##### Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



(Mark One)



|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ---------------------------------------------------------------------------------------



For the quarterly period ended March 31, 2005



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 Number 0-10795



Boeing Capital
Corporation

---

(Exact name of registrant as specified in its charter)



|                                                              |  |                                     
|------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                      |  | 95-2564584                          
|                                                              |  |                                     
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. Employer Identification No.)



500 Naches Ave. SW, 3rd Floor
 Renton, Washington 98055

---

(Address of principal executive offices)



(425) 965-4002

---

(Registrants telephone number, including area code)



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



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). Yes  ̈ No x



No common stock is held by non-affiliates of the registrant. Common stock shares outstanding at April 26, 2005: 50,000 shares



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



1



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##### Table of Contents

Table of Contents



|                                          |  |      |  |                                                         |  |                                                                                    |  |   
|----------------------------------------- |  | ---- |  | ------------------------------------------------------- |  | ---------------------------------------------------------------------------------- |  | --
|Part I. Financial Information (Unaudited) |  | Page
|                                          |  |      |  |                                                        
|                                          |  |      |  | Item 1.                                                 |  | Financial Statements                                                               |  |   
|                                          |  |      |  |                                                         |  | Condensed Consolidated Balance Sheets                                              |  | 3 
|                                          |  |      |  |                                                         |  | Condensed Consolidated Statements of Operations                                    |  | 4 
|                                          |  |      |  |                                                         |  | Condensed Consolidated Statements of Shareholders Equity and Comprehensive Income |  | 5 
|                                          |  |      |  |                                                         |  | Condensed Consolidated Statements of Cash Flows                                    |  | 6 
|                                          |  |      |  |                                                         |  | Notes to Condensed Consolidated Financial Statements                               |  | 7 
|                                          |  |      |  |                                                        
|                                          |  |      |  | Item 2.                                                 |  | Managements Narrative Analysis of the Results of Operations                       |  | 21
|                                          |  |      |  |                                                        
|                                          |  |      |  | Item 4.                                                 |  | Controls and Procedures                                                            |  | 26
|                                          | 
|Part II. Other Information                |  |     
|                                          |  |      |  |                                                        
|                                          |  |      |  | Item 1.                                                 |  | Legal Proceedings                                                                  |  | 27
|                                          |  |      |  |                                                        
|                                          |  |      |  | Item 5.                                                 |  | Other Information                                                                  |  | 27
|                                          |  |      |  |                                                        
|                                          |  |      |  | Item 6.                                                 |  | Exhibits                                                                           |  | 28
|                                          |  |      | 
|                                          |  |      |  | Report of Independent Registered Public Accounting Firm |  | 29                                                                                
|                                          |  |      | 
|                                          |  |      |  | Signatures                                              |  | 30                                                                                



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##### Table of Contents

PART I. FINANCIAL INFORMATION



Item 1. Financial Statements



Boeing
Capital Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)



|                                                                                                |  |               |       |   |                  |   |        |  
|----------------------------------------------------------------------------------------------- |  | ------------- | ----- | - | ---------------- | - | ------ | -
|(Dollars in millions, except par value)                                                         |  | March 31,2005 |       |   | December 31,2004 |  
|ASSETS                                                                                          |  |               |       |   |                  |   |        |  
|Cash and cash equivalents                                                                       |  | $             | 410   |   |                  | $ | 642    |  
|Receivables:                                                                                    |  |               |       |   |                  |   |        |  
|Finance leases                                                                                  |  |               | 2,786 |   |                  |   | 3,474  |  
|Notes and other                                                                                 |  |               | 2,173 |   |                  |   | 2,228  |  
|                                                                                                | 
|                                                                                                |  |               | 4,959 |   |                  |   | 5,702  |  
|Allowance for losses on receivables                                                             |  |               | (125  | ) |                  |   | (240   | )
|                                                                                                | 
|                                                                                                |  |               | 4,834 |   |                  |   | 5,462  |  
|Accounts with Boeing and Boeing Capital Services Corporation                                    |  |               | 7     |   |                  |   |       |  
|Equipment under operating leases, net                                                           |  |               | 4,093 |   |                  |   | 3,615  |  
|Investments                                                                                     |  |               | 276   |   |                  |   | 326    |  
|Assets held for sale or re-lease, net                                                           |  |               | 33    |   |                  |   | 37     |  
|Assets of discontinued operations                                                               |  |               | 69    |   |                  |   | 70     |  
|Other assets                                                                                    |  |               | 137   |   |                  |   | 168    |  
|                                                                                                | 
|                                                                                                |  | $             | 9,859 |   |                  | $ | 10,320 |  
|                                                                                                | 
|LIABILITIES AND SHAREHOLDERS EQUITY                                                            |  |               |       |   |                  |   |        |  
|Liabilities:                                                                                    |  |               |       |   |                  |   |        |  
|Accounts payable and accrued expenses                                                           |  | $             | 92    |   |                  | $ | 149    |  
|Other liabilities                                                                               |  |               | 365   |   |                  |   | 332    |  
|Accounts with Boeing and Boeing Capital Services Corporation                                    |  |               |      |   |                  |   | 210    |  
|Deferred income tax                                                                             |  |               | 1,187 |   |                  |   | 1,194  |  
|Debt                                                                                            |  |               | 6,830 |   |                  |   | 7,024  |  
|                                                                                                | 
|                                                                                                |  |               | 8,474 |   |                  |   | 8,909  |  
|                                                                                                | 
|Commitments and contingencies  Note 11                                                         |  |               |       |   |                  |   |        |  
|Minority interest                                                                               |  |               | 6     |   |                  |   | 7      |  
|                                                                                                | 
|Shareholders equity:                                                                           |  |               |       |   |                  |   |        |  
|Common shares  $100 par value; authorized 100,000 shares; issued and outstanding 50,000 shares |  |               | 5     |   |                  |   | 5      |  
|Additional paid-in capital                                                                      |  |               | 1,282 |   |                  |   | 1,272  |  
|Accumulated other comprehensive loss, net of tax                                                |  |               | (34   | ) |                  |   | (25    | )
|Retained earnings                                                                               |  |               | 126   |   |                  |   | 152    |  
|                                                                                                | 
|                                                                                                |  |               | 1,379 |   |                  |   | 1,404  |  
|                                                                                                | 
|                                                                                                |  | $             | 9,859 |   |                  | $ | 10,320 |  
|                                                                                                | 



See Notes to Condensed Consolidated Financial
Statements.



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Boeing Capital Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)



|                                                                  |  |                              |     |      |   |    
|----------------------------------------------------------------- |  | ---------------------------- | --- | ---- | - | ---
|                                                                  |  | Three Months Ended March 31,
|(Dollars in millions)                                             |  | 2005                         |     | 2004
|REVENUE                                                           |  |                              |     |      |   |    
|Finance lease income                                              |  | $                            | 48  |      | $ | 57 
|Interest income on notes receivable                               |  |                              | 43  |      |   | 45 
|Operating lease income                                            |  |                              | 124 |      |   | 109
|Investment income                                                 |  |                              | 10  |      |   | 10 
|Net gain on disposal                                              |  |                              |    |      |   | 18 
|Other income                                                      |  |                              | 12  |      |   | 12 
|                                                                 
|                                                                  |  |                              | 237 |      |   | 251
|EXPENSES                                                          |  |                              |     |      |   |    
|Interest expense                                                  |  |                              | 89  |      |   | 84 
|Depreciation expense                                              |  |                              | 61  |      |   | 55 
|Provision for losses                                              |  |                              | 4   |      |   | 5  
|Operating expense                                                 |  |                              | 25  |      |   | 12 
|Asset impairment expense                                          |  |                              | 9   |      |   | 13 
|Other expense                                                     |  |                              | 7   |      |   | 10 
|                                                                 
|                                                                  |  |                              | 195 |      |   | 179
|                                                                 
|Minority interest income                                          |  |                              | 2   |      |   | 1  
|                                                                 
|Income from continuing operations before provision for income tax |  |                              | 44  |      |   | 73 
|Provision for income tax                                          |  |                              | 15  |      |   | 26 
|                                                                 
|Income from continuing operations                                 |  |                              | 29  |      |   | 47 
|                                                                  |  |                             
|Income from discontinued operations, net of tax                   |  |                              |    |      |   | 9  
|                                                                 
|Net income                                                        |  | $                            | 29  |      | $ | 56 
|                                                                 





See Notes to Condensed Consolidated Financial Statements.



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Boeing Capital Corporation and Subsidiaries

Condensed Consolidated Statements of Shareholders Equity and
Comprehensive Income

(Unaudited)



|                                                      |  |       |       |   |              |   |                          |  |                                   |       |  |                  |     |   |                     |   |     |   |  |   |     |  
|----------------------------------------------------- |  | ----- | ----- | - | ------------ | - | ------------------------ |  | --------------------------------- | ----- |  | ---------------- | --- | - | ------------------- | - | --- | - |  | - | --- | -
|(Dollars in millions, except stated value)            |  | Total |       |   | CommonShares |   | AdditionalPaid-InCapital |  | AccumulatedOtherComprehensiveLoss |       |  | RetainedEarnings |     |   | ComprehensiveIncome |  
|Balance at January 1, 2004                            |  | $     | 1,942 |   |              | $ | 5                        |  | $                                 | 1,263 |  | $                | (10 | ) |                     | $ | 684 |   |  |   |     |  
|                                                      |  |       |       |   |             
|Capital contributions from Boeing(1)                  |  |       | 2     |   |              |   |                         |  |                                   | 2     |  |                  |    |   |                     |   |    |   |  |   |     |  
|Net income                                            |  |       | 56    |   |              |   |                         |  |                                   |      |  |                  |    |   |                     |   | 56  |   |  | $ | 56  |  
|Unrealized loss on derivative instruments, net of tax |  |       | (1    | ) |              |   |                         |  |                                   |      |  |                  | (1  | ) |                     |   |    |   |  |   | (1  | )
|Unrealized loss on investments, net of tax            |  |       | (2    | ) |              |   |                         |  |                                   |      |  |                  | (2  | ) |                     |   |    |   |  |   | (2  | )
|                                                      | 
|Balance at March 31, 2004                             |  | $     | 1,997 |   |              | $ | 5                        |  | $                                 | 1,265 |  | $                | (13 | ) |                     | $ | 740 |   |  | $ | 53  |  
|                                                      | 
|Balance at January 1, 2005                            |  | $     | 1,404 |   |              | $ | 5                        |  | $                                 | 1,272 |  | $                | (25 | ) |                     | $ | 152 |   |  |   |     |  
|                                                      |  |       |       |   |             
|Capital contributions from Boeing(1)                  |  |       | 10    |   |              |   |                         |  |                                   | 10    |  |                  |    |   |                     |   |    |   |  |   |     |  
|Cash dividends to Boeing                              |  |       | (55   | ) |              |   |                         |  |                                   |      |  |                  |    |   |                     |   | (55 | ) |  |   |     |  
|Net income                                            |  |       | 29    |   |              |   |                         |  |                                   |      |  |                  |    |   |                     |   | 29  |   |  | $ | 29  |  
|Unrealized gain on derivative instruments, net of tax |  |       | 1     |   |              |   |                         |  |                                   |      |  |                  | 1   |   |                     |   |    |   |  |   | 1   |  
|Unrealized loss on investments, net of tax            |  |       | (10   | ) |              |   |                         |  |                                   |      |  |                  | (10 | ) |                     |   |    |   |  |   | (10 | )
|                                                      | 
|Balance at March 31, 2005                             |  | $     | 1,379 |   |              | $ | 5                        |  | $                                 | 1,282 |  | $                | (34 | ) |                     | $ | 126 |   |  | $ | 20  |  
|                                                      | 

|(1) |  | Balance represents non-cash contributions from Boeing and Boeing Capital Services Corporation.
|--- |  | ----------------------------------------------------------------------------------------------



We have authorized 100,000 shares of Series A preferred stock with no par
value and a $5,000 stated value. No shares were issued and outstanding at March 31, 2005 and 2004.





See Notes to Condensed Consolidated Financial Statements.



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Boeing Capital Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)



|                                                                                  |  |                              |      |   |      |   |      |  
|--------------------------------------------------------------------------------- |  | ---------------------------- | ---- | - | ---- | - | ---- | -
|                                                                                  |  | Three Months Ended March 31, |     
|(Dollars in millions)                                                             |  | 2005                         |      |   | 2004 |  
|OPERATING ACTIVITIES                                                              |  |                              |      |   |      |   |      |  
|Net income(1)                                                                     |  | $                            | 29   |   |      | $ | 56   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                              |      |   |      |   |      |  
|Depreciation and amortization expense                                             |  |                              | 64   |   |      |   | 55   |  
|Net gain on disposal                                                              |  |                              |     |   |      |   | (18  | )
|Provision for losses                                                              |  |                              | 4    |   |      |   | 5    |  
|Net (gain) loss on derivative instruments and investments                         |  |                              | 3    |   |      |   | (3   | )
|Asset impairment expense                                                          |  |                              | 9    |   |      |   | 13   |  
|Share-based plans expense                                                         |  |                              | 10   |   |      |   | 2    |  
|Other non-cash adjustments related to discontinued operations                     |  |                              |     |   |      |   | 10   |  
|Provision (benefit) from deferred income tax                                      |  |                              | (2   | ) |      |   | 7    |  
|Change in assets and liabilities:                                                 |  |                              |      |   |      |   |      |  
|Other assets                                                                      |  |                              | 20   |   |      |   | 37   |  
|Accrued interest and rents                                                        |  |                              | (7   | ) |      |   | 9    |  
|Accounts payable and accrued expenses                                             |  |                              | (57  | ) |      |   | (81  | )
|Other liabilities                                                                 |  |                              | 12   |   |      |   | (22  | )
|Accounts with Boeing and Boeing Capital Services Corporation                      |  |                              | 42   |   |      |   | 37   |  
|Other                                                                             |  |                              | (2   | ) |      |   | 1    |  
|                                                                                  | 
|Net cash provided by operating activities                                         |  |                              | 125  |   |      |   | 108  |  
|                                                                                  | 
|INVESTING ACTIVITIES                                                              |  |                              |      |   |      |   |      |  
|Net change in short-term leases, notes and other receivables                      |  |                              |     |   |      |   | (12  | )
|Transfers of net assets from Boeing                                               |  |                              | (178 | ) |      |   |     |  
|Purchase of investments                                                           |  |                              |     |   |      |   | (10  | )
|Proceeds from available-for-sale investments                                      |  |                              | 14   |   |      |   | 21   |  
|Proceeds from held-to-maturity investments                                        |  |                              |     |   |      |   | 19   |  
|Purchase of equipment for operating leases                                        |  |                              | (28  | ) |      |   | (81  | )
|Proceeds from disposition of equipment and receivables                            |  |                              |     |   |      |   | 47   |  
|Principal payments of leases, notes and other receivables                         |  |                              | 99   |   |      |   | 78   |  
|Origination of leases, notes and other receivables                                |  |                              | (63  | ) |      |   | (187 | )
|Adjustments relating to discontinued operations                                   |  |                              |     |   |      |   | 87   |  
|                                                                                  | 
|Net cash used in investing activities                                             |  |                              | (156 | ) |      |   | (38  | )
|                                                                                  | 
|FINANCING ACTIVITIES                                                              |  |                              |      |   |      |   |      |  
|Repayment of debt                                                                 |  |                              | (146 | ) |      |   | (432 | )
|Payment of cash dividends                                                         |  |                              | (55  | ) |      |   |     |  
|                                                                                  | 
|Net cash used in financing activities                                             |  |                              | (201 | ) |      |   | (432 | )
|                                                                                  | 
|Net decrease in cash and cash equivalents                                         |  |                              | (232 | ) |      |   | (362 | )
|Cash and cash equivalents at beginning of year                                    |  |                              | 642  |   |      |   | 716  |  
|                                                                                  | 
|Cash and cash equivalents at end of period                                        |  | $                            | 410  |   |      | $ | 354  |  
|                                                                                  | 
|NON-CASH INVESTING AND FINANCING
ACTIVITIES:                                      |  |                              |      |   |      |   |      |  
|Net transfer from held for sale or re-lease                                       |  | $                            | (3   | ) |      | $ |     |  
|                                                                                  | 
|Net transfer to operating leases                                                  |  | $                            | 511  |   |      | $ |     |  
|                                                                                  | 
|Net transfer from finance leases                                                  |  | $                            | (507 | ) |      | $ |     |  
|                                                                                  | 
|Mark-to-market for fair value hedge derivatives on underlying debt                |  | $                            | (47  | ) |      | $ | 48   |  
|                                                                                  | 



|(1) |  | Includes net income of $0 and $9 from discontinued operations for the three months ended March 31, 2005 and
2004.
|--- |  | -----------------------------------------------------------------------------------------------------------------



See Notes to Condensed Consolidated Financial Statements.



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Boeing Capital Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements

March 31, 2005

(Unaudited)

(Dollars in millions, except per share data)



Note 1 Basis of Presentation



Boeing Capital Corporation (together with its subsidiaries, referred to as us, we, our or the Company) is an indirect wholly owned
subsidiary of The Boeing Company (Boeing). Boeing Capital Services Corporation (BCSC) owns 100% of our stock and is an indirect wholly owned subsidiary of Boeing and a largely inactive holding company. We prepared the accompanying unaudited
condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In our opinion, the accompanying condensed consolidated
financial statements reflect all adjustments, consisting of normal recurring accruals, which are necessary to present fairly the condensed consolidated balance sheets and the related condensed consolidated statements of operations,
shareholders equity and comprehensive income and cash flows for the interim periods presented. Operating results for the three month period ended March 31, 2005, are not necessarily indicative of the results that may be expected for the year
ending December 31, 2005. The condensed consolidated financial statements should be read in conjunction with the notes to consolidated financial statements included in our Form 10-K for the year ended December 31, 2004, which contains the latest
available audited consolidated financial statements and notes.



Certain amounts in prior
periods have been reclassified to conform to the current periods presentation. In addition, unless specifically noted, amounts disclosed in the notes to the condensed consolidated financial statements are from continuing operations.



Note 2 Standards Issued and Not Yet
Implemented



In March 2005, the Financial Accounting Standard
Board (FASB) issued Staff Position (FSP) No. FIN 46(R)-5, Implicit Variable Interests under FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities. This FSP clarifies that when applying the variable
interest consolidation model, a reporting enterprise should consider whether it holds an implicit variable interest in a Variable Interest Entity (VIE) or potential VIE. FSP No. FIN 46(R)-5 is effective as of April 1, 2005. We are currently
evaluating the impact of FSP No. FIN 46(R)-5 on our financial statements.



Note 3
Discontinued Operations



On May 2,
2004, Boeings Board of Directors approved a plan to sell all of the assets and business operations of our Commercial Financial Services (CFS) business. This plan was approved by our Board of Directors on May 21, 2004. On May 24, 2004, we
entered into a purchase and sale agreement with General Electric Capital Corporation (GECC) to sell substantially all of the assets related to our CFS business. The final asset sale closed December 27, 2004.



Our condensed consolidated financial statements and related note disclosures reflect the CFS business
as discontinued operations. Income associated with the CFS business, net of applicable income tax, is shown as income from discontinued operations for all periods presented in accordance with Statement of Financial Accounting Standards (SFAS) No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets. In addition, the assets of this business have been reclassified and



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presented as assets of discontinued operations. There are no liabilities related to the CFS business that were assumed by GECC or are expected to be assumed by other
buyers, other than those specific liabilities associated with the portfolio assets sold, such as security deposits and maintenance reserves.



As part of the purchase and sale agreement with GECC, we agreed to a sharing arrangement for losses that may be incurred at the end of the initial financing terms of the
transferred portfolio assets, or, in some instances, prior to the end of the financing term, such as certain events of default and repossession. The loss sharing arrangement provides that cumulative net losses (if any) are to be shared between us
and GECC in accordance with the following formula: (i) with respect to the first $150 of cumulative net losses, we will be liable to GECC for 80% of the amount thereof (in such event GECC will bear 20% of such losses); (ii) with respect to
cumulative net losses between $150 and $275, we will be liable to GECC for 100% of such additional cumulative net losses; and (iii) if cumulative losses exceed $275, GECC will bear 100% of the loss risk above $275. These provisions effectively
cap our exposure to any losses as referred to herein at $245. In the event there are cumulative net gains on the portfolio, GECC is required to make an earn-out payment to us in an amount equal to 80% of such cumulative net gain. Gains
and losses on the portfolio are to be measured on a cumulative basis over the remaining life of the portfolio assets. The amount of the gain or loss on any particular portfolio asset is the difference between the fair market value of the equipment
asset securing the portfolio asset and the carrying value of the portfolio asset. We have the right in certain circumstances to participate in a refinancing or other redeployment of a portfolio asset for the purpose of minimizing any loss on such
asset. We have provided an accrued liability of $90 for our estimated losses under this sharing arrangement.



Operating results of the discontinued operations were as follows:



|                                                |  |                              |   |      |   |   
|----------------------------------------------- |  | ---------------------------- | - | ---- | - | --
|                                                |  | Three Months Ended March 31,
|                                                |  | 2005                         |   | 2004
|Revenue                                         |  | $                            | 2 |      | $ | 56
|                                               
|                                                |  |                             
|Income from discontinued operations             |  | $                            |  |      | $ | 14
|Provision for income tax                        |  |                              |  |      |   | 5 
|                                               
|Income from discontinued operations, net of tax |  | $                            |  |      | $ | 9 
|                                               



The major classes of assets related to
discontinued operations, all of which were held for sale, were as follows:



|                                      |  |               |    |                  |   |   
|------------------------------------- |  | ------------- | -- | ---------------- | - | --
|                                      |  | March 31,2005 |    | December 31,2004
|Finance leases                        |  | $             | 10 |                  | $ | 10
|Notes and other                       |  |               | 1  |                  |   | 1 
|Equipment under operating leases, net |  |               | 58 |                  |   | 59
|                                     
|Assets of discontinued operations     |  | $             | 69 |                  | $ | 70
|                                     



Note 4 Transactions with Boeing



We enter into
certain transactions with Boeing in the form of intercompany guarantees and other subsidies.



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Intercompany guarantees primarily relate to residual value guarantees, first loss deficiency guarantees and rental loss guarantees.
Residual value guarantees cover a specified asset value at the end of a lease agreement in the event of a decline in market value of the financed aircraft. First loss deficiency guarantees cover a specified portion of our losses on aircraft that we
finance in the event of a loss upon disposition of the aircraft following a default by the lessee. Rental loss guarantees are whole or partial guarantees covering us against the lessees failure to pay rent under the lease agreement or our
inability to re-lease these aircraft at or above a specified rent level. Due to intercompany guarantees from Boeing, our accounting classification of certain third party leases may differ from the accounting classification in the consolidated Boeing
financial statements. As a result of these intercompany guarantees, the required balance for the allowance for losses on receivables and the required provision for losses we recognized have been mitigated. At March 31, 2005, we were the beneficiary
under $2,852 of guarantees ($2,464 for domestic airlines and $388 for foreign airlines) from Boeing which mitigates our risk with respect to portfolio assets totaling $4,336. Payments under Boeing guarantees would be net of realization of underlying
residual values, partial rent payments, re-lease rental payments or other mitigating value received.



Intercompany guarantee amounts by portfolio type are summarized as follows:



|                                      |  |                |       |                   |   |           |  |               |       |  |   |      
|------------------------------------- |  | -------------- | ----- | ----------------- | - | --------- |  | ------------- | ----- |  | - | -----
|                                      |  | March 31, 2005 |       | December 31, 2004
|                                      |  | Guarantee      |       | CarryingValue     |   | Guarantee |  | CarryingValue
|Receivables                           |  | $              | 1,717 |                   | $ | 2,889     |  | $             | 1,982 |  | $ | 3,162
|Equipment under operating leases, net |  |                | 1,125 |                   |   | 1,356     |  |               | 895   |  |   | 1,142
|Investments                           |  |                | 10    |                   |   | 91        |  |               | 10    |  |   | 99   
|                                     
|                                      |  | $              | 2,852 |                   | $ | 4,336     |  | $             | 2,887 |  | $ | 4,403
|                                     



Intercompany guarantee amounts by aircraft type
are summarized as follows:



|                                        |  |                |       |                   |   |           |  |               |       |  |   |      
|--------------------------------------- |  | -------------- | ----- | ----------------- | - | --------- |  | ------------- | ----- |  | - | -----
|                                        |  | March 31, 2005 |       | December 31, 2004
|                                        |  | Guarantee      |       | CarryingValue     |   | Guarantee |  | CarryingValue
|717                                     |  | $              | 1,762 |                   | $ | 2,359     |  | $             | 1,695 |  | $ | 2,295
|Out of production twin-aisle aircraft   |  |                | 359   |                   |   | 482       |  |               | 360   |  |   | 495  
|Out of production single-aisle aircraft |  |                | 544   |                   |   | 570       |  |               | 630   |  |   | 656  
|Other Boeing and regional aircraft      |  |                | 187   |                   |   | 925       |  |               | 202   |  |   | 957  
|                                       
|                                        |  | $              | 2,852 |                   | $ | 4,336     |  | $             | 2,887 |  | $ | 4,403
|                                       



We also have third party guarantees of $13 and
$15 on carrying values of $15 and $18 at March 31, 2005 and December 31, 2004.



We
recorded the following activity under the intercompany guarantee agreements:



|                                                                        |  |                              |    |   |      |   |    |  
|----------------------------------------------------------------------- |  | ---------------------------- | -- | - | ---- | - | -- | -
|                                                                        |  | Three Months Ended March 31, |   
|                                                                        |  | 2005                         |    |   | 2004 |  
|Guarantee payments applied to income                                    |  | $                            | 5  |   |      | $ | 4  |  
|Guarantee payments applied to reduce carrying value of related aircraft |  |                              | 1  |   |      |   | 2  |  
|                                                                        | 
|                                                                        |  |                              | 6  |   |      |   | 6  |  
|Guarantee fees                                                          |  |                              | (1 | ) |      |   | (1 | )
|                                                                        | 
|Net guarantee payments                                                  |  | $                            | 5  |   |      | $ | 5  |  
|                                                                        | 



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Boeing has also agreed to provide interest rate subsidies, non-guarantee concessions and rental payments on restructured third
party leases. For the three months ended March 31, 2005 and 2004, we recognized income of $21 and $11 under these agreements.



Additionally, as provided for under the terms of the intercompany guarantee agreements, for the three months ended March 31, 2005 and 2004, Boeing recorded additional charges of $0
and $34 related to asset impairments, accrued expenses and allowance for losses on receivables in our portfolio.



For the three months ended March 31, 2005 and 2004, we recorded income from Boeing, exclusive of guarantees and subsidies, of $11 and $10.



For the three months ended March 31, 2005 and 2004, we recognized new business volume of $81 and $268
related to our purchase of aircraft and equipment from Boeing.



Note 5 Portfolio Quality



The portfolio of
receivables, equipment under operating leases, investments and assets held for sale or re-lease consisted of the following:



|                                                                                   |  |               |       |                  |   |      
|---------------------------------------------------------------------------------- |  | ------------- | ----- | ---------------- | - | -----
|                                                                                   |  | March 31,2005 |       | December 31,2004
|Receivables:                                                                       |  |               |       |                  |   |      
|Finance leases                                                                     |  | $             | 2,786 |                  | $ | 3,474
|Notes and other                                                                    |  |               | 2,173 |                  |   | 2,228
|                                                                                  
|                                                                                   |  |               | 4,959 |                  |   | 5,702
|Equipment under operating leases, net of accumulated depreciation of $716 and $661 |  |               | 4,093 |                  |   | 3,615
|Investments                                                                        |  |               | 276   |                  |   | 326  
|Assets held for sale or re-lease, net of accumulated depreciation of $8 and $7     |  |               | 33    |                  |   | 37   
|                                                                                  
|Total portfolio                                                                    |  | $             | 9,361 |                  | $ | 9,680
|                                                                                  



Non-Performing Assets



Non-performing assets (assets either not recognizing income on an accrual basis or equipment without
current contractual lease revenue) consisted of the following:



|                                                        |  |               |     |   |                  |   |      |  
|------------------------------------------------------- |  | ------------- | --- | - | ---------------- | - | ---- | -
|                                                        |  | March 31,2005 |     |   | December 31,2004 |  
|Assets placed on non-accrual status:                    |  |               |     |   |                  |   |      |  
|Receivables                                             |  | $             | 17  |   |                  | $ | 715  |  
|Equipment under operating leases, net                   |  |               | 534 |   |                  |   | 21   |  
|                                                        | 
|                                                        |  |               | 551 |   |                  |   | 736  |  
|Assets held for sale or re-lease, net                   |  |               | 33  |   |                  |   | 37   |  
|                                                        | 
|                                                        |  | $             | 584 |   |                  | $ | 773  |  
|                                                        | 
|Ratio of non-accrual receivables to total receivables   |  |               | 0.3 | % |                  |   | 12.5 | %
|Ratio of total non-performing assets to total portfolio |  |               | 6.2 | % |                  |   | 8.0  | %



At March 31, 2005 and December 31, 2004, ATA
Holdings Corp. (ATA) represented $501 and $705 of our total portfolio ($494 and $0 represented equipment under operating leases, $0 and $699



10



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represented finance receivables and $7 and $6 represented a note receivable). Due to ATAs continued financial difficulties, in 2004 we placed ATAs
portfolio on non-accrual status. On October 26, 2004, ATA filed for voluntary bankruptcy protection. During the first three months of 2005, due to the new lease terms with ATA we reclassified our leases for 757 aircraft with ATA from finance leases
to operating leases, which were valued at their fair value. At March 31, 2005 and December 31, 2004, we had less than one half million and $0 receivables from ATA with installments more than 90 days delinquent.



For the portfolio assets that we deemed to be non-performing as of March 31, 2005 and December 31,
2004, we received cash and reported income of $7 during the three months ended March 31, 2005 and during the year ended December 31, 2004.



At March 31, 2005 and December 31, 2004, we had no receivables or equipment under operating leases with amounts past due greater than 90 days with income still accruing.



Impaired Receivables



The carrying amounts of impaired receivables consisted of the following:



|                                                        |  |               |       |                  |   |      
|------------------------------------------------------- |  | ------------- | ----- | ---------------- | - | -----
|                                                        |  | March 31,2005 |       | December 31,2004
|Impaired receivables with specific impairment allowance |  | $             | 85    |                  | $ | 1,179
|Impaired receivables with no specific allowance         |  |               | 1,049 |                  |   | 1,053
|                                                       
|                                                        |  | $             | 1,134 |                  | $ | 2,232
|                                                       



As noted above, due to ATAs continued
financial difficulties, in 2004 we provided a specific impairment allowance to reserve for our collateral exposure related to our finance leases. As a result of the reclassification of our leases for the 757 aircraft with ATA from finance leases to
operating leases, there is no longer a specific impairment allowance for these receivables. At March 31, 2005, $7 of our impaired receivables with no specific impairment allowance related to receivables from ATA. At December 31, 2004, $705 of our
impaired receivables with specific impairment allowance related to receivables from ATA.



At December 31, 2004 we held $389 of specifically impaired receivables related to receivables from Hawaiian Airlines, Inc. (Hawaiian) that were fully reserved and secured by 717 and 767 aircraft. At March 31, 2005, the Hawaiian receivables
were no longer considered impaired, based on our evaluation of Hawaiians current financial condition and current performance under the aircraft leases.



At March 31, 2005 and December 31, 2004, we determined that a specific impairment allowance on $1,042 and $1,053, of our impaired receivables from United Air Lines, Inc. (United),
that are secured by 767 aircraft and 777 aircraft, was not necessary. Although United is performing under the terms of the restructuring at March 31, 2005, due to its continued operation under protection of the bankruptcy laws, we continue to deem
our receivables from United as impaired.



Receivables More than 90 Days Delinquent



The following table presents information related to receivables that are more than
90 days delinquent:



|                                                                                           |  |               |     |   |                  |   |     |  
|------------------------------------------------------------------------------------------ |  | ------------- | --- | - | ---------------- | - | --- | -
|                                                                                           |  | March 31,2005 |     |   | December 31,2004 |  
|Amount of delinquent installments                                                          |  | $             | 7   |   |                  | $ | 6   |  
|Receivable balance related to delinquent installments                                      |  | $             | 17  |   |                  | $ | 11  |  
|Receivable balance related to delinquent installments as a percentage of total receivables |  |               | 0.3 | % |                  |   | 0.2 | %
|Receivables due from delinquent obligors                                                   |  | $             | 17  |   |                  | $ | 11  |  
|Receivables due from delinquent obligors as a percentage of total receivables              |  |               | 0.3 | % |                  |   | 0.2 | %



11



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Impairments of equipment under operating leases and held for sale or re-lease



For the three months ended March 31, 2005 and 2004, we recorded pre-tax non-cash charges totaling $7
and $13 to record impairments of equipment under operating lease and held for sale or re-lease as a result of declines in market values and projected future rents for aircraft and equipment.



Note 6 Allowance for Losses on Receivables



The following table reconciles the changes in the allowance for losses on
receivables:



|                                                         |  |                             |      |   |      |   |     |  
|-------------------------------------------------------- |  | --------------------------- | ---- | - | ---- | - | --- | -
|                                                         |  | Three Months EndedMarch 31, |     
|                                                         |  | 2005                        |      |   | 2004 |  
|Allowance for losses on receivables at beginning of year |  | $                           | 240  |   |      | $ | 303 |  
|Provision for losses                                     |  |                             | 4    |   |      |   | 5   |  
|Write-offs, net of recoveries                            |  |                             | (119 | ) |      |   | (10 | )
|                                                         | 
|Allowance for losses on receivables at end of period     |  | $                           | 125  |   |      | $ | 298 |  
|                                                         | 
|Allowance as a percentage of total receivables           |  |                             | 2.5  | % |      |   | 4.9 | %



During the three months ended March 31, 2005, we
reduced the allowance for losses on receivables $119 as a result of the reclassification of our leases for the 757 aircraft with ATA from finance leases to operating leases. We increased the provision for losses $4 to provide for the effects of
declines in collateral values offset by the declines in the carrying values of our notes and finance lease receivables. During the three months ended March 31, 2004, we increased the provision for losses $5 to provide for the estimated change in the
collateral exposure of our notes and finance leases receivables, with the collateral exposure being the difference between the carrying value and the collateral value associated with the notes and finance lease receivables.



The allocation of the allowance for losses on receivables between specific reserves and general
purposes is as follows:



|                               |  |               |     |  |                  |   |  |   |     |  |       |  
|------------------------------ |  | ------------- | --- |  | ---------------- | - |  | - | --- |  | ----- | -
|                               |  | March 31,2005 |     |  | December 31,2004 |  
|Allocated to specific reserves |  | $             | 28  |  | 22.4             | % |  | $ | 222 |  | 92.5  | %
|Allocated for general purposes |  |               | 97  |  | 77.6             |   |  |   | 18  |  | 7.5   |  
|                               | 
|                               |  | $             | 125 |  | 100.0            | % |  | $ | 240 |  | 100.0 | %
|                               | 



As noted above in Note 5, Portfolio Quality,
there is no longer a specific impairment allowance for receivables from ATA and Hawaiian.



The following table reconciles, on a pro forma basis, the changes in the allowance for losses on receivables excluding the impact of intercompany guarantees from Boeing and any related accounting classification differences:



|                                                         |  |                                      |      |   |      |   |     |  
|-------------------------------------------------------- |  | ------------------------------------ | ---- | - | ---- | - | --- | -
|                                                         |  | Pro FormaThree Months EndedMarch 31, |     
|                                                         |  | 2005                                 |      |   | 2004 |  
|Allowance for losses on receivables at beginning of year |  | $                                    | 402  |   |      | $ | 400 |  
|Provision for losses                                     |  |                                      | 4    |   |      |   | 39  |  
|Write-offs, net of recoveries                            |  |                                      | (200 | ) |      |   | (10 | )
|                                                         | 
|Allowance for losses on receivables at end of period     |  | $                                    | 206  |   |      | $ | 429 |  
|                                                         | 
|Allowance as a percentage of total receivables           |  |                                      | 4.2  | % |      |   | 7.1 | %



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In connection with the reclassification of the ATA finance leases for the 757 aircraft to operating leases, we wrote down the
carrying value of our leases by $200 to the fair value of the underlying leased assets resulting in a $119 reduction to our allowance for losses on receivables and an $81 reduction to Boeings allowance for losses on receivables related to
certain leases guaranteed by Boeing. Additionally, during the three months ended March 31, 2004, Boeing increased the provision for losses by an additional $34 due to deteriorated airline credit ratings and depressed aircraft values.



Note 7 Investments



Available-for-sale securities consisted of the following:



|                        |  |               |     |     |                     |   |                     |  |   |                    |   |  |   |    
|----------------------- |  | ------------- | --- | --- | ------------------- | - | ------------------- |  | - | ------------------ | - |  | - | ---
|                        |  | AmortizedCost |     |     | GrossUnrealizedGain |   | GrossUnrealizedLoss |  |   | EstimatedFairValue
|March 31, 2005(1)(4)    |  | $             | 317 | (2) |                     | $ |                    |  | $ | (55                | ) |  | $ | 262
|                       
|December 31, 2004(1)(4) |  | $             | 364 | (3) |                     | $ |                    |  | $ | (39                | ) |  | $ | 325
|                       

|(1) |  | Primarily consists of pass-through trust certificates, commonly known as Enhanced Equipment Trust Certificates (EETCs).
|--- |  | -----------------------------------------------------------------------------------------------------------------------



|(2) |  | Related to the $317 at March 31, 2005, we had $10 in guarantees from Boeing and $4 in guarantees from a third party.
|--- |  | --------------------------------------------------------------------------------------------------------------------



|(3) |  | Related to the $364 at December 31, 2004, we had $10 in guarantees from Boeing and $5 in guarantees from a third party.
|--- |  | -----------------------------------------------------------------------------------------------------------------------



|(4) |  | These securities, except for the Delta Air Lines, Inc. (Delta) EETCs, have been in a continuous unrealized loss position for 12 months or longer.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------



Included in investments at March 31, 2005 and December 31, 2004 was $14 and $1 related to cost method
investments, which are not classified as available-for-sale securities for financial statement purposes.



At March 31, 2005, our available-for-sale investments included $257 of subordinated debt investments in several Equipment Trust Certificates (ETC), EETCs and a $5 investment in preferred stock. Approximately $125 of these
amounts related to investments that were acquired in 2002. Due to the commercial aviation market downturn, with the exception of the Delta EETC investments, these securities have been in a continuous unrealized loss position for 12 months or longer.
Despite the unrealized loss position of these securities, we have concluded that these EETC investments are not other-than-temporarily impaired. This assessment was based on the value of the underlying collateral to the securities, the term of the
securities, and both internal and third party credit reviews and analyses of the counterparties, principally major domestic airlines. Accordingly, we have concluded that it is probable that we will be able to collect all amounts due according to the
contractual terms of these debt securities and equity securities.



On March 4, 2005, we
completed the previously disclosed exchange transaction with Delta in which we exchanged our investment in a D tranche EETC investment with a carrying value of $145 and a face value of $176 for two C tranche EETC investments with a face value of
$176. During the three months ended March 31, 2005, the assets we received were recorded at their combined fair values of $143 and recorded an asset impairment charge of $2. As of March 31, 2005, the unrealized loss on the two C tranche EETC
investments was $14. At December 31, 2004, there was no unrealized loss on the Delta investment.



As of March 31, 2005, the two C tranche EETC investments and the other available-for-sale investments were marked-to-market, resulting in a decrease of $16 in investments. At March 31, 2005 and December 31, 2004, none of our investment
securities were considered investment grade securities.



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At March 31, 2005, maturities of debt securities were as follows:



|                           |  |                    |     |                     |   |    
|-------------------------- |  | ------------------ | --- | ------------------- | - | ---
|                           |  | Available-for-Sale
|                           |  | AmortizedCost      |     | EstimatedFair Value
|Due from one to five years |  | $                  | 226 |                     | $ | 189
|Due from five to ten years |  |                    | 60  |                     |   | 48 
|Due after ten years        |  |                    | 31  |                     |   | 25 
|                          
|                           |  | $                  | 317 |                     | $ | 262
|                          



Note 8 Debt and
Credit Agreements



Debt consisted of the following:



|                                                                           |  |               |       |                  |   |      
|-------------------------------------------------------------------------- |  | ------------- | ----- | ---------------- | - | -----
|                                                                           |  | March 31,2005 |       | December 31,2004
|Senior debt:                                                               |  |               |       |                  |   |      
|Variable rate (three-month LIBOR plus 0.6%) note due 2012                  |  | $             | 5     |                  | $ | 5    
|4.75% note due 2008                                                        |  |               | 488   |                  |   | 498  
|5.65% note due 2006                                                        |  |               | 510   |                  |   | 514  
|5.75% note due 2007                                                        |  |               | 748   |                  |   | 748  
|5.80% note due 2013                                                        |  |               | 604   |                  |   | 610  
|6.10% note due 2011                                                        |  |               | 765   |                  |   | 772  
|6.50% note due 2012                                                        |  |               | 749   |                  |   | 757  
|7.375% note due 2010                                                       |  |               | 523   |                  |   | 537  
|Non-recourse variable rate note due 2012 (one-month LIBOR plus 1.1%-2.46%) |  |               | 45    |                  |   | 45   
|4.84% - 5.79% non-recourse notes due through 2013                          |  |               | 39    |                  |   | 39   
|3.15% - 6.75% retail medium-term notes due through 2017                    |  |               | 874   |                  |   | 874  
|3.14% - 7.64% medium-term notes due through 2023                           |  |               | 1,215 |                  |   | 1,345
|1.67% - 7.35% capital lease obligations due through 2015                   |  |               | 265   |                  |   | 280  
|                                                                          
|                                                                           |  | $             | 6,830 |                  | $ | 7,024
|                                                                          



The most restrictive provisions of various debt
agreements require us to (a) limit the payment of cash dividends to the extent that our consolidated assets would be less than 115% of our consolidated liabilities (excluding deferred taxes) after dividend payments and (b) restrict the amount of
liens on our property to secure indebtedness to 15% or less of consolidated assets, other than liens specifically excluded. At March 31, 2005, as well as during the period, we were in compliance with these and all debt covenants.



Since November 21, 2003, $750 of Boeings five-year revolving credit line expiring in 2008 has
been exclusively available to us. This is in addition to $1,250 of Boeings $2,000 364-day revolving credit line, which is exclusively available to us. At March 31, 2005, there were no amounts outstanding under these agreements.



Note 9 Share-Based Plans Expense



In December 2004, the FASB issued SFAS No. 123 (revised 2004) (SFAS No. 123R), Share-Based
Payment. We have early adopted the provisions of SFAS No. 123R as of January 1, 2005 using the modified prospective method.



14



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Included in operating expenses are costs attributable to share-based plans expense. For the three months ended March 31, 2005 and
2004, we recorded $10 and $2 attributable to share-based plans expense. Share-based plans expense relates to Boeing Performance Shares issued to our executives. Performance Shares are stock units that are convertible to Boeing stock contingent upon
the Boeing stock price performance.



During the three months ended March 31, 2005, the
Boeing stock price, on two occasions, met the thresholds that resulted in Performance Shares converting to Boeing stock. Of the $10 recorded, for the three months ended March 31, 2005, $1 related to compensation expense reflecting the attainment of
these thresholds.



For Performance Shares granted prior to 2005, share-based expense
associated was determined based on the market value of Boeings stock at the time of the award applied to the maximum number of shares contingently issuable based on stock price, and was amortized over a five-year period.



For Performance Shares granted in 2005, the fair value of each award was estimated on the date of grant
using a Monte Carlo simulation model instead of the grant date market price used for previous awards. We changed our valuation technique based on further clarification provided in SFAS No.123R and the fact that our Performance Shares contain a
market condition, which should be reflected in the grant date fair value of an award.



Note 10 Derivative Financial Instruments



We are exposed to a variety of market risks, including the effects of changes in interest rates and foreign currency exchange rates. We manage these exposures, in part, with the use of derivatives. In particular, we enter into
interest rate swap and cross currency swap contracts with a number of major financial institutions. Since we believe it is unlikely that any of our counterparties will be unable to perform under the terms of derivative financial instruments, we
generally do not require collateral or other security supporting derivative contracts with our counterparties. The following is a summary of our risk management strategies and the effects of these strategies on the condensed consolidated financial
statements.



Fair Value Hedges



Interest rate swaps, under which we agree to pay variable rates of interest, are designated as fair
value hedges of fixed rate debt. For our fair value hedges that qualify for hedge accounting treatment we use the short-cut method, and thus there are no gains or losses realized due to hedge ineffectiveness. Unrealized gains or losses from the
value changes of fair value hedges are offset by changes in the fair value of the hedged underlying debt. In addition, the transition adjustment related to fair value hedges that did not qualify for hedge accounting treatment under SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended, is being reclassified into interest income over the remaining maturity of the hedged debt.



During the three months ended March 31, 2005 and 2004, we recorded $3 and $4 of gains related to the basis adjustment of certain terminated swaps in
interest expense.



Cash Flow Hedges



The cash flow hedges we use include certain interest rate swaps and cross currency swaps. Interest
rate swap contracts under which we agree to pay a fixed rate of interest are designated as cash flow hedges of variable-rate debt obligations. In addition, cross currency swap contracts under which we agree to pay fixed functional currency rates of
interest are designated as cash flow hedges of fixed non-functional currency debt obligations.



15



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##### Table of Contents

For our cash flow hedges that qualify for hedge accounting treatment we use the short-cut method, and thus there are no gains or
losses realized due to hedge ineffectiveness. We record unrealized gains or losses from the fair value changes of cash flow hedges in accumulated other comprehensive income. We also reclassified into interest income over the remaining maturity of
the hedged variable rate debt the transition adjustment related to cash flow hedges that were recorded in accumulated other comprehensive income as they did not qualify for hedge accounting treatment under SFAS No. 133, as amended.



At March 31, 2005 and December 31, 2004, we recorded net unrealized gains of $1 and $0 net of tax in
accumulated other comprehensive income/loss related to our cash flow hedging transactions.



Non-hedging Derivative Instruments



We hold certain interest exchange
agreements, on which we have elected not to receive hedge accounting treatment, and related interest rate swaps and fair value hedges that do not qualify for hedge accounting treatment. For the three months ended March 31, 2005 and 2004, we recorded
net losses of $1 on all non-hedging derivative instruments.



We hold certain warrants
which we received prior to 2004 as part of financing transactions. As of March 31, 2005 and December 31, 2004, these warrants were reflected in other assets at a fair value of $5 and $6. For the three months ended March 31, 2005 and 2004, the
warrants recorded in other assets had changes in fair value resulting in a reduction to other income of $1 and $0.



Note 11 Commitments and Contingencies



Litigation



Various legal proceedings and claims are pending or have been asserted against us, many of which are covered by third parties, including insurance companies. We believe that the
final outcome of these proceedings and claims will not have a material adverse effect on our earnings, cash flows and/or financial position.



Restructurings and Restructuring Requests



At March 31, 2005 and December 31, 2004, United accounted for $1,118 and $1,131 (11.9% and 11.7%) of our total portfolio. At March 31, 2005, our United portfolio was secured by
security interests in two 767 aircraft and 13 777 aircraft and by an ownership and security interests in five 757 aircraft. At March 31, 2005, United was our second largest customer. United continues to operate under Chapter 11 bankruptcy
protection. On June 28, 2004, Uniteds application to obtain federal loan guarantees was denied by the Airline Transportation Stabilization Board, which also withdrew Uniteds eligibility to reapply. In March 2005, United obtained approval
from the bankruptcy court to extend its debtor-in-possession financing credit facilities through September 30, 2005. United is continuing to pursue alternative financing through private investors. At March 31, 2005, United was current on all of its
obligations related to these 20 aircraft.



United retains certain rights by operating
under Chapter 11 bankruptcy protection, including the right to reject the restructuring terms with its creditors and return aircraft, including our aircraft. The terms of our restructuring with United, which were approved by the federal bankruptcy
court, set forth the terms under which all 20 aircraft financed by us are expected to remain in service upon Uniteds emergence from Chapter 11 protection. If United exercises its right to reject the agreed upon restructuring terms, the terms
of all of the leases and loans with United would immediately revert to the original terms, which are generally less favorable to United. United would retain its rights under Chapter 11 to return our aircraft in the event of a reversion to the
original lease and loan terms. During the fourth quarter of 2004, United requested that we restructure our financing terms further as part of its ongoing efforts to emerge from bankruptcy. We are currently evaluating the request from United.



16



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##### Table of Contents

At March 31, 2005 and December 31, 2004, ATA accounted for $501 and $705 (5.4% and 7.3%) of our total portfolio. At March 31, 2005,
the ATA portfolio consisted of 12 operating leases for 757 aircraft and a note receivable.



On October 26, 2004, ATA filed for Chapter 11 bankruptcy protection. As a result, on December 29, 2004, we entered into an agreement in principle with ATA whereby ATA agreed to continue to lease the 12 757s under restructured terms and
agreed to return eight of the 12 757s during the second half of 2005 and early 2006. The restructured lease terms with ATA, including ATAs agreement to return the eight aircraft starting in July 2005 are subject to approval by the bankruptcy
court. ATA is obligated to pay rent on all aircraft until returned. During the first three months of 2005, following completion of certain conditions, we reclassified the 12 757 finance leases to operating leases due to new lease terms negotiated
with ATA. We reduced the carrying value of the leases by $200 to the fair value of the underlying leased assets, of which $119 was recorded as a reduction to the allowance for losses on receivables and $81 was recorded as an intercompany guarantee
payable from Boeing, which was owed to us by Boeing at March 31, 2005. In addition, we negotiated a settlement of the guarantees with Boeing for certain 757 leases for $66, which was owed by Boeing at March 31, 2005, and recorded the settlement as
unearned lease income. With regard to eight of the 12 aircraft, we have entered into an agreement with Continental Airlines, Inc. (Continental) to lease the aircraft for periods ranging from five to eight years. The timing of the aircraft returns
should enable us to meet the delivery dates committed to Continental as part of the agreement.



At March 31, 2005 and December 31, 2004, Hawaiian accounted for $457 and $456 (4.9% and 4.7%) of our total portfolio. At March 31, 2005, the Hawaiian portfolio consisted of 11 717 aircraft and three 767 aircraft. Hawaiian filed for Chapter
11 bankruptcy protection on March 21, 2003. On March 10, 2005, the U.S. Bankruptcy Court approved a proposed reorganization plan subject to ratification of labor agreements with Hawaiians pilots. Hawaiian is planning to emerge from bankruptcy
during the second quarter of 2005.



Hawaiian retains certain rights by operating under
Chapter 11 bankruptcy protection, including the right to reject restructuring terms with its creditors and return aircraft, including our aircraft. The terms of our restructuring with Hawaiian, which were approved by the federal bankruptcy court,
set forth the terms under which all 14 aircraft financed by us are expected to remain in service upon Hawaiians emergence from Chapter 11 protection.



At March 31, 2005 and December 31, 2004, Viacao Aerea Rio-Grandense (VARIG) accounted for $389 and $400 (4.2% and 4.1%) of our total portfolio. At March 31, 2005, the VARIG
portfolio consisted of two 737 aircraft and nine MD-11 aircraft. In recent years, VARIG has repeatedly defaulted on its obligations under leases with us, which has resulted in deferrals and restructurings, some of which are ongoing. Boeing has
provided us with first loss deficiency and partial rental guarantees covering $321 of the VARIG obligations. Taking into account these guarantees, we do not expect the VARIG transactions, including the impact of any restructurings, to have a
material adverse effect on our earnings, cash flows and/or financial position. We expect to reduce our asset exposure with VARIG during the second quarter of 2005 by exercising an option to terminate two MD-11 leases and selling the aircraft to
Boeings Commercial Airplanes segment which in turn intends to sell the aircraft to another customer.



We have reviewed our obligations due from our customers for collectibility and have established specific or general allowances as we deemed necessary. In addition to the customers discussed above, some other customers have
requested a restructuring of their transactions with us. We have not reached agreement on any other restructuring requests that we believe would have a material adverse effect on our earnings, cash flows and/or financial position.



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At March 31, 2005, Boeing and its indirect wholly owned subsidiary, BCSC, had unfunded commercial aircraft financing commitments of
$8,716. Based on historical experience, it is not anticipated that all of these commitments will be exercised by the customer. However, if there were to be a requirement to fund all of these commitments, the timing in which these commitments expire
is as follows:



|- |  | up to $853 may be funded in less than one year,
|- |  | -----------------------------------------------

|- |  | an additional $3,281 may be funded in one to three years,
|- |  | ---------------------------------------------------------

|- |  | an additional $2,619 may be funded in three to five years, and
|- |  | --------------------------------------------------------------

|- |  | an additional $1,963 may be funded after five years.
|- |  | ----------------------------------------------------



We expect to ultimately provide funding for those commitments which are exercised.



In addition to the unfunded commercial aircraft financing commitments by Boeing and its indirect wholly owned subsidiary, BCSC, we had commitments to provide leasing and other
financing totaling $628 at March 31, 2005. Based on historical experience, we do not anticipate that we will fund all of these commitments. However, if we were required to fund all unfunded commitments:



|- |  | up to $271 may be funded in less than one year, and
|- |  | ---------------------------------------------------

|- |  | up to $357 may be funded in one to three years.
|- |  | -----------------------------------------------



We expect to ultimately fund a portion of these unfunded commitments.



Note 12 Off-Balance Sheet Arrangements



We are a party to off-balance sheet arrangements, including guarantor obligations and variable interests in unconsolidated entities.



Guarantor Obligations



The following table provides data regarding our third party guarantees. The maximum potential payment amounts represent a worst-case
scenario, and do not necessarily reflect results that we expect. Estimated proceeds from collateral and recourse represent the anticipated values of assets we could liquidate or receive from other parties to offset our payments under
guarantees. The carrying value of liabilities recorded on the condensed consolidated balance sheets reflects fees received for extending these guarantees.



|                          |  |                          |    |                                           |   |                                |  |   |  
|------------------------- |  | ------------------------ | -- | ----------------------------------------- | - | ------------------------------ |  | - | -
|                          |  | MaximumPotentialPayments |    | EstimatedProceedsFromCollateral/ Recourse |   | CarryingValue ofLiabilities(2)
|March 31, 2005            |  |                          |    |                                           |   |                                |  |   |  
|Residual value guarantees |  | $                        | 75 |                                           | $ | 75                             |  | $ | 4
|Deficiency guarantees(1)  |  |                          | 7  |                                           |   |                               |  |   | 
|                         
|                          |  | $                        | 82 |                                           | $ | 75                             |  | $ | 4
|                         
|December 31, 2004         |  |                          |    |                                           |   |                                |  |   |  
|Residual value guarantees |  | $                        | 75 |                                           | $ | 75                             |  | $ | 4
|Deficiency guarantees(1)  |  |                          | 7  |                                           |   |                               |  |   | 
|                         
|                          |  | $                        | 82 |                                           | $ | 75                             |  | $ | 4
|                         

|(1) |  | This amount is indemnified by Boeing.
|--- |  | -------------------------------------



|(2) |  | Amounts included in other liabilities.
|--- |  | --------------------------------------



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Current outstanding deficiency guarantees expire within the next eight years.



Material Variable Interests in Unconsolidated Entities



As of March 31, 2005, we believe that our maximum exposure to economic loss from ETC and EETCs is
$257, which represents our investment balance. Accounting losses, if any, from period to period could differ. At March 31, 2005, the ETC and EETC transactions we participated in had total assets of $2,675 and total debt (which is non-recourse to us)
of $2,418. During the first quarter of 2005, we recorded revenue of $10 and cash flows of $23 related to these investments.



We believe that our maximum exposure to economic loss from non-consolidated Special Purpose Entities (SPE) arrangements that are VIEs is $40, which represents our investment
balance. Accounting losses, if any, from period to period could differ. At March 31, 2005, these SPE arrangements had total assets of $441 and total debt (which is non-recourse to us) of $401. During first quarter of 2005, we recorded revenue of $1
and cash flows of $4 related to these SPEs.



Capital lease obligations



We have off-balance sheet arrangements that relate to capital lease obligations for four
cross-border financing transactions each involving an MD-11 aircraft leased by us and subleased to our commercial aircraft customers. At March 31, 2005 these transactions included restricted cash deposits denominated in yen for the equivalent of
$110 and an equal amount of liabilities reflecting our obligations to purchase underlying aircraft with these deposits by 2008. These liabilities and corresponding deposits are considered defeased based upon their structure.



Note 13 Concentrations



Generally, each asset in our portfolio is backed both by the value of the equipment that we have
financed and by a particular customers credit. Our risk is that both a customer defaults and the current market value of the related equipment does not equal or exceed the amount of our investment. That risk is sometimes mitigated by
cross-collateralization or other transactional features. Our risk is also frequently mitigated by transactional support provided by Boeing; that support itself is concentrated on the 717 financing in our portfolio. Because of our mission, our
portfolio is concentrated in Boeing equipment financed for Boeing customers. However, because our risk of loss is determined by many factors, the single-factor analyses of our portfolio shown below should not be interpreted as defining our
concentrations of risk.



Portfolio carrying values for our five largest customers were as
follows:



|         |  |                |       |                     |                   |   |                |   |                     |  |      |  
|-------- |  | -------------- | ----- | ------------------- | ----------------- | - | -------------- | - | ------------------- |  | ---- | -
|         |  | March 31, 2005 |       |                     | December 31, 2004 |  
|         |  | Carrying value |       | % of TotalPortfolio |                   |   | Carrying value |   | % of TotalPortfolio | 
|AirTran  |  | $              | 1,612 |                     | 17.2              | % |                | $ | 1,571               |  | 16.2 | %
|United   |  |                | 1,118 |                     | 11.9              |   |                |   | 1,131               |  | 11.7 |  
|American |  |                | 766   |                     | 8.2               |   |                |   | 779                 |  | 8.0  |  
|ATA      |  |                | 501   |                     | 5.4               |   |                |   | 705                 |  | 7.3  |  
|Hawaiian |  |                | 457   |                     | 4.9               |   |                |   | 456                 |  | 4.7  |  
|         |  |                |       |                     |                   |   |                |   |                     |  |      |  
|         |  | $              | 4,454 |                     |                   |   |                | $ | 4,642               |  |      |  
|         |  |                |       |                     |                   |   |                |   |                     |  |      |  



At March 31, 2005 and December 31, 2004, the
AirTran Holdings, Inc. (AirTran) portfolio consisted of 71 and 69 717 aircraft and an EETC investment with a carrying value of $25. For the three months ended March 31, 2005 and 2004, AirTran accounted for more than 10% of our revenue.



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At March 31, 2005 and December 31, 2004, the American Airlines, Inc. (American) portfolio consisted of leases on 39 MD-83 aircraft
and four MD-82 aircraft, subordinated debt in one 777 aircraft, and final delivery payment loans on nine 767 aircraft and two 777 aircraft.



Portfolio carrying values were represented in the following regions:



|               |  |                |       |                     |                   |   |                |   |                     |  |       |  
|-------------- |  | -------------- | ----- | ------------------- | ----------------- | - | -------------- | - | ------------------- |  | ----- | -
|               |  | March 31, 2005 |       |                     | December 31, 2004 |  
|               |  | Carrying Value |       | % of TotalPortfolio |                   |   | Carrying Value |   | % of TotalPortfolio | 
|United States  |  | $              | 6,628 |                     | 70.8              | % |                | $ | 6,898               |  | 71.3  | %
|Europe         |  |                | 1,189 |                     | 12.7              |   |                |   | 1,218               |  | 12.6  |  
|Asia/Australia |  |                | 849   |                     | 9.1               |   |                |   | 843                 |  | 8.7   |  
|Latin America  |  |                | 599   |                     | 6.4               |   |                |   | 616                 |  | 6.3   |  
|Other          |  |                | 96    |                     | 1.0               |   |                |   | 105                 |  | 1.1   |  
|               | 
|               |  | $              | 9,361 |                     | 100.0             | % |                | $ | 9,680               |  | 100.0 | %
|               | 



Portfolio carrying values were represented by
the following product types:



|                     |  |               |       |                  |   |      
|-------------------- |  | ------------- | ----- | ---------------- | - | -----
|                     |  | March 31,2005 |       | December 31,2004
|717                  |  | $             | 2,476 |                  | $ | 2,413
|737                  |  |               | 740   |                  |   | 778  
|747                  |  |               | 540   |                  |   | 548  
|757                  |  |               | 1,247 |                  |   | 1,461
|767                  |  |               | 1,028 |                  |   | 1,090
|777                  |  |               | 1,095 |                  |   | 1,061
|Out of production(1) |  |               | 1,467 |                  |   | 1,503
|Other                |  |               | 768   |                  |   | 826  
|                    
|                     |  | $             | 9,361 |                  | $ | 9,680
|                    

|(1) |  | This excludes 757 carrying values.
|--- |  | ----------------------------------



Our aircraft related portfolio (excluding investments) was comprised of the following aircraft vintages:



|                            |  |                |   |  |                   |  
|--------------------------- |  | -------------- | - |  | ----------------- | -
|                            |  | March 31, 2005 |   |  | December 31, 2004 |  
|2005  2000                 |  | 68.3           | % |  | 68.5              | %
|1999  1995                 |  | 13.6           |   |  | 13.5              |  
|1994  1990                 |  | 11.0           |   |  | 11.0              |  
|1989  1985                 |  | 4.8            |   |  | 4.7               |  
|1984 and older              |  | 1.9            |   |  | 1.9               |  
|Secured by other collateral |  | 0.4            |   |  | 0.4               |  
|                            | 
|                            |  | 100.0          | % |  | 100.0             | %
|                            | 



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Item 2. Managements Narrative Analysis of the Results of Operations



Forward-Looking Information Is Subject to Risk and Uncertainty



From time to time, we may make statements that contain projections or forward-looking information (as defined in the U.S. Private Securities Litigation
Reform Act of 1995) that involve risk and uncertainty. The words aim, plan, likely, believe, expect, anticipate, intend, estimate, will,
should, could, may and other expressions that indicate future events and trends identify forward-looking statements. These statements are not guaranties of future performance and involve risks, uncertainties and
assumptions that are difficult to predict. Forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Actual outcomes and results may differ materially from what we express or forecast in these
forward-looking statements. As a result, these statements speak only as of the date they were made and we undertake no obligation to publicly update or revise any forward-looking statements. Certain statements in this Form 10-Q, and particularly in
the notes to condensed consolidated financial statements in Item 1 of Part I, Item 2 of Part I, Item 1 of Part II, and Item 5 of Part II may contain forward-looking information. The subject matter of these statements may include, but are not limited
to, effects of future terrorist threats or attacks, the impact on us of strategic decisions by Boeing, the level of new financing opportunities made available to us by Boeing, future earnings, costs, expenditures, losses, liquidity, residual values,
the impact of interest rates or currency changes on us, our ability to meet our contractual obligations, our access to capital markets and various business environment trends including the state of the economy, in general, and the airline industry,
in particular. In addition to those contained herein, forward-looking statements and projections may be made by us orally or in writing including, but not limited to, various sections of our filings with the SEC under the Securities Act of 1933 and
the Securities Exchange Act of 1934.



Our actual results and future
trends may differ materially from our forward-looking statements depending on a variety of factors including, but not limited to, our relationship with Boeing, as well as strategic decisions of Boeing relating to us, the effects of future terrorist
threats or attacks and the continuing impact on the airline industry, wars, the capital equipment requirements of U.S. domestic and foreign businesses, general economic conditions, and in particular, economic conditions in the airline industry and
the continued operation, viability and growth of major airline customers, capital availability and cost, changes in laws and tax benefits, the tax position of Boeing (including the applicability of the alternative minimum tax), competition from
other financial institutions, our successful execution of internal operating plans and strategy, defaults or bankruptcies by customers (especially airlines), adverse developments in the value of collateral or owned assets (especially aircraft),
termination of aircraft manufacturing programs, regulatory uncertainties, legal proceedings and an adverse development in rating agency credit ratings or assessments.



Business Environment and Trends



For the commercial aircraft market, we facilitate, arrange, structure and/or provide selective financing solutions to Boeings Commercial Airplanes segment customers. For the
defense and space markets, we primarily engage in arranging and structuring financing solutions for Boeings Integrated Defense Systems segment government and commercial customers.



On May 24, 2004, we entered into a purchase and sale agreement with GECC to sell substantially all of the assets related to our former CFS business,
which was primarily engaged in providing lease and loan financing to a broad range of commercial and industrial customers. The final asset sale closed on December 27, 2004. As a result, the information presented in this report including, Item
1. Financial Statements and Item 2. Managements Narrative Analysis of the Results of Operations, reflects the CFS business as discontinued operations for all periods.



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At March 31, 2005, our portfolio consisted of finance leases, notes and other receivables, equipment under operating leases,
investments and assets held for sale or re-lease.



At March 31, 2005, we owned 343
commercial aircraft and four C-40 aircraft and had partial ownership or security interest in an additional 204 aircraft, including those owned in joint ventures, EETCs, ETCs and other investment transactions.



The world economy continues to show broad growth led by strong economic growth in the U.S. and China.
As a result, world air traffic levels in the first quarter of 2005 continue to rise above traffic levels carried by the airlines in 2000. All regions of the world are showing traffic levels above prior highs, although in some regions, such as the
U.S. domestic market, this volume is a result of low fares. However, fares are not as low as in the recent past as fare increases have been sustained.



The increase in demand has produced high load factors, but not industry wide profitability in large part due to a significant increase in the price of jet fuel. The worldwide price
of crude oil that began rising in mid 2003 has recently achieved new highs. The worlds airlines have made great strides in cost efficiency, only to see those improvements be more than offset by price increases of jet fuel. However, financial
performance varies widely among carriers. Although U.S. network carriers continue to struggle, carriers outside the U.S. are generally more profitable. Profitability also varies among the different types of airlines as their different business
models are proving to be vulnerable or robust to the changing business environment.



Exogenous shocks still represent further major uncertainties for the airline industry. Recurrence of disease outbreaks, increasing armed conflict, and/or terrorist attacks focused on air travel all represent threats to the airline
industrys recovery. A prolonged period of oil prices at current high levels also represents a risk both due to the potential negative impact on worldwide economic growth as well as airline profitability as a result of higher jet fuel prices.
Future profitability is also impacted by continued competitive fare pricing or a lack of improvement in yields. Future airline profitability may lead to an increase in demand for new and used aircraft resulting in overall increases in values and
lease rates for the aircraft in our portfolio.



Aircraft values and lease rates are also
impacted by the number and type of aircraft that are currently out of service. Approximately 1,900 commercial jet aircraft (10.9% of the current world fleet) continue to be parked, including both in production and out of production types of aircraft
of which over 50% are not expected to return to service.



Our portfolio at the end of the
first quarter of 2005 totaled $9.4 billion, of which $9.0 billion was related to Boeing products, primarily commercial aircraft. While worldwide traffic levels are well above traffic levels carried by the airlines in 2000, the effects of declining
yields and higher fuel prices on the airline industry continue to impact commercial aircraft values. Recently published sources and market transactions indicate that, while lease rates for aircraft are increasing, values for the various aircraft
types serving as collateral in our portfolio generally have not increased. Aircraft valuations could decline materially if significant numbers of aircraft, particularly types with relatively few operators, are idled on account of further airline
bankruptcies or restructurings. At the same time, the credit ratings of many airlines, particularly in the U.S., have remained at low levels. A substantial portion of our portfolio is concentrated among U.S. commercial airline customers. Certain
customers have filed for bankruptcy protection or requested lease or loan restructurings; these negotiations were in various stages as of March 31, 2005. These bankruptcies or restructurings could have a material adverse effect on our earnings, cash
flows and/or financial position. See Note 11 of the notes to condensed consolidated financial statements for a discussion on our restructurings and restructuring requests.



On January 12, 2005, Boeing decided to conclude production of the 717 program in 2006 due to the lack of overall market demand for the aircraft. While
we continue to believe in the utility and



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marketability of the 717 aircraft, we are unable to predict whether or how the end of the 717 program, as well as overall market conditions, may impact 717 aircraft
values and rental rates. At March 31, 2005, $2.5 billion of our portfolio was collateralized by 717 aircraft. At March 31, 2005, we were the beneficiary under $1.8 billion of guarantees from Boeing covering $2.4 billion of our 717 portfolio. Should
the 717 aircraft suffer a significant decline in utility and market acceptance, the aircraft values or rental rates may decline, which could result in an increase to the allowance for losses on receivables or an impairment expense. While we are
unable to predict the likelihood of these impacts occurring, such impacts could result in a potential material adverse effect on our earnings, cash flows and/or financial position.



Consolidated Results of Operations



Overview



During the first quarter of 2005, we continued to focus on supporting Boeings major businesses and managing our overall corporate exposures.



Our portfolio at March 31, 2005 decreased to $9.4 billion from $9.7 billion at December 31, 2004 due to a reduction in new business volume in 2005 compared with 2004 and the impact
of the restructuring certain finance leases to operating leases resulting in a $200 million write-down. At March 31, 2005 and December 31, 2004, we had $33 million and $37 million of assets that were held for sale or re-lease, of which $13 million
and $25 million were identified with firm contracts to be placed on lease.



Additionally,
leases with a carrying value of approximately $549 million are scheduled to terminate in the next twelve months. The related aircraft will be remarketed. At March 31, 2005, aircraft with a carrying value of $141 million have contracts in place to be
sold or placed on lease. While we have historically been successful in placing aircraft, potential delays in selling or placing these assets on lease at reasonable rates or declines in value may negatively affect our earnings, cash flows and/or
financial position.



The following table summarizes the net change in our total
portfolio:



|                                            |  |                                  |      |   |                            |   |      |  
|------------------------------------------- |  | -------------------------------- | ---- | - | -------------------------- | - | ---- | -
|(Dollars in millions)                       |  | Three Months EndedMarch
31, 2005 |      |   | Year EndedDecember 31,2004 |  
|New business volume                         |  | $                                | 91   |   |                            | $ | 606  |  
|Non-cash charge from customer restructuring |  |                                  | (200 | ) |                            |   |     |  
|Asset impairment and other related charges  |  |                                  | (9   | ) |                            |   | (107 | )
|Asset run-off and dispositions              |  |                                  | (140 | ) |                            |   | (719 | )
|Depreciation expense                        |  |                                  | (61  | ) |                            |   | (218 | )
|                                            | 
|Net change in portfolio balance             |  | $                                | (319 | ) |                            | $ | (438 | )
|                                            | 



Our net income was $29 million for the three
months ended March 31, 2005 compared with $56 million for the same period in 2004, a change of $27 million. Our return on assets for the three months ended March 31, 2005 and 2004 was 0.29% and 0.44%.



The decrease in our net income and return on assets in the first three months of 2005 compared with the
same period in 2004 was primarily due the absence of a gain on disposal of assets in the first three months of 2005 compared with an $18 million net gain on disposal of assets in the first three months of 2004 and continued lower new business
volume. During the first quarter of 2005, the weighted average annual effective interest rate rose nominally, consistent with market interest rate changes. While most of our debt is fixed-rate, we closely match variable rate debt with variable rate
portfolio assets to mitigate any overall earnings impact caused by interest rate changes. As noted above, leases were reclassified from finance leases to operating leases, resulting in increased operating lease income and increased depreciation
expense.



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##### Table of Contents

Results of Operations



Finance revenue (revenue from finance leases, notes and other receivables and equipment under operating leases) was as follows:



|                                    |  |                             |     |      |   |    
|----------------------------------- |  | --------------------------- | --- | ---- | - | ---
|                                    |  | Three Months EndedMarch 31,
|(Dollars in millions)               |  | 2005                        |     | 2004
|Finance lease income                |  | $                           | 48  |      | $ | 57 
|Interest income on notes receivable |  |                             | 43  |      |   | 45 
|Operating lease income              |  |                             | 124 |      |   | 109
|                                   
|                                    |  | $                           | 215 |      | $ | 211
|                                   



The fluctuations within each component of
financing revenue closely follow the change in mix of our portfolio in the first three months of 2005 compared with the same period in 2004.



The decrease in finance lease income for the three months ended March 31, 2005 compared with same period in 2004 was due to a decrease in finance lease assets, as asset run-off
exceeded the new leases entered into during the first three months of 2005. Additionally, we reclassified certain finance leases to operating leases resulting in reduced finance lease income in 2005.



The decrease in interest income on notes receivable for the three months ended March 31, 2005 compared
with the same period in 2004 was due to a decrease in the size of our notes receivable portfolio during the last part of 2004 offset by increases in the underlying rates on our variable rate loans.



The increase in operating lease income for the three months ended March 31, 2005 compared with the same
period in 2004 reflects the increased number of operating leases.



Net gain on
disposal for the three months ended March 31, 2005 was $0 compared with $18 million for the same period in 2004, a decrease of $18 million. The decrease was due an $18 million gain on sale of partial interests in a note receivable during the
three months ended March 31, 2004, compared with no such gains during the same period in 2005. These types of gains are intermittent in nature and depend in part on market conditions at the time of the disposal and our decision to sell or re-lease
when aircraft are returned. There can be no assurance that we will recognize such gains in the future.



Other income for the three months ended March 31, 2005 and 2004 was $12 million. The income for the three months ended March 31, 2005 was primarily due to income of $9 million related to expired commitment fees in the
first quarter of 2005. The income for the three months ended March 31, 2004 primarily consisted of income related to supplemental rents for aircraft maintenance on expired leases.



Interest expense for the three months ended March 31, 2005 was $89 million compared with $84 million for the same period in 2004, an increase
of $5 million. The increase in interest expense is primarily due to an increase in weighted average annual effective interest rate incurred on all borrowings to 5.14% during the first three months of 2005 from 4.52% during the same period in 2004
partially offset by a reduction in average debt balances.



Depreciation expense
(on equipment under operating leases and equipment held for re-lease) for the three months ended March 31, 2005 was $61 million compared with $55 million for the same period in 2004, an increase of $6 million. The increase in depreciation expense
was primarily due to the increase in equipment under operating leases.



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Provision for losses for the three months ended March 31, 2005 was $4 million compared with $5 million for the same period
in 2004. We recorded a provision for losses for the three months ended March 31, 2005 and March 31, 2004 to provide for the estimated change in collateral exposure of our notes and finance lease receivable, with collateral exposure being the
difference between the carrying value and the collateral value associated with the notes and finance lease receivable. The decrease in the size of the provision is due to the change in the size and mix of our portfolio.



Operating expense, which consists of general and administrative expenses, for the three months
ended March 31, 2005 was $25 million compared with $12 million for the same period in 2004, an increase of $13 million. The increase was primarily attributable to share-based plans expense of $8 million and our share of costs to support
Boeings enterprise wide common finance information system initiative of $3 million.



Asset impairment expense for the three months ended March 31, 2005 was $9 million compared with $13 million for the same period in 2004, a decrease of $4 million. In 2005, we reduced the carrying value of one aircraft by $7 million
due to the bankruptcy of the lessee. In addition, we recorded $2 million for a loss realized on the exchange of the Delta EETC investments. The $13 million impairment expense during the first three months of 2004 resulted from reduced projected cash
flows and deteriorated aircraft values for particular operating lease assets and assets held for sale or re-lease.



Other expense for the three months ended March 31, 2005 was $7 million compared with $10 million for the same period in 2004, a decrease of $3 million. The decrease was
primarily due to a decrease in aircraft modification expense.



Provision for income
taxfor the three months ended March 31, 2005 was $15 million compared with $26 million for the same period in 2004, a decrease of $11 million. The reduction in the pre-tax income for the first quarter of 2005 compared with the same period in
2004 was primarily responsible for the decrease.



Income from discontinued
operations, net of tax, for the three months ended March 31, 2005 was $0 compared with $9 million for the same period in 2004, a decrease of $9 million due to the sale of substantially all of our CFS business in 2004. Revenue from this business
was $2 million during the first three months of 2005 compared with $56 million in same period in 2004.



Liquidity and Capital Resources



We have liquidity
requirements, primarily to fund ongoing financing commitments, meet debt obligations and to fund our operating expenses. We plan to satisfy these liquidity needs from the following sources:



|- |  | cash from operations and other receipts from our portfolio,
|- |  | -----------------------------------------------------------

|- |  | issuance of commercial paper and other debt,
|- |  | --------------------------------------------

|- |  | asset sales and securitization, and
|- |  | -----------------------------------

|- |  | fundings from Boeing
|- |  | --------------------



Outstanding debt at March 31, 2005 decreased to $6.8 billion from $7.0 billion at December 31, 2004. During first quarter of 2005, we did not issue any new debt and had no commercial paper outstanding. Leverage (ratio of debt to equity) at
March 31, 2005 and December 31, 2004 was 5.0-to-1.



We attempt to schedule our debt
payments to correspond to our scheduled receipts from our portfolio. We satisfy a significant portion of our cash requirements from diversified global funding sources and do not depend on any one lender. We believe that we have adequate liquidity
sources and access to the capital markets to allow us to fulfill our current commitments. If this belief does not prove to be correct, we would be required to restrict our new business volume, unless we obtained access to other sources of capital at
rates that allow for a reasonable return on new business.



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Risks that could affect our sources of liquidity include among others:



|- |  | a severe or prolonged downturn in the economy,
|- |  | ----------------------------------------------

|- |  | additional restructurings, defaults or bankruptcies by airlines, and
|- |  | --------------------------------------------------------------------

|- |  | a decrease in our and/or Boeings credit ratings.
|- |  | -------------------------------------------------



We continually assess our leverage, generally as measured by our debt to equity ratio, in light of the risks in our business. These risks include, among others, the exposure in our
portfolio; general market conditions, especially those associated with our customers; and our ability to access the capital markets.



Credit Ratings



Our access to capital at rates that allow for a reasonable return on new business can be affected by credit rating agencies ratings of our debt. Our credit ratings are closely tied to those of Boeing.



We have the following credit ratings as of the filing date of this report:



|           |  |                        |  |                         |  |              
|---------- |  | ---------------------- |  | ----------------------- |  | -------------
|Debt       |  | Standard &Poors (S&P) |  | MoodysInvestorsService |  | Fitch Ratings
|Short-term |  | A-1                    |  | P-2                     |  | F-1          
|Senior     |  | A                      |  | A3                      |  | A+           



On March 7, 2005, S&P reaffirmed its
stable outlook.



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



Given our current ratings and ratings outlook from the various credit rating agencies, we believe we
have ready access to the capital markets. Our credit ratings are tied to those of Boeing due to the support agreement entered into between Boeing and us in December 2003. Our ratings and spreads could be impacted positively or negatively by changing
perceptions of Boeing, which in turn may reflect changing views of the airline industry or the defense industry or of Boeings competitive positions in them. It is possible that these changes could affect our access to the capital markets.



Standards Issued and Not Yet Implemented



In March 2005, the FASB issued FSP No. FIN 46(R)-5, Implicit Variable Interests under FASB
Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities. This FSP clarifies that when applying the variable interest consolidation model, a reporting enterprise should consider whether it holds an implicit
variable interest in a VIE or potential VIE. FSP No. FIN 46(R)-5 is effective as of April 1, 2005. We are currently evaluating the impact of FSP No. FIN 46(R)-5 on our financial statements.



Item 4. Controls and Procedures



Evaluation of Disclosure
Controls and Procedures



Our principal executive officer and principal financial
officer, based on their evaluation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a -15(e) and 15d 15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that our
disclosure controls and procedures are adequate and effective for the purposes set forth in the definition in Exchange Act rules.



Changes in Internal Controls



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



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##### Table of Contents

PART II. OTHER INFORMATION



Item 1. Legal Proceedings



Various legal proceedings and claims are pending or have been asserted against us,
many of which are covered by third parties, including insurance companies. We believe that the final outcome of these proceedings and claims will not have a material adverse effect on our earnings, cash flows and/or financial position.



Item 5. Other Information



Portfolio by Product Type



Portfolio carrying values were represented by the following product types:



|                                |  |                |       |                    |   |                |  |   |                         |     |       |   |    |  |   |      
|------------------------------- |  | -------------- | ----- | ------------------ | - | -------------- |  | - | ----------------------- | --- | ----- | - | -- |  | - | -----
|(Dollars in millions)           |  | Receivables(1) |       | OperatingLeases(1) |   | Investments(4) |  |   | Held forSale orRe-Lease |     | Total
|March 31, 2005                  |  |                |       |                    |   |                |  |   |                         |     |       |   |    |  |   |      
|717                             |  | $              | 1,892 |                    | $ | 559            |  | $ | 25                      |     |       | $ |   |  | $ | 2,476
|727(2)                          |  |                | 3     |                    |   | 22             |  |   |                        |     |       |   | 7  |  |   | 32   
|737                             |  |                | 55    |                    |   | 685            |  |   |                        |     |       |   |   |  |   | 740  
|747                             |  |                | 118   |                    |   | 414            |  |   | 8                       |     |       |   |   |  |   | 540  
|757(2)                          |  |                | 280   |                    |   | 967            |  |   |                        |     |       |   |   |  |   | 1,247
|767                             |  |                | 660   |                    |   | 368            |  |   |                        |     |       |   |   |  |   | 1,028
|777                             |  |                | 1,095 |                    |   |               |  |   |                        |     |       |   |   |  |   | 1,095
|DC-9(2)                         |  |                |      |                    |   |               |  |   |                        |     |       |   | 1  |  |   | 1    
|MD-80(2)                        |  |                | 328   |                    |   | 85             |  |   |                        |     |       |   | 16 |  |   | 429  
|MD-90(2)                        |  |                | 80    |                    |   | 48             |  |   |                        |     |       |   |   |  |   | 128  
|DC-10(2)                        |  |                | 20    |                    |   | 25             |  |   |                        |     |       |   |   |  |   | 45   
|MD-11(2)                        |  |                | 147   |                    |   | 685            |  |   |                        |     |       |   |   |  |   | 832  
|Space and Defense Equipment     |  |                | 19    |                    |   | 178            |  |   |                        |     |       |   |   |  |   | 197  
|Other Aircraft and Equipment(3) |  |                | 205   |                    |   | 16             |  |   |                        |     |       |   | 9  |  |   | 230  
|Assets Pools(5)                 |  |                | 57    |                    |   |               |  |   | 237                     |     |       |   |   |  |   | 294  
|Other                           |  |                |      |                    |   | 41             |  |   | 6                       | (6) |       |   |   |  |   | 47   
|                               
|                                |  | $              | 4,959 |                    | $ | 4,093          |  | $ | 276                     |     |       | $ | 33 |  | $ | 9,361
|                               
|December 31, 2004               |  |                |       |                    |   |                |  |   |                         |     |       |   |    |  |   |      
|717                             |  | $              | 1,851 |                    | $ | 537            |  | $ | 25                      |     |       | $ |   |  | $ | 2,413
|727(2)                          |  |                | 4     |                    |   | 23             |  |   |                        |     |       |   | 8  |  |   | 35   
|737                             |  |                | 82    |                    |   | 696            |  |   |                        |     |       |   |   |  |   | 778  
|747                             |  |                | 120   |                    |   | 419            |  |   | 9                       |     |       |   |   |  |   | 548  
|757(2)                          |  |                | 981   |                    |   | 460            |  |   |                        |     |       |   | 20 |  |   | 1,461
|767                             |  |                | 717   |                    |   | 373            |  |   |                        |     |       |   |   |  |   | 1,090
|777                             |  |                | 1,061 |                    |   |               |  |   |                        |     |       |   |   |  |   | 1,061
|DC-9(2)                         |  |                |      |                    |   | 1              |  |   |                        |     |       |   |   |  |   | 1    
|MD-80(2)                        |  |                | 343   |                    |   | 101            |  |   |                        |     |       |   |   |  |   | 444  
|MD-90(2)                        |  |                | 80    |                    |   | 48             |  |   |                        |     |       |   |   |  |   | 128  
|DC-10(2)                        |  |                | 23    |                    |   | 25             |  |   |                        |     |       |   |   |  |   | 48   
|MD-11(2)                        |  |                | 146   |                    |   | 701            |  |   |                        |     |       |   |   |  |   | 847  
|Space and Defense Equipment     |  |                | 9     |                    |   | 175            |  |   |                        |     |       |   |   |  |   | 184  
|Other Aircraft and Equipment(3) |  |                | 222   |                    |   | 15             |  |   |                        |     |       |   | 9  |  |   | 246  
|Assets Pools(5)                 |  |                | 63    |                    |   |               |  |   | 287                     |     |       |   |   |  |   | 350  
|Other                           |  |                |      |                    |   | 41             |  |   | 5                       | (6) |       |   |   |  |   | 46   
|                               
|                                |  | $              | 5,702 |                    | $ | 3,615          |  | $ | 326                     |     |       | $ | 37 |  | $ | 9,680
|                               



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|(1) |  | Includes owned aircraft and aircraft collateralizing receivables, some of which are subordinated.
|--- |  | -------------------------------------------------------------------------------------------------



|(2) |  | Out of production, but currently supported by Boeing with respect to parts and other services.
|--- |  | ----------------------------------------------------------------------------------------------



|(3) |  | Some of these aircraft are out of production, but are supported by the manufacturer or other third party parts
and service providers.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------



|(4) |  | Represents aircraft and equipment collateralizing EETCs, ETCs and other trust-related interests and other
investments that we hold.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------



|(5) |  | Receivables and investments are supported by asset pools secured by various commercial aircraft types.
|--- |  | ------------------------------------------------------------------------------------------------------



|(6) |  | Includes investments in mandatorily redeemable preferred stock and common stock.
|--- |  | --------------------------------------------------------------------------------



Item 6. Exhibits



A. Exhibits



|             |  |                                                                                                                                                                                                                                                                             
|------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 12   |  | Computation of Ratio of Income to Fixed Charges.                                                                                                                                                                                                                            
|             | 
|Exhibit 15   |  | Letter From Independent Registered Public Accounting Firm Regarding Unaudited Interim Financial Information.                                                                                                                                                                
|             | 
|Exhibit 31.1 |  | Certification of President pursuant to Rules 13a-15(e) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                        
|             | 
|Exhibit 31.2 |  | Certification of Chief Financial Officer pursuant to Rules 13a-15(e) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                          
|             | 
|Exhibit 32.1 |  | Certification of President pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This document is being furnished in accordance with Securities and
Exchange Commission Release Nos. 33-8212 and 34-47551.              
|             | 
|Exhibit 32.2 |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This document is being furnished in accordance with
Securities and Exchange Commission Release Nos. 33-8212 and 34-47551.



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board of Directors and Shareholder

Boeing Capital Corporation

Renton,
Washington



We have reviewed the accompanying condensed consolidated balance sheet of
Boeing Capital Corporation and subsidiaries (the Company) as of March 31, 2005, and the related condensed consolidated statements of operations for the three-month periods ended March 31, 2005 and 2004, and of shareholders equity
and comprehensive income and cash flows for the three-month periods ended March 31, 2005 and 2004. These interim financial statements are the responsibility of the Companys management.



We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board
(United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit
conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express
such an opinion.



Based on our reviews, we are not aware of any material modifications
that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.



We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated
balance sheet of the Company and subsidiaries as of December 31, 2004, and the related consolidated statements of operations, shareholders equity and comprehensive income, and cash flows for the year then ended (not presented herein); and in
our report dated February 25, 2005, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2004 is fairly
stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.



/s/ Deloitte & Touche LLP



Seattle, Washington

April 26, 2005



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##### Table of Contents

Signatures



Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, its principal financial officer and by its principal accounting officer, thereunto duly authorized.



Boeing Capital CorporationApril 27, 2005



/s/    RUSSELL A. EVANSRussell A. Evans Vice
President and Chief Financial Officer (Principal Financial Officer) and Registrants Authorized OfficerApril 27, 2005



/s/    KEVIN J. MURPHYKevin J. Murphy Controller
(Principal Accounting Officer)




30