture, Aircraft Finance is not permitted to enter into a lease agreement
that would exceed certain concentration limits unless it receives rating agency
confirmation that the rating agencies will not downgrade, qualify, or withdraw
their ratings on the Notes. Aircraft Finance received such rating agency
confirmations from the rating agencies during June, 2000 when the concentration
limit was exceeded.

     During the year ended December 31, 2001, there were five lessees on
non-accrual status. With respect to these lessees five aircraft have been
returned early and the other is expected to be returned in March 2002 upon
completion of a C-check. The total amount of rent and maintenance reserve
payments outstanding under the leases for the six aircraft from these five
lessees amounted to approximately $6.9 million as of December 31, 2001. One of
these lessees, based in Brazil, owed approximately $1.0 million at December 31,
2001 for outstanding maintenance reserve payments, after the application of a
$1.0 million cash security deposit. The second lessee based in the United States
owed approximately $1.0 million at December 31, 2001 for outstanding maintenance
reserve payments after the application of $1.1 million of cash security deposits
and a letter of credit. The third lessee, based in Turkey, owed approximately
$3.4 million at December 31, 2001 for outstanding rent and maintenance reserve
payments after the application of $1.3 million of cash security deposits,
letters of credit, and the sale of shares of stock transferred to the lessor.
The fourth lessee, based in Belgium, owed approximately $0.5 million at December
31, 2001 for outstanding rent. The fifth lessee, based in Canada, owed
approximately $1.0 million at December 2001 for outstanding rent and maintenance
reserve payments.

     As of December 31, 2001, Aircraft Finance has repaid aggregate principal on
the Notes of $136.2 million, as compared to $117.3 million anticipated in the
Offering Memorandum dated April 21, 1999. For a more detailed analysis of
Aircraft Finance's performance compared to the assumptions in the Offering
Memorandum, see Exhibit 99.4. Aircraft Finance's ability to generate sufficient
cash from its aircraft assets to service the outstanding Notes will depend
primarily on the rental rates it can achieve on leases, the lessees' ability to
perform according to the terms of the leases and the prices it can achieve on
any aircraft sales. Aircraft Finance's ability to service the outstanding Notes
will also depend on the level of Aircraft Finance's operating expenses,
including maintenance obligations that are expected to increase as the aircraft
age, and any unforeseen contingent liabilities. The indenture governing the
Notes requires that Aircraft Finance maintain a cash reserve balance on deposit
in a collections account and permits Aircraft Finance to establish a credit
facility, in order to provide a source of liquidity for Aircraft Finance's
obligations.

RESULTS OF OPERATIONS

     Results of operations from the period from April 13, 1999 ("Inception") to
December 31, 1999 reflect results from the commencement of operations to
December 31, 1999. As a result, historical results of operations from the period
from Inception to December 31, 1999 are not comparable to the years ended
December 31, 2001 or 2000.

     Aircraft Finance reported net loss of $43.0 million on total revenues of
$145.8 million for the year ended December 31, 2001 ("2001 Period") compared to
net income of $5.4 million on total revenues of


                                       30
<PAGE>
$150.7 million for the year ended December 31, 2000 ("2000 Period"). The net
loss reported in the 2001 Period is primarily due to a write down of two
DC-10-30, one MD-83, one B767-300ER, and one A310-300 aircraft to their
estimated fair values during 2001. The decrease in total revenues in the 2001
Period compared to the 2000 Period is mainly due to lower rental rates and
interest income. Aircraft Finance's revenues consisted of rental and other
income from operating leases and interest income earned on cash balances.

     Aircraft Finance reported net income of $5.4 million on total revenues of
$150.7 million for the 2000 Period, compared to net income of $8.5 million on
total revenues of $103 million during the period from inception (April 13, 1999)
to December 31, 1999 ("1999 Period"). Net income decreased by $3.1 million from
the 1999 Period to the 2000 Period due mainly to increases in interest expense,
depreciation expense, and operating expenses.

     Rental and other income from aircraft subject to operating leases for the
2001 Period was $142.3 million compared to $145.1 million for the 2000 Period.
The decrease in rental income is primarily due to lower rental rates from
re-leased aircraft and from restructuring certain lease agreements in place in
the 2001 Period as discussed above in "Recent Developments".

     Rental and other income from aircraft subject to operating leases for the
2000 Period was $145.1 million compared to $100.3 million for the 1999 Period.
The increase in rental income is primarily due to twelve months of operation for
the 2000 Period compared to approximately eight months for the 1999 Period. The
decrease in rental income on an annualized basis was impacted by four lessees on
non-accrual status, off lease time for six aircraft and lower rentals on
re-marketed aircraft.

     Interest income during the 2001 Period was $3.5 million, compared to $5.6
million during the 2000 Period. Interest income consists primarily of interest
earned on Aircraft Finance's cash balances, which are invested in short-term
highly liquid investments as permitted by the indenture. The amount of interest
income earned varies based upon the current interest rates paid on such
investments and the level of cash balances held by Aircraft Finance. In addition
to lower average cash balances during the 2001 Period, interest rates earned on
those balances were also lower during the 2001 Period.

     Interest income during the 2000 Period was $5.6 million, compared to $2.7
million during the 1999 Period. In addition to higher average cash balances
during 2000, interest rates earned on those balances were also higher during the
2000 Period.

     Interest expense, including interest rate swap expenditures of $13.5
million, was $73.3 million for the 2001 Period compared to interest expense, net
of interest rate swap income of $7.1 million, of $78.1 million for the 2000
Period. The weighted average interest rate on the Notes during the 2001 Period
was 6.61% compared to 6.68% during the 2000 Period. The outstanding balance of
the Notes at December 31, 2001 was $1,072.8 million compared to $1,126.8 million
at December 31, 2000. Interest expense varies based on the actual interest rates
on the floating rate Notes, the interest rate swap costs or income and the
outstanding principal balances of the Notes.

     Interest expense, net of interest rate swap income of $7.1 million, was
$78.1 million for the 2000 Period compared to $51.5 million, net of interest
rate swap expenditures of $1.2 million, for the 1999 Period. The weighted
average interest rate on the Notes during the 2000 Period was 6.68% compared to
6.47% during the 1999 Period. The outstanding balance of the Notes at December
31, 2000 was $1,126.8 million compared to $1,176.2 million at December 31, 1999.


                                       31
<PAGE>
     Depreciation expense during the 2001 Period was $43.9 million compared to
$42.8 million during the 2000 Period. Depreciation expense in the 2001 Period
was higher than that in the 2000 Period due to the depreciation of additional
capitalized improvements.

     Depreciation expense during the 1999 Period and the 2000 Period was $28.5
million and $42.8 million, respectively. Depreciation expense in the 2000 Period
was higher than that in the 1999 Period due to the fact that there were 12
months of operations in the 2000 Period and approximately 8 months of operations
in the 1999 Period. On an annualized basis, depreciation expense in the 2000
Period approximated that of the 1999 Period.

     Aircraft Finance wrote down the net book value of its two DC-10-30, one
MD-83, one B767-300ER, and one A310-300 aircraft to their estimated fair values
and incurred an impairment expense of $46.5 million in the 2001 Period. There
were no such impairments in the 2000 Period or 1999 Period. See "Critical
Accounting Policies" herein for further discussion on the determination of
impairment for accounting purposes.

     Operating expense during the 2001 Period was $19.2 million compared to
$18.5 million during the 2000 Period. The increase in operating expenses was
primarily due to higher direct lease expenses incurred in connection with
several aircraft being re-leased or repossessed during the 2001 Period, higher
legal fees associated with lease restructurings, repossessions, and
bankruptcies, and higher aircraft insurance expense in the 2001 period.
Operating expense primarily consists of aircraft maintenance expense and lease
related costs. Most of Aircraft Finance's lease contracts require the lessee to
bear the obligation for maintenance costs on airframes and engines, and require
the lessee to make payments to the lessor, calculated on measures of usage to
cover the expected costs of scheduled maintenance charges, including major
airframe and engine overhauls. Under the provisions for many leases, for
airframe and engine overhauls, the lessee is reimbursed for costs incurred up
to, but not exceeding, related payments made by the lessee to the lessor based
on those measures of usage. Reserves are maintained at amounts considered
adequate to cover those estimated expenditures for maintenance costs.

     Operating expense during the 1999 Period and the 2000 Period was $10.6
million and $18.5 million, respectively. The increase in operating expenses was
primarily the result of direct lease expenses incurred in connection with
several aircraft being re-leased or repossessed during the 2000 Period.

     Administration and other expenses during the 2001 Period and the 2000
Period were $6.0 million for each period. These expenses consist primarily of
fees paid to the service providers and other general and administration costs.
The most significant of these fees was the servicer fee, which amounted to $4.3
million in the 2001 Period and $4.4 million in the 2000 Period. A significant
portion of the fees paid to the servicer correspond to rental payments due and
received. These fees are based upon a fixed percentage of rental receipts, and
will vary with rental income of Aircraft Finance.

     Administration and other expenses during the 1999 Period and the 2000
Period were $4.0 million and $6.0 million, respectively. The most significant of
these fees was the servicer fee, which amounted to $3.1 million in the 1999
Period and $4.4 million in the 2000 Period. Annualized, the increase in
administration expenses was mainly due to legal costs incurred in the 2000
Period in connection with, among other things, the formation of a French
subsidiary.

     On December 31, 2001, the fair value of the interest rate swaps was
approximately ($32.7) million compared to $1.7 million on December 31, 2000.
This change in fair value of derivatives of ($34.4) was


                                       32
<PAGE>

included as a component of other comprehensive income (loss) in the Consolidated
Statements of Comprehensive Income (Loss).

     Moody's Investors Service, Inc. ("Moody's"), one of the rating agencies for
the Notes, announced the downgrade of the Class C and Class D Notes in a press
release issued on March 18, 2002. The press release states that factors
affecting Moody's downgrade included concerns over (i) possible loss of cash
flow due to lease restructurings following the September 11 crisis and continued
re-leasing at reduced rates in the near future, (ii) the significant percentage
of aircraft that will be coming off lease within the next twelve months, (iii)
the level of the delinquent lessees and the number of grounded aircraft, (iv)
the potential volatility of future cash flows due to the proportion of widebody
aircraft in the aircraft portfolio and (v) the decrease in the aggregate
appraised value of the aircraft as of December 31, 2001.

LIQUIDITY

     Aircraft Finance held cash and cash equivalents of $76.7 million and
restricted cash of $10.9 million at December 31, 2001, compared to cash and cash
equivalents of $76.7 million and restricted cash of $17.8 million at December
31, 2000. The liquidity reserve amount, which is included in cash and cash
equivalents, was $52 million at December 31, 2001 and December 31, 2000. The
liquidity reserve amount is required under the terms of the indenture and is
intended to serve as a source of liquidity for Aircraft Finance's maintenance
obligations and other contingent costs. A deposit of $6.75 million was refunded
to the seller, during the 2001 Period. This deposit was originally used to
secure one of Aircraft Finance's lessees in the case of delinquency on any of
its payments during a two-year period that commenced on the date such leases
were novated to Aircraft Finance. The deposit was refunded in September 2001
because up to that time there were no such delinquencies.

     Aircraft Finance held cash and cash equivalents of $76.7 million and
restricted cash of $17.8 million at December 31, 2000, compared to cash and cash
equivalents of $72.7 million and restricted cash of $19.5 million at December
31, 1999. The liquidity reserve amount, which is included in cash and cash
equivalents, was $52 million at December 31, 2000 and December 31, 1999.

     Aircraft Finance has the ability to enter into certain credit facilities;
however, as of December 31, 2001, had not done so.

     The reduction of cash flow due to the lease rate restructurings, discussed
in "Recent Developments", following the September 11 crisis, the concern that
the aircraft will continue to be re-leased at reduced rates in the near future,
the level of lease payment delinquencies and related increase in expenses and
any sales of aircraft may adversely affect the timing and amounts available to
pay to the holders of the Notes.

CASH FLOWS FROM OPERATING ACTIVITIES

     Aircraft Finance's cash flows from operating activities depend on many
factors including, but not limited to, the performance of lessees and Aircraft
Finance's ability to re-lease aircraft, the average cost of the Notes, the
efficiency of its interest rate hedging policies, the ability of interest rate
swap providers to perform under the terms of the swap agreements and the ability
of Aircraft Finance to refinance certain subclasses of Notes that have not been
repaid with lease cash flows.


                                       33
<PAGE>
     Net cash provided by operating activities for the 2001 Period amounted to
$56.4 million, primarily reflecting a net loss of $43.0 million adjusted by
non-cash impairment expense of $46.5 million, non-cash depreciation expense of
$43.9 million, an increase in security and other deposits of $5.9 million, and
decreases in rent and other receivables of $0.6 million, and restricted cash of
$6.9 million. These were offset by decreases in accounts payable and accrued
liabilities of $0.7 million and deferred rental income of $3.5 million.

     Net cash provided by operating activities for the 2000 Period amounted to
$54.9 million, which was generated primarily from a $7.1 million increase in
security and other deposits and lease cash flows, net of operating expense and
interest expense on the Notes. Other items included in net cash provided by
operating activities included a $1.7 million decrease in restricted cash,
partially offset by a $2.1 million decrease in deferred rental income.

     Net cash provided by operating activities for the 1999 Period amounted to
$56.5 million ,which was generated primarily from security and other deposits
and lease cash flows, net of operating expense and interest expense on the
Notes. Other items included in net cash provided by operating activities was
deferred rental income of $7.0 million. These were partially offset by
restricted cash of $19.5 million.

CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES

     Net cash used in investing activities for the 2001 Period amounted to $2.3
million for capitalized aircraft improvements.

     Net cash used in investing activities for the 2000 Period amounted to $1.5
million for capitalized aircraft improvements.

     Net cash used in investing activities for the 1999 Period amounted to
$1,199.1 million, due to $1,196.1 million for the purchase of aircraft and $3.0
million for capitalized aircraft improvements and aircraft delivery costs.

     Net cash used in financing activities for the 2001 Period amounted to $54.1
million of principal repayments on the Notes. As a result, the balance of these
Notes was $1,072.8 million at December 31, 2001. Generally, principal and
interest are repaid on certain Notes monthly based upon the cash collected, the
anticipated expenses and the cash balances held by Aircraft Finance on the
calculation date. As a result, monthly principal payments on the Notes will vary
depending on Aircraft Finance's revenues and expenses for the month. In addition
to the factors discussed above, during the 2001 Period additional principal was
redirected to certain Classes of Notes as a result of the annual base value
appraisals of aircraft.

     Net cash used in financing activities for the 2000 Period amounted to $49.4
million of principal repayments on the Notes. As a result, the balance of these
Notes was $1,126.8 million at December 31, 2000.

     Net cash provided by financing activities for the 1999 Period amounted to
$1,215.3 million due to the receipt of proceeds from the Notes of $1,209
million, issued on May 5, 1999, as well as the issuance of the beneficial
interest certificates for $39.1 million, partially offset by $32.8 million of
principal repayment on the Notes. As a result, the balance of these Notes was
$1,176.2 million at December 31, 1999.


                                       34
<PAGE>
     At December 31, 2001, Aircraft Finance was a party to seven interest rate
swap agreements. Four of these agreements were entered into on May 5, 1999 and
the other three were entered into on June 29, 2000 but had an effective date of
July 15, 2000. The net aggregate amounts due to be paid or received by Aircraft
Finance under these agreements is determined monthly and is due on the same day
as the payments under the Notes. The net economic effect of these interest rate
swaps was to hedge Aircraft Finance's variable interest rate exposure from
movements in interest rates over the duration of the lease terms. Please see
"Item 7A. Quantitative and Qualitative Disclosures about Market Risk" for
further information about these interest rate swap agreements.

CRITICAL ACCOUNTING POLICIES

     Management considers the accounting policies discussed below, taken
together with the discussions from "Item 7A. Quantitative and Qualitative
Disclosures About Risk" and "Item 8. New Accounting Pronouncements", to be
material to an understanding of Aircraft Finance's financial statements in that
they are dependent upon certain judgments and estimates by Aircraft Finance. For
all these policies, management cautions that actual results may differ
materially from the estimates that are discussed herein, and the best estimates
routinely require adjustment.

Maintenance Reserves

Most lease contracts require the lessee to bear the obligation for maintenance
costs on airframes and engines, and require the lessee to make contingent
payments to the lessor, calculated on measures of usage to cover the expected
costs of scheduled maintenance charges, including major airframe and engine
overhauls. Reserves are maintained at amounts considered adequate to cover those
expected payments for maintenance costs.

Depreciation

Aircraft are depreciated on a straight-line basis over the estimated life to its
estimated residual value. Generally, aircraft and aircraft equipment are
depreciated over estimated useful lives of 30 years from the date of manufacture
to a 15% estimated residual value. Certain major additions and modifications to
aircraft may be capitalized. Aircraft Finance's estimates are reviewed
periodically for continued appropriateness. Should the estimates of economic
lives and salvage prove inappropriate because of future events, Aircraft
Finance's results of operations could be significantly adversely affected.

Aircraft Valuation

Aircraft are periodically reviewed for impairment in accordance with Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of". An impairment
loss is recognized when the fair value of the undiscounted future cash flows of
the aircraft is less than its net book value. The fair value of the aircraft is
based on independent appraisals of the aircraft and estimates of undiscounted
future cash flows. The appraisals assume, among other things, that the aircraft
are utilized normally in an open, unrestricted and stable market. Short-term
fluctuations in the market place are disregarded and it is assumed that there is
no necessity either to dispose of a significant number of aircraft
simultaneously or to dispose of aircraft quickly.

     Further discussion of these accounting policies may be found in the Notes
to the Consolidated Financial Statements in Item 8.


                                       35
<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

     In October 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS 144, which is effective for
fiscal years beginning after December 15, 2001 with earlier application
encouraged, addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. This Statement supersedes SFAS 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
of", and the accounting and reporting provisions of Accounting Principles Board
("APB") Opinion No. 30, "Reporting the Results of Operations -- Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions", for the disposal of a segment
of a business (as previously defined in that Opinion). This Statement also
amends APB No. 51, "Consolidated Financial Statements", to eliminate the
exception to consolidation for a subsidiary for which control is likely to be
temporary. Aircraft Finance has not adopted SFAS 144. The implementation of SFAS
No. 144 from SFAS No. 121 is not expected to have a material difference on
Aircraft Finance's financial position, results of operations or cash flows.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Interest incurred by Aircraft Finance on the Notes and the rental and other
income received by Aircraft Finance under operating leases are based on
combinations of variable and fixed measures of interest rates. Aircraft Finance
is exposed to interest rate risk to the extent that the mix of variable and
fixed interest obligations under the Notes do not correlate to the mix of
variable and fixed rents under operating leases. Aircraft Finance has engaged
advisors to monitor interest rates in order to mitigate its exposure to
unfavorable variations. Aircraft Finance utilizes interest rate swaps that shift
the risk of fluctuations in floating rates to the counterparty in exchange for
fixed payments by Aircraft Finance. Risks in the use of these instruments arise
from the possible inability of the counterparties to meet the terms of their
contracts and from market movements in securities values and interest rates.

     The controlling trustees of Aircraft Finance, with the assistance of
Bankers Trust Company and Lehman Brothers Inc., are responsible for reviewing
and approving the overall interest rate management policies and transaction
authority limits. Counterparty risk will be monitored on an ongoing basis.
Counterparties will be subject to the prior approval of the controlling
trustees. Currently, Aircraft Finance's counterparty is an affiliate of Lehman
Brothers Inc. Any future counterparties will consist primarily of the affiliates
of major United States and European financial institutions, including
special-purpose derivative vehicles, that have credit ratings or that provide
collateralization arrangements, consistent with maintaining the ratings of the
Notes.

     At December 31, 2001, Aircraft Finance was a party to five classes of
Notes. The estimated fair value of these Notes at December 31, 2001 was
approximately $900.1 million. The terms of each class of the Notes, including
the outstanding principal amount at December 31, 2001, are as follows:


                                       36
<PAGE>
<TABLE>
<CAPTION>
                                 Outstanding
           Class of               Principal                               Expected Final            Final
            Notes                  Amount            Interest Rate         Payment Date           Maturity Date
            -----               ------------         -------------        ---------------         -------------
<S>                             <C>                  <C>                  <C>                     <C>
           Class A-1            $512,500,000          LIBOR + 0.48%          May 15, 2004         May 15, 2024
           Class A-2             271,170,985          LIBOR + 0.50%         June 15, 2008         May 15, 2024
           Class B               119,095,938          LIBOR + 1.15%          May 15, 2016         May 15, 2024
           Class C               106,000,000                  8.00%         July 15, 2016         May 15, 2024
           Class D                64,000,000                 11.00%       August 15, 2016         May 15, 2024
</TABLE>

     At December 31, 2001, Aircraft Finance was a party to seven interest rate
swap agreements. Under the agreements, Aircraft Finance will pay a fixed rate of
interest on the notional amount to the counterparty and, in turn, the
counterparty will pay Aircraft Finance a rate of interest on the notional amount
based on 30-day LIBOR. On January 1, 2001 and December 31, 2001, the estimated
fair values of these interest rate swaps were approximately $1.7 million and
($32.7) million, respectively. Due to the potential volatility of LIBOR, the
fair value of Aircraft Finance's interest rate swap agreements are also subject
to volatility. The change in fair value of the seven interest rate swaps was due
to changes in market interest rates. This change was recorded as a component of
other comprehensive income (loss) in the equity section of the balance sheet.

     Two of Aircraft Finance's swap agreements expired on January 15, 2002. The
notional amounts of these two swap agreements totaled $80 million.

     Expected final payment dates relating to the Notes are set forth in the
indenture. They were determined based on the assumptions set forth in the
Registration Statement relating to the issuance of the Exchange Notes. The
actual final payments for each Class of Notes is likely to occur earlier or
later than the Expected Final Payment Date as a result of various factors,
including the assumptions regarding revenues, interest, expenses, operating
costs, stress case scenarios and aircraft valuations. These assumptions have not
corresponded and are not likely in the future to correspond to actual
experience.

     The one month LIBOR rate with respect to the Notes as of December 31, 2000
and 2001 was 6.71% and 1.90%, respectively.

     The following table presents, as of December 31, 2001, the terms of
Aircraft Finance's interest rate swap agreements:

<TABLE>
<CAPTION>
          Fixed             Rate to be            Rate to be
        Notional         paid by Aircraft        received by              Maturity              Estimated
         Amount               Finance           Aircraft Finance            Date               fair value
   ---------------       ----------------      ------------------     -----------------     ----------------
<S>                      <C>                   <C>                    <C>                   <C>
   $    60,000,000             5.50%                 LIBOR              January 15, 2002    $     (164,916)
        20,000,000             7.13%                 LIBOR              January 15, 2002            (88,224)
       175,000,000             5.56%                 LIBOR              October 15, 2002         (4,924,266)
        20,000,000             7.14%                 LIBOR              October 15, 2002           (830,062)
       345,000,000             5.65%                 LIBOR              January 15, 2004        (15,302,347)
       230,000,000             5.71%                 LIBOR             November 15, 2004        (10,044,947)
        15,000,000             7.17%                 LIBOR                  May 15, 2005         (1,336,036)
</TABLE>


                                       37
<PAGE>

     Aircraft Finance expects to enter into additional swaps, or sell at market
values or unwind part or all of its initial swaps and any future swaps on a
periodic basis in its efforts to mitigate its exposure to unfavorable changes in
interest rates. Any changes in Aircraft Finance's policy regarding its use of
interest rate hedging products will be subject to periodic review by the rating
agencies.


                                       38
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA











                     AIRCRAFT FINANCE TRUST AND SUBSIDIARIES


       CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001 AND 2000,
             AND FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000, AND
         THE PERIOD FROM INCEPTION (APRIL 13, 1999) TO DECEMBER 31, 1999
                                TOGETHER WITH THE
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


                                       39
<PAGE>
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Trustees:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income (loss), of comprehensive income (loss), of
changes in beneficial interest holders' (deficit) equity , and of cash flows
present fairly, in all material respects, the financial position of Aircraft
Finance Trust and its subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for the years ended December
31, 2001 and 2000, and the Period from Inception (April 13, 1999) to December
31, 1999, in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP

Fort Lauderdale, Florida
March 25, 2002


                                       40
<PAGE>
                     AIRCRAFT FINANCE TRUST AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                              DECEMBER 31,    DECEMBER 31,
                                                                                  2001           2000
                                                                              ------------    ------------
<S>                                                                           <C>             <C>

                                     ASSETS

Cash and cash equivalents                                                     $     76,729    $     76,658
Restricted cash                                                                     10,895          17,761
Rents and other receivables                                                          2,756           3,352
Aircraft, net                                                                    1,041,199       1,129,322
Other assets                                                                           196             131
                                                                              ------------    ------------

     Total assets                                                             $  1,131,775    $  1,227,224
                                                                              ============    ============

          LIABILITIES AND BENEFICIAL INTEREST HOLDERS' (DEFICIT) EQUITY

Accounts payable and accrued liabilities                                      $      4,293    $      5,007
Deferred rental income                                                               1,425           4,927
Derivative contracts                                                                32,691               -
Security and other deposits                                                         43,346          37,489
Notes payable:
     Class A-1                                                                     512,500         512,500
     Class A-2                                                                     271,171         322,801
     Class B                                                                       119,096         121,542
     Class C                                                                       106,000         106,000
     Class D                                                                        64,000          64,000
                                                                              ------------    ------------
     Total Notes payable                                                         1,072,767       1,126,843
                                                                              ------------    ------------
     Total liabilities                                                           1,154,522       1,174,266
                                                                              ------------    ------------
Commitments and contingencies (Note 10)                                                  -               -

Beneficial interest holders' (deficit) equity:

     Beneficial interests                                                            9,944          52,958
     Accumulated other comprehensive loss                                          (32,691)              -
                                                                              ------------    ------------
     Total beneficial interest holders' (deficit) equity                           (22,747)         52,958
                                                                              ------------    ------------
     Total liabilities and beneficial interest holders' (deficit) equity      $  1,131,775    $  1,227,224
                                                                              ============    ============
</TABLE>


                The accompanying notes are an integral part of
                    these consolidated financial statements

                                       41
<PAGE>

                     AIRCRAFT FINANCE TRUST AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF INCOME (LOSS)
                             (dollars in thousands)





<TABLE>
<CAPTION>
                                                                        PERIOD FROM
                                                                         INCEPTION
                                        YEAR ENDED      YEAR ENDED    (APRIL 13, 1999)
                                       DECEMBER 31,    DECEMBER 31,    TO DECEMBER 31,
                                          2001             2000            1999
                                      -------------    -------------   -------------
<S>                                   <C>              <C>            <C>
REVENUES:
   Rental and other income
      from operating leases           $     142,306    $     145,117   $     100,331
   Interest income                            3,525            5,629           2,679
                                      -------------    -------------   -------------

      Total revenues                        145,831          150,746         103,010
                                      -------------    -------------   -------------

EXPENSES:

   Interest expense                          73,283           78,100          51,482
   Depreciation expense                      43,855           42,784          28,488
   Impairment expense                        46,522                -               -
   Operating expense                         19,189           18,460          10,632
   Administration and other                   5,996            5,988           3,951
                                      -------------    -------------   -------------

      Total expenses                        188,845          145,332          94,553
                                      -------------    -------------   -------------

NET (LOSS) INCOME                     $     (43,014)   $       5,414   $       8,457
                                      =============    =============   =============
</TABLE>



                The accompanying notes are an integral part of
                   these consolidated financial statements

                                       42
<PAGE>
                     AIRCRAFT FINANCE TRUST AND SUBSIDIARIES
             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                             (dollars in thousands)


<TABLE>
<CAPTION>
                                                                PERIOD FROM
                                                                 INCEPTION
                                  YEAR ENDED      YEAR ENDED   (APRIL 13, 1999)
                                 DECEMBER 31,    DECEMBER 31,   TO DECEMBER 31,
                                     2001            2000           1999
                                 ------------    ------------   ------------
<S>                              <C>             <C>            <C>
Net (loss) income                $    (43,014)   $      5,414   $      8,457

Other comprehensive loss

(Notes 2 and 7)                       (32,691)              -              -
                                 ------------    ------------   ------------

Comprehensive

(loss) income                    $    (75,705)   $      5,414   $      8,457
                                 ============    ============   ============
</TABLE>


                The accompanying notes are an integral part of
                   these consolidated financial statements


                                       43
<PAGE>
                     AIRCRAFT FINANCE TRUST AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CHANGES IN BENEFICIAL
                       INTEREST HOLDERS' (DEFICIT) EQUITY
                             (dollars in thousands)


<TABLE>
<CAPTION>
                                                     ACCUMULATED
                                                        OTHER
                                                     COMPREHENSIVE    BENEFICIAL
                                                     INCOME (LOSS)     INTEREST         TOTAL
                                                     ------------    ------------    ------------
<S>                                                  <C>             <C>             <C>
Issuance of Beneficial Interest (May 5, 1999)                   -    $     39,087          39,087

   Net Income                                                   -           8,457           8,457
                                                     ------------    ------------    ------------

Balance at December 31, 1999                                    -          47,544          47,544

   Net Income                                                   -           5,414           5,414
                                                     ------------    ------------    ------------

Balance at December 31, 2000                                    -          52,958          52,958

   Net loss                                                     -         (43,014)        (43,014)

   Other comprehensive loss:
   Changes in derivative instruments
     Cumulative effect of adopting FAS 133                  1,711               -           1,711
     Changes in fair value of derivatives                 (34,402)              -         (34,402)
                                                     ------------    ------------    ------------
   Total other comprehensive loss                         (32,691)              -         (32,691)
                                                     ------------    ------------    ------------
Balance at December 31, 2001                         $    (32,691)   $      9,944    $    (22,747)
                                                     ============    ============    ============
</TABLE>




                The accompanying notes are an integral part of
                   these consolidated financial statements

                                       44
<PAGE>
                   AIRCRAFT FINANCE TRUST AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (dollars in thousands)

<TABLE>
<CAPTION>
                                                                                     PERIOD FROM
                                                                                      INCEPTION
                                                      YEAR ENDED      YEAR ENDED    (APRIL 13, 1999)
                                                     DECEMBER 31,    DECEMBER 31,    TO DECEMBER 31,
                                                         2001            2000            1999
                                                     ------------    ------------    ------------
<S>                                                  <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net (loss) income                                    $    (43,014)   $      5,414    $      8,457
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
   Depreciation expense                                    43,855          42,784          28,488
   Impairment expense                                      46,522               -               -
Changes in assets and liabilities:
   Rents and other receivables                                596             770          (4,122)
   Restricted cash                                          6,866           1,707         (19,468)
   Other assets                                               (65)              7            (138)
   Accounts payable and accrued liabilities                  (714)           (812)          5,819
   Deferred rental income                                  (3,502)         (2,104)          7,031
   Security and other deposits                              5,857           7,104          30,385
                                                     ------------    ------------    ------------
   Net cash provided by operating activities               56,401          54,870          56,452
                                                     ------------    ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of aircraft                                            -               -      (1,196,087)
Aircraft improvements                                      (2,254)         (1,542)         (2,965)
                                                     ------------    ------------    ------------
   Net cash used in investing activities                   (2,254)         (1,542)     (1,199,052)
                                                     ------------    ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:

Issuance of beneficial interests                                -               -          39,087
Proceeds from notes payable                                     -               -       1,209,000
Repayment of notes payable                                (54,076)        (49,352)        (32,805)
                                                     ------------    ------------    ------------
   Net cash (used in) provided by
   financing activities                                   (54,076)        (49,352)      1,215,282
                                                     ------------    ------------    ------------

NET INCREASE IN CASH AND CASH EQUIVALENTS                      71           3,976          72,682

CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD                                        76,658          72,682               -
                                                     ------------    ------------    ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD           $     76,729    $     76,658    $     72,682
                                                     ============    ============    ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest expense                       $     73,843    $     78,198    $     47,883
                                                     ============    ============    ============
</TABLE>

                The accompanying notes are an integral part of
                   these consolidated financial statements


                                       45
<PAGE>
                     AIRCRAFT FINANCE TRUST AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2001

NOTE 1 -- ORGANIZATION

     Aircraft Finance Trust is a special-purpose statutory business trust that
was formed on April 13, 1999 under the laws of Delaware. Aircraft Finance Trust
and its three subsidiaries (collectively "Aircraft Finance") were formed to
conduct certain limited activities, including buying, owning, leasing and
selling commercial jet aircraft and related activities.

     The Trust Agreement provides for four trustees, an Owner Trustee and three
controlling trustees. The three controlling trustees have the authority to
manage the property and affairs of Aircraft Finance under the Trust Agreement.
One of the controlling trustees, the equity trustee, is appointed by the
beneficial interest holders, while the other two controlling trustees are
independent of the beneficial interest holders. Aircraft Finance does not have
any officers or employees. Aircraft Finance has contracted with certain third
parties to provide aircraft servicing, lease administration and accounting
services and financial and capital market advisory services.

     On May 5, 1999, Aircraft Finance completed a securitization transaction in
which it received proceeds from a private placement offering of Notes, received
proceeds from the issuance of beneficial interest certificates and
simultaneously paid for 36 commercial jet aircraft.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

     The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America and includes the accounts of Aircraft Finance and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated.

USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. While management believes that the
estimates and related assumptions used in the preparation of the financial
statements are appropriate, actual results could differ from those estimates.
Significant estimates are made in the assessment of the collectibility of
receivables, depreciable lives and estimated salvage values of leased aircraft
and estimates of expected maintenance and overhaul costs in connection with
certain leases of aircraft.


                                       46
<PAGE>

CASH AND CASH EQUIVALENTS

     Aircraft Finance classifies highly liquid investments with original
maturities of three months or less from the date of purchase as cash
equivalents.

OPERATING LEASES

     Aircraft are recorded at cost and depreciated on a straight-line basis over
the estimated life to their estimated salvage value. Generally, aircraft and
aircraft equipment are depreciated over estimated useful lives of 30 years from
the date of manufacture to a 15% estimated salvage value. Certain major
additions and modifications to aircraft are capitalized. Aircraft Finance's
estimates are reviewed periodically to ensure continued appropriateness.

     Revenue under operating leases is recognized as rental income on a
straight-line basis over the lease term. In addition, certain leases provide for
contingent rental payments based on measures of usage.

     Aircraft Finance will generally place lessees onto non-accrual status when
the cumulative amount of outstanding rent receivables due from such lessee is
equivalent to three monthly payments or if other circumstances warrant such
treatment. Upon placement onto non-accrual status, all outstanding receivables
accrued but not paid will be reversed against income. Subsequent payments from
lessees placed onto non-accrual status will be recognized on a cash basis as
received. The Lessee will not be placed back onto current accrual status unless
they become current with all past due amounts and they further demonstrate an
improvement in their financial position.

     In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS 121"), the recognition of an impairment loss for an asset
held for use is required when the estimate of undiscounted future cash flows
expected to be generated by the asset is less than its carrying amount.
Measurement of an impairment loss is to be recognized based on the fair value of
the asset. Fair value reflects the underlying economic value of the aircraft,
including engines, in normal market conditions (where supply and demand are in
reasonable equilibrium) and assumes adequate time for a sale between a willing
buyer and seller. Short-term fluctuations in the market place are disregarded
and it is assumed that there is no necessity either to dispose of a significant
number of aircraft simultaneously or to dispose of aircraft quickly. The fair
value of the assets is based on independent valuations of the aircraft and/or
estimates of discounted future cash flows. Appraisals assume, among other
things, that the aircraft are utilized normally in an open, unrestricted and
stable market. Appraisals are not based on a physical inspection of the
aircraft. SFAS 121 also requires that long-lived assets to be disposed of be
reported at the lower of the carrying amount or fair value less estimated
disposal costs.

MAINTENANCE RESERVES

     Most lease contracts require the lessee to bear the obligation for
maintenance costs on airframes and engines, and require the lessee to make
contingent payments to the lessor, calculated on measures of usage to cover the
expected costs of scheduled maintenance charges, including major airframe and
engine overhauls. Reserves are maintained at amounts considered adequate to
cover those expected payments for maintenance costs.


                                       47
<PAGE>
INCOME TAXES

     The operating results of Aircraft Finance are included in the tax returns
of their beneficial interest holders. As such, Aircraft Finance is not subject
to United States Federal, State and local income taxes.

DERIVATIVE FINANCIAL INSTRUMENTS

     On January 1, 2001, derivatives were recognized on the balance sheet at
their fair value. Aircraft Finance's swap agreements meet the definition of
cash-flow hedge transactions and are designated as hedges of the variability of
future cash flows that are to be received or paid in connection with a
recognized asset or liability (a "cash flow" hedge), to which Aircraft Finance
is party. Changes in the fair value of derivatives that are highly effective as
-- and that are designated and qualify as -- cash flow hedges to the extent that
the hedges are effective, are recorded in other comprehensive income, until
earnings are affected by the variability of cash flows of the hedged
transaction. Any hedge ineffectiveness (which represents the amount by which the
changes in the fair value of the derivative exceed the variability in the cash
flows of the forecasted transaction) is recorded in current-period earnings.
Changes in the fair value of derivative trading and non-hedging instruments are
reported in current-period earnings.

     Aircraft Finance formally documented all relationships between hedging
instruments and hedged items, as well as its risk-management objective and
strategy for undertaking various hedge transactions. This process includes
linking all derivatives that are designated as cash flow hedges to specific
assets and liabilities on the balance sheet. Aircraft Finance also formally
assesses (both at the hedge's inception and on an ongoing basis) whether the
derivatives that are used in hedging transactions have been highly effective in
offsetting changes in the cash flows of hedged items and whether those
derivatives may be expected to remain highly effective in future periods. When
it is determined that a derivative is not (or has ceased to be) highly effective
as a hedge, Aircraft Finance will discontinue hedge accounting prospectively.

     On December 31, 2001, the fair value of these interest rate swaps was
approximately ($32.7) million compared to $1.7 million on January 1, 2001, a net
reduction in fair value of the derivatives of $34.4 million.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments", requires disclosure of the fair value of
financial instruments, for both assets and liabilities recognized and not
recognized on the balance sheet, for which it is practicable to estimate fair
value. Fair value of Aircraft Finance's financial instruments are based on
pricing models or formulas using assumptions about future interest rates,
interest volatility and other factors (swaps, swaptions and interest rate
floors).

NOTE 3 -- RISK AND UNCERTAINTIES

     On September 11, 2001, terrorists hijacked and crashed four United States
commercial aircraft, with attendant significant loss of life, property damage
and economic disruption. Any additional terrorist attacks, the current
anti-terrorist activity in Afghanistan and throughout the world, any military or
economic responses by the United States, including any changes to the United
States aircraft industry by


                                       48
<PAGE>

way of law, regulation or otherwise, may further increase airline costs and
cause further declines in air travel demand.

     These events may also affect the ability of airlines to obtain insurance or
otherwise comply with terms of their leases. The inability to obtain insurance
and non-compliance with other lease terms could result in aircraft groundings.
Any such actions may further impair a lessee's financial condition and ability
to pay rent. Accordingly, these conditions, particularly should they continue,
may impair the ability of Aircraft Finance to re-lease aircraft on a timely
basis and at favorable rates and may reduce the value of the aircraft for
possible sale. These factors may have an adverse effect on the amount and timing
of payments that will be made by Aircraft Finance on the Notes.

     As of December 31, 2001, the concentration of the five largest lessees was
39.8% of the most recent appraised value of the portfolio. One of the
concentration limits in the indenture requires the five largest lessees not to
exceed 35% of the most recent appraised value of the portfolio. Under the
indenture, Aircraft Finance is not permitted to enter into a lease agreement
that would exceed certain concentration limits unless it receives rating agency
confirmation that the rating agencies will not downgrade, qualify, or withdraw
their ratings on the Notes. Aircraft Finance received such rating agency
confirmations from the rating agencies during June, 2000.

NOTE 4 -- CASH BALANCES

     Aircraft Finance maintains various cash accounts as required by the Trust
indenture, including a Rental Account, a Collections Account, an Expense
Account, and the Lessee Funded Accounts.

     All payments under the leases are deposited into the Rental Account and
subsequently swept to the Collection Account within one business day of receipt.
Aircraft Finance maintains a cash reserve balance in the Collection Account in
an amount determined monthly in accordance with the Trust indenture. At December
31, 2001, the cash reserves included in the Collection Account were $52 million.
The cash reserves are intended to provide a source of liquidity for the payment
of expenses, swap payments and interest on certain classes of Notes. Expenses of
Aircraft Finance are generally paid out of the Expense Account, which is funded
through transfers from the Collections Account.

     The Lessee Funded Accounts and certain lessee reserve accounts are not
available for general use. Security deposits and maintenance reserve payments
from lessees that are required to be segregated from other funds are deposited
into the Lessee Funded Accounts. Lessee reserve accounts used to include a
deposit from the seller of the aircraft that can be drawn upon by Aircraft
Finance should such lessee be delinquent on any of its rent payments. The
balances in the Lessee Funded Accounts were $11.0 million at December 31, 2001
and 2000. A deposit of $6.75 million was refunded to the seller, during the 2001
Period. This deposit was originally used to secure one of Aircraft Finance's
lessees in the case of delinquency on any of its payments during a two-year
period that commenced on the date such leases were novated to Aircraft Finance.
The deposit was refunded in September 2001 because there were no such
delinquencies up to that time.

NOTE 5 -- AIRCRAFT UNDER OPERATING LEASES

     On May 5, 1999, Aircraft Finance purchased 36 commercial jet aircraft from
General Electric Capital Corporation and certain of its subsidiaries having an
aggregate cost of $1,196 million pursuant to


                                       49
<PAGE>
a Master Aircraft Purchase Agreement. Aircraft Finance financed these purchases
primarily through the net proceeds from Aircraft Finance's private placement of
asset-backed Notes and proceeds from the issuance of beneficial interests. At
December 31, 2001, Aircraft Finance had 34 aircraft on lease and two aircraft
off lease, as follows:

<TABLE>
<CAPTION>
                                                   December 31,     December 31,
                                                       2001            2000
                                                   ------------    ------------
                                                  (in thousands)   (in thousands)
<S>                                                <C>             <C>
Aircraft under operating lease                     $  1,139,486    $  1,200,594
Accumulated depreciation                               (108,589)        (71,272)
Aircraft fair value adjustment (impairment)             (35,662)              -
                                                   ------------    ------------
Aircraft under operating leases, net                    995,235       1,129,322

Aircraft off-lease                                       63,362               -
Accumulated depreciation                                 (6,538)              -
Aircraft fair value adjustment (impairment)             (10,860)              -
                                                   ------------    ------------
Aircraft off-lease, net                                  45,964               -

Aircraft, net                                      $  1,041,199    $  1,129,322
                                                   ============    ============
</TABLE>

     As of December 31, 2001, Aircraft Finance has written down its two
DC-10-30, one MD-83, one B767-300ER, and one A310-300 aircraft to their
estimated fair values to reflect changes in market conditions. As a result, an
impairment expense of $46.5 million has been recorded in Aircraft Finance's
statement of income (loss) for the year ended December 31, 2001.

     All aircraft are compliant with Stage 3 noise levels set out in the United
States Federal Aviation Regulations. As of December 31, 2001, 34 of Aircraft
Finance's aircraft were on lease to 21 airlines in 13 countries and two of them
were off lease. An analysis of the various lessee expiration periods of the
aircraft under operating leases is as follows at December 31, 2001:

<TABLE>
<CAPTION>
<S>                                       <C>
On lease for a further period of:
---------------------------------
More than five years ..................               3
From one to five years ................              23
Less than one year ....................               8
Not on lease ..........................               2
                                          -------------
Total aircraft portfolio ..............              36
                                          =============
</TABLE>

     At December 31, 2001 future scheduled minimum lease contract payments to be
received under operating leases for the years ended December 31, are as follows:
(dollars in thousands)

<TABLE>
<CAPTION>
<S>                                        <C>
2002....................................   $    104,611
2003....................................         83,002
2004....................................         57,749
2005....................................         25,318
2006....................................          8,173
Thereafter..............................         31,111
                                           ------------
Total...................................   $    309,964
                                           ============
</TABLE>


                                       50
<PAGE>
     Additional contingent rentals are earned by Aircraft Finance based on
certain lessee's usage. Contingent rentals amounting to $15.0 million, $15.2
million, and $11.6 million were earned by Aircraft Finance during the years
ended December 31, 2001, 2000, and the period from inception (April 13, 1999) to
December 31, 1999, respectively.

     During the year ended December 31, 2001, two lessees were placed on
non-accrual status. Accordingly, uncollected receivables of $1.5 million were
reversed from income. As of December 31, 2001, a total of five lessees
representing six aircraft are on non-accrual status. With respect to these
lessees, four aircraft have been returned early and subsequently re-leased, and
the other two are still off lease. The total amount of rent and maintenance
reserve payments outstanding under the leases for the six aircraft from these
five lessees amounted to approximately $6.9 million as of December 31, 2001.
Subsequent collection of all delinquent receivables is considered unlikely.

NOTE 6 -- NOTES PAYABLE

     On May 5, 1999 (the "Initial Closing Date"), Aircraft Finance completed a
private placement offering of $1,209 million of securitized Notes (the "Initial
Notes") on a basis exempt from registration under the Securities Act of 1933, as
amended. Aircraft Finance utilized the proceeds from the Initial Notes as
payment for the acquisition of 36 commercial jet aircraft. Underwriting and
certain other issuance related costs incurred in connection with the offering
were paid by the Seller.

     On January 20, 2000, Aircraft Finance completed an exchange offer whereby
Aircraft Finance issued four classes of new Notes (the "Exchange Notes" or
"Notes") in exchange for the four corresponding classes of the Initial Notes.
The terms of the Exchange Notes are identical in all material respects to the
Initial Notes, except that the Exchange Notes are registered under the
Securities Act of 1933, as amended. The Class D Notes remain unchanged. $3
million of the Class A-2 Initial Notes were not tendered in the exchange offer
and remain outstanding.

     The repayment terms of each class of Initial Notes are such that certain
principal amounts are expected to be repaid on dates which are based on certain
operating assumptions (the "Expected Final Payment Date") or refinanced through
the issuance of new Notes, but in any event are ultimately due for repayment on
specified final maturity dates (the "Final Maturity Date"). The Expected Final
Payment Dates, Final Maturity Dates and interest rates applicable to each class
of the Initial Notes are listed as follows: (dollars in thousands)

<TABLE>
<CAPTION>
                                INITIAL                                        EXPECTED FINAL               FINAL
CLASS OF NOTE              PRINCIPAL AMOUNT            INTEREST RATE            PAYMENT DATE            MATURITY DATE
-------------              ----------------            -------------            ------------            -------------
<S>                        <C>                         <C>                     <C>                      <C>
   Class A-1               $      512,500              LIBOR + 0.48%               May 15, 2004            May 15, 2024
   Class A-2                      400,000              LIBOR + 0.50%              June 15, 2008            May 15, 2024
   Class B                        126,500              LIBOR + 1.15%               May 15, 2016            May 15, 2024
   Class C                        106,000                      8.00%              July 15, 2016            May 15, 2024
   Class D                         64,000                     11.00%            August 15, 2016            May 15, 2024
                           -------------
                             $ 1,209,000
</TABLE>

     Expected final payment dates relating to the Notes are set forth in the
indenture. They were determined based on the assumptions set forth in the
Registration Statement relating to the issuance of the Exchange Notes. The
actual final payments for each Class of Notes is likely to occur earlier or
later


                                       51
<PAGE>
than the Expected Final Payment Date as a result of various factors, including
the assumptions regarding revenues, interest, expenses, operating costs, stress
case scenarios and aircraft valuations. These assumptions have not corresponded
and are not likely in the future to correspond to actual experience.

     The one-month LIBOR rate with respect to these Notes as of December 31,
2001 was 1.90%.

     If the Class A-1 Notes are not repaid on or before their Expected Final
Payment Date, such Class of Notes will accrue interest thereafter at the stated
interest rate plus 0.50% per annum ("Maturity Step-Up Interest").

     Aircraft Finance has the right to make an optional redemption of any Notes.
Should Aircraft Finance choose to exercise an early redemption of any of the
Notes, it may be required to pay a redemption premium as required by the Trust
indenture.

     The dates on which principal repayments on the Notes will actually occur
will depend on the cash flows generated by the rental income from the Aircraft
Finance's portfolio of aircraft, Aircraft Finance's ability to refinance any or
all of the Notes and the amount of operating costs incurred in the ordinary
course of business. Amounts received by Aircraft Finance and available for
distribution are paid in accordance with the priorities specified in the Trust
indenture. As of December 31, 2001 and December 31, 2000 the estimated fair
value of the Notes was approximately $900.1 million and $1,121.1 million,
respectively.

     Moody's Investors Service, Inc. ("Moody's"), one of the rating agencies for
the Notes, announced the downgrade of the Class C and Class D Notes in a press
release issued on March 18, 2002. The press release states that factors
affecting Moody's downgrade included concerns over (i) possible loss of cash
flow due to lease restructurings following the September 11 crisis and continued
re-leasing at reduced rates in the near future, (ii) the significant percentage
of aircraft that will be coming off lease within the next twelve months, (iii)
the level of the delinquent lessees and the number of grounded aircraft, (iv)
the potential volatility of future cash flows due to the proportion of widebody
aircraft in the aircraft portfolio and (v) the decrease in the aggregate
appraised value of the aircraft as of December 31, 2001.


                                       52
<PAGE>
NOTE 7 -- DERIVATIVE FINANCIAL INSTRUMENTS

INTEREST RATE SWAP AGREEMENTS

     Interest incurred by Aircraft Finance on the Notes and the rental and other
income received by Aircraft Finance under operating leases are based on
combinations of variable and fixed measures of interest rates. Aircraft Finance
is exposed to interest rate risk to the extent that the mix of variable and
fixed interest obligations under the Notes do not correlate to the mix of
variable and fixed rentals under operating leases. Aircraft Finance has engaged
advisors to monitor interest rates in order to mitigate its exposure to
unfavorable variations. Aircraft Finance utilizes interest rate swaps that shift
the risk of fluctuations in floating rates to the counterparty in exchange for
fixed payments by Aircraft Finance. Risks in the use of these instruments arise
form the possible inability of the counterparties to meet the terms of their
contracts and from market movements in securities values and interest rates.

     As of December 31, 2001, Aircraft Finance was a party to seven interest
rate swap agreements. Four were entered into on May 5, 1999 and three on July
15, 2000. The total aggregate gross notional principal amount of these interest
rate swaps is $865 million at December 31, 2001. Under the agreements, Aircraft
Finance will pay a fixed rate of interest on the notional amount to the
counterparty and, in turn, the counterparty will pay Aircraft Finance a rate of
interest on the notional amount based on LIBOR. The one-month LIBOR rate with
respect to the Swaps (and the Notes) was 1.90% and 6.71% as of December 31, 2001
and December 31, 2000, respectively. On December 31, 2001, the fair value of
these interest rate swaps was approximately ($32.7) million compared to $1.7
million on December 31, 2000. Due to the potential volatility of LIBOR, the fair
value of Aircraft Finance's interest rate swap agreements are also subject to
volatility. The change in fair value of the seven interest rate swaps was due to
changes in market interest rates. This change was recorded in other
comprehensive income in the equity section of the balance sheet.

     Two of Aircraft Finance's swap agreements expired on January 15, 2002. The
notional amounts of these two swap agreements totaled $80 million.

     The following table presents, as of December 31, 2001, a summary of the
terms of the Aircraft Finance's interest rate swap agreements:

<TABLE>
<CAPTION>
      Fixed                 Rate to be        Rate to be
    Notional             paid by Aircraft     received by             Maturity                 Estimated
     Amount                  Finance        Aircraft Finance            Date                  fair value
  ------------           ----------------   ----------------     ------------------         -------------
<S>                      <C>                <C>                  <C>                        <C>
  $ 60,000,000                 5.50%             LIBOR             January 15, 2002          $  (164,916)
    20,000,000                 7.13%             LIBOR             January 15, 2002              (88,224)
   175,000,000                 5.56%             LIBOR             October 15, 2002           (4,924,266)
    20,000,000                 7.14%             LIBOR             October 15, 2002             (830,062)
   345,000,000                 5.65%             LIBOR             January 15, 2004          (15,302,347)
   230,000,000                 5.71%             LIBOR            November 15, 2004          (10,044,947)
    15,000,000                 7.17%             LIBOR                 May 15, 2005           (1,336,036)
</TABLE>


NOTE 8 -- NEW ACCOUNTING PRONOUNCEMENTS

     In October 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS 144, which is effective for
fiscal years beginning after December 15, 2001 with earlier


                                       53
<PAGE>

application encouraged, addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This Statement supersedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of", and the accounting and reporting provisions of Accounting
Principles Board ("APB") Opinion No. 30, "Reporting the Results of Operations --
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions", for the disposal of
a segment of a business (as previously defined in that Opinion). This Statement
also amends APB No. 51, "Consolidated Financial Statements", to eliminate the
exception to consolidation for a subsidiary for which control is likely to be
temporary. Aircraft Finance did not early adopt SFAS 144. The implementation of
SFAS No. 144 from SFAS No. 121 is not expected to have a material difference on
Aircraft Finance's financial position, results of operations or cash flows.

     In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset
Retirement Obligations". The standard addresses the diversity in practice for
recognizing asset retirement obligations: some entities recognized
asset-retirement obligations (AROs) gradually as additional depreciation; other
recognize a liability over the related asset's life, sometimes discounted,
sometimes not; and still other recognize the obligations only when the asset is
retired.

     SFAS 143 requires that obligations associated with the retirement of a
tangible long-lived asset to be recorded as a liability when those obligations
are incurred, with the amount of the liability initially measured at fair value.
Upon initially recognizing a liability for an ARO, an entity must capitalize the
cost by recognizing an increase in the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. Upon settlement of the liability, an entity either settles the obligation
for its recorded amount or incurs a gain or loss on settlement.

         SFAS 143 is effective for financial statements for fiscal years
beginning after June 15, 2002 (early adoption is permitted). Upon adoption of
this Statement, an entity will use a cumulative-effect approach to recognize
transition amounts for existing ARO liabilities, asset retirement costs, and
accumulated depreciation. All transition amounts are to be measured using
current (as of the date of adoption) information, current assumptions, and
current interest rates. Aircraft Finance did not early adopt SFAS 143. The
implementation of SFAS 143 is not expected to have a material difference on
Aircraft Finance's financial position, results of operations or cash flows.

NOTE 9 -- RELATED PARTY

     On May 5, 1999, UniCapital Corporation (parent company of the initial
beneficial interest holders) purchased approximately $3.8 million of the Class D
Notes. UniCapital Corporation subsequently sold these Notes to an unrelated
party in July 1999.

     On June 21, 2000 Wayne Lippman, an employee, at that time, of UniCapital
Air Group, Inc. an affiliated company of UniCapital Corporation, tendered his
resignation as equity trustee of Aircraft Finance effective upon appointment of
a replacement. Donald G. Butler, co-founder and Executive Vice President of
TransCapital Corporation, has been appointed by the holders of the beneficial
interest in Aircraft Finance as the new equity trustee of Aircraft Finance. The
acquisition of additional aircraft by Aircraft Finance and the terms of any
related financing need only be approved by the equity trustee, subject to the
terms of the trust agreement and the indenture, including confirmation by the
rating agencies


                                       54
<PAGE>
that the transaction will not adversely affect the rating on the Notes. Further,
any sale of any aircraft, decisions requiring Aircraft Finance's approval under
the Servicing Agreement with GECAS or the agreement with the administrative
agent and the reduction of any required level of reserves must be approved by
the equity trustee and at least one of the Independent controlling trustees.

NOTE 10 -- COMMITMENTS AND CONTINGENCIES

     In accordance with the terms of a servicing agreement (the "Servicing
Agreement"), GE Capital Aviation Services, Limited, ("GECAS") is performing
certain aircraft related services with respect to Aircraft Finance's aircraft
portfolio. Such activities include the collection of rents and other amounts due
from lessees, the monitoring of maintenance, insurance and other obligations
under the aircraft leases, the enforcement of rights against the lessees, the
remarketing of aircraft for re-lease or sale and the performance of other
specified aircraft-related services. In accordance with the Servicing Agreement,
fees payable to GECAS by Aircraft Finance include base fees and fees calculated
as a percentage of lease rentals received, in addition to certain incentive
based fees.

     The Servicing Agreement expires on the latter of (i) the payment in full of
all amounts due on the Notes and other similar obligations and all amounts due
to the holders of beneficial interest in Aircraft Finance and (ii) the date on
which Aircraft Finance and its subsidiaries cease to own any aircraft. Each
party has the right to terminate the Servicing Agreement under specified
circumstances.

     Additionally, Aircraft Finance has contracted with third parties to provide
administrative, financial and capital markets advisory and trust services. For
the year ended December 31, 2001, included in administrative and other expenses
is approximately $4.3 million and $0.5 million of servicer and administrative
agent fees, respectively, $4.4 million and $0.5 million, respectively, for the
year ended December 31, 2000, and $3.1 million and $0.3 million, respectively,
for the period from inception (April 13, 1999) to December 31, 1999.

NOTE 11 -- CONCENTRATION OF CREDIT RISK

     Credit risk with respect to operating lease receivables is generally
diversified due to the number of lessees comprising Aircraft Finance's customer
base and the different geographic areas in which they operate. During the year
ended December 31, 2001 (the "2001 Period") and December 31, 2000 (the "2000
Period"), Aircraft Finance recognized $142 million and $145 million of rental
and other income from operating leases, respectively. This was comprised of $20
million in the 2001 period and $22 million in the 2000 period from lessees based
in the United States and $122 million in the 2001 period and $123 million for
the 2000 period from lessees based outside the United States. At December 31,
2001, 34 of Aircraft Finance's 36 aircraft were on lease to 21 lessees in 13
countries. Two aircraft were off lease, one of which was repossessed in October
2001, and the other is physically located in France undergoing a C-check and is
expected to complete by mid-March 2002. Also, on December 31, 2001, ten of the
aircraft are being leased to lessees domiciled in certain emerging markets,
including those located in Latin America and Asia. The exposure of Aircraft
Finance's aircraft to particular countries and customers is managed partly
through concentration limits and through obtaining deposits from lessees and
certain cash reserves.


                                       55
<PAGE>
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

Controlling and Independent Trustees.

     The trust agreement governing Aircraft Finance provides for four trustees.
One of the four trustees of Aircraft Finance is Wilmington Trust Company, which
is acting as the statutory trustee and the owner trustee. The remaining three
trustees are the "controlling trustees" and have the authority to manage the
property and affairs of Aircraft Finance under the trust agreement. All of the
controlling trustees are independent from General Electric Capital Corporation.
One of the controlling trustees, called the "equity trustee", is appointed by
the holders of Aircraft Finance's beneficial interests, while the two other
controlling trustees, called the "independent controlling trustees" are
independent of those holders. The holders of the beneficial interests of
Aircraft Finance may remove and replace the equity trustee, and each independent
controlling trustee may be replaced by the other independent controlling
trustee.

     The trust agreement requires that any decision relating to insolvency
proceedings, merger or other reorganization of Aircraft Finance must be approved
by a unanimous vote of the controlling trustees. Any sale of any aircraft,
decisions requiring Aircraft Finance's approval under the servicing agreement
for the aircraft or the agreement with the administrative agent and the
reduction of any required level of reserves must be approved by the equity
trustee and at least one of the independent controlling trustees. The
controlling trustees approving aircraft sales on other than pre-approved terms
must also confirm to the indenture trustee, prior to the sale, that the sale
will not materially and adversely affect the holders of the Notes. The
acquisition of additional aircraft by Aircraft Finance and the terms of any
related financing need only be approved by the equity trustee.

     The controlling trustees, their respective ages and principal activities
are as follows:

<TABLE>
<CAPTION>
     Name                          Age         Title
     ----                          ---         -----
<S>                                <C>         <C>
     David H. Treitel              47          Independent Controlling Trustee
     Richard E. Cavanagh           55          Independent Controlling Trustee
     Donald G. Butler              58          Equity Trustee
</TABLE>

     David H. Treitel -- Mr. Treitel is the Chairman and Chief Executive Officer
of Simat, Helliesen & Eichner, Inc. (SH&E), a leading aviation consulting firm
based in New York City. Mr. Treitel has been with SH&E since 1977, and prior to
taking up his current position at SH&E in 1996, he served as the firm's
President from 1993 to September 1998 and its Executive Vice President from 1989
until 1993. Mr. Treitel also serves as a director of Midwest Express Holdings,
Inc. Mr. Treitel is the Equity Trustee and one of the Controlling Trustees in
Lease Investment Flight Trust, another aircraft securitization vehicle.

     Richard E. Cavanagh -- Mr. Cavanagh is the President and Chief Executive
Officer of The Conference Board, Inc., a global business research and membership
enterprise supported by some 3,000 corporate members in 67 countries and based
in New York City. Prior to taking up his current position


                                       56
<PAGE>

in 1995, he served for eight years as the Executive Dean of the Kennedy School
of Government at Harvard University. Before that, he was a partner of McKinsey &
Company, Inc., an international management consulting firm. During his 17 years
with McKinsey, he took a two-year public service leave and held senior positions
in the White House Office of Management & Budget. He co-authored the management
book The Winning Performance. Mr. Cavanagh serves as a director of Airplanes
Limited and Airplanes U.S. Trust (other aircraft securitization vehicles), the
BlackRock Mutual Fund family, Arch Chemicals (formerly Olin), The Fremont Group
(formerly Bechtel Investments) and The Guardian Life Insurance Company.

     Donald G. Butler -- Mr. Butler is a co-founder and Executive Vice President
of TransCapital Corporation, that was started in 1976. Mr. Butler's
responsibilities include the management of TransCapital's commercial aircraft
business and have encompassed originating, overseeing and/or successfully
marketing the interests in over 70 commercial aircraft with an aggregate value
in excess of $1.6 billion and includes the development of an asset management
system to oversee and manage the aviation assets. The company's principal
geographic focus and business has been North America and Europe. In November,
1990, Mr. Butler presented INVESTMENT OPPORTUNITIES IN AGING AIRCRAFT at the
Avmark Services, Ltd. International Conference on Understanding Aging Aircraft.

     As is common with many other special purpose companies, neither Aircraft
Finance nor any of its subsidiaries will have any officers or other employees,
except, in the case of a subsidiary, as may be required by applicable law.
Aircraft Finance has arranged for GE Capital Aviation Services, Limited (GECAS),
Phoenix American Financial Services, Inc., Wilmington Trust Company, Bankers
Trust Company and Lehman Brothers Inc. to provide aircraft servicing, managerial
services and financial advice.

The Servicer

     The servicer and Aircraft Finance have entered into a servicing agreement
dated as of May 5, 1999. The servicing agreement sets forth the various duties
of GECAS as the servicer with respect to the management and administration of
the aircraft and the leases, the aircraft marketing activities to be performed
by the servicer and the aircraft management-related obligations of the servicer
in connection with offers and sales by Aircraft Finance of refinancing or
additional Notes.

     The servicer has agreed to provide its services in accordance with the
express terms of the servicing agreement. The terms of the servicing agreement
provide that the servicer will act in accordance with laws applicable to it,
with directions given by the administrative agent on behalf of Aircraft Finance,
with specified standards of care and with specified standards regarding
conflicts of interest. The duties and obligations of the servicer are limited to
those expressly set forth in the servicing agreement, and the servicer has not
undertaken any fiduciary or other implied duties or obligations to Aircraft
Finance, the holders of the Notes or any other person.

     The servicer has agreed to perform the services required by the servicing
agreement with reasonable care and diligence at all times and, if a conflict of
interest arises as to an Aircraft Finance aircraft and other aircraft managed by
GECAS, in good faith. In addition, to the extent that either two or more
particular Aircraft Finance aircraft or an Aircraft Finance aircraft and other
aircraft managed by GECAS have substantially similar objectively identifiable
characteristics that are relevant for purposes of the particular services to be
performed, the servicer has agreed not to discriminate among those Aircraft
Finance aircraft or between any of the Aircraft Finance aircraft and any other
managed aircraft on an unreasonable basis.


                                       57
<PAGE>
     If the servicer in good faith determines that circumstances as to a
particular aircraft or lease require an arm's-length negotiation between the
servicer or any of its affiliates and Aircraft Finance and the servicer believes
it would not be appropriate for the servicer to act on behalf of Aircraft
Finance, the servicer has agreed to notify Aircraft Finance promptly and to
withdraw from acting as the servicer with respect to the matter and Aircraft
Finance has agreed to appoint an independent representative to act on its
behalf. The servicer is entitled to act on its own or its affiliates' behalf in
those negotiations.

     Neither Aircraft Finance nor the servicer may assign its rights and
obligations under the servicing agreement without the other's prior consent. The
servicer may, however, delegate some, but not all, of its duties to some of its
affiliates.

     Aircraft services. The main categories of aircraft services being provided
by the servicer under the servicing agreement are:

        (1)    lease marketing and remarketing, lease negotiation and execution;

        (2)    collecting rental payments and other amounts due under leases,
               aircraft maintenance, insurance monitoring and procurement, lease
               compliance and enforcement and accepting delivery and redelivery
               of aircraft;

        (3)    sales services and aircraft acquisition;

        (4)    monitoring aircraft maintenance and providing records and
               information about the aircraft;

        (5)    using commercially reasonable efforts to keep Aircraft Finance in
               compliance with terms of the indenture that directly relate to
               the operation of the aircraft;

        (6)    limited assistance in connection with the public or private
               offerings of any Notes, such as providing information relating to
               the servicer and its affiliates for inclusion in any offering
               document or prospectus, participating in marketing activities
               solely with respect to the aircraft and providing underwriters,
               rating agencies and other advisors with the reasonable
               opportunity to conduct due diligence with respect to the servicer
               as it relates to the aircraft;

        (7)    legal and other professional services with respect to the lease,
               sale or financing of the aircraft, any amendment or modification
               of any lease, the enforcement of the rights of Aircraft Finance
               and its subsidiaries under any lease, any disputes that arise as
               to any aircraft or for any other purpose that the servicer
               reasonably determines is necessary in connection with the
               performance of its services; and

        (8)    periodic reporting of operational information relating to the
               aircraft.

     Operating guidelines. Under the servicing agreement, the servicer is
entitled to exercise such authority as is necessary to give it a practicable and
working autonomy in performing its services. The servicing agreement provides
that the servicer will give Aircraft Finance and its agents access to records
related to the aircraft under specified circumstances to enable Aircraft Finance
to monitor the performance by the servicer and not commingle any funds of
Aircraft Finance with its own funds. Aircraft Finance, acting through the
administrative agent or directly, has established monitoring and


                                       58
<PAGE>
control procedures that it expects will enable it to properly manage its and its
subsidiaries' business and assets.

     The servicing agreement requires all transactions entered into by the
servicer on behalf of Aircraft Finance and its subsidiaries other than
intercompany transactions to be at arm's length and on market terms unless
otherwise agreed or directed by the administrative agent on Aircraft Finance's
behalf. Transactions or matters on behalf of Aircraft Finance and its
subsidiaries that require the specific approval of Aircraft Finance include:

        (1)    sales of or agreements to sell aircraft, other than as required
               by a lease or the purchase agreement for the initial 36 aircraft;

        (2)    entering into any new leases if the lease does not comply with
               any applicable operating covenants set forth under the indenture
               governing the Notes or if the lease grants a purchase option in
               favor of the lessee and renewing or extending existing leases,
               other than as a result of the exercise of an extension option;

        (3)    terminating any lease or leases to any single lessee for aircraft
               then having an aggregate depreciated net book value in excess of
               $75 million unless a substantially similar replacement or
               substitute lease is put into place;

        (4)    unless provided for in the applicable budget, entering into any
               contract for the modification or maintenance of aircraft where
               the costs to be incurred by Aircraft Finance and its subsidiaries
               will exceed the greater of the estimated aggregate cost of a
               heavy maintenance check for similar aircraft and total
               refurbishment of the related engines and available maintenance
               reserves or other collateral under the related lease or if those
               costs would be outside the ordinary course of the business of
               Aircraft Finance and its subsidiaries;

        (5)    issuing any guarantee on behalf of, or otherwise pledging the
               credit of, Aircraft Finance or any of its subsidiaries, other
               than with respect to trade payables in the ordinary course of
               business and other than guarantees by Aircraft Finance of the
               obligations of its subsidiaries;

        (6)    entering into, amending or granting a waiver with respect to, any
               transaction between Aircraft Finance or its subsidiaries and
               General Electric Capital Corporation or any of its affiliates not
               contemplated in the servicing agreement;

        (7)    incurring any actual or contingent liability, unless contemplated
               in the applicable budget pursuant to a transaction of a type for
               which Aircraft Finance's specific approval is otherwise required,
               incurred in the ordinary course of the business of Aircraft
               Finance and its subsidiaries or incurred in entering into a lease
               or performing any obligations under a lease; and

        (8)    entering into any order or commitment to acquire, or acquiring,
               aircraft or aircraft engines unless provided for in a lease, the
               order or commitment to acquire a replacement engine has been
               provided for in the applicable budget or the servicer determines
               that the purchase or exchange of an engine is necessary or
               appropriate.


                                       59
<PAGE>
     Budgets. The servicing agreement calls for the administrative agent to
adopt each year a single lease operating budget for all aircraft owned by
Aircraft Finance and its subsidiaries and a single budget for the aircraft
expenses related to all aircraft.

     Servicing fees and their payment priority. The servicing agreement provides
that Aircraft Finance will pay to the servicer a base fee of $150,000 per month,
which increases if additional aircraft are acquired by Aircraft Finance and a
rent fee equal to 1% of the aggregate amount of basic rent due for all or any
part of a month for any Aircraft Finance aircraft and 1% of the aggregate basic
rent actually paid for the month. The servicer also will receive a disposition
fee equal to 1% of the gross proceeds of the sale of any Aircraft Finance
aircraft. The servicer also will be reimbursed for aircraft maintenance costs
and insurance, outside legal and professional advisory fees and other out of
pocket expenses incurred in connection with its performance. The aggregate
reimbursement expenses may be significant. Aircraft Finance has also agreed to
indemnify the servicer as described under "Risk Factors -- Because Aircraft
Finance's contract limits its remedies against the servicer for poor
performance, Aircraft Finance may at some point bear costs that will reduce its
available revenues." The subsidiaries of Aircraft Finance have guaranteed the
obligations of Aircraft Finance to the servicer.

     The above fees and expense reimbursements are payable monthly in arrears on
the payment dates for the Notes. The payment of those fees and expenses has a
payment priority that is higher than that of all payments on the Notes. The
servicer has agreed to allocate a portion of the fees payable to it to
UniCapital to the extent of the two initial and any other aircraft acquired from
UniCapital.

     The servicer is also entitled to additional fees (the "Additional Servicing
Fees") consisting of an additional sales fee for each sale of an aircraft, an
additional disposition fee for each sale of an aircraft and an additional
rent-related fee based on basic rent actually paid. Additional Servicing Fees
are payable only after all amounts on the Notes have been paid in full.

     In addition, the servicer will be entitled to fees for aircraft management
services under the servicing agreement in connection with the offer and sale by
Aircraft Finance of refinancing and additional Notes and any resales of Notes by
any person who has any right to cause Aircraft Finance to assist in the resale.

     Term and termination. The term of the servicing agreement expires on the
later of the payment in full of all amounts due on the Notes and other similar
obligations and all amounts due to the holders of the beneficial interests in
Aircraft Finance and Aircraft Finance and its subsidiaries ceasing to hold any
aircraft. Each party also has the right to terminate the servicing agreement
under specified circumstances.

     The servicer has the right to terminate the servicing agreement if, among
other things, Aircraft Finance defaults in its payment and other obligations
under the servicing agreement and related documents, any material representation
or warranty made by Aircraft Finance or its subsidiaries is false or misleading
in a manner material to the servicer, Aircraft Finance or its subsidiaries
become subject to bankruptcy or other insolvency proceedings, neither Aircraft
Finance nor any of its subsidiaries holds any aircraft or the indenture or any
guaranty in favor of the servicer ceases to be in effect.

     The servicer may resign under the servicing agreement with respect to all
aircraft, or at its election, any affected aircraft if it reasonably determines
that directions given, or services required, would, if carried out be unlawful
under applicable law, be in violation of any corporate policy regarding business
practices or legal, ethical or social matters, be likely to lead to an
investigation by any governmental


                                       60
<PAGE>

authority of the servicer or its affiliates, expose the servicer to liabilities
for which, in the servicer's good faith opinion, adequate bond or indemnity has
not been provided or place the servicer in a conflict of interest with respect
to which, in the servicer's good faith opinion, the servicer could not continue
to perform its obligations under the servicing agreement. Whether or not it
resigns, the servicer is not required to take any action of the foregoing kind.
The servicer may also resign in the event it becomes subject to unindemnified
taxes.

     Aircraft Finance has the right to terminate the servicing agreement upon
payment in full of the Notes and other similar obligations. Aircraft Finance
also has the right to terminate the servicing agreement if, among other things,
the servicer ceases to be at least 75% owned directly or indirectly by General
Electric Capital Corporation or its ultimate parent, General Electric
Corporation, the servicer breaches its obligations under the servicing agreement
in a manner that is material to Aircraft Finance and its subsidiaries as a
whole, the servicer, General Electric Capital Corporation or General Electric
Company becomes subject to bankruptcy or insolvency proceedings, there are
insufficient funds for the payment on any Class A Note for a period of 60 days
or at least 10 aircraft remain off-lease but available for re-lease for a period
of at least 90 days following specified events set forth in the indenture.

     Aircraft Finance may remove the servicer for any affected aircraft if the
servicer has reasonably determined that directions given, or services required,
would, if carried out, place the servicer in a conflict of interest with respect
to which, in the servicer's good faith opinion, the servicer could not continue
to perform its obligations under the servicing agreement.

     The servicer may not resign or be removed under the servicing agreement and
the servicing agreement may not be terminated, except as described above and
unless a replacement servicer, which may be UniCapital, has been appointed and
Aircraft Finance has obtained a confirmation from the rating agencies rating the
Notes that they will not lower, qualify or withdraw any rating as a result. If a
replacement servicer has not been appointed within 90 days after notice of any
termination, resignation or removal, the servicer may petition any court
jurisdiction to appoint a replacement servicer. The servicer may terminate the
servicing agreement, whether or not a replacement servicer has been appointed,
if Aircraft Finance fails, after the applicable cure periods, to pay amounts due
to the servicer.

Corporate Management

     Corporate management services for Aircraft Finance will be provided by the
administrative agent, Phoenix American Financial Services, Inc., the financial
advisor, Bankers Trust Company, the owner trustee, Wilmington Trust Company and
the capital markets advisor, Lehman Brothers Inc.

Administrative Agent

     Phoenix American Financial Services, Inc. will act as the initial
administrative agent of Aircraft Finance. The administrative agent has agreed to
provide administrative, accounting and other services that include:

        (1)    monitoring the performance of the servicer and reporting its
               conclusions to the controlling trustees of Aircraft Finance;

        (2)    acting as a liaison with various rating agencies to assess the
               impact of management decisions on the ratings of the Notes and
               coordinating responses to rating agency questions;


                                       61
<PAGE>

        (3)    maintaining accounting ledgers and providing draft accounts on a
               quarterly and annual basis;

        (4)    preparing annual budgets for Aircraft Finance's approval;

        (5)    authorizing the payment of expenses and determining the amount of
               expense accruals;

        (6)    coordinating any amendments to the agreements of Aircraft Finance
               and its subsidiaries, with the approval of Aircraft Finance;

        (7)    supervising outside counsel and other professional advisers and
               coordinating legal and other professional advice other than with
               respect to any service or matter that is the responsibility of
               the servicer or any additional servicer;

        (8)    preparing and coordinating press releases and reports to
               investors and to the SEC, and managing investor relations;

        (9)    preparing or arranging for the preparation of and filing all
               required tax returns; and

        (10)   overseeing the general operation of any liquidity facility and
               advising Aircraft Finance as to the appropriate reserve levels
               for the Notes.

     In addition to its services on behalf of Aircraft Finance, the
administrative agent has agreed to act as the agent for the trustee and the
security trustee in managing the accounts in which the funds and investments of
Aircraft Finance will be held in the name of the security trustee and related
matters. Aircraft Finance is not entitled to direct the administrative agent as
to these matters. Phoenix American Financial Services, Inc.'s duties for the
trustee and the security trustee include:

        (1)    establishing and maintaining the accounts held in the name of the
               security trustee and any other accounts;

        (2)    directing withdrawals and transfers from those accounts under the
               indenture governing the Notes;

        (3)    calculating certain monthly payments and making all other
               calculations required under that indenture;

        (4)    providing reports and other information required under that
               indenture;

        (5)    providing the trustee with information required by the trustee to
               provide its reports to the holders of the Notes; and

        (6)    subject to specified limitations and at the written direction of
               the controlling trustees, directing the investment of the funds
               in those accounts in investments permitted by that indenture.

     The administrative agent is entitled to a fee of $497,000 per year, plus an
additional amount for any additional aircraft acquired in the future, payable
monthly in arrears in equal installments. The


                                       62
<PAGE>

administrative agent is entitled to be indemnified by Aircraft Finance against
any loss or liability incurred by the administrative agent in connection with
its services to Aircraft Finance or as the agent for the trustee and the
security trustee, other than through its own deceit, fraud, gross negligence or
willful misconduct or that of its officers, directors, agents and employees.

Financial Advisor

     Bankers Trust Company will act as the initial financial advisor. The
financial advisor is responsible for assisting Aircraft Finance in developing
models for the purposes of analyzing the financial impact of aircraft lease,
sale and capital investment decisions. The agreement with the financial advisor
may be terminated by either Aircraft Finance or the financial advisor on 30
days' written notice.

Owner Trustee

     Wilmington Trust will act as the initial owner trustee. The owner trustee
will maintain the books and records, including minute books and records and
trust certificate records, of Aircraft Finance. It will make available
telephone, facsimile and post office box facilities and will maintain Aircraft
Finance's principal place of business in Delaware.

Capital Markets Advisor

     Lehman Brothers Inc. will act as the initial capital markets advisor. The
capital markets advisor is responsible for providing Aircraft Finance with
investment banking advice in connection with the issuance of additional Notes,
financial advice to assist Aircraft Finance in evaluating interest rate risk and
other analytical advice. Aircraft Finance may remove the capital markets advisor
at any time on 90 days' written notice.

ITEM 11. EXECUTIVE COMPENSATION

     All trustees will be compensated for travel and other expenses incurred by
them in the performance of their duties. The independent controlling trustees
receive a salary of $60,000 per annum for their services in such capacity, as
well as additional compensation in the event Aircraft Finance acquires
additional aircraft. The aggregate annual compensation for each independent
controlling trustee may not exceed $100,000 per annum. The equity trustee
appointed by the beneficial interest holders does not receive any compensation
from Aircraft Finance for his services.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     a) Security ownership of certain beneficial owners as of December 31, 2001.


<TABLE>
<CAPTION>
                                            Name and Address of
Title of Class                               Beneficial Owner             Percent of Class
--------------                              -------------------           ----------------
<S>                                      <C>                              <C>
Beneficial Interest Certificate          Northwestern Mutual Life                20%
                                         720 East Wisconsin Avenue
                                         Milwaukee, WI 53202
</TABLE>


                                       63
<PAGE>

<TABLE>
<S>                                      <C>                              <C>
Beneficial Interest Certificate          UniCapital AFT-III, Inc.               27.4%
                                         1209 Orange Street
                                         Wilmington, DE 19801

Beneficial Interest Certificate          IBC Aircraft Services, Inc.             20%
                                         1200 San Bernardo
                                         Laredo, Texas 78042-1359

Beneficial Interest Certificate          General Bank                            10%
                                         800 West 6th Street
                                         Los Angeles, CA 90017

Beneficial Interest Certificate          TransCapital Corporation               *8.5%
                                         11130 Sunrise Valley Drive
                                         Reston, VA 20191
</TABLE>

* TransCapital Corporation owns 7.40% of the beneficial interests directly and
  1.1% indirectly through its wholly-owned subsidiary UniCapital AFT-I, Inc.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.


                                       64
<PAGE>
                                                          PART IV

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

a.       Financial Statements.

         The following are included in Part II of this report:

<TABLE>
<CAPTION>
                                                                                         Page
                                                                                         ----
<S>                                                                                       <C>
            Report of Independent Certified Public Accountants.......................     40
            Consolidated Balance Sheets..............................................     41
            Consolidated Statements of Income (Loss).................................     42
            Consolidated Statements of Comprehensive Income (Loss)...................     43
            Consolidated Statements of Changes in Beneficial Interest Holders'
              (Deficit) Equity.......................................................     44
            Consolidated Statements of Cash Flows....................................     45
            Notes to Consolidated Financial Statements...............................     46
</TABLE>

b.       Current Reports on Form  8-K.

         During the quarterly period ended December 31, 2001, Aircraft Finance
         filed reports on Form 8-K dated October 15, 2001, November 15, 2001 and
         December 17, 2001. Such reports on Form 8-K included copies of the
         monthly reports to holders of the Notes.

c.       Exhibits required to be filed by Item 601 of Regulation S-K.

<TABLE>
Exhibit
Number
-------
<S>      <C>
  3.1    Certificate of Trust of Aircraft Finance Trust.*

  3.2    Amended and Restated Trust Agreement of Aircraft Finance Trust dated as
         of May 4, 1999.*

  4.1    Indenture dated as of May 5, 1999 between Aircraft Finance Trust,
         Resource/Phoenix, Inc. and Bankers Trust Company.*

  4.2    Form of Global Note (included in Exhibit 4.1).*

  4.4    Registration Rights Agreement dated as of May 5, 1999 between Aircraft
         Finance Trust and Lehman Brothers Inc.*

  4.5    Form of Restricted Global Note.**

  4.6    Form of Exchange Notes.**

 10.1    Master Aircraft Purchase Agreement, dated as of May 5, 1999 among
         General Electric Capital Corporation, Aircraft Finance Trust, the
         Sellers listed on Annex A thereto and AFT Trust-Sub I.*

 10.2    Security Trust Agreement dated as of May 5, 1999 between Aircraft
         Finance Trust, Bankers Trust Company, AFT Trust-Sub I and Aircraft
         Finance Trust Ireland, Limited.*

 10.3    Servicing Agreement dated as of May 5, 1999 among GE Capital Aviation
         Services, Limited and Aircraft Finance Trust.*

 10.4    Administrative Agency Agreement dated as of May 5, 1999 between Bankers
         Trust Company, Aircraft Finance Trust, ReSource/Phoenix, Inc., AFT
         Trust-Sub I and Aircraft Finance Trust Ireland, Limited.*

 10.5    Reference Agency Agreement dated as of May 5, 1999 between Bankers
         Trust Company, Aircraft Finance Trust and ReSource/Phoenix, Inc.*

 10.6    Master Swap Agreement and Schedule dated as of May 5, 1999 between
         Aircraft Finance Trust and Lehman Brothers Financial Products Inc.*
</TABLE>


                                       65
<PAGE>

<TABLE>
<S>      <C>
 21.     Subsidiaries of Aircraft Finance Trust.*

 99.1    Appraisal of Aircraft Information Services, Inc.***

 99.2    Appraisal of BK Associates, Inc.***

 99.3    Appraisal of Morton, Beyer & Agnew.***

 99.4    Consent of Aircraft Information Services, Inc.***

 99.5    Consent of BK Associates, Inc.***

 99.6    Consent of Morton, Beyer & Agnew.***

 99.7    Other information - Analysis of actual cash flows versus assumed case.***
</TABLE>

*        Incorporated by reference to the Registration Statement on Form S-4
         (File No. 333-82153) previously filed with the Securities and Exchange
         Commission on July 2, 1999.

**       Incorporated by reference to the 1999 form 10-K (File No. 333-82153)
         previously filed with the Securities and Exchange Commission on March
         22, 2000.

***      Filed herewith.

d.       Financial Statement Schedules.

         All financial statement schedules are omitted because they are not
         applicable, not required or because the required information is
         included in the financial statements or Notes thereto.


                                       66
<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.

                                         AIRCRAFT FINANCE TRUST
                                         by Wilmington Trust Company,
                                         not in its individual capacity but
                                         solely as the Owner Trustee


      March 28, 2002                     By:    /s/ CHARISSE L. RODGERS
--------------------------                      ------------------------------
           Date                          Name:  Charisse L. Rodgers
                                         Title: Assistant Vice President

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 and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE                                  TITLE                                         DATE
---------                                  -----                                         ----
<S>                                        <C>                                           <C>
/s/ DAVID H. TREITEL                       Independent Controlling Trustee               March 28, 2002
-----------------------------------                                                      --------------
David H. Treitel

/s/ RICHARD E. CAVANAGH                    Independent Controlling Trustee               March 28, 2002
-----------------------------------                                                      --------------
Richard E. Cavanagh

/s/ DONALD G. BUTLER                       Equity Trustee and Controlling Trustee        March 28, 2002
-----------------------------------                                                      --------------
Donald G. Butler

/s/ CHARISSE L. RODGERS                    Owner Trustee                                 March 28, 2002
-----------------------------------                                                      --------------
Wilmington Trust Company, not
in its individual capacity but
solely as the Owner Trustee
</TABLE>


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