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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-K


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(Mark One)

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

For the Year Ended December 31, 2001

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

For the transition period ______________ to ______________
Commission file number 000-22249

INTERNATIONAL AIRCRAFT INVESTORS

(Exact name of registrant as specified in its charter)


|                                                                          |  |                                    
|------------------------------------------------------------------------- |  | -----------------------------------
|California
(State or other jurisdiction of
incorporation or organization) |  | 95-4176107
(I.R.S. Employer ID No.)

|                                                                                                               |  |                 
|-------------------------------------------------------------------------------------------------------------- |  | ----------------
|3655 Torrance Boulevard, Suite 410, Torrance, California
(Address of registrants principal executive offices) |  | 90503
(Zip Code)

Registrants telephone number, including area code: (310) 316-3080

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value
(Title of class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (§229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to Form 10-K. [X]

The aggregate market value of the registrants voting stock held by
non-affiliates of the registrant at March 25, 2002 was approximately $4,835,395
(based on the closing price on Nasdaq National Market as reported by the Wall
Street Journal on such date).

At March 25, 2002, the registrant had issued and outstanding an aggregate of
3,581,773 shares of its common stock.

Documents Incorporated by Reference

Certain information included in the registrants definitive proxy statement
(Proxy Statement) to be filed with the Securities and Exchange Commission for
the Annual Meeting of Stockholders of the registrant is incorporated by
reference into Part III hereof.





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TABLE OF CONTENTS



|             |                                                                                                |  |  |  |  |  |  | 
|------------ | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I      
|             | Item 1. Business.                                                                             
|             | Item 2. Properties.                                                                           
|             | Item 3. Legal Proceedings.                                                                    
|             | Item 4. Submissions of Matters to a Vote of Securities Holders.                               
|PART II     
|             | Item 5. Market for the Registrants Common Stock and Related Shareholder Matters.             
|             | Item 6. Selected Financial Data.                                                              
|             | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
|             | Item 7A. Quantitative and Qualitative Disclosures About Market Risk.                          
|             | Item 8. Financial Statements and Supplementary Data.                                          
|             | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 
|PART III    
|             | Item 10. Directors and Executive Officers of the Registrant.                                  
|             | Item 11. Executive Compensation.                                                              
|             | Item 12. Security Ownership of Certain Beneficial Owners and Management.                      
|             | Item 13. Certain Relationships and Related Transactions.                                      
|PART IV     
|             | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.                     
|SIGNATURES  
|EXHIBIT 21  
|EXHIBIT 23.1



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INTERNATIONAL AIRCRAFT INVESTORS
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR END DECEMBER 31, 2001

TABLE OF CONTENTS

|     |  |                                                                                       |  |      |    | 
|---- |  | ------------------------------------------------------------------------------------- |  | ---- | -- | 
|Item |  | PART I                                                                                |  | Page
|     |  |                                                                                       |  |     
|1.   |  | Business                                                                              |  |      | 3  | 
|    
|2.   |  | Properties                                                                            |  |      | 15 | 
|    
|3.   |  | Legal Proceedings                                                                     |  |      | 15 | 
|    
|4.   |  | Submission of Matters to a Vote of Securities Holders                                 |  |      | 16 | 
|    
|     |  | PART II                                                                               |  |      |    | 
|    
|5.   |  | Market for Registrants Common Stock and Related Shareholder Matters                  |  |      | 16 | 
|    
|6.   |  | Selected Financial Data                                                               |  |      | 17 | 
|    
|7.   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  |      | 18 | 
|    
|7A   |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |      | 24 | 
|    
|8.   |  | Financial Statements and Supplementary Data                                           |  |      | 24 | 
|    
|9.   |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  |      | 24 | 
|    
|     |  | PART III                                                                              |  |      |    | 
|    
|10.  |  | Directors and Executive Officers of the Registrant                                    |  |      | 24 | 
|    
|11.  |  | Executive Compensation                                                                |  |      | 24 | 
|    
|12.  |  | Security Ownership of Certain Beneficial Owners and Management                        |  |      | 24 | 
|    
|13.  |  | Certain Relationships and Related Transactions                                        |  |      | 24 | 
|    
|     |  | PART IV                                                                               |  |      |    | 
|    
|14.  |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  |      | 25 | 

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PART I




Item 1. Business.

General

We are engaged in the acquisition of used, single-aisle jet aircraft for
lease and sale to domestic and foreign airlines and other customers. While we
enter into both operating and direct financing leases, we are primarily engaged
in leasing aircraft under short-term to medium-term triple net operating
leases where the lessee is responsible for all operating costs (i.e., crew,
fuel, insurance, taxes, licenses, landing fees, navigation charges,
maintenance, repairs and associated expenses) and we retain the potential
benefit or risk of the residual value of the aircraft, as distinct from direct
financing leases where the full cost of the aircraft is normally recovered over
the term of the lease generally at lower lease rates. As of December 31, 2001,
we have sixteen aircraft in our portfolio. Fourteen aircraft are leased to
twelve airlines worldwide, one aircraft is leased to an airline as a direct
financing lease and one aircraft is being marketed for lease or sale.

The Company was incorporated in California in 1988. Our principal
executive offices are located at 3655 Torrance Boulevard, Suite 410, Torrance,
California 90503 and our telephone and facsimile numbers are (310) 316-3080 and
(310) 316-8145, respectively.

Industry Conditions

As a result of the terrorist attack on September 11, 2001 and the slowdown
in the economies of the United States and other countries, the worlds airlines
have entered into the worst financial crisis in the history of the industry.
While governments around the world have agreed to provide assistance to varying
degrees, the fate of the individual carriers and the industry is uncertain.
Our lessees have been adversely affected by these events. Commercial air
carriers have announced reductions in their long-term schedules and have
initiated cost reduction programs.

We face substantial risks in the current climate. These risks include,
but are not limited to, lease rate reductions, non-collection of rents, airline
bankruptcies, refinancing risk and reduction in the value of aircraft. In
order to minimize these risks we require most of our lessees to pay rents in
advance, pay lease deposits, and make payments to be applied to scheduled
maintenance.

Two of our lessees have filed for bankruptcy since the terrorist attacks.
In addition, we have reduced lease rates on some leases in exchange for a
lengthened term. It is our strategy to keep as many of our aircraft on lease
as possible until the airline industry recovers from the effects of the
terrorist attacks and the economic downturn in the United States and other
countries. In 2001, we began to reap the benefits of lower interest rates in
the refinancing of our debt. In March 2002, we restructured $95 million of
notes payable, reducing the debt payments and extending the term of the notes.

The terrorist attacks have had a severe effect on the values of aircraft.
We reevaluated the values of our aircraft for permanent impairment. As a
result of that evaluation, in 2001 we wrote down the value of six aircraft by
$14.8 million and have reserved $4.7 million for losses we expect to incur in
the future.

We repossessed two aircraft in 2000 and three aircraft in 2001. As a
result of the repossessions, we incurred repossession, maintenance and lease
cancellation costs of $1.3 million and $1.7 million in 2000 and 2001,
respectively.

Strategy

Our strategy is to focus on operating leases of used, single-aisle jet
aircraft to a diversified base of customers worldwide, while employing strict
risk management criteria. Key elements of our business strategy include the
following:

Focus on Operating Leases.We believe that airlines are aware of the
benefits of financing their fleet equipment on an operating lease basis,
including preservation of cash flow and flexibility regarding fleet size and
composition. We believe the operating lease of jet aircraft, especially used
jet aircraft, offers the potential for a higher rate of return to us than other
methods of aircraft financing, such as finance leases.

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Focus on Used Commercial Jet Aircraft with a Broad Market Acceptance.We
lease used, single-aisle jet aircraft which generally range between five and 15
years old at the time the aircraft are acquired by us. We currently focus on
the acquisition and lease of single-aisle jet aircraft, primarily aircraft with
a seating capacity of 121 to 240 passengers. According to the 2001 Current
Market Outlookpublished by the Boeing Commercial Airplane Group in 2001, that
type of aircraft accounted for approximately 46.8% of the world fleet at
December 31, 2000. The Boeing Report estimates that the commercial replacement
cycle for this type of aircraft is 25 to 28 years from manufacture date. This
category of jet aircraft includes the Boeing Model 727-200, Boeing
737-200/-300/-400, the Boeing Model 757-200, the McDonnell Douglas MD80 series
and the Airbus A320.

Optimize Relationship with ILFC.We have had a long and continuous
relationship with International Lease Finance Corporation. ILFC was an initial
investor in us and currently owns approximately 1.9% of our common stock. ILFC
is a major owner-lessor of commercial jet aircraft and has contacts with most
airlines worldwide, the aircraft and engine manufacturers and most of the
significant participants in the aircraft industry worldwide. We intend to use
our relationship with ILFC to gain access, where appropriate, to various
airlines and other participants in the market to facilitate the purchase,
lease, re-lease and sale of aircraft. ILFCs primary focus is the acquisition
and leasing of new, rather than used, commercial jet aircraft. Thus, we believe
that our business complements rather than competes with ILFC. See
Relationship With ILFC below.

Leverage Management Experience.The successful purchase and leasing of
used commercial jet aircraft require skilled management in order to evaluate
the condition and price of the aircraft to be purchased and the current and
anticipated market demand for that aircraft. Our management and our Board of
Directors have significant experience in the aviation industry, with an average
of more than 20 years of experience, especially in the purchase, sale and
financing of commercial jet aircraft, and have extensive contacts with airlines
worldwide.

Access a Diversified Global Customer Base.Our objective is to diversify
our customer base to avoid dependence on any one lessee, geographic area or
economic trend.

Employ Strict Risk Management Criteria.We will only purchase aircraft
that are currently under lease or are subject to a contractual commitment for
lease or purchase. We currently seek to finance our aircraft using a
non-recourse loan structure. We will not purchase aircraft on speculation. We
evaluate carefully the credit risk associated with each of our lessees and the
lessees ability to operate and properly maintain the aircraft. We also
evaluate the return conditions in each lease since the condition of an aircraft
at the end of a lease can significantly impact the amount we will receive on
the re-lease or sale of an aircraft.

Aircraft Leasing

While we enter into both operating and direct financing leases, we are
primarily engaged in leasing aircraft under short-term to medium-term operating
leases where the lessee is responsible for all operating costs and we retain
the potential benefit or risk of the residual value of the aircraft, as
distinct from direct financing leases where the full cost of the aircraft is
normally recovered over the term of the lease at generally lower lease rates.
Operating leases allow airlines greater fleet and financial flexibility due to
their shorter-term nature, the relatively small initial capital outlay
necessary to obtain use of the aircraft and off-balance sheet treatment.
Operating lease rates are generally priced higher than finance lease rates, in
part because of the risks to the lessor associated with the residual value.
See Cautionary Statements.

We target the medium-term operating lease market, which generally consists
of three to eight year initial noncancelable lease terms. Our leases are
triple net leases whereby the lessee is responsible for all operating costs
(i.e., crew, fuel, insurance, taxes, licenses, landing fees, navigation
charges, maintenance, repairs and associated expenses). In addition, our leases
contain extensive provisions regarding our remedies and rights in the event of
a default by the lessee. The leases have payment clauses that require the
lessee to continue to make the lease payments regardless of circumstances,
including whether or not the aircraft is in service. Certain of our leases
limit the lessees obligation to make lease payments if we violate the covenant
of quiet enjoyment regarding the aircraft or if we enter bankruptcy and do not
assume the lease. During the term of the lease, we are required to be named as
an additional insured on the lessees aviation hull and liability insurance
policies. Also, the leases contain very specific criteria for the maintenance
and regulatory status of the aircraft, as well as the return conditions for the
airframe, engines, landing gears, auxiliary power unit and associated
components.

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Generally, the lessee provides us with an initial security deposit that is
returnable at the expiration of the lease if all lease return conditions are
met by the lessee and there is no default under the lease. Depending on the
creditworthiness
of a lessee, in some instances the lessee will also pay into a maintenance
reserve account monthly a certain amount for each hour the aircraft and/or the
engine have flown. The lessee may draw upon these maintenance reserves to
reimburse the cost of periodic scheduled overhaul and maintenance checks. At
the termination of the lease, the lessee is required to return the aircraft to
us in the same condition as it was received, normal wear and tear excepted, so
the aircraft is in a proper condition for re-lease or sale. See Cautionary
Statements.

We analyze the credit risk associated with each lease before entering into
a lease and obtain extensive financial information regarding the lessee. We
evaluate the prospective lessees available financial statements and trade and
banking references, and working with our lender evaluate country and political
risk, insurance coverage, liability and expropriation risk. The process for
credit approval is a joint undertaking between us and the senior lender
providing the debt financing for the leased aircraft. See Cautionary
Statements.

Upon termination of a lease, our objective is to re-lease or sell the
aircraft. Our leases generally require that the lessee notify us six to nine
months prior to the termination of the lease as to whether the lessee intends
to exercise any option to extend the lease. This is intended to allow us
sufficient time to begin our remarketing efforts well in advance of the
termination of a lease. Since January 1, 1999, we have negotiated eight lease
extensions with our lessees, re-leased five aircraft to new lessees and had
four aircraft returned to us as a result of lessee bankruptcies.

Customers

At December 31, 2001, our lessees included:

|                              |  |                                              
|----------------------------- |  | ---------------------------------------------
|Domestic Customers:           |  | Foreign Customers:                           
| American Airlines, Inc. (1) |  |  Air Liberte S.A.                           
| Delta Air Lines, Inc.       |  |  Air Transat A.T. Inc.                      
| ILFC subleased to COPA (2)  |  |  Asiana Airlines, Inc.                      
| Southwest Airlines Co.      |  |  British Airways Plc                        
|                              |  |  Compania Mexicana de Aviacion S.A. de C.V. 
|                              |  |  COPA                                       
|                              |  |  JMC Airlines Limited                       
|                              |  |  Islandsflug, HF                            
|                              |  |  New Zealand International Airlines Ltd.    
|                              |  |  Panair Compangnia Aerea Mediterranea S.p.A.



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|(1) |  | through its wholly owned subsidiary TWA Airlines LLC   
|--- |  | -------------------------------------------------------
|(2) |  | subleased to Compañia Panameñia de Aviacon, S.A. (COPA)

During the years ended December 31, 1999, 2000 and 2001, lease revenues
from flight equipment generated from foreign customers accounted for
approximately 76%, 77% and 82%, respectively, of total revenues.

Many foreign countries have currency and exchange laws regulating the
international transfer of currencies. We attempt to minimize our currency and
exchange risks by negotiating all of our aircraft leases in U.S. Dollars. We
require, as a condition to any foreign transaction, that the lessee in a
foreign country, first obtain, if required, written approval of

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the appropriate government agency, finance ministry or central bank for the remittance of all
funds contractually owed to us in U.S. Dollars. Although we have attempted to
minimize the foreign currency risk, to the extent that significant currency
fluctuations result in materially higher rental costs to a foreign lessee, the
foreign lessee may be unable or unwilling to make the required lease payments.

In November 2001, Canada 3000 Airlines Limited filed for bankruptcy in
Canada. As a result of the bankruptcy, we repossessed a Boeing Model
757-200ER. We are currently marketing the aircraft for lease or sale.

The following customers accounted for more than 10% of our total revenues
in one or more of the three years ended December 31, 2001:

|                                        |  |                                               
|--------------------------------------- |  | ----------------------------------------------
|Air Transat A.T. Inc.
2001-11%
1999-11% |  | Canada 3000 Airlines Limited
2001-13%
2000-11%

During 1999, 2000 and 2001, we leased aircraft to British Airways and three of
its affiliates (Air Liberté, GB Airways and National Jet Italia). During 2000
British Airways sold its investment in Air Liberté. Air Liberté was not
included as an affiliate for 2000 and 2001. Revenues from British Airways and
its affiliates accounted for 19%, 14% and 14% of total revenues in 1999, 2000
and 2001, respectively.

Financing/Source of Funds

We purchase used aircraft and aircraft engines on lease to airlines
directly from other leasing companies or from airlines for leasing back to the
airlines. Our typical purchase requires both secured debt and an equity
investment by us. We generally make an equity investment of approximately 5% to
15% of the purchase price from internally generated and other cash and seller
financing (primarily from ILFC). We typically finance the balance of the
purchase price with the proceeds of borrowings from banks or other financial
institutions secured by the aircraft being financed (to date with the support
of ILFC as the seller of the flight equipment). See Relationship With ILFC.

We maintain banking relationships primarily with four commercial banks
providing secured equipment financing to us in an aggregate amount of $140.1
million at December 31, 2001. ILFC has provided certain guarantees and other
financial support with respect to our borrowings which have allowed us to
finance our aircraft at more favorable leverage than we could have obtained
without ILFCs support. See Notes 5 and 6 to Consolidated Financial Statements.

At December 31, 2001, all of our borrowings to finance aircraft purchases
were on a non-recourse basis. Non-recourse loans are structured as loans to
special purpose subsidiaries which only own the assets which secure the loan.
Only the relevant special purpose subsidiary is liable for the repayment of the
non-recourse loan. Such subsidiaries and their related debt, including the
aforementioned non-recourse loans are included in our consolidated financial
statements. We are only liable if we breach certain limited representations
and warranties under the applicable loan documentation. The lender assumes the
credit risk of each lease, and its only recourse upon a default under the lease
is against the lessee, the leased equipment and the special purpose subsidiary.
As such, if we were to become unable to meet the obligation on a loan
resulting from the failure of our lessee to make its rental payments, we have
the ability to default on that loan without affecting the performance of the
loans secured by other aircraft. Interest rates under this type of financing
are negotiated on a transaction-by-transaction basis and reflect the financial
condition of the lessee, the terms of the lease, any guarantees and the amount
of the loan.

The terms of our current borrowings, other than our ILFC bridge
borrowings, generally end within 30 to 60 days after the minimum noncancelable
period under the related lease, after which we will be required to renegotiate
the loan or obtain other financing in connection with the re-lease of the
aircraft. See Cautionary Statements.

In March 2002, we restructured $95 million of notes payable, reducing the
debt payments and extending the term of the notes. Notes payable due within
one year totaled $11.4 million at December 31, 2001 (after adjusting for the
extensions of our renegotiated notes payable), of which $11.1 million
represents balloon payments and $.3 million represents installment payments.
We intend to refinance all of the balloon payments due in 2002. If we are
unable to refinance a balloon payment, we have the ability to default on the related
loan without affecting the performance of the loans secured

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by other aircraft.
See Relationship With ILFC. We have extended or re-leased eight aircraft
with $88.5 million of associated balloon payments related to leases with
terminations from 2002 to 2004. During 1999, 2000 and 2001, we extended or
refinanced $46 million, $101.3 million and $167.6 million of balloon payments,
respectively.

At December 31, 2001, our borrowings had interest rates ranging from 3.08%
to 7.96% per annum, with a weighted average interest rate of 6.6% per annum. At
December 31, 2001, 92.9% of our borrowings accrued interest on a fixed rate
basis and 7.1% of our borrowings accrued interest on a floating rate basis.

Our future growth is dependent upon raising additional capital. We have
previously provided for all of our financing needs through internally generated
funds, borrowings and equity capital. There is no assurance that those
sources will provide us with additional capital resources in the future. See
Cautionary Statements.

Relationship With ILFC

ILFC was an initial investor in the Company, and owns approximately 1.9%
of our common stock. Fourteen of our sixteen present aircraft were acquired
from ILFC, and ILFC has provided certain guarantees and other financial support
with respect to our borrowings. In March 2002, ILFC agreed to allow us to
reduce our debt payments and extend the term of our debt to them. At December
31, 2001, we had notes payable to ILFC totaling $95 million. See
Financing/Source of Funds. ILFC has also paid various fees to us for
consulting and remarketing services. We have entered into an agreement with
ILFC pursuant to which ILFC has agreed to assist us in the remarketing of our
aircraft if requested by us. See Aircraft Leasing above, Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Results of Operations, and Note 6 to Consolidated Financial
Statements. ILFC is a wholly owned subsidiary of American International Group,
Inc. and is a major owner-lessor of commercial jet aircraft.

Competition

The aircraft leasing industry is highly competitive. The level of
competition depends in part upon the type of aircraft being leased and
prospective lessees for the aircraft. Competition is primarily based upon the
availability of the aircraft required by the customer and the lease rate. We
believe that only a few comparably sized companies focus primarily on the same
segment of the aircraft leasing market as we do. In addition, a number of
aircraft manufacturers, airlines and other operators, distributors, equipment
managers, leasing companies (including ILFC), financial institutions and other
parties engaged in leasing, managing, marketing or remarketing aircraft compete
with us, although their primary focus is not on the same market segment on
which we focus. Many of these periodic competitors have significantly greater
financial resources than we have. Our competitors may lease aircraft at lower
rates than we do and provide benefits, such as direct maintenance, crews,
support services and trade-in privileges, which we do not intend to provide. We
believe that we are able to compete in the leasing of used jet aircraft due to
our experience in the industry and our reputation and expertise in acquiring
and leasing aircraft. See Cautionary Statements.

Government Regulation

The Federal Aviation Administration (the FAA), the Department of
Transportation and the Department of State exercise regulatory authority over
the air transportation industry in the United States. Most other countries have
similar regulatory agencies. The FAA has regulatory jurisdiction over
registration and flight operations of aircraft operating in the United States,
including equipment use, ground facilities, maintenance, communications and
other matters.

The FAA regulates the operation and maintenance of all aircraft operated
in the United States. Its regulations are designed to ensure that all aircraft
and aviation equipment are continuously maintained in proper condition to
ensure safe operation of the aircraft. Similar rules apply in most other
countries. All aircraft must be maintained under a continuous condition
monitoring program and must periodically undergo thorough inspection and
maintenance. The inspection, maintenance and repair procedures for the various
types of aircraft equipment are prescribed by regulatory authorities and can be
performed only by certified repair facilities utilizing certified technicians.
The FAA can suspend or revoke the authority of air carriers or their licensed
personnel for failure to comply with its regulations and can ground aircraft if
their airworthiness is in question.

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The Department of State and the Department of Transportation, in general,
have jurisdiction over economic regulation of air transportation, but since we
do not operate our aircraft for public transportation of passengers and
property, we are not directly subject to their regulatory jurisdiction.

To export aircraft from the U.S. to a foreign destination, we are required
to obtain an export license from the United States Department of Commerce. To
date, we have not experienced any difficulty in obtaining the required
certificates, licenses and approvals either from the FAA, the Department of
Commerce or any other regulatory agency or their foreign counterparts.

Member countries of the United Nations are signatories to the
International Civil Aviation Organization. Each signatory has agreed to comply
with airworthiness directives of the country of manufacture of the aircraft. We
will not lease our aircraft to any carrier domiciled in a country which is not
a member of ICAO. We also require our lessees to comply with the most
restrictive standards of either the FAA or its foreign equivalent. For older
aircraft, a special group of airworthiness directives require extensive
inspections and repairs to bring the aircraft into compliance, which are
required to be paid by the lessee. In some instances, we may have to share in
the cost of complying with regulatory airworthiness directives.

The FAA and the civil aviation authorities of most countries and
international entities issue regulations limiting permitted noise and other
emissions from aircraft. In most instances, older non-complying aircraft may be
brought into compliance by modifying the engines. Fourteen of our aircraft
currently comply with these regulations. Our remaining two aircraft, currently
on lease to June and August 2001, are leased in an area not requiring
modification. These two aircraft may require modification if moved to a
jurisdiction requiring compliance. Currently, these modifications range in
cost from $1.2 million to $2 million per aircraft. In some instances, it is
necessary to perform noise compliance work to lease the aircraft into a new
jurisdiction. For example, Western Europe and the United States have
non-addition rules which state that an aircraft which does not meet specified
noise compliance regulations cannot be brought into the region and operated by
an airline licensed by one of these governments. A non-complying aircraft can
only be leased or sold into a market that does not require compliance with the
stricter standards. See Cautionary Statements.

Insurance

We require our lessees to carry those types of insurance which are
customary in the air transportation industry, including comprehensive third
party liability insurance and aircraft hull insurance. We are named as an
additional insured on both the liability and hull policies carried by our
lessees. All policies contain a breach of warranty endorsement so that our
interests are not prejudiced by any act or omission of the operator-lessee.

Insurance premiums are prepaid by the lessee on a periodic basis, with
payment acknowledged to us through an independent insurance broker. The
territorial coverage is, in each case, suitable for our lessees area of
operations and the policies contain, among other provisions, a no
co-insurance clause and a provision prohibiting cancellation or material
change without at least 30 days advance written notice to us. Furthermore, the
insurance is primary and not contributory and all insurance carriers are
required to waive rights of subrogation against us.

The stipulated loss value schedule under aircraft hull insurance policies
is on an agreed value basis, which usually exceeds the book value of the
aircraft. Aircraft hull policies contain standard clauses covering aircraft
engines with deductibles required to be paid by the lessee. Furthermore, the
aircraft hull policies contain full war risk endorsements, including, but not
limited to, confiscation, seizure, hijacking and similar forms of retention or
terrorist acts, subject to certain specified exclusions. All losses under such
policies are payable in U.S. Dollars.

The comprehensive liability insurance policies include provisions for
bodily injury, property damage, passenger liability, cargo liability and such
other provisions reasonably necessary in commercial passenger and cargo airline
operations with minimal deductibles. These policies generally have combined
comprehensive single liability limits of not less than $200 million and require
all losses to be paid in U.S. Dollars. As a result of the terrorist attacks on
September 11, 2001, the aircraft insurance market unilaterally imposed a
sublimit on each operators policy for third party war risk liability in the
amount of $50 million. We require our lessees to purchase higher limits of the
third party war risk liability or obtain an indemnity from their government.

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Insurance policies are generally placed or reinsured in the Lloyds of
London or U.S. markets. The insurance carrier under the insurance policies must
be approved by us.

Employees

Our business is capital rather than labor intensive. As of December 31,
2001, we had eight employees, which we consider adequate for our business
operations. None of our employees is covered by a collective bargaining
agreement and we believe our employee relations are good.

Cautionary Statements

This Report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, and are intended to be
covered by the safe harbors created thereby. In some instances,
forward-looking statements maybe identified by the use of forward-looking
terminology such as may, will, expect, believe, estimate,
anticipate, continue, target or similar terms. The cautionary statements
made in this Report on Form 10-K should be read as being applicable to all
related forward-looking statements wherever they appear in this Report on Form
10-K. Our actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include those
discussed below, as well as those discussed elsewhere in this Report.

We retain the residual value risk and the risk of the re-lease or sale of the aircraft.

While we enter into both operating and direct financing leases, we
primarily lease our portfolio of aircraft under operating leases. Under an
operating lease, we retain title to the aircraft and assume the risk of not
recovering our entire investment in the aircraft through the re-leasing and
remarketing process. Operating leases require us to re-lease or sell aircraft
in our portfolio in a timely manner upon termination of the lease in order to
minimize off-lease time and recover our original investment in the aircraft.
Numerous factors, many of which are beyond our control, may have an impact on
our ability to re-lease or sell an aircraft on a timely basis or to re-lease at
a satisfactory lease rate. Among the factors are:



| |  |  | the demand for various types of aircraft                                                           
| | - |  | ---------------------------------------------------------------------------------------------------
|
| |  |  | general market and economic conditions                                                             
|
| |  |  | regulatory changes, including those imposing environmental, maintenance or operational requirements
|
| |  |  | changes in supply or cost of aircraft                                                              
|
| |  |  | technological developments                                                                         

The terrorist attacks on September 11, 2001 and the slowdown in the
economies of the United States and other countries have had a severe effect on
the values of aircraft. We reevaluated the values of our aircraft for
permanent impairment. As a result of the evaluation, in 2001 we wrote down the
values of six aircraft by $14.8 million and have reserved $4.7 million for
losses we expect to incur in the future.

In addition, the success of an operating lease depends in significant part
upon having the aircraft returned by the lessee in marketable condition as
required by the lease. Consequently, we cannot assure you that our estimated
residual values for aircraft will be realized. See Note 1 to Consolidated
Financial Statements. If we are unable to re-lease or resell aircraft on
favorable terms, our business, financial condition and results of operations
could be adversely affected.

We repossessed two aircraft in 2000 and three aircraft in 2001. As a
result of the repossessions, we incurred repossession, maintenance and lease
cancellation costs of $1.3 million and $1.7 million in 2000 and 2001,
respectively.

Our 1992 Boeing Model 757-200ER has been off lease since November 2001 as
a result of the bankruptcy of Canada 3000. We are currently marketing the
aircraft for lease or sale.

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We depend on the airline industry.

We are in the business of providing leases of commercial jet aircraft to
international and domestic airlines. Consequently, we are affected by downturns
in the air transportation industry in general. We could be negatively impacted
by any of the following factors affecting the air transportation industry:



| |  |  | substantial increases in fuel costs or interest rates
| | - |  | -----------------------------------------------------
|
| |  |  | fare competition                                     
|
| |  |  | slower growth in traffic                             
|
| |  |  | the number and quality of available aircraft         
|
| |  |  | significant downturn in the general economy          

As a result of the terrorist attack on September 11, 2001 and the slowdown
in the economies of the United States and other countries, the worlds airlines
have entered into the worst financial crisis in the history of the industry.
While governments around the worlds have agreed to provide assistance to
varying degrees, the fate of the individual carriers and the industry is
uncertain. Our lessees have been adversely affected by these events.
Commercial air carriers have announced reductions in their long-term schedules
and have initiated cost reduction programs. We cannot assure you that the
financial difficulties experienced by airlines will not have an adverse effect
on our business, financial condition and results of operations.

We have a limited number of aircraft and lessees.

We have sixteen aircraft in our portfolio. Fifteen aircraft are leased to
thirteen airlines worldwide and one aircraft is being marketed for lease or
sale. The loss of any aircraft or the financial difficulty of or lease default
by any lessee could have a material adverse effect on our business, financial
condition and results of operations. See Industry Conditions.

We depend upon ILFC.

Fourteen of our current sixteen aircraft were acquired from ILFC. See
Relationship With ILFC. In connection with all of our aircraft, ILFC has
provided guarantees or other financial support which have allowed us to finance
the aircraft at more favorable leverage than we could have obtained without the
guarantees and financial support of ILFC. In addition, ILFC has provided a
portion of the consulting fees reported by us. See Managements Discussion and
Analysis of Financial Condition and Results of Operations. We cannot assure
you that we will be able to continue to acquire from ILFC or from other
entities aircraft and leases of the type and on terms as favorable as or better
than the aircraft and leases acquired from ILFC. If aircraft and leases are
acquired from ILFC or others, we cannot assure you that guarantees or financial
support will be given by the seller or whether we will be able to receive as
favorable leverage and interest rates from our lenders. If we are unable to
acquire aircraft and leases and to finance the acquired aircraft at competitive
rates, our business, financial condition and results of operations could be
adversely affected. See Relationship With ILFC, and Note 6 to Consolidated
Financial Statements.

We are exposed to our lessees credit risk.

Certain of our existing and prospective customers are smaller domestic and
foreign passenger airlines which, together with major passenger airlines, may
suffer from the factors which have historically affected the airline industry.
See We depend on the airline industry above. A lessee may default in
performance of its lease obligations and we may be unable to enforce our
remedies under a lease. A number of airlines have experienced financial
difficulties, and certain airlines have filed for bankruptcy. A number of these
airlines have ceased operations. See Industry Conditions. In most cases
where a debtor seeks protection under Chapter 11 of the United States
Bankruptcy Code or the applicable foreign law , creditors are stayed
automatically from enforcing their rights. In the case of United States
certificated airlines, Section 1110 of the Bankruptcy Code provides certain
relief to lessors of aircraft. Specifically, the airline has 60 days from the
date the lessor makes its claim to agree to perform its obligations and to cure
any defaults before the lessor may repossess the aircraft. The scope of Section
1110 has been the subject of significant litigation and we cannot assure you
that the provisions of Section 1110 will protect our investment in an aircraft
in the event of a lessees bankruptcy. In addition,

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Section 1110 does not apply
to lessees located outside of the United States and applicable foreign laws may
not provide comparable protection.

During 2000, two of our lessees filed for bankruptcy protection under the
laws of Mexico and Ireland. We repossessed both aircraft and moved both
aircraft to the United States. Both aircraft were placed on lease in 2001 in
Mexico and in Italy. We had an MD-82 on lease to TWA with a lease expiring
November 2004. On January 10, 2001, TWA filed for bankruptcy under Chapter 11
of the United States Bankruptcy Code. On March 12, 2001, the United States
Bankruptcy Court approved a plan by American Airlines to acquire the assets of
TWA. During 2001 we extended our lease on this aircraft with American Airlines
to December 2014 under a direct financing lease.

During 2001, three of our lessees filed for bankruptcy protection under
the laws of Italy, France and Canada. We repossessed the aircraft from the
Italian airline and have re-leased it to another Italian carrier. The lease
with the French airline was reaffirmed by the airline and we continue to lease
the aircraft to the airline. We repossessed the aircraft from the Canadian
airline. We are currently marketing the aircraft for lease or sale.

We face special risks because of the number of foreign customers.

Leases to foreign customers may present greater risks to us because
certain foreign laws, regulations and judicial procedures may not be as
protective of lessor rights as those which apply in the United States. We are
subject to the timing and access to courts and the remedies local laws impose
in order to collect our lease payments and recover our assets. Political
instability abroad and changes in international policy also present risks
associated with expropriation of our leased aircraft. We cannot assure you that
we will not experience problems in collecting amounts due under leases to
foreign customers or reacquiring aircraft from customers in the future.
International collection problems and problems in recovering aircraft could
have a material adverse effect on our business, financial condition and results
of operations.

Many foreign countries have currency and exchange laws regulating the
international transfer of currencies. We attempt to minimize currency and
exchange risks by negotiating all of our aircraft leases in U.S. Dollars. We
require, as a condition to any foreign transaction, that the lessee in a
foreign country first obtain, if required, written approval of the appropriate
government agency, finance ministry or central bank for the remittance in U.S.
Dollars of all funds contractually owed to us. Although we have attempted to
minimize the foreign currency risk, to the extent that significant currency
fluctuations result in materially higher rental costs to a foreign lessee, the
foreign lessee may be unable or unwilling to make the required lease payments.

Our revenues and income may be affected by political instability abroad,
changes in national policy and other political or economic events adversely
affecting world or regional trading markets or impacting a particular customer.

Our aircraft can be subject to certain foreign taxes and airport fees.
Unexpected liens on an aircraft could be imposed in favor of a foreign entity,
such as Eurocontrol or the airports of the United Kingdom.

We may need to comply with certain aircraft noise requirements for some of our aircraft.

The Airport Noise and Capacity Act of 1990, referred to as ANCA, required
the phaseout of Stage 2 aircraft (defined as aircraft that comply with the
Stage 2 noise levels prescribed in Part 36 of the Federal Aviation Regulations)
by December 31, 1999, subject to certain exceptions. Similar rules exist in
other countries, including the countries in Western Europe, Australia, New
Zealand and Japan, which either require compliance with regulations
substantially identical to Stage 3 or which forbid the operation of additional
non-Stage 3 aircraft by carriers based in those jurisdictions. This has the
effect of limiting our ability to place our Stage 2 aircraft on lease in those
jurisdictions until they have been modified to meet Stage 3 requirements.

Fourteen of our aircraft currently meet Stage 3 requirements. Our
remaining two aircraft are currently leased in an area not imposing Stage 3
requirements. These two aircraft may require modification if moved to a
jurisdiction requiring Stage 3 compliance. Currently, these modification costs
range from $1.2 million to $2 million per aircraft. See Government
Regulation. We cannot assure you that we will be able to obtain financing for
any of these modifications.

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ANCA also recognizes the right of airport operators with special noise
problems to implement local noise abatement procedures as long as these
procedures do not interfere unreasonably with the interstate and foreign
commerce of the national air transportation system. ANCA generally requires FAA
approval of local noise restrictions on Stage 3 aircraft and establishes a
regulatory notice and review process for local restrictions on Stage 2 aircraft
first proposed after October 1990. As the result of litigation and pressure
from airport area residents, airport operators have taken local
actions over the years to reduce aircraft noise. These actions have
included regulations requiring aircraft to meet prescribed decibel limits by
designated dates, curfews during night time hours, restrictions on frequency of
aircraft operations and various operational procedures for noise abatement.

The imposition of and the cost of compliance by us with statutory and
regulatory requirements concerning noise restriction and abatement could have a
material adverse effect on our business, financial condition and results of
operations.

We depend on our ability to obtain financing.

The operating lease business is a capital intensive business. Our typical
operating lease transaction requires a cash investment by us of approximately
5% to 15% of the aircraft purchase price, commonly known as an equity
investment. Our equity investments have historically been financed from
internally generated funds and other cash, seller financing (primarily from
ILFC) and proceeds from our initial public offering. The balance of the
purchase price of an aircraft is typically financed with the proceeds of
non-recourse, secured borrowings from banks or other financial institutions (to
date with the support of ILFC as the seller of the flight equipment).
Accordingly, our ability to successfully execute our business strategy and to
sustain our operations is dependent, in part, on the availability of debt and
equity capital.

We face substantial risks in the current climate. These risks include but
are not limited to, lease rate reductions, non-collection of rents, airline
bankruptcies, refinancing risk and reduction in the value of aircraft. These
risks may adversely affect our ability to renegotiate our loans. If we are
unable to renegotiate reductions in our debt payments, our cash flow may be
insufficient to continue our operations.

In addition, the terms of our loans generally require a substantial
balloon payment at the end of the noncancelable portion of the lease of the
related aircraft, at which time we will be required to re-lease the aircraft
and renegotiate the loan with the lender or obtain other financing. Refinancing
the balloon amount of the loan is dependent upon our re-leasing the related
aircraft. See Managements Discussion and Analysis of Financial Condition and
Results of Operations  Liquidity and Capital Resources. We cannot assure you
that the necessary amount of capital will continue to be available to us on
favorable terms, or at all. If we are unable to continue to obtain any portion
of required financing on favorable terms, our ability to add new leases to our
lease portfolio, renew leases, re-lease an aircraft, repair or recondition an
aircraft if required or retain ownership of an aircraft on which financing has
expired could be limited, which could have a material adverse effect on our
business, financial condition and results of operations. In addition, our
financing arrangements to date have been dependent in part upon ILFC. See
Reliance Upon ILFC above and Relationship With ILFC, and Note 6 to
Consolidated Financial Statements.

We face risks of changes in interest rates.

Our leases are generally structured at fixed rental rates for specified
terms. See Managements Discussion and Analysis of Financial Condition and
Results of Operations  Liquidity and Capital Resources. We cannot assure you
that we will be able to finance or refinance our borrowings at fixed rates
which result in acceptable interest rate spreads to the applicable leases, or
at fixed rates at all. Increases in interest rates could narrow or eliminate
the spread, or result in a negative spread, between the lease rates we realize
under our leases and the interest rate that we pay under our loans. Our
business, financial condition and operating results could be adversely affected
during any period of increases in interest rates.

We face actual and potential competition from many sources.

The aircraft leasing industry is highly competitive. The level of
competition depends in part upon the type of aircraft being leased and
prospective lessees for the aircraft. We believe that only a few comparably
sized companies on a worldwide basis focus primarily on the same segment of the
aircraft leasing market as we do. In addition, a number of aircraft
manufacturers, airlines and other operators, distributors, equipment managers,
leasing companies (including

12



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ILFC), financial institutions and other parties
engaged in leasing, managing, marketing or remarketing aircraft compete with
us, although their primary focus is not on the market segment on which we
focus. Many of these periodic competitors have significantly greater financial
resources than we have. Our competitors may lease aircraft at lower rates than
we do and provide benefits, such as direct maintenance, crews, support services
and trade-in privileges, which we do not intend to provide. We cannot assure
you that we will continue to compete effectively against present and
future competitors or that competitive pressures will not have a material
adverse effect on our business, financial condition and results of operations.

Foreign ownership of companies owning U.S. registered aircraft is limited.

We intend to maintain United States registration of some of the aircraft
which we own. Aircraft may not be registered in the United States unless the
registered owner is a citizen of the United States or other permissible persons
under the Federal Aviation Act. If a corporation is the registered owner of an
aircraft, the corporation must be organized under the laws of the United States
or any State, and the president and two-thirds or more of the board of
directors and at least 75% of the voting interest of the corporation must be
controlled by persons who are citizens of the United States. Non-U.S. citizens
may hold stock in a U.S. corporation through an appropriate voting trust. Any
failure to meet the registration requirements of the FAA may result in
substantial penalties, including the forced sale of the aircraft, the potential
for uninsured casualties to the aircraft, the loss of the benefits of the
central recording system under federal law (thereby leaving the aircraft
exposed to liens or other interests not of record with the FAA), and a breach
by us of any leases or financing agreements with respect to the aircraft.

The limits on liability of lessors are uncertain.

Section 44112 of Title 49 of the United States Code provides that a lessor
of aircraft generally will not be liable for any personal injury or death, or
damage to or loss of property, provided that the lessor is not in actual
possession or control of the aircraft at the time of such injury, death or
damage. Under certain circumstances, however, courts have interpreted Section
44112 narrowly, limiting its protection to certain aircraft lessors and have
held that state common law remedies may apply, notwithstanding the limitations
on liability under Section 44112. Under common law, the owner of an aircraft
may be held liable for injuries or damage to passengers or property, and damage
awards can be substantial. Because there is little case law interpreting
Section 44112, we cannot assure you that the provisions of Section 44112 would
fully protect us from all liabilities in connection with any injury, death,
damage or loss that may be caused by any aircraft we own. For example, Section
44112 may not preempt state law with respect to liability for third party
injuries arising from a lessors or owners own negligence. It is anticipated
that each lessee under the terms of each lease to be entered into by us will be
obligated to indemnify us for, or insure us against, virtually all claims by
third parties; however, in the event that Section 44112 were not applicable, we
cannot assure you that the lessees could fulfill their indemnity obligations
under any such leases or that any insurance obtained will be sufficient.

We could be subject to substantial costs if lessees do not properly maintain
their leased aircraft.

The maintenance and operation of aircraft are strictly regulated by the
FAA and foreign aviation authorities. The cost of complying with these
requirements is significant. We will seek to lease our aircraft to lessees that
agree to bear all or a significant portion of the costs of complying with
governmental regulations. All of our current leases require the lessee to bear
all of the costs of complying with governmental regulations. However, in the
event a lessee fails to maintain aircraft in accordance with the terms of a
lease or a lease terminates shortly before a major required overhaul, we may be
required to spend substantial sums to repair or recondition the aircraft and
may be required to borrow funds for the purpose. The FAA issued several
Airworthiness Directives in 1990 mandating changes to the maintenance programs
for older aircraft. These ADs were issued to ensure that the oldest portion of
the United States transport aircraft fleet remains airworthy. The FAA is
requiring that these aircraft undergo extensive structural modifications. These
modifications are required upon accumulation of 20 years time in service or
prior to the accumulation of a designated number of flight-cycles, whichever
occurs later. Future regulatory changes may also increase the cost of operating
or maintaining the aircraft and may adversely affect the residual value of the
aircraft. The failure of a lessee to comply with lease maintenance and
operation obligations or the imposition of governmental requirements involving
substantial compliance costs could have a material adverse effect on our
business, financial condition and results of operations.

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Changes in tax laws or accounting principles could adversely affect us.

Our leasing activities generate significant depreciation allowances that
provide us with substantial tax benefits on an ongoing basis. We recorded a
valuation allowance of $3.7 million on our federal net operating loss
carryforwards primarily related to the federal net operating loss carryforwards
which expire in 2005 and 2006. See Note 4 to Consolidated Financial
Statements. In addition, some of our lessees currently enjoy favorable
accounting and tax treatment by entering into operating leases. Any change to
current tax laws or accounting principles that make operating lease financing
less attractive could adversely affect our business, financial condition and
results of operations.

We are dependent on key management.

Our business operations are dependent in part upon the expertise of
certain key employees. The loss of the services of those employees,
particularly William E. Lindsey and Michael P. Grella, would have a material
adverse effect on our business, financial condition and results of operations.

Our quarterly operating results fluctuate.

We have experienced fluctuations in our quarterly operating results and
anticipate that these fluctuations may continue. The factors causing
fluctuations include:



| |  |  | termination of a lease and the subsequent re-lease of an aircraft at a different lease rate
| | - |  | -------------------------------------------------------------------------------------------
|
| |  |  | unanticipated early lease terminations                                                     
|
| |  |  | default by a lessee                                                                        
|
| |  |  | the timing of purchases or sales of aircraft                                               
|
| |  |  | the refinancing of debt at different interest rates                                        
|
| |  |  | the timing and extent of consulting and remarketing fees                                   

Given the possibility of fluctuations, we believe that comparisons of the
results of our operations for preceding quarters are not necessarily meaningful
and that results for any one quarter should not be relied upon as an indication
of future performance. In the event our revenues or earnings for any quarter
are less than the level expected by securities analysts or the market in
general, the shortfall could have an immediate and significant adverse impact
on the market price of our common stock.

14



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##### Table of Contents






Item 2. Properties.

Flight Equipment

We review opportunities to acquire suitable jet aircraft that meet our
portfolio strategy based on market demand and customer airline requirements, as
well as our portfolio mix and planning strategies. Before committing to
purchase an aircraft, we take into consideration factors such as estimates of
future values, potential for remarketing, trends in supply and demand for the
particular type, make and model of aircraft and engines and anticipated
obsolescence. As a result, certain types and vintages of aircraft do not meet
the profile for inclusion in our portfolio of aircraft. At December 31, 2000
and 2001, the average age of our flight equipment was 13.6 and 14.6 years,
respectively. As of December 31, 2000 and 2001, our portfolio contained
fourteen aircraft that were Stage 3 compliant. See Item 1.
BusinessCautionary Statements.

The following table shows the scheduled lease terminations (for the
minimum noncancellable period) by aircraft type for our lease portfolio at
December 31, 2001:

|              |       |      |   |      |  |      |   |      |  |      |   |            |  |       |   |   |  |  |   |   |  |  |   |   |  |  |   |    | 
|------------- | ----- | ---- | - | ---- |  | ---- | - | ---- |  | ---- | - | ---------- |  | ----- | - | - |  |  | - | - |  |  | - | - |  |  | - | -- | 
|Aircraft Type |       | 2002 |   | 2003 |  | 2004 |   | 2005 |  | 2006 |   | Thereafter |  | Total
|              |       |      |   |      |  |      |   |      |  |      |   |            |  |      
|A320-200      |       |      |  |      |  |      | 1 |      |  |      |  |            |  |       |  |   |  |  | 1 |   |  |  |  |   |  |  | 2 |   
|727-200       |       |      |  |      |  |      | 1 |      |  |      |  |            |  |       |  |   |  |  |  |   |  |  |  |   |  |  | 1 |   
|737-200       |       |      | 3 |      |  |      |  |      |  |      |  |            |  |       |  |   |  |  |  |   |  |  |  |   |  |  | 3 |   
|737-300       |       |      | 1 |      |  |      |  |      |  |      |  |            |  |       | 2 |   |  |  |  |   |  |  |  |   |  |  | 3 |   
|737-400       |       |      |  |      |  |      | 2 |      |  |      |  |            |  |       | 1 |   |  |  |  |   |  |  |  |   |  |  | 3 |   
|757-200       |       |      |  |      |  |      | 1 |      |  |      |  |            |  |       |  |   |  |  |  |   |  |  |  |   |  |  | 1 |   
|MD-82         |       |      |  |      |  |      |  |      |  |      |  |            |  |       |  |   |  |  |  |   |  |  | 1 |   |  |  | 1 |   
|MD-83         |       |      | 1 |      |  |      |  |      |  |      |  |            |  |       |  |   |  |  |  |   |  |  |  |   |  |  | 1 |   
|              |       |      |   |      |  |      |   |      |  |      |   |            |  |       |   |   |  |  |   |   |  |  |   |   |  |  |   |   
|              | Total |      |   | 5    |  |      |   | 5    |  |      |   |           |  |       |   | 3 |  |  |   | 1 |  |  |   | 1 |  |  |   | 15 | 
|              |       |      |   |      |  |      |   |      |  |      |   |            |  |       |   |   |  |  |   |   |  |  |   |   |  |  |   |   

We had a Boeing Model 757-200ER on lease to Canada 3000. In November
2001, Canada 3000 filed bankruptcy and we repossessed the aircraft. We have
moved the aircraft to the United States, and we are currently marketing the
aircraft for lease or sale.

Facilities

Our principal offices are located at 3655 Torrance Boulevard, Suite 410,
Torrance, California. We occupy space in Torrance under a lease that covers
approximately 3,254 square feet of office space and expires on May 31, 2004. We
believe that our current facilities are adequate for our needs and do not
anticipate any difficulty replacing those facilities or locating additional
facilities, if needed. See Note 8 to Consolidated Financial Statements.




Item 3. Legal Proceedings.

In November 2001, Canada 3000, a Canadian charter airline was granted
protection from its creditors under the Companies Creditors Arrangement Act.
We repossessed our Boeing Model 757-200ER from the airline and moved the
aircraft to the United States. NAV Canada and the Canadian Airport Authorities
have filed suit against the owners of the aircraft which were leased to Canada
3000. The suits claim unpaid navigation and landing fees incurred by Canada
3000 are payable by the owners of the aircraft. We are contesting these suits
and have recorded a $548,000 reserve.

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Item 4. Submissions of Matters to a Vote of Securities Holders.

None.




PART II




Item 5. Market for the Registrants Common Stock and Related Shareholder Matters.

Our common stock is listed on the Nasdaq National Market under the trading
symbol IAIS. The high and low sale prices, as reported by The Nasdaq Stock
Market, Inc., for the years ended December 31, 2000 and 2001 were as follows:

|               |  |      |      |      |  |      |      |     |  |   |      |  |  |   |      | 
|-------------- |  | ---- | ---- | ---- |  | ---- | ---- | --- |  | - | ---- |  |  | - | ---- | 
|               |  | 2000 |      | 2001
|               |  |      |      |     
|               |  | High |      | Low  |  | High |      | Low
|               |  |      |      |      |  |      |      |    
|First Quarter  |  | $    | 6.88 |      |  | $    | 4.75 |     |  | $ | 5.63 |  |  | $ | 3.75 | 
|Second Quarter |  | $    | 6.31 |      |  | $    | 5.00 |     |  | $ | 4.50 |  |  | $ | 3.66 | 
|Third Quarter  |  | $    | 6.19 |      |  | $    | 5.13 |     |  | $ | 5.48 |  |  | $ | 3.00 | 
|Fourth Quarter |  | $    | 5.88 |      |  | $    | 5.31 |     |  | $ | 3.50 |  |  | $ | 1.07 | 

On March 29, 2002,
the number of holders of record of our common stock was 61.

We have not paid any cash dividends on our capital stock. The payment of
cash dividends in the future will be made at the discretion of the Board of
Directors and will depend on a number of factors, including future earnings,
capital requirements, our financial condition and future prospects and such
other factors as the Board of Directors may deem relevant. We intend to retain
all available funds for use in our business. Accordingly, we do not anticipate
declaring or paying any dividends on our common stock in the foreseeable
future.

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Item 6. Selected Financial Data.

The following selected consolidated financial and operating data should be
read in conjunction with the accompanying Consolidated Financial Statements and
the related notes thereto and Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this Form
10-K.

|                         |                                                                                                     |                                                                                    |                |         |                                                              |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |        |        | 
|------------------------ | --------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | -------------- | ------- | ------------------------------------------------------------ | ------ | ---- | ------- | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                         |                                                                                                     |                                                                                    |                |         | At and For the Year Ended December 31,                      
|                         |                                                                                                     |                                                                                    |                |         |                                                             
|                         |                                                                                                     |                                                                                    |                |         | 1997                                                         |        | 1998 |         | 1999   |        | 2000 |         | 2001  
|                         |                                                                                                     |                                                                                    |                |         |                                                              |        |      |         |        |        |      |         |       
|                         |                                                                                                     |                                                                                    |                |         | (Dollars in thousands, except per share data and other data)
|Statement of Income Data |                                                                                                     |                                                                                    |                |         |                                                              |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        
|                         | Revenues:                                                                                           |                                                                                    |                |         |                                                              |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|                         |                                                                                                     | Rental of flight equipment                                                         |                | $       | 15,433                                                       |        |      | $       | 26,985 |        |      | $       | 38,088 |        |   | $       | 41,450 |        |   | $       | 37,918 |       
|                         |                                                                                                     | Consulting and other fees                                                          |                |         | 212                                                          |        |      |         | 605    |        |      |         | 200    |        |   |         | 200    |        |   |         | 158    |       
|                         |                                                                                                     | Interest income                                                                    |                |         | 483                                                          |        |      |         | 1,727  |        |      |         | 1,454  |        |   |         | 1,550  |        |   |         | 1,666  |       
|                         |                                                                                                     |                                                                                    |                |         |                                                              |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        
|                         |                                                                                                     |                                                                                    | Total revenues |         |                                                              | 16,128 |      |         |        | 29,317 |      |         |        | 39,742 |   |         |        | 43,200 |   |         |        | 39,742 | 
|                         | Expenses                                                                                            |                                                                                    |                | 15,028  |                                                              |        |      | 24,596  |        |        |      | 33,686  |        |        |   | 42,909  |        |        |   | 58,292  |       
|                         |                                                                                                     |                                                                                    |                |         |                                                              |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        
|                         | Income (loss) before income taxes and
cumulative effect of accounting change
and extraordinary loss |                                                                                    |                | 1,100   |                                                              |        |      | 4,721   |        |        |      | 6,056   |        |        |   | 291     |        |        |   | (18,550 | )     
|                         | Income tax expense (benefit)                                                                        |                                                                                    |                | 433     |                                                              |        |      | 1,542   |        |        |      | 2,263   |        |        |   | 195     |        |        |   | (2,894  | )     
|                         |                                                                                                     |                                                                                    |                |         |                                                              |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        
|                         | Income (loss) before cumulative effect
of accounting change and extraordinary
loss                  |                                                                                    |                | 667     |                                                              |        |      | 3,179   |        |        |      | 3,793   |        |        |   | 96      |        |        |   | (15,656 | )     
|                         | Cumulative effect of accounting change                                                              |                                                                                    |                |        |                                                              |        |      | 209     |        |        |      |        |        |        |   |        |        |        |   |        |       
|                         | Extraordinary loss on debt extinguishment                                                           |                                                                                    |                |        |                                                              |        |      |        |        |        |      | (214    | )      |        |   |        |        |        |   |        |       
|                         |                                                                                                     |                                                                                    |                |         |                                                              |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        
|                         | Net income (loss)                                                                                   |                                                                                    | $              | 667     |                                                              |        | $    | 3,388   |        |        | $    | 3,579   |        |        | $ | 96      |        |        | $ | (15,656 | )     
|                         |                                                                                                     |                                                                                    |                |         |                                                              |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        
|                         | Basic earnings per share:                                                                           |                                                                                    |                |         |                                                              |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|                         |                                                                                                     | Income (loss) before cumulative effect
of accounting change and
extraordinary loss |                | $       | .88                                                          |        |      | $       | .72    |        |      | $       | .90    |        |   | $       | .02    |        |   | $       | (4.30  | )     
|                         |                                                                                                     | Cumulative effect of accounting change                                             |                |         |                                                             |        |      |         | .04    |        |      |         |       |        |   |         |       |        |   |         |       |       
|                         |                                                                                                     | Extraordinary loss on debt extinguishment                                          |                |         |                                                             |        |      |         |       |        |      |         | (.05   | )      |   |         |       |        |   |         |       |       
|                         |                                                                                                     |                                                                                    |                |         |                                                              |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        
|                         |                                                                                                     | Net income (loss)                                                                  |                | $       | .88                                                          |        |      | $       | .76    |        |      | $       | .85    |        |   | $       | .02    |        |   | $       | (4.30  | )     
|                         |                                                                                                     |                                                                                    |                |         |                                                              |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        
|                         | Diluted earnings per share:                                                                         |                                                                                    |                |         |                                                              |        |      |         |        |        |      |         |        |        |   |         |        |        |   |         |       
|                         |                                                                                                     | Income (loss) before cumulative effect
of accounting change and
extraordinary loss |                | $       | .30                                                          |        |      | $       | .70    |        |      | $       | .88    |        |   | $       | .02    |        |   | $       | (4.30  | )     
|                         |                                                                                                     | Cumulative effect of accounting change                                             |                |         |                                                             |        |      |         | .05    |        |      |         |       |        |   |         |       |        |   |         |       |       
|                         |                                                                                                     | Extraordinary loss on debt extinguishment                                          |                |         |                                                             |        |      |         |       |        |      |         | (.05   | )      |   |         |       |        |   |         |       |       
|                         |                                                                                                     |                                                                                    |                |         |                                                              |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        
|                         |                                                                                                     | Net income (loss)                                                                  |                | $       | .30                                                          |        |      | $       | .75    |        |      | $       | .83    |        |   | $       | .02    |        |   | $       | (4.30  | )     
|                         |                                                                                                     |                                                                                    |                |         |                                                              |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        
|                         | Weighted average number of common
shares outstanding                                                |                                                                                    |                | 754     |                                                              |        |      | 4,430   |        |        |      | 4,212   |        |        |   | 3,961   |        |        |   | 3,641   |       
|                         | Weighted average number of common
shares outstanding-assuming dilution                              |                                                                                    |                | 2,207   |                                                              |        |      | 4,545   |        |        |      | 4,323   |        |        |   | 4,071   |        |        |   | 3,641   |       
|Balance Sheet Data       |                                                                                                     |                                                                                    |                |         |                                                              |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        
|                         | Flight equipment                                                                                    |                                                                                    | $              | 172,506 |                                                              |        | $    | 236,909 |        |        | $    | 314,083 |        |        | $ | 295,292 |        |        | $ | 246,349 |       
|                         | Total assets                                                                                        |                                                                                    |                | 204,552 |                                                              |        |      | 267,891 |        |        |      | 342,497 |        |        |   | 320,356 |        |        |   | 282,423 |       
|                         | Debt financing                                                                                      |                                                                                    |                | 154,72  |                                                              |        |      | 208,002 |        |        |      | 271,971 |        |        |   | 253,700 |        |        |   | 235,096 |       
|                         | Shareholders equity                                                                                |                                                                                    |                | 33,095  |                                                              |        |      | 34,751  |        |        |      | 38,296  |        |        |   | 35,862  |        |        |   | 19,708  |       
|Other Data               |                                                                                                     |                                                                                    |                |         |                                                              |        |      |         |        |        |      |         |        |        |   |         |        |        |   |        
|                         | Aircraft equipment owned at period end                                                              |                                                                                    |                | 10      |                                                              |        |      | 13      |        |        |      | 16      |        |        |   | 16      |        |        |   | 16      |       

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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.

(Dollars in thousands except per share data)

Critical Accounting Policies

The discussion and analysis of our financial condition and results of
operations are based on consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make certain estimates and assumptions. These affect the reported amounts of
assets, liabilities, revenues and expenses and the amount of any contingent
assets or liabilities disclosed in the financial statements. We believe that
of our critical accounting policies, the following may involve a higher degree
of judgements, estimates and complexity:

Rentals

We receive ancillary payments under certain of our lease agreements. We
historically retain a portion of these payments at the expiration of these
leases. Revenue recorded on these payments requires estimates of the cash
flows expected to be generated under the leases, which are based on assumptions
of future aircraft utilization, length of the initial lease term and future
lease extensions. Management evaluates these assumptions each reporting
period.

Impairment of Long-Lived Assets

Flight equipment is initially stated at
cost and major additions and modifications are capitalized. Investments in
direct financing leases require estimates of residual values of the flight
equipment at the end of the lease term. Both flight equipment and investment
in direct financing lease are impacted by changes in the estimated useful life
of the flight equipment, changes in the estimated residual value and impairment
charges.

Statement of Financial Accounting Standards No. 121 (SFAS No. 121),
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of, established accounting standards for the recognition and
measurement of impairment of long-lived assets, certain identifiable
intangibles and goodwill either to be held or disposed of. We record
impairment charges when events and circumstances (i.e., the terrorist attacks
of September 11, 2001) indicate that the assets may be impaired and the
estimated undiscounted future cash flows generated by those assets are less
than the carrying amount of those assets. The impairment charge is the amount
that the net book value exceeds the fair value of the asset. We make certain
assumptions in evaluating impairment, including, but not limited to, estimated
fair market value of the assets and estimated future cash flows generated by
the assets.

During 2000 and 2001, we recorded write-downs of $2,000 and $14,752 on two
aircraft and on six aircraft, respectively as a result of permanent impairment.

Industry Conditions

As a result of the terrorist attack on September 11, 2001 and the slowdown
in the economies of the United States and other countries, the worlds airlines
have entered into the worst financial crisis in the history of the industry.
While governments around the world have agreed to provide assistance to varying
degrees, the fate of the individual carriers and the industry is uncertain.
Our lessees have been adversely affected by these events. Commercial air
carriers have announced reductions in their long-term schedules and have
initiated cost reduction programs.

We face substantial risks in the current climate. These risks include,
but are not limited to, lease rate reductions, non-collection of rents, airline
bankruptcies, refinancing risk and reduction in the value of aircraft. In
order to minimize these risks we require most of our lessees to pay rents in
advance, pay lease deposits, and make payments to be applied to scheduled
maintenance.

Two of our lessees have filed for bankruptcy since the terrorist attacks
on September 11, 2001. In addition, we have reduced lease rates on some leases
in exchange for a lengthened term. It is our strategy to keep as many of our
aircraft on lease as possible until the airline industry recovers from the
effects of the terrorist attacks and economic downturn. In 2001, we began to
reap the benefits of lower interest rates in the refinancing of our debt.

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The terrorist attacks have had a severe effect on the values of aircraft.
We reevaluated the values of our aircraft for permanent impairment. As a
result of that evaluation, in 2001 we wrote down the value of six aircraft by
$14,752 and have reserved $4,660 for losses we expect to incur in the future.

We repossessed two aircraft in 2000 and three aircraft in 2001. As a
result of the repossessions, we incurred repossession, maintenance and lease
cancellation costs of $1,268 and $1,706 in 2000 and 2001, respectively.

In January 2000, we repossessed one of our Boeing Model 737-300 aircraft
from TAESA, a Mexican airline. In 2001, we entered into an agreement to sell
the aircraft to a third party and obtained a $200 non-refundable deposit from
the purchaser. The deposit required us to hold the plane available to the
purchaser for a specific time period. The time period that we were required to
hold the plane available was completed in 2000, and we recorded the deposit as
fee revenue. In 2001, we leased the aircraft to Panair, an Italian airline,
until April 2005.

We repossessed one of our Airbus A320-200 aircraft from TransAer, an Irish
carrier two weeks prior to its lease termination of October 31, 2000. In 2001,
we leased the aircraft to Mexicana, until June 2006.

In January 2001, TWA filed for protection under Chapter 11 of the United
States Bankruptcy Code. American Airlines acquired substantially all of the
assets and leases of TWA. Our lease was extended until December 2014 and
recorded as a direct financing lease.

We have an MD-83 on lease to Air Liberté, a French airline, to April 2002.
In June 2001, the airline filed for bankruptcy under the laws of France. In
July 2001, the French courts adopted a plan by which the airline was purchased
by an outside investor group. The existing lease was reaffirmed by the
purchasing group and the aircraft continues to be leased to the airline.

In October 2001, we repossessed a Boeing Model 737-400 from National Jet
Italia, an Italian airline which filed for bankruptcy protection under the laws
of Italy. In December 2001, we signed a lease with Panair to lease the
aircraft from January 2002 until April 2005.

In November 2001, Canada 3000, a Canadian charter airline was granted
protection from its creditors under the Companies Creditors Arrangement Act.
We repossessed our Boeing Model 757-200ER from the airline and moved the
aircraft to the United States. We are currently marketing the aircraft for
lease or sale.

Extraordinary Item

In May 1999, we repaid a note with a principal amount of $15,745 prior to
maturity. The note was due May 2000 with a rate of 7.96%. The repayment
resulted in an extraordinary charge of $214, net of a $131 income tax benefit.

Results of Operations

Years Ended December 31, 2000 and 2001

Revenues from rental of flight equipment decreased by 9% from $41,450 to
$37,918 in 2000 primarily as the result of the repossession of three aircraft
in 2001, as discussed above, and reductions in lease rates on aircraft. Our
lease portfolio consisted of sixteen aircraft with a book value of $246,349 at
December 31, 2001 compared to sixteen aircraft with a book value of $295,292 at
December 31, 2000.

Year to year comparisons of consulting and other fees are impacted by
their timing and amount. In 2000, we earned $200 from a retained
non-refundable deposit on an agreement to sell a 737-300 which the buyer failed
to complete. In 2001, we earned $158 of consulting and other fees primarily
related to our assisting ILFC with the purchase of three aircraft.

Interest income increased from $1,550 in 2000 to $1,666 in 2001
principally as a result interest income from recording of an MD-82 as a direct
financing lease in March 2001, partially offset by lower interest rates and
reduced cash and restricted cash balances in 2001.

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Interest expense decreased from $18,845 in 2000 to $16,991 in 2001.
Interest expense decreased in 2001 as a result of continued paydowns of our
notes payable, as well as a decrease in our weighted average interest rate.
Our weighted average interest rate was 7.1% and 6.6% at December 31, 2000 and
2001, respectively.

Depreciation and amortization expense decreased from $18,636 in 2000 to
$18,195 in 2001. The decrease of $441 in 2001 from 2000 resulted from the
recording of our MD-82 as a direct financing lease. In 2000, we recorded a
$2,000 charge for the write-down of the value of two aircraft based on estimated
residual values and estimated future economic values of these aircraft. In
2001 we wrote down the values of six aircraft for $14,752 and have reserved an
additional $4,660 for losses we expect to incur in the future. The write-downs
and reserves resulted from our determining that the future economic values of
these aircraft have been permanently impaired by the effects of the terrorist
attacks on September 11, 2001 and the slowdown in the economies of the United
States and other countries.

In 2000, we recorded $1,268 of repossession, maintenance and lease
cancellation costs related to the repossessions of two aircraft. In 2001, we
recorded $1,706 of repossession, maintenance and lease cancellation costs
related to the repossessions of three aircraft.

General and administrative expenses were $1,910 and $1,988 in 2000 and
2001, respectively. The increase from 2000 to 2001 was primarily the result of
increases in consulting and other costs related to maintaining subsidiaries in
Ireland used to facilitate the registration and leasing of aircraft to various
countries. In 2000, we incurred $250 of non-cash compensation expense related
to the vesting of options. No additional compensation expense was recorded in
2001.

In 2000, we recorded income tax expense of $196, representing effective
income tax rate of 67%. The effective rate resulted from a greater marginal
effect of the expiration of state tax net operating loss carryforwards. During
2001, we recorded income tax benefit of $2,894, representing effective income
tax rate of (16%). The effective tax rate was the result of our recording a
valuation allowance of $3,604 primarily related to federal net operating loss
carryforwards which expire in 2005 and 2006. Our ability to utilize our
federal net operating loss carryforwards is dependant on our ability to
generate taxable income before they expire. At December 31, 2001, we had
$34,535 of unreserved federal net operating loss carryforwards net of valuation
allowance. See Note 4 to Consolidated Financial Statements.

We had net income of $96 in 2000 and a net loss of $15,656 in 2001. The
change from 2000 to 2001 was primarily the result of impairment write-downs of
equipment, reserves for expected losses and establishing a valuation allowance
for federal net operating losses in 2001 and other factors discussed above.

Years Ended December 31, 1999 and 2000

Revenues from rental of flight equipment increased by 9% to $41,450 from
$38,088 in 1999 primarily as the result of a full years effect of three
aircraft purchased in 1999, offset by the repossession of two aircraft, as
discussed above. Our lease portfolio consisted of sixteen aircraft with a book
value of $295,292 at December 31, 2000 compared to sixteen aircraft with a book
value of $314,083 at December 31, 1999.

Year to year comparisons of consulting and other fees are impacted by
their timing and amount. In 1999 consulting fee revenue of $200 was earned
related to marketing activities. In 2000, we earned $200 from a retained
non-refundable deposit on an agreement to sell a 737-300 which the buyer failed
to complete.

Interest income increased to $1,550 in 2000 from $1,454 in 1999 primarily
as a result of higher average interest rates on our cash, restricted cash and
short-term investments.

Expenses as a percent of total revenues were 84.8% and 99.3% in 1999 and
2000, respectively. The increase in the percent of total revenues from 1999 to
2000 was due to the effect of a 9% increase in total revenues and a 27%
increase in total expenses.

Interest expense increased from $16,143 in 1999 to $18,845 in 2000.
Interest expense increased in 2000 as a result of a full years effect of the
financing of three aircraft acquired in 1999. Our weighted average interest
rate was 7% and 7.1% at December 31, 1999 and 2000, respectively.

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Depreciation and amortization expense increased from $15,411 in 1999 to
$18,636 in 2000. The increase of $3,225 in 2000 from 1999 resulted from a full
years effect of the acquisition of three aircraft in 1999. In 2000, we
recorded a $2,000 charge for the write-down of the value of a 1978 and a 1980
Boeing Model 737-200ADV stage 2 aircraft based on estimated residual values and
estimated future economic values of these aircraft. These are the last
remaining aircraft in our portfolio that do not meet stage 3 noise compliance
regulations. These aircraft are leased in an area which does not require
compliance with noise regulations. However, they may require modification if
moved to a jurisdiction requiring stage 3 compliance. Currently, the
modifications range in cost from $1.2 million to $2 million per aircraft.

In 2000, we recorded $1,268 of repossession, maintenance and lease
cancellation costs related to the repossessions of the two aircraft as
discussed above. No repossession, maintenance and lease cancellation costs
were incurred in 1999.

General and administrative expenses were $1,882 and $1,910 in 1999 and
2000, respectively. The increase from 1999 to 2000 was primarily the result of
increases in benefits and legal costs in 2000. In 1999 and 2000, we incurred
$250 of non-cash compensation expense related to the vesting of options. No
additional compensation expense will be recorded in future periods related to
the vesting of these options. See Note 9 to Consolidated Financial Statements.

We recognized income tax expense of $2,263 and $196, representing
effective income tax rates of 37% and 67%, during 1999 and 2000, respectively.
The $2,067 decrease in income tax expense in 2000 is primarily the result of a
$5,765 decrease in taxable income. The increase in the effective rate resulted
from a greater marginal effect of the expiration of state tax net operating
loss carryforwards. During 2000, we continued to generate substantial federal
net operating loss carryforwards. At December 31, 2000, we had $31,579 of
federal net operating loss carryforwards. Our ability to utilize our federal
net operating loss carryforwards is dependant on our ability to generate
taxable income through the sale of aircraft in our portfolio. See Note 4 to
Consolidated Financial Statements.

Net income decreased to $96 in 2000 due to the factors described above and
the effects of the extraordinary item and the change in accounting method.

Recent Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 141, Business Combinations(SFAS
141), and SFAS No. 142, Goodwill and Other Intangible Assets(SFAS No. 142).
SFAS No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. SFAS No. 141 also
specifies the criteria that intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill. SFAS No. 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS No. 142.
SFAS No. 142 will also require that intangible assets with estimable useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. Management does not expect any impact on our
financial statements as a result of the adoption of SFAS No. 141 and No. 142.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations (SFAS No. 143). SFAS No. 143 requires us to record the
fair value of an asset retirement obligation as a liability in the period in
which it incurs a legal obligation associated with the retirement of tangible
long-lived assets that result from the acquisition, construction, development
and/or normal use of the assets. We also record a corresponding asset which is
depreciated over the life of the asset. Subsequent to the initial measurement
of the asset retirement obligation, the obligation will be adjusted at the end
of each period to reflect the passage of time and changes in estimated future
cash flows underlying the obligation. We are required to adopt SFAS No. 143 on
January 1, 2003. Management does not expect any impact on our financial
statements as a result of the adoption of SFAS No. 143.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. This Statement requires that long-lived assets be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of
the asset exceeds the fair value of the asset. SFAS No. 144 requires companies
to separately report discounted operations and extends that reporting to a
component of an entity that either has been disposed of (by sale, abandonment,
or in a distribution to owners) or is classified as held for sale. Assets to
be disposed of are reported at he lower of the carrying amount of fair value
less costs to sell. We are required to adopt SFAS No. 144 on January 1, 2002.
The impact on our financial statements as a result of the adoption of SFAS No.
144 was not material.

Liquidity and Capital Resources

Our principal external sources of funds have been term loans from banks
and seller financing secured by aircraft. As a result, a substantial amount of
our cash flow from the rental of flight equipment is applied to principal and
interest payments on secured debt. The terms of our loans generally require a
substantial balloon payment at the end of the noncancellable portion of the
lease of the related aircraft, at which time we will be required to re-lease
the aircraft and renegotiate the balloon amount of the loan or obtain other
financing. Refinancing of the balloon amount is dependent upon re-leasing the
related aircraft. Accordingly, we attempt to begin lease remarketing efforts
well in advance of the lease termination.

Our sixteen aircraft are owned by fifteen special purpose subsidiaries.
All of our loans are on a non-recourse basis. Non-recourse loans are
structured as loans to the special purpose subsidiaries which only own the
assets which secure the related loan. Only the relevant special purpose
subsidiary is liable for the repayment of the non-recourse loan. We are only
liable if we breach certain limited representations and warranties under the
applicable loan documentation. Such subsidiaries and their related debt,
including the aforementioned non-recourse loans are included in our
consolidated financial statements. The lender assumes the credit risk of each
lease, and its only recourse upon a default under the lease is against the
lessee, the leased equipment and the special purpose subsidiary. As such, if
we were to become unable to meet the obligation on a loan resulting from the
failure of our lessee to make its rental payments, we have the ability to
default on that loan without affecting the performance of the loans secured by
other aircraft. Interest rates under this type of financing are negotiated on
a transaction-by-transaction basis and reflect the financial condition of the
lessee, the terms of the lease, any guarantees and the amount of the loan. See
Item 1. Business  Financing/Source of Funds.

The principal use of cash is for financing the acquisition of our aircraft
portfolio, which are financed by loans secured by the applicable aircraft. We
entered into a $5,000 line of credit with a bank in February 2000. The line of
credit bears interest at LIBOR plus 2.5% and expired in February 2002. No
borrowings have been made against the line of credit.

At December 31, 2000 and 2001, we had cash and cash equivalents of $11,164
and $8,077, respectively. At December 31, 2000 and 2001, cash and cash
equivalents included $7,092 and $4,388, respectively of unrestricted cash held
for maintenance to be performed on our aircraft at future dates by our lessees.

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In 2000 the decrease in cash flows from operating activities of $6,301 was
primarily the result of the effects of our repossession of two aircraft in
2000, partially offset by a full years income from the three aircraft acquired
in 1999. The movement in restricted cash and lease and other deposits in 2000
was due to lease deposit reimbursements to several lessees in 2000. The timing
and amount of these reimbursements vary as a result of the type and usage of
the aircraft on lease. In 2001 the decrease in cash flows from operating
activities of $3,905 was primarily the result of the effects of our
repossession of three aircraft in 2001. The movement in restricted cash and
lease and other deposits in
2001 was due to lease deposit reimbursements to several lessees in 2001.
The timing and amount of these reimbursements vary as a result of the type and
usage of the aircraft on lease.

In 1999, cash of $92,203 was used in investing activities primarily to
purchase three additional aircraft. In 2000, we used $169 of cash for the
purchase of equipment on a Boeing Model 737-300. In March 2001, American
Airlines agreed to lease our MD-82 formerly on lease to TWA. As we extended
the lease to December 2014, the lease was recorded as a direct financing lease.
In 2001, cash flows from investing activities of $582 related to collections
under the financing lease.

In 1999, net cash provided by financing activities was $63,686, including
proceeds from borrowings of $110,127 to finance the purchase of three aircraft
and refinance existing borrowings, offset by repayments of notes payable of
$46,159 and $283 of common stock repurchases. In 2000, net cash used in
financing activities was $21,050, including repayments of notes payable of
$18,270 and $2,780 of common stock repurchases. In 2001, net cash used in
financing activities was $19,102, including repayments of notes payable of
$49,828 and $498 of common stock repurchases, partially offset by proceeds from
borrowings of $31,223.

In March 2002, we restructured $95,008 of notes payable, reducing the debt
payments and extending the term of the notes. Notes payable due within one
year totaled $11,363 at December 31, 2001 (after adjusting for the extensions
of our renegotiated notes payable), of which $11,106 represents balloon
payments and $257 represents installment payments. We intend to refinance all
of the balloon payments due in 2002. If we are unable to refinance a balloon
payment, we have the ability to default on the related loan without affecting
the performance of the loans secured by other aircraft. We have extended or
re-leased eight aircraft with $88,501 of associated balloon payments due from
2002 to 2004. During 1999, 2000 and 2001, we extended or refinanced $45,979,
$101,304 and $167,598 of balloon payments, respectively.

The following summarizes our contractual obligations at December 31, 2001:

|                         |  |         |         |           |  |       |     |  |  |   |         | 
|------------------------ |  | ------- | ------- | --------- |  | ----- | --- |  |  | - | ------- | 
|Year ending December 31: |  | Notes   |         | Operating |  |       |     | 
|(Dollars in thousands)   |  | Payable |         | Leases    |  | Total
|                         |  |         |         |           |  |      
|2002                     |  | $       | 23,602  |           |  | $     | 63  |  |  | $ | 23,665  | 
|2003                     |  |         | 77,027  |           |  |       | 65  |  |  |   | 77,092  | 
|2004                     |  |         | 17,596  |           |  |       | 27  |  |  |   | 17,623  | 
|2005                     |  |         | 74,357  |           |  |       |    |  |  |   | 74,357  | 
|2006                     |  |         | 29,193  |           |  |       |    |  |  |   | 29,193  | 
|Thereafter               |  |         | 13,321  |           |  |       |    |  |  |   | 13,321  | 
|                         |  |         |         |           |  |       |     |  |  |   |         | 
|                         |  | $       | 235,096 |           |  | $     | 155 |  |  | $ | 235,251 | 
|                         |  |         |         |           |  |       |     |  |  |   |         | 

Cash and cash equivalents vary from year to year principally as a result
of the timing of the purchase and sale of aircraft.

Our ability to execute our business strategy successfully and to sustain
our operations is dependent, in part, on our ability to obtain financing and to
raise equity capital. We cannot assure you that the necessary amount of
capital will continue to be available to us on favorable terms or at all. If we
are unable to continue to obtain any portion of required financing on favorable
terms, our ability to add new aircraft to our lease portfolio, renew leases,
re-lease aircraft, repair or recondition aircraft if required, or retain
ownership of aircraft on which financing has expired would be impaired, which

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could have a material adverse effect on our business, financial condition and
results of operations. In addition, our financing arrangements to date have
been dependent in part upon ILFC. See Item 1. BusinessCautionary
Statements.

Market-Sensitive Instruments and Risk Management

Lease Portfolio

While we enter into both operating and direct financing leases, we
primarily lease our portfolio of aircraft under operating leases. Under an
operating lease, we retain title to the aircraft and assume the risk of not
recovering our entire investment in the aircraft through the re-leasing and
remarketing process. Operating leases require us to re-lease or sell aircraft
in our portfolio in a timely manner upon termination of the lease in order to
minimize off-lease time and recover our original investment in the aircraft.
Numerous factors, many of which are beyond our control, may have an impact on
our ability to re-lease or sell an aircraft on a timely basis or to re-lease at
a satisfactory lease rate. Among the factors are:



| |  |  | the demand for various types of aircraft                                                           
| | - |  | ---------------------------------------------------------------------------------------------------
|
| |  |  | general market and economic conditions                                                             
|
| |  |  | regulatory changes, including those imposing environmental, maintenance or operational requirements
|
| |  |  | changes in supply or cost of aircraft                                                              
|
| |  |  | technological developments                                                                         

The terrorist attacks have had a severe effect on the values of aircraft.
We reevaluated the values of our aircraft for permanent impairment. As a
result of that evaluation, in 2001 we wrote down the value of six aircraft for
$14.8 million and have reserved $4.7 million for losses we expect to incur in
the future.

In addition, the success of an operating lease depends in significant part
upon having the aircraft returned by the lessee in marketable condition as
required by the lease. Consequently, we cannot assure you that our estimated
residual value for aircraft will be realized. See Note 1 to Consolidated
Financial Statements. If we are unable to re-lease or resell aircraft on
favorable terms, our business, financial condition and results of operations
could be adversely affected.

In the current industry environment lease rates will likely decline. The
decline will be affected by the demand for the type of aircraft, the term of
the lease and the credit worthiness of the lessee, as well as other factors.
We have five leases which expire in 2002. A hypothetical 10% decrease in lease
rates of those leases which expire within a one-year period would reduce our
lease revenue by $1,021 annually.

We repossessed two aircraft in 2000 and three aircraft in 2001. As a
result of the repossessions, we incurred repossession, maintenance and lease
cancellation costs of $1.3 million and $1.7 million in 2000 and 2001,
respectively.

Our 1992 Boeing Model 757-200ER has been off lease since November 2001 as
a result of the bankruptcy of Canada 3000. We are currently marketing the
aircraft for lease or sale.

Financial Instruments

This analysis presents the hypothetical loss in earnings, cash flows or
fair value of the financial instruments which we held at December 31, 2001 and
which are sensitive to changes in interest rates. In the normal course of
business, we also face risks that are either nonfinancial or non-quantifiable.
These risks principally include country risk, credit risk and legal risk and
are not included in the following analysis.

The carrying amounts
of cash and cash equivalents and short-term
investments approximate fair market value because of the short-term nature of
these items. Market risk was estimated as the potential decrease in fair value
resulting from a hypothetical 10% increase in interest rates for our cash
equivalents and was not materially different from the period-end carrying
value.

The fair values of our debt instruments, including the related asset value
guarantees, approximate the carrying values because (1) the rates currently
offered to us are similar to the rates for these items, or (2) the yields to
maturity approximate the rates for these items. Market risk associated with
our debt instruments primarily results from our ability to refinance balloon
payments at comparable or lower interest rates. Market risk was estimated as
the potential increase in interest

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expense for a one year period from December
31, 2001 resulting from a hypothetical 10% increase in our weighted average
borrowing rate at December 31, 2001 or $1,549.




Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

See Item 7. Managements Discussion and Analysis of Financial Condition
and Results of OperationsMarket Sensitive Instruments and Risk Management.




Item 8. Financial Statements and Supplementary Data.

The response to this item is submitted as a separate section of this
report.




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

During the two fiscal periods prior to the date of our most recent
financial statements, we have not reported a change in accountants nor have
there been any disagreements reported on any matter of accounting principles or
practices or financial statement disclosure.




PART III




Item 10. Directors and Executive Officers of the Registrant.

The section entitled Election of Directors in the Proxy Statement is
incorporated herein by reference.




Item 11. Executive Compensation.

The section entitled Executive Compensation in the Proxy Statement is
incorporated herein by reference.




Item 12. Security Ownership of Certain Beneficial Owners and Management.

The section entitled Beneficial Ownership of Shares in the Proxy
Statement is incorporated herein by reference.




Item 13. Certain Relationships and Related Transactions.

The section entitled Certain Relationships and Related Transactions in
the Proxy Statement is incorporated herein by reference.

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##### Table of Contents






PART IV




Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

Financial Statements:

See Index to Consolidated Financial Statements on page 26 of this report.

Financial Statement Schedules:

None.

Exhibits:

|  |  |        |      |             |  |                                                                                                                                                                                                                                                     
|- |  | ------ | ---- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |  | Number |      | Description
|  |  |        |      |            
|  |  |        | 3.1  |             |  | Amended and Restated Articles of Incorporation of the Company.
Filed as Exhibit 3.1 to Form 10-Q for the quarterly period
ended September 30, 1997, and incorporated herein by reference                                                            
| 
|  |  |        | 3.2  |             |  | Amended and Restated Bylaws of the Company. Filed as Exhibit
3.2 to Form 10-Q for the quarterly period ended September 30,
1997, and incorporated herein by reference                                                                               
| 
|  |  |        | 4.1  |             |  | The Company hereby agrees to furnish to the Commission upon
request a copy of any instrument with respect to long-term
debt where the total amount of securities authorized
thereunder does not exceed 10% of the consolidated assets of
the Company
| 
|* |  |        | 10.1 |             |  | Employment Agreement with William E. Lindsey. Filed as Exhibit
10.1 to Form 10-Q for the quarterly period ended September 30,
1997, and is incorporated herein by reference                                                                         
| 
|* |  |        | 10.2 |             |  | Employment Agreement with Michael P. Grella. Filed as Exhibit
10.2 to Form 10-Q for the quarterly period ended September 30,
1997, and is incorporated herein by reference                                                                          
| 
|* |  |        | 10.3 |             |  | 1997 Stock Option and Award Plan. Filed as Exhibit 6 to
Registration Statement No. 333- 46411, and incorporated herein
by reference                                                                                                                 
| 
|* |  |        | 10.4 |             |  | 1997 Eligible Director Stock Option Plan. Filed as Exhibit 6
to Registration Statement No. 333-46413, and incorporated
herein by reference                                                                                                          
| 
|* |  |        | 10.5 |             |  | Form of Indemnity Agreement. Filed as Exhibit 10.3 to
Registration Statement No. 333-19875, and incorporated herein
by reference                                                                                                                    
| 
|  |  |        | 21   |             |  | Subsidiaries of
the Registrant                                                                                                                                                                                                                      
| 
|  |  |        | 23.1 |             |  | Consent of KPMG LLP, independent auditors                                                                                                                                                                                                           

Reports on Form 8-K:

During the quarter ended December 31, 2001, we did not file any reports on Form 8-K.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                     |  |      |    | 
|---------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                     |  | Page
|                                                                                                     |  |     
|Independent Auditors Report                                                                         |  |      | 27 | 
|Consolidated Balance Sheets as of December 31, 2001 and 2000                                         |  |      | 28 | 
|Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999           |  |      | 29 | 
|Consolidated Statements of Shareholders Equity for the years ended December 31, 1999,
2000 and 2001 |  |      | 30 | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999           |  |      | 31 | 
|Notes to Consolidated Financial Statements                                                           |  |      | 32 | 

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INDEPENDENT AUDITORS REPORT

The Board of Directors
International Aircraft Investors:

We have audited the accompanying consolidated balance sheets of
International Aircraft Investors and subsidiaries as of December 31, 2001 and
2000 and the related consolidated statements of operations, shareholders
equity and cash flows for each of the years in the three-year period ended
December 31, 2001. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
International Aircraft Investors and subsidiaries as of December 31, 2001 and
2000 and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.

KPMG LLP

Los Angeles, California
     January 18, 2002,
     Except for Notes 5, 6 and 10
     which are as of March 26, 2002

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INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

|                                            |                                                                                                                                                                    |                          |                                      |            |              |   |             |            |            |  | 
|------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------ | ------------------------------------ | ---------- | ------------ | - | ----------- | ---------- | ---------- |  | 
|                                            |                                                                                                                                                                    |                          |                                      |            | December 31,
|                                            |                                                                                                                                                                    |                          |                                      |            |             
|                                            |                                                                                                                                                                    |                          |                                      |            | 2001         |   | 2000       
|                                            |                                                                                                                                                                    |                          |                                      |            |              |   |            
|Cash and cash equivalents                   |                                                                                                                                                                    | $                        | 8,076,933                            |            |              | $ | 11,164,227  |           
|Short-term investments                      |                                                                                                                                                                    |                          |                                     |            |              |   | 1,393,450   |           
|Net investment in direct financing lease    |                                                                                                                                                                    |                          | 16,036,618                           |            |              |   |            |           
|Flight equipment, at cost, net              |                                                                                                                                                                    |                          | 246,349,462                          |            |              |   | 295,292,436 |           
|Cash, restricted                            |                                                                                                                                                                    |                          | 9,996,664                            |            |              |   | 11,479,649  |           
|Other assets                                |                                                                                                                                                                    |                          | 1,963,213                            |            |              |   | 1,026,667   |           
|                                            |                                                                                                                                                                    |                          |                                      |            |              |   |             |           
|                                            |                                                                                                                                                                    | $                        | 282,422,890                          |            |              | $ | 320,356,429 |           
|                                            |                                                                                                                                                                    |                          |                                      |            |              |   |             |           
|                                           
|                                            |                                                                                                                                                                    |                          | LIABILITIES AND SHAREHOLDERS EQUITY
|                                           
|Accrued interest and other accrued expenses |                                                                                                                                                                    | $                        | 6,782,633                            |            |              | $ | 2,121,279   |           
|Notes payable                               |                                                                                                                                                                    |                          | 235,095,941                          |            |              |   | 253,700,338 |           
|Lease and other deposits                    |                                                                                                                                                                    |                          | 17,285,731                           |            |              |   | 20,011,609  |           
|Deferred rent                               |                                                                                                                                                                    |                          | 1,680,998                            |            |              |   | 3,884,090   |           
|Deferred taxes, net                         |                                                                                                                                                                    |                          | 1,869,847                            |            |              |   | 4,777,053   |           
|                                            |                                                                                                                                                                    |                          |                                      |            |              |   |             |           
|                                            |                                                                                                                                                                    |                          | 262,715,150                          |            |              |   | 284,494,369 |           
|Commitments and contingencies (Note 8)      |                                                                                                                                                                    |                          |                                      |            |              |   |             |           
|Shareholders equity :                      |                                                                                                                                                                    |                          |                                      |            |              |   |             |           
|                                            | Preferred stock, $.01 par value. Authorized 15,000,000
shares; none issued and outstanding                                                                         |                          |                                      |           |              |   |             |           |           
|                                            | Common stock, $.01 par value. Authorized 20,000,000 shares;
issued and outstanding 3,581,773 shares at December 31, 2001
and 3,696,573 shares at December 31, 2000 |                          |                                      | 35,818     |              |   |             | 36,966     |           
|                                            | Additional paid-in capital                                                                                                                                         |                          |                                      | 27,737,600 |              |   |             | 28,234,506 |           
|                                            | Retained earnings (accumulated deficit)                                                                                                                            |                          |                                      | (8,065,678 | )            |   |             | 7,590,588  |           
|                                            |                                                                                                                                                                    |                          |                                      |            |              |   |             |           
|                                            |                                                                                                                                                                    | Net shareholders equity |                                      |            | 19,707,740   |   |             |            | 35,862,060 | 
|                                            |                                                                                                                                                                    |                          |                                      |            |              |   |             |           
|                                            |                                                                                                                                                                    | $                        | 282,422,890                          |            |              | $ | 320,356,429 |           
|                                            |                                                                                                                                                                    |                          |                                      |            |              |   |             |           

See accompanying notes to consolidated financial statements

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INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                                 |                                                                                    |                |             |                          |            |      |           |            |            |   |           |            |            | 
|-------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | -------------- | ----------- | ------------------------ | ---------- | ---- | --------- | ---------- | ---------- | - | --------- | ---------- | ---------- | 
|                                                                                 |                                                                                    |                |             | Years ended December 31,
|                                                                                 |                                                                                    |                |             |                         
|                                                                                 |                                                                                    |                |             | 2001                     |            | 2000 |           | 1999      
|                                                                                 |                                                                                    |                |             |                          |            |      |           |           
|Revenues:                                                                        |                                                                                    |                |             |                          |            |      |           |            |            |   |           |           
|                                                                                 | Rental of flight equipment                                                         |                | $           | 37,918,237               |            |      | $         | 41,450,207 |            |   | $         | 38,088,180 |           
|                                                                                 | Consulting and other fees                                                          |                |             | 157,500                  |            |      |           | 200,000    |            |   |           | 200,000    |           
|                                                                                 | Interest income                                                                    |                |             | 1,666,273                |            |      |           | 1,550,014  |            |   |           | 1,453,726  |           
|                                                                                 |                                                                                    |                |             |                          |            |      |           |            |            |   |           |           
|                                                                                 |                                                                                    | Total revenues |             |                          | 39,742,010 |      |           |            | 43,200,221 |   |           |            | 39,741,906 | 
|Expenses:                                                                        |                                                                                    |                |             |                          |            |      |           |            |            |   |           |           
|                                                                                 | Interest                                                                           |                |             | 16,991,094               |            |      |           | 18,844,906 |            |   |           | 16,143,194 |           
|                                                                                 | Depreciation and amortization                                                      |                |             | 18,195,356               |            |      |           | 18,635,756 |            |   |           | 15,410,964 |           
|                                                                                 | Repossession, maintenance and lease cancellation                                   |                |             | 1,705,505                |            |      |           | 1,267,835  |            |   |           |           |           
|                                                                                 | Write-down of flight equipment                                                     |                |             | 19,411,974               |            |      |           | 2,000,000  |            |   |           |           |           
|                                                                                 | General and administrative                                                         |                |             | 1,987,953                |            |      |           | 1,910,373  |            |   |           | 1,881,867  |           
|                                                                                 | Stock compensation                                                                 |                |             |                         |            |      |           | 250,000    |            |   |           | 250,000    |           
|                                                                                 |                                                                                    |                |             |                          |            |      |           |            |            |   |           |           
|                                                                                 |                                                                                    | Total expenses |             |                          | 58,291,882 |      |           |            | 42,908,870 |   |           |            | 33,686,025 | 
|                                                                                 |                                                                                    |                |             |                          |            |      |           |            |            |   |           |           
|Income (loss) before income taxes and extraordinary loss                         |                                                                                    |                | (18,549,872 | )                        |            |      | 291,351   |            |            |   | 6,055,881 |           
|Income tax expense (benefit)                                                     |                                                                                    |                | (2,893,606  | )                        |            |      | 195,726   |            |            |   | 2,262,773 |           
|                                                                                 |                                                                                    |                |             |                          |            |      |           |            |            |   |           |           
|Income (loss) before and extraordinary loss                                      |                                                                                    |                | (15,656,266 | )                        |            |      | 95,625    |            |            |   | 3,793,108 |           
|Extraordinary loss on debt extinguishment, net of
income tax benefit of $131,322 |                                                                                    |                |            |                          |            |      |          |            |            |   | (214,263  | )         
|                                                                                 |                                                                                    |                |             |                          |            |      |           |            |            |   |           |           
|Net income (loss)                                                                |                                                                                    | $              | (15,656,266 | )                        |            | $    | 95,625    |            |            | $ | 3,578,845 |           
|                                                                                 |                                                                                    |                |             |                          |            |      |           |            |            |   |           |           
|Basic earnings per share:                                                        |                                                                                    |                |             |                          |            |      |           |            |            |   |           |           
|                                                                                 | Income (loss) before extraordinary loss                                            |                | $           | (4.30                    | )          |      | $         | .02        |            |   | $         | .90        |           
|                                                                                 | Extraordinary loss on debt extinguishment                                          |                |             |                         |            |      |           |           |            |   |           | (.05       | )         
|                                                                                 |                                                                                    |                |             |                          |            |      |           |            |            |   |           |           
|                                                                                 | Net income (loss)                                                                  |                | $           | (4.30                    | )          |      | $         | .02        |            |   | $         | .85        |           
|                                                                                 |                                                                                    |                |             |                          |            |      |           |            |            |   |           |           
|Diluted earnings per share:                                                      |                                                                                    |                |             |                          |            |      |           |            |            |   |           |           
|                                                                                 | Income (loss) before cumulative effect of accounting change
and extraordinary loss |                | $           | (4.30                    | )          |      | $         | .02        |            |   | $         | .88        |           
|                                                                                 | Extraordinary loss on debt extinguishment                                          |                |             |                         |            |      |           |           |            |   |           | (.05       | )         
|                                                                                 |                                                                                    |                |             |                          |            |      |           |            |            |   |           |           
|                                                                                 | Net income (loss)                                                                  |                | $           | (4.30                    | )          |      | $         | .02        |            |   | $         | .83        |           
|                                                                                 |                                                                                    |                |             |                          |            |      |           |            |            |   |           |           
|Weighted average common shares outstanding                                       |                                                                                    |                | 3,641,388   |                          |            |      | 3,960,680 |            |            |   | 4,211,534 |           
|                                                                                 |                                                                                    |                |             |                          |            |      |           |            |            |   |           |           
|Weighted average common sharesassuming dilution                                 |                                                                                    |                | 3,641,388   |                          |            |      | 4,070,794 |            |            |   | 4,322,711 |           
|                                                                                 |                                                                                    |                |             |                          |            |      |           |            |            |   |           |           

See accompanying notes to consolidated financial statements

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INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

|                             |                                           |  |           |   |        |  |              |          |            |   |              |        |          |   |            |            |   |   |          |         |  |   |            |             |   |   |            |             |  
|---------------------------- | ----------------------------------------- |  | --------- | - | ------ |  | ------------ | -------- | ---------- | - | ------------ | ------ | -------- | - | ---------- | ---------- | - | - | -------- | ------- |  | - | ---------- | ----------- | - | - | ---------- | ----------- | -
|                             |                                           |  |           |   |        |  | Common Stock |          | Additional |   | Deferred     |        |          |   |            |            |   |   |         
|                             |                                           |  | Preferred |   |        |  | Paid-in      |          | Stock      |   | Retained     |        |          |   |           
|                             |                                           |  | Stock     |   | Shares |  | Amount       |          | Capital    |   | Compensation |        | Earnings |   | Total     
|                             |                                           |  |           |   |        |  |              |          |            |   |              |        |          |   |           
|Balance at December
31, 1998 |                                           |  |          |   |        |  | 4,216,284    |          |            | $ | 42,163       |        |          | $ | 31,292,324 |            |   | $ | (500,000 | )       |  | $ | 3,916,118  |             |   | $ | 34,750,605 |            
|                             | Repurchase
and retirement of
common stock |  |           |  |        |  |              | (42,500  | )          |   |              | (425   | )        |   |            | (282,575   | ) |   |          |        |  |   |            |            |   |   |            | (283,000    | )
|                             | Stock compensation                        |  |           |  |        |  |              |         |            |   |              |       |          |   |            |           |   |   |          | 250,000 |  |   |            |            |   |   |            | 250,000     |  
|                             | Net income                                |  |           |  |        |  |              |         |            |   |              |       |          |   |            |           |   |   |          |        |  |   |            | 3,578,845   |   |   |            | 3,578,845   |  
|                             |                                           |  |           |   |        |  |              |          |            |   |              |        |          |   |            |            |   |   |          |         |  |   |            |             |   |   |            |            
|Balance at December
 1, 1999 |                                           |  |          |   |        |  | 4,173,784    |          |            |   | 41,738       |        |          |   | 31,009,749 |            |   |   | (250,000 | )       |  |   | 7,494,963  |             |   |   | 38,296,450 |            
|                             | Repurchase
and retirement of
common stock |  |           |  |        |  |              | (477,211 | )          |   |              | (4,772 | )        |   |            | (2,775,243 | ) |   |          |        |  |   |            |            |   |   |            | (2,780,015  | )
|                             | Stock compensation                        |  |           |  |        |  |              |         |            |   |              |       |          |   |            |           |   |   |          | 250,000 |  |   |            |            |   |   |            | 250,000     |  
|                             | Net income                                |  |           |  |        |  |              |         |            |   |              |       |          |   |            |           |   |   |          |        |  |   |            | 95,625      |   |   |            | 95,625      |  
|                             |                                           |  |           |   |        |  |              |          |            |   |              |        |          |   |            |            |   |   |          |         |  |   |            |             |   |   |            |            
|Balance
at December 31, 2000 |                                           |  |          |   |        |  | 3,696,573    |          |            |   | 36,966       |        |          |   | 28,234,506 |            |   |   |         |         |  |   | 7,590,588  |             |   |   | 35,862,060 |            
|                             | Repurchase
and retirement of
common stock |  |           |  |        |  |              | (114,800 | )          |   |              | (1,148 | )        |   |            | (496,906   | ) |   |          |        |  |   |            |            |   |   |            | (498,054    | )
|                             | Net loss                                  |  |           |  |        |  |              |         |            |   |              |       |          |   |            |           |   |   |          |        |  |   |            | (15,656,266 | ) |   |            | (15,656,266 | )
|                             |                                           |  |           |   |        |  |              |          |            |   |              |        |          |   |            |            |   |   |          |         |  |   |            |             |   |   |            |            
|Balance at December
31, 2001 |                                           |  |          |   |        |  | 3,581,773    |          |            | $ | 35,818       |        |          | $ | 27,737,600 |            |   | $ |         |         |  | $ | (8,065,678 | )           |   | $ | 19,707,740 |            
|                             |                                           |  |           |   |        |  |              |          |            |   |              |        |          |   |            |            |   |   |          |         |  |   |            |             |   |   |            |            

See accompanying notes to consolidated financial statements

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INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                  |                                                                        |                                                     |                                           |             |                          |            |            |            |             |            |            |             |             |            | 
|--------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | --------------------------------------------------- | ----------------------------------------- | ----------- | ------------------------ | ---------- | ---------- | ---------- | ----------- | ---------- | ---------- | ----------- | ----------- | ---------- | 
|                                                                                  |                                                                        |                                                     |                                           |             | Years ended December 31,
|                                                                                  |                                                                        |                                                     |                                           |             |                         
|                                                                                  |                                                                        |                                                     |                                           |             | 2001                     |            | 2000       |            | 1999       
|                                                                                  |                                                                        |                                                     |                                           |             |                          |            |            |            |            
|Cash flow from operating activities:                                              |                                                                        |                                                     |                                           |             |                          |            |            |            |             |            |            |            
|Net income (loss)                                                                 |                                                                        | $                                                   | (15,656,266                               | )           |                          | $          | 95,625     |            |             | $          | 3,578,845  |            
|Adjustments to reconcile net income to
net cash provided by operating activities: |                                                                        |                                                     |                                           |             |                          |            |            |            |             |            |            |            
|                                                                                  | Depreciation of flight equipment                                       |                                                     |                                           | 17,572,800  |                          |            |            | 18,360,000 |             |            |            | 15,028,867  |            
|                                                                                  | Amortization of deferred fees and debt issuance costs                  |                                                     |                                           | 776,840     |                          |            |            | 388,249    |             |            |            | 624,511     |            
|                                                                                  | Write-down of flight equipment                                         |                                                     |                                           | 19,411,974  |                          |            |            | 2,000,000  |             |            |            |            |            
|                                                                                  | Deferred taxes                                                         |                                                     |                                           | (2,907,206  | )                        |            |            | 182,126    |             |            |            | 2,117,051   |            
|                                                                                  | Stock compensation                                                     |                                                     |                                           |            |                          |            |            | 250,000    |             |            |            | 250,000     |            
|(Increase) decrease in assets:                                                    |                                                                        |                                                     |                                           |             |                          |            |            |            |             |            |            |            
|                                                                                  |                                                                        | Short-term investments                              |                                           |             | 1,393,450                |            |            |            | (1,393,450  | )          |            |             |            |           
|                                                                                  |                                                                        | Cash, restricted                                    |                                           |             | 1,482,985                |            |            |            | 2,428,448   |            |            |             | (520,219    | )         
|                                                                                  |                                                                        | Other assets                                        |                                           |             | (1,713,386               | )          |            |            | 45,302      |            |            |             | (414,346    | )         
|                                                                                  | Increase (decrease) in liabilities:                                    |                                                     |                                           |             |                          |            |            |            |             |            |            |             |            
|                                                                                  |                                                                        | Accrued interest and other accrued expenses         |                                           |             | 1,354                    |            |            |            | 393,644     |            |            |             | 727,344     |           
|                                                                                  |                                                                        | Lease deposits and other deposits                   |                                           |             | (2,725,878               | )          |            |            | (3,271,225  | )          |            |             | 4,653,310   |           
|                                                                                  |                                                                        | Deferred rent                                       |                                           |             | (2,203,092               | )          |            |            | (140,444    | )          |            |             | (406,278    | )         
|                                                                                  |                                                                        |                                                     |                                           |             |                          |            |            |            |             |            |            |            
|                                                                                  |                                                                        |                                                     | Net cash provided by operating activities |             |                          | 15,433,575 |            |            |             | 19,338,275 |            |             |             | 25,639,085 | 
|Cash flows from investing activities:                                             |                                                                        |                                                     |                                           |             |                          |            |            |            |             |            |            |            
|                                                                                  | Purchase of flight equipment                                           |                                                     |                                           |            |                          |            |            | (169,143   | )           |            |            | (92,203,387 | )          
|                                                                                  | Collections from direct financing lease                                |                                                     |                                           | 581,582     |                          |            |            |           |             |            |            |            |            
|                                                                                  |                                                                        |                                                     |                                           |             |                          |            |            |            |             |            |            |            
|                                                                                  |                                                                        | Net cash provided by (used in) investing activities |                                           |             | 581,582                  |            |            |            | (169,143    | )          |            |             | (92,203,387 | )         
|Cash flows from financing activities:                                             |                                                                        |                                                     |                                           |             |                          |            |            |            |             |            |            |            
|                                                                                  | Repayment of notes payable                                             |                                                     |                                           | (9,794,897  | )                        |            |            | (9,222,070 | )           |            |            | (25,254,014 | )          
|                                                                                  | Repayment of notes payable to International Lease Finance Corporation  |                                                     |                                           | (38,095,423 | )                        |            |            | (8,968,712 | )           |            |            | (20,904,747 | )          
|                                                                                  | Repayment of notes payable to Great Lakes Holdings                     |                                                     |                                           | (1,937,500  | )                        |            |            | (79,500    | )           |            |            |            |            
|                                                                                  | Proceeds from notes payable                                            |                                                     |                                           | 31,223,423  |                          |            |            |           |             |            |            | 14,600,000  |            
|                                                                                  | Proceeds from notes payable to International Lease Finance Corporation |                                                     |                                           |            |                          |            |            |           |             |            |            | 95,527,473  |            
|                                                                                  | Repurchase of common stock                                             |                                                     |                                           | (498,054    | )                        |            |            | (2,780,015 | )           |            |            | (283,000    | )          
|                                                                                  |                                                                        |                                                     |                                           |             |                          |            |            |            |             |            |            |            
|                                                                                  |                                                                        | Net cash used in financing activities               |                                           |             | (19,102,451              | )          |            |            | (21,050,297 | )          |            |             | 63,685,712  |           
|                                                                                  |                                                                        |                                                     |                                           |             |                          |            |            |            |             |            |            |            
|                                                                                  |                                                                        | Net decrease in cash and cash equivalents           |                                           |             | (3,087,294               | )          |            |            | (1,881,165  | )          |            |             | (2,878,590  | )         
|Cash and cash equivalents at beginning of year                                    |                                                                        |                                                     | 11,164,227                                |             |                          |            | 13,045,392 |            |             |            | 15,923,982 |            
|                                                                                  |                                                                        |                                                     |                                           |             |                          |            |            |            |             |            |            |            
|Cash and cash equivalents at end of year                                          |                                                                        | $                                                   | 8,076,933                                 |             |                          | $          | 11,164,227 |            |             | $          | 13,045,392 |            
|                                                                                  |                                                                        |                                                     |                                           |             |                          |            |            |            |             |            |            |            
|Supplemental disclosure of cash flow information                                 |                                                                        |                                                     |                                           |             |                          |            |            |            |             |            |            |            
|                                                                                  |                                                                        | Cash paid for interest                              |                                           | $           | 17,147,847               |            |            | $          | 18,796,399  |            |            | $           | 15,298,845  |           
|                                                                                  |                                                                        |                                                     |                                           |             |                          |            |            |            |             |            |            |            
|                                                                                  |                                                                        | Cash paid for taxes                                 |                                           | $           | 13,600                   |            |            | $          | 13,600      |            |            | $           | 14,400      |           
|                                                                                  |                                                                        |                                                     |                                           |             |                          |            |            |            |             |            |            |            

Supplemental disclosure of noncash investing and financing activities:

During the year ended December 31, 2001, the Company entered into a $16,618,200
investment in a direct financing lease on an aircraft which had formerly been
under operating lease.

During the year ended December 31, 2000, the Company received a $1,400,000
hushkit for its Boeing model 727-200 as partial consideration for future rent.

See accompanying notes to consolidated financial statements

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##### Table of Contents



INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2001, 2000 and 1999

(1) The Company and Summary of Significant Accounting Policies

Nature of Business

International Aircraft Investors (the Company) is primarily engaged in the
acquisition of used, single-aisle jet aircraft for lease and sale to domestic
and foreign airlines and other customers. While the Company enters into
finances leases, it primarily leases aircraft under short-term to medium-term
operating leases where the lessee is responsible for all operating costs and
the Company retains the potential benefit and risk of the residual value of the
aircraft, as distinct from finance leases where the cost of the aircraft is
generally recovered over the term of the lease.

Fourteen of the Companys sixteen aircraft at December 31, 2001 were
acquired from International Lease Finance Corporation (ILFC), a 1.9%
shareholder of the Company. In connection with certain of these aircraft
acquisitions, ILFC has provided loan guarantees or other financial support
which have provided more favorable borrowing arrangements than the Company
could otherwise have obtained. Additionally, the Company has derived certain
consulting fees from ILFC for providing remarketing and other services.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation. Certain
reclassifications have been made to prior year amounts to conform to current
year presentation.

Extraordinary Item

In May 1999, the Company repaid a note with a principal amount of
$15,745,473 prior to maturity. The note was due May 2000 with a rate of 7.96%.
The repayment resulted in an extraordinary charge of $214,263, net of a
$131,322 income tax benefit.

Cash and Cash Equivalents and Short-Term Investments

Cash and cash equivalents include cash and highly liquid investments
purchased with an original maturity of less than 90 days. Short-term
investments consist of securities invested for periods longer than 90 days.
Short-term investments are stated at cost. Certain cash and short-term
investments for the repayment of maintenance reserves are restricted pursuant
to certain loan agreements. Such maintenance reserves mature through April
2005. Cash and cash equivalents include unrestricted cash held for maintenance
reserves of $4,388,089 and $7,091,597 at December 31, 2001 and 2000,
respectively.

Deferred Fees

The direct costs related to purchase and lease agreements are capitalized
and amortized to expense using the straight-line method, which approximates the
effective interest method, over the term of the related lease.

The costs related to asset value guarantees (AVGs) are capitalized and
amortized to expense using the straight-line method over the term of the AVG,
generally ten years. At December 31, 2001 and 2000, deferred fees related to
AVGs were $167,733 and $207,605, respectively.

Rentals

The Company primarily leases flight equipment under operating leases.
Accordingly, revenue from operating leases is recognized over the life of the
noncancellable lease terms under the straight-line method. The Company
receives ancillary
32Table of Contents

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

payments under certain lease agreements. Accordingly,
revenue from these ancillary payments is recognized
under the accrual method. The Company has one aircraft under a direct
financing lease. Under a direct financing lease, the Company recognizes
interest income rather than rental revenue and depreciation expense.

Flight Equipment and Depreciation

Flight equipment is stated at cost. Major additions and modifications are
capitalized. Depreciation of flight equipment is generally computed on a
straight-line method over the estimated remaining useful lives (25 year
original life less years in service at the date of acquisition) assuming a 15%
estimated residual value.

Maintenance Reserves

Normal maintenance and repairs of flight equipment on lease are provided
by and paid for by the lessee. Maintenance reserves received under certain
leases amounted to $4,555,924, $5,689,802 and $13,197,538 during the years
ended December 31, 2001, 2000 and 1999, respectively.

Impairment of Long-Lived Assets

Statement of Financial Accounting Standards No. 121 (SFAS No. 121),
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of, issued in March 1995 and effective for fiscal years
beginning after December 15, 1995, establishes accounting standards for the
recognition and measurement of impairment of long-lived assets, certain
identifiable intangibles and goodwill either to be held or disposed of. The
Company adopted SFAS No. 121 during 1996.

The Company evaluates the carrying value of its flight equipment using
undiscounted operating cash flows and when required provides for any permanent
impairment of long-lived assets. During 2001 and 2000, the Company recorded
write-downs of $14,751,974 on six aircraft and $2,000,000 on two aircraft,
respectively as a result of permanent impairment.

Fair Values of Financial Instruments

The carrying amounts of cash and cash equivalents and accrued interest and
other accrued expenses approximate fair market value because of the short-term
nature of these items.

The fair values of the Companys debt instruments, including the related
AVGs, approximate the carrying values because (1) the rates currently offered
to the Company are similar to the rates for these items, or (2) the yields to
maturity approximate the rates for these items.

Management Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions. These affect the reported amounts of assets, liabilities,
revenues and expenses and the amount of any contingent assets or liabilities
disclosed in the financial statements. Actual results could differ from the
estimates made.

The Company leases aircraft to various commercial airlines, on short-term
to medium-term operating leases, generally three to five years. The related
aircraft are generally financed by borrowings that become due at or near the
end of the lease term through a balloon payment. As a result, the Companys
operating results depend on managements ability to roll over debt facilities,
renegotiate favorable leases and realize estimated salvage values.

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INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock Compensation

Statement of Financial Accounting Standards No. 123 (SFAS No. 123),
Accounting for Stock-Based Compensation, issued in October 1995 and effective
for fiscal years beginning after December 15, 1995, encourages, but does not
require, a fair-value-based method of accounting for employee stock options or
similar equity instruments. SFAS No. 123 allows an entity to elect to continue
to measure compensation cost under Accounting Principles Board Opinion No. 25
(APBO No. 25), Accounting for Stock Issued to Employees, but requires pro
forma disclosures of net earnings and earnings per share as if the fair-value
based method of accounting had been applied. The Company elected to continue to
measure compensation cost under APBO No. 25. Had compensation cost been
determined using the fair value at the grant date for awards during 2001, 2000
and 1999, consistent with the provisions of SFAS No. 123, the Companys net
earnings and earnings per share for 2001, 2000 and 1999 would have been reduced
to the pro forma amount as indicated below.

|                                            |         |   |             |       |      |   |          |      |   |   |           |     | 
|------------------------------------------- | ------- | - | ----------- | ----- | ---- | - | -------- | ---- | - | - | --------- | --- | 
|                                            |         |   | 2001        |       | 2000 |   | 1999    
|                                            |         |   |             |       |      |   |         
|Net earnings (loss) as reported             |         | $ | (15,656,266 | )     |      | $ | 95,625   |      |   | $ | 3,578,845 |    
|Pro forma net earnings (loss)               |         |   | (15,802,108 | )     |      |   | (325,000 | )    |   |   | 3,251,167 |    
|Net earnings (loss) per share, as reported: |         |   |             |       |      |   |          |      |   |   |           |    
|                                            | Basic   |   |             | (4.30 | )    |   |          | .02  |   |   |           | .85 | 
|                                            | Diluted |   |             | (4.30 | )    |   |          | .02  |   |   |           | .83 | 
|Pro forma net earnings (loss) per share:    |         |   |             |       |      |   |          |      |   |   |           |    
|                                            | Basic   |   |             | (4.34 | )    |   |          | (.08 | ) |   |           | .77 | 
|                                            | Diluted |   | $           | (4.34 | )    |   | $        | (.08 | ) |   | $         | .75 | 

The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants during the year ended December 31, 2001: dividend
yield of 0%; expected volatility of 68%; risk-free interest rate of 4.9% and
expected lives of five years.

The weighted average fair value per share of options granted during the
year ended December 31, 2001 is $2.43.

Income Taxes

The Company accounts for income taxes under the asset and liability method
whereby deferred tax assets and liabilities are recognized for the future tax
consequences for differences between the financial statement carrying amounts
of assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years when such temporary differences are expected to be
recovered or settled. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income at the enactment date.

Comprehensive Income

In 1998, the Company adopted SFAS No. 130, Reporting Comprehensive
Income which established standards for reporting and display of comprehensive
income and its components. The Company has no items of comprehensive income
and as a result SFAS. No. 130 has no impact on the Companys financial
reporting.

Earnings per Share

In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 Earnings per Share. SFAS No. 128 replaced the calculation of primary and
diluted earnings per share with basic and diluted earnings per share. Unlike
34Table of ContentsINTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to SFAS No. 128 requirements.The following table sets forth the computation of the weighted average
number of shares used to calculate basic and diluted earnings per share:

|                                                                           |                            |  |                          |   |      |  |           |         |  |  |           |         | 
|-------------------------------------------------------------------------- | -------------------------- |  | ------------------------ | - | ---- |  | --------- | ------- |  |  | --------- | ------- | 
|                                                                           |                            |  | Years ended December 31,
|                                                                           |                            |  |                         
|                                                                           |                            |  | 2001                     |   | 2000 |  | 1999     
|                                                                           |                            |  |                          |   |      |  |          
|Basic earnings per share-weighted average shares outstanding               |                            |  | 3,641,388                |   |      |  | 3,960,680 |         |  |  | 4,211,534 |        
|Effect of dilutive securities:                                             |                            |  |                          |   |      |  |           |         |  |  |           |        
|                                                                           | Employee stock options     |  |                          |  |      |  |           | 110,114 |  |  |           | 109,842 | 
|                                                                           | Non-employee stock options |  |                          |  |      |  |           |        |  |  |           | 1,335   | 
|                                                                           |                            |  |                          |   |      |  |           |         |  |  |           |        
|Dilutive potential common shares                                           |                            |  |                         |   |      |  | 110,114   |         |  |  | 111,177   |        
|                                                                           |                            |  |                          |   |      |  |           |         |  |  |           |        
|Diluted earnings per share-adjusted average shares
and assumed conversions |                            |  | 3,641,388                |   |      |  | 4,070,794 |         |  |  | 4,322,711 |        
|                                                                           |                            |  |                          |   |      |  |           |         |  |  |           |        

The Company has issued options to its employees to purchase 641,554 shares
of the Companys common stock at prices ranging from $4.50 to $7.25 per share
and exercisable from March 2004 to Mach 2007. The dilutive effect of these
options is dependant on the weighted average price of the Companys common
stock during the reporting period. Options to purchase 641,554 shares of
common stock under this plan were excluded from the computation of diluted net
loss for the year ended December 31, 2001 because they were anti-dilutive.

The Company has issued options to its eligible directors to purchase
210,000 shares of the Companys common stock at prices ranging from $4.00 to
$10.25 per share and exercisable from May 2003 to May 2006. The dilutive
effect of these options is dependant on the weighted average price of the
Companys common stock during the reporting period. Options to purchase
210,000 shares of common stock under this plan were excluded from the
computation of diluted net loss for the year ended December 31, 2001 because
they were anti-dilutive.

Significant Customers

The Company currently owns sixteen aircraft. Fourteen aircraft are leased
to thirteen airlines worldwide and one is being marketed for lease or sale.
The loss of any aircraft or the financial difficulty of or lease default by any
one lessee could have a material adverse effect on its business, financial
condition and results of operations.

The following customers individually accounted for 10% or more of revenues:

|                        |      |  |             |   |                           |  |  |         |  
|----------------------- | ---- |  | ----------- | - | ------------------------- |  |  | ------- | -
|                        |      |  | Number of   |   |                           |  | 
|                        |      |  | significant |   | Percentage of revenues by
|                        |      |  | customers   |   | significant customers    
|                        |      |  |             |   |                          
|Year ended December 31: |      |  |             |   |                           |  |  |        
|                        | 2001 |  |             | 2 |                           |  |  | 11%, 12 | %
|                        | 2000 |  |             | 1 |                           |  |  | 11      | %
|                        | 1999 |  |             | 1 |                           |  |  | 11      | %

Segment Information

In 1998, the Company adopted SFAS No. 131, Disclosure about Segments of
an Enterprise and Related Information. SFAS No. 131 supersedes previous
reporting requirements for reporting on segments of a business enterprise. The
Companys operations are in one business segment, aircraft leasing. These
operations include the acquisition of used single-

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INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

aisle jet aircraft and
engines for lease and sale to domestic and foreign airlines and other
customers. Revenues include rentals of flight equipment to foreign airlines of
$32,395,897, $33,268,254 and $30,306,055 in 2001, 2000 and 1999, respectively.

The following table sets forth the dollar amount and percentage of rentals
of flight equipment attributable to the indicated geographic areas for the
years indicated:

|                           |  |      |            |  |  |  |      |      |  |   |            |  |  |      |      |   |  |   |            |  |  |  |      |  
|-------------------------- |  | ---- | ---------- |  |  |  | ---- | ---- |  | - | ---------- |  |  | ---- | ---- | - |  | - | ---------- |  |  |  | ---- | -
|                           |  | 2001 |            |  |  |  |      | 2000 |  |   |            |  |  | 1999 |      |   |  |  
|                           |  |      |            |  |  |  |      |      |  |   |            |  |  |      |      |   |  |  
|United States and Canada   |  | $    | 14,733,974 |  |  |  | 38.9 | %    |  | $ | 17,264,415 |  |  |      | 41.7 | % |  | $ | 14,075,897 |  |  |  | 37.0 | %
|Europe                     |  |      | 15,740,713 |  |  |  | 41.5 | %    |  |   | 18,049,392 |  |  |      | 43.5 | % |  |   | 14,322,696 |  |  |  | 37.6 | %
|Central America and
Mexico |  |      | 3,302,150  |  |  |  | 8.7  | %    |  |   | 1,860,000  |  |  |      | 4.5  | % |  |   | 3,636,187  |  |  |  | 9.5  | %
|Asia and the Pacific       |  |      | 4,141,400  |  |  |  | 10.9 | %    |  |   | 4,276,400  |  |  |      | 10.3 | % |  |   | 6,053,4000 |  |  |  | 15.9 | %
|                           |  |      |            |  |  |  |      |      |  |   |            |  |  |      |      |   |  |   |            |  |  |  |      |  
|                           |  | $    | 37,918,237 |  |  |  | 100  | %    |  | $ | 41,450,207 |  |  |      | 100  | % |  | $ | 38,088,180 |  |  |  | 100  | %
|                           |  |      |            |  |  |  |      |      |  |   |            |  |  |      |      |   |  |   |            |  |  |  |      |  

Recently Issued Accounting Standards

In June 2001, the FASB issued SFAS No. 141, Business Combinations(SFAS
141), and SFAS No. 142, Goodwill and Other Intangible Assets(SFAS No. 142).
SFAS No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. SFAS No. 141 also
specifies the criteria that intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill. SFAS No. 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS No. 142.
SFAS No. 142 will also require that intangible assets with estimable useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. Management does not expect any impact on the
Companys financial statements as a result of the adoption of SFAS No. 141 and
No. 142.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations (SFAS No. 143). SFAS No. 143 requires the Company to
record the fair value of an asset retirement obligation as a liability in the
period in which it incurs a legal obligation associated with the retirement of
tangible long-lived assets that result from the acquisition, construction,
development and/or normal use of the assets. The Company also records a
corresponding asset which is depreciated over the life of the asset.
Subsequent to the initial measurement of the asset retirement obligation, the
obligation will be adjusted at the end of each period to reflect the passage of
time and changes in estimated future cash flows underlying the obligation. The
Company is required to adopt SFAS No. 143 on January 1, 2003. Management does
not expect any impact on the Companys financial statements as a result of the
adoption of SFAS No. 143.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. This Statement requires that long-lived assets be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of
the asset exceeds the fair value of the asset. SFAS No. 144 requires companies
to separately report discounted operations and extends that reporting to a
component of an entity that either has been disposed of (by sale, abandonment,
or in a distribution to owners) or is classified as held for sale. Assets to
be disposed of are reported at he lower of the carrying amount of fair value
less costs to sell. The Company is required to adopt SFAS No. 144 on January
1, 2002. The impact on the Companys financial statements as a result of the
adoption of SFAS No. 144 was not material.

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INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(2) Net Investment in Direct Financing Lease

In March 2001, American Airlines agreed to lease the Companys MD-82
formerly on lease to TWA. As the lease was extended to December 2014, the
lease was recorded as a direct financing lease. Under a direct financing
lease, the Company recognizes interest income rather than rental revenue and
depreciation expense.

The following table lists the components of net investment in direct
financing lease:

|                                                    |  |              |            |  
|--------------------------------------------------- |  | ------------ | ---------- | -
|                                                    |  | December 31,
|                                                    |  | 2001        
|                                                    |  |             
|Total minimum lease payments                        |  | $            | 21,891,210 |  
|Estimated residual value of leased flight equipment |  |              | 3,050,000  |  
|Unearned income                                     |  |              | (8,904,592 | )
|                                                    |  |              |            |  
|Net investment in direct financing lease            |  | $            | 16,036,618 |  
|                                                    |  |              |            |  

(3) Flight Equipment

The Companys investment in flight equipment (primarily purchased from
ILFC) as of December 31, 2001 and 2000 is as follows:

|                          |  |              |             |      |  |   |             |  
|------------------------- |  | ------------ | ----------- | ---- |  | - | ----------- | -
|                          |  | December 31,
|                          |  |             
|                          |  | 2001         |             | 2000
|                          |  |              |             |     
|Flight equipment, at cost |  | $            | 345,030,787 |      |  | $ | 366,780,787 |  
|Accumulated depreciation  |  |              | (98,681,325 | )    |  |   | (71,488,351 | )
|                          |  |              |             |      |  |   |             |  
|Flight equipment, net     |  | $            | 246,349,462 |      |  | $ | 295,292,436 |  
|                          |  |              |             |      |  |   |             |  

(4) Income Taxes

Provision (benefit) for taxes on income (loss) consisted of the following:

|                        |       |         |            |       |            |         |        |          |        |   |            |   |            |  
|----------------------- | ----- | ------- | ---------- | ----- | ---------- | ------- | ------ | -------- | ------ | - | ---------- | - | ---------- | -
|                        |       |         |            | Total |            | Current |        | Deferred
|                        |       |         |            |       |            |         |        |         
|Year ended December 31: |       |         |            |       |            |         |        |          |        |   |            |  
|                        | 2001: |         |            |       |            |         |        |          |        |   |            |   |           
|                        |       | Federal |            | $     | (2,781,833 | )       |        | $        |       |   |            | $ | (2,781,833 | )
|                        |       | State   |            |       | (111,773   | )       |        |          | 13,600 |   |            |   | (125,373   | )
|                        |       |         |            |       |            |         |        |          |        |   |            |  
|                        |       | $       | (2,893,606 | )     |            | $       | 13,600 |          |        | $ | (2,907,206 | )
|                        |       |         |            |       |            |         |        |          |        |   |            |  
|                        | 2000: |         |            |       |            |         |        |          |        |   |            |   |           
|                        |       | Federal |            | $     | 12,347     |         |        | $        |       |   |            | $ | 12,347     |  
|                        |       | State   |            |       | 183,379    |         |        |          | 13,600 |   |            |   | 169,779    |  
|                        |       |         |            |       |            |         |        |          |        |   |            |  
|                        |       | $       | 195,726    |       |            | $       | 13,600 |          |        | $ | 182,126    |  
|                        |       |         |            |       |            |         |        |          |        |   |            |  
|                        | 1999: |         |            |       |            |         |        |          |        |   |            |   |           
|                        |       | Federal |            | $     | 1,941,500  |         |        | $        |       |   |            | $ | 1,941,500  |  
|                        |       | State   |            |       | 189,951    |         |        |          | 14,400 |   |            |   | 175,551    |  
|                        |       |         |            |       |            |         |        |          |        |   |            |  
|                        |       | $       | 2,131,451  |       |            | $       | 14,400 |          |        | $ | 2,117,051  |  
|                        |       |         |            |       |            |         |        |          |        |   |            |  

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INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of December 31, 2001, the Company had net operating loss carryforwards
(NOL) for Federal and state income tax purposes as follows:

|          |  |             |            |           |  |   |           | 
|--------- |  | ----------- | ---------- | --------- |  | - | --------- | 
|Expires   |  | Federal NOL |            | State NOL
|          |  |             |            |          
|2002      |  |             |           |           |  | $ | 166,750   | 
|2003      |  |             |           |           |  |   | 445,126   | 
|2004      |  |             |           |           |  |   | 798,376   | 
|2005      |  | $           | 4,251,245  |           |  |   | 796,582   | 
|2006      |  |             | 5,411,744  |           |  |   | 1,785,241 | 
|2007-2011 |  |             | 4,313,453  |           |  |   |          | 
|2012-2016 |  |             | 1,903,517  |           |  |   |          | 
|2017-2021 |  |             | 28,978,218 |           |  |   |          | 
|          |  |             |            |           |  |   |           | 
|          |  | $           | 44,858,177 |           |  | $ | 3,999,075 | 
|          |  |             |            |           |  |   |           | 

The Company recorded a valuation allowance to fully reserve its deferred
tax assets associated with its state net operating loss carryforwards. The
Companys ability to utilize its federal net operating loss carryforwards, net
of valuation allowance is dependent on its ability to generate taxable income.
A limitation on the usage of the federal net operating losses requires the
Company to generate taxable gains on the sale of certain aircraft in the
Companys portfolio by November 4, 2002. The Company has recorded a valuation
allowance to fully reserve its deferred tax assets associated with the
limitation.

Temporary differences which give rise to net deferred tax liabilities
result primarily from timing differences for depreciation and net operating
losses. The net deferred tax liabilities are comprised of the following:

|                                                                 |  |              |             |      |  |   |             |  
|---------------------------------------------------------------- |  | ------------ | ----------- | ---- |  | - | ----------- | -
|                                                                 |  | December 31,
|                                                                 |  |             
|                                                                 |  | 2001         |             | 2000
|                                                                 |  |              |             |     
|Net operating loss carryforward                                  |  | $            | 15,384,127  |      |  | $ | 10,898,102  |  
|Deferred and advanced rent                                       |  |              | 656,851     |      |  |   | 1,376,146   |  
|Flight equipment, principally due to differences
in depreciation |  |              | (14,533,648 | )    |  |   | (17,277,164 | )
|Other                                                            |  |              | 390,015     |      |  |   | 388,989     |  
|                                                                 |  |              |             |      |  |   |             |  
|                                                                 |  |              | 1,897,345   |      |  |   | (4,613,927  | )
|Valuation allowance                                              |  |              | (3,767,192  | )    |  |   | (163,126    | )
|                                                                 |  |              |             |      |  |   |             |  
|                                                                 |  | $            | (1,869,847  | )    |  | $ | (4,777,053  | )
|                                                                 |  |              |             |      |  |   |             |  

Management believes it is more likely than not that the results of future
operations will generate sufficient taxable income to realize deferred tax
assets net of the valuation allowance.

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INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A reconciliation of total income tax expense (benefit) with the expected
amount computed by applying the Federal and state statutory tax rates to income
before income taxes and extraordinary loss follows:

|                                                           |  |                         |            |      |  |      |         |   |  |   |           |  
|---------------------------------------------------------- |  | ----------------------- | ---------- | ---- |  | ---- | ------- | - |  | - | --------- | -
|                                                           |  | Year ended December 31,
|                                                           |  |                        
|                                                           |  | 2001                    |            | 2000 |  | 1999
|                                                           |  |                         |            |      |  |     
|Computed expected Federal tax expense (benefit)          |  | $                       | (6,306,956 | )    |  | $    | 99,059  |   |  | $ | 1,931,544 |  
|State taxes (benefit), net of Federal income tax (benefit) |  |                         | (339,675   | )    |  |      | 5,335   |   |  |   | 198,835   |  
|Expiration of state net operating loss carryforwards       |  |                         |           |      |  |      | 114,616 |   |  |   | 31,587    |  
|Change in valuation allowance                              |  |                         | 3,604,066  |      |  |      | (44,578 | ) |  |   | (2,536    | )
|Other                                                      |  |                         | 148,959    |      |  |      | 21,294  |   |  |   | (27,979   | )
|                                                           |  |                         |            |      |  |      |         |   |  |   |           |  
|                                                           |  | $                       | (2,893,606 | )    |  | $    | 195,726 |   |  | $ | 2,131,451 |  
|                                                           |  |                         |            |      |  |      |         |   |  |   |           |  

(5) Notes Payable and Liquidity

In March 2002, the Company restructured $95,008,184 of notes payable to
ILFC. The restructuring extended the term of the notes payable and reduced
the payments. Notes payable (after adjusting for the extensions of our
renegotiated notes payable) as of December 31, 2001 and 2000 is summarized as
follows:

|                                                                                                                                                                                                                                                                         |  |   |            |              |  |      |            |  |  | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | - | ---------- | ------------ |  | ---- | ---------- |  |  | 
|                                                                                                                                                                                                                                                                         |  |   |            | December 31,
|                                                                                                                                                                                                                                                                         |  |   |            |             
|                                                                                                                                                                                                                                                                         |  |   |            | 2001         |  | 2000
|                                                                                                                                                                                                                                                                         |  |   |            |              |  |     
|Note payable to bank bearing interest at LIBOR plus 1.5% (3.36% at December 31, 2001), secured by flight equipment, 33 1/3% guaranteed by
ILFC, payable in monthly installments of $100,000 including interest,
balloon payment of $1,389,977, due January 2007          |  | $ | 6,680,041  |              |  | $    | 7,861,598  | 
|Notes payable to bank bearing interest at 7.1% secured by flight equipment,
payable in monthly installments of $40,000 including interest, balloon
payment of $1,740,120, due May 2003                                                                                   |  |   | 2,192,311  |              |  |      | 2,504,520  | 
|Notes payable to bank bearing interest at LIBOR plus 1.5% (6.125% at
December 31, 2001), secured by flight equipment, 50% guaranteed by ILFC,
payable in quarterly installments of $175,000 including interest,
balloon payment of $944,862, due June 2002               |  |   | 1,099,839  |              |  |      | 1,801,716  | 
|Note payable to bank, bearing interest at LIBOR plus 1.2 (3.08% at
December 31, 2001), secured by flight equipment, 100% guaranteed by ILFC,
payable in quarterly installments of $445,000 including interest, balloon
payment of $6,892,454, due January 2003           |  |   | 8,802,860  |              |  |      | 9,934,517  | 
|Note payable to bank, bearing interest at 7.75%, secured by flight
equipment, 40% guaranteed by ILFC, payable in monthly installments
of $130,000 including interest, due December 2014                                                                                  |  |   | 12,675,051 |              |  |      | 9,861,596  | 
|Note payable to bank bearing interest at 6.63%, secured by flight equipment,
guaranteed up to $5,000,000 by ILFC, payable in quarterly installments of
$598,000 including interest, balloon payment of $17,484,944, due May 2003                                         |  |   | 19,068,207 |              |  |      | 20,024,257 | 
|Note payable to bank bearing interest at 7.3%, secured by flight equipment,
guaranteed up to $6,000,000 by ILFC, payable in monthly installments
including interest of $266,000 through April 2002 and $270,000 thereafter,
balloon payment of $22,536,481, due May 2003 |  |   | 24,541,116 |              |  |      | 25,875,953 | 
|Note payable to bank bearing interest at 6.67%, secured by flight equipment,
payable in monthly installments of $180,000 including interest, balloon
payment of $10,026,502, due April 2002                                                                              |  |   | 10,261,106 |              |  |      | 11,681,662 | 

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INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

|                                                                                                                                                                                                                                                        |  |  |            |              |  |      |            |  |  | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ---------- | ------------ |  | ---- | ---------- |  |  | 
|                                                                                                                                                                                                                                                        |  |  |            | December 31,
|                                                                                                                                                                                                                                                        |  |  |            |             
|                                                                                                                                                                                                                                                        |  |  |            | 2001         |  | 2000
|                                                                                                                                                                                                                                                        |  |  |            |              |  |     
|Note payable to bank bearing interest at 6.75%, secured by flight equipment,
payable in monthly installments of $173,000 including interest, balloon
payment of $16,309,165, due July 2006                                                              |  |  | 19,960,186 |              |  |      | 15,113,412 | 
|Note payable to bank bearing interest at 6.88%, secured by flight
equipment, guaranteed up to $3,000,000 by ILFC, payable in monthly
installments of $150,000 including interest, balloon payment of $11,079,104,
due May 2004                          |  |  | 13,248,917 |              |  |      | 14,000,000 | 
|Note payable to bank bearing interest at 5.75%, secured by flight equipment,
guaranteed up to $7,500,000 by ILFC, payable in monthly installments
of $230,000 including interest, balloon payment of $19,553,679, due May 2003                          |  |  | 21,558,123 |              |  |      |           | 
|Note payable to ILFC bearing interest at 7.25%, secured by flight equipment,
payable in quarterly installments of $13,000 plus interest to January 2003,
then payments of $19,000, including interest, balloon payment of $3,351,494,
due December 2005 |  |  | 3,372,000  |              |  |      | 3,420,000  | 
|Note payable to ILFC bearing interest at 6.0%, secured by flight equipment,
due February 2002                                                                                                                                                           |  |  | 1,757      |              |  |      | 201,757    | 
|Note payable to ILFC, repaid September 2001                                                                                                                                                                                                             |  |  |           |              |  |      | 3,726,432  | 
|Note payable to ILFC bearing interest at 7.25% to March 2002, then 6%,
payable in monthly installments of $180,000, including interest to March 2002,
then $135,000, secured by flight equipment, balloon payment of $10,799,973,
due March 2005        |  |  | 13,457,580 |              |  |      | 14,583,130 | 
|Note payable to ILFC bearing interest at an effective rate of 6.9% to March 2002,
then 6%, secured by flight equipment, payable in monthly installments
of $20,000, including interest, balloon payment of $1,182,256, due March 2005                   |  |  | 1,480,968  |              |  |      | 1,612,340  | 
|Note payable to ILFC bearing interest at 7.05% to May 2002, then 7.2%, secured
by flight equipment, payable in monthly installments of $32,000 to
March 2002, then $24,000, including interest, balloon payment of $2,154,760,
due December 2005        |  |  | 2,631,931  |              |  |      | 2,822,166  | 
|Note payable to ILFC bearing interest at 7.25%, secured by flight equipment,
payable in quarterly installments of $92,500 to April 2002, then $23,000
in monthly installments, including interest, balloon payment of $3,533,403,
due December 2007     |  |  | 3,616,567  |              |  |      | 3,782,261  | 
|Note payable to ILFC bearing interest at 6.5%, secured by flight equipment,
payable in monthly installments of $30,000 to March 2002, then $10,000,
including interest, balloon payment of $1,757,487, due December 2005                                |  |  | 1,830,855  |              |  |      | 2,061,881  | 
|Note payable to ILFC bearing interest at 7%, secured by flight equipment,
payable in monthly installments of $181,200 to March 2002, then $136,000,
including interest, balloon payment of $11,936,635, due September 2005                              |  |  | 14,596,529 |              |  |      | 15,692,483 | 
|Note payable to ILFC bearing interest at 6%, secured by flight equipment,
payable in monthly installments of $30,000 to March 2002, then $23,000,
including interest, balloon payment of $573,141, due February 2007                                    |  |  | 1,660,472  |              |  |      | 1,911,136  | 
|Note payable to ILFC bearing interest at 6.15%, secured by flight equipment,
payable in monthly installments of $31,000 to March 2002, then $23,000,
including interest, balloon payment of $3,217,020, due July 2006                                   |  |  | 3,535,730  |              |  |      | 8,986,789  | 
|Note payable to ILFC bearing interest at 7.96%, secured by flight equipment,
payable in monthly installments of to February 2002, then $160,000, including
interest, balloon payment of $10,654,395, due June 2005                                      |  |  | 12,461,477 |              |  |      | 13,514,983 | 
|Note payable to ILFC bearing interest at 6.25%, secured by flight equipment,
payable in monthly installments of $47,489 to March 2002, then $35,000,
including interest, balloon payment of $3,494,877, due December 2005                               |  |  | 4,231,298  |              |  |      | 4,522,948  | 

40



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INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

|                                                                                                                                                                                                                             |  |       |            |              |             |      |            |   |             | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----- | ---------- | ------------ | ----------- | ---- | ---------- | - | ----------- | 
|                                                                                                                                                                                                                             |  |       |            | December 31,
|                                                                                                                                                                                                                             |  |       |            |             
|                                                                                                                                                                                                                             |  |       |            | 2001         |             | 2000
|                                                                                                                                                                                                                             |  |       |            |              |             |     
|Note payable to ILFC bearing interest at 6.5%, secured by flight equipment,
no payments to May 2002, then payable in monthly installments of
$200,000, including interest, balloon payment of $23,865,180,
due December 2005 |  |       | 26,013,920 |              |             |      | 27,562,176 |  
|Note payable to ILFC bearing interest at 6.25%, secured by flight equipment,
no payments to May 2002, then payable in monthly installments of
$25,000, including interest, balloon payment of $3,208,022, due December 2005  |  |       | 3,455,896  |              |             |      | 3,670,316  |  
|Note payable to ILFC repaid October 2001                                                                                                                                                                                     |  |       |           |              |             |      | 22,198,197 |  
|Note payable to ILFC bearing interest at 6.25%, secured by flight equipment,
payable in monthly installments of $29,000 to March 2002, then $22,000,
including interest, balloon payment of $2,202,003, due December 2005    |  |       | 2,661,204  |              |             |      | 2,834,612  |  
|Note payable to Great Lakes Holdings (affiliated company),
repaid September 2001                                                                                                                                             |  |       |           |              |             |      | 592,500    |  
|Notes payable to Great Lakes Holdings (affiliated company),
repaid October 2001                                                                                                                                              |  |       |           |              |             |      | 1,345,000  |  
|                                                                                                                                                                                                                             |  |       |            |              |             |      |            |  
|                                                                                                                                                                                                                             |  | Total |            | $            | 235,095,941 |      |            | $ | 253,700,338 | 
|                                                                                                                                                                                                                             |  |       |            |              |             |      |            |  

Notes payable due within one year totaled $11,362,702 at December 31, 2001
(after adjusting for the extensions of renegotiated notes payable), of which
$11,105,949 represents balloon payments and $256,753 represents installment
payments due within one year. The Company intends to refinance all of the
balloon payments due in 2002. If the
Company was unable to refinance a balloon payment, it has the ability to
default on the related loan without affecting the performance of the loans
secured by other aircraft. The Company has extended or re-leased eight
aircraft with $88,501,410 of associated balloon payments related to leases with
terminations from 2002 to 2004. During 2001, 2000 and 1999, the Company
extended or refinanced $167,598,348, $101,304,379 and $45,979,203 of balloon
payments, respectively.

The terms of our loans generally require a substantial balloon payment at
the end of the noncancelable portion of the lease of the related aircraft, at
which time we will be required to re-lease the aircraft and renegotiate the
loan with the lender or obtain other financing. Refinancing the balloon amount
of the loan is dependent upon our re-leasing the related aircraft. We cannot
assure you that the necessary amount of capital will continue to be available
to us on favorable terms, or at all. If we are unable to continue to obtain any
portion of required financing on favorable terms, our ability to add new leases
to our lease portfolio, renew leases, re-lease an aircraft, repair or
recondition an aircraft if required or retain ownership of an aircraft on which
financing has expired could be limited, which could have a material adverse
effect on our business, financial condition and results of operations. In
addition, our financing arrangements to date have been dependent in part upon
ILFC.

Scheduled future repayments of notes payable subsequent to December 31,
2001 are as follows:

|                         |  |   |             | 
|------------------------ |  | - | ----------- | 
|Year ending December 31: |  |   |             | 
|2002                     |  | $ | 23,601,876  | 
|2003                     |  |   | 77,027,082  | 
|2004                     |  |   | 17,596,357  | 
|2005                     |  |   | 74,356,556  | 
|2006                     |  |   | 29,192,743  | 
|Thereafter               |  |   | 13,321,327  | 
|                         |  |   |             | 
|                         |  | $ | 235,095,941 | 
|                         |  |   |             | 

Certain notes payable contain various financial covenants including
maintaining specified minimum tangible net worth and delivery of audited
financial statements. The Company was in compliance with these covenants at
December 31, 2001.

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INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company entered into a $5,000,000 line of credit with a bank in
February 2000. The line of credit bears interest at LIBOR plus 2.5% and
expired in February 2002. No borrowings have been made against the line of
credit.

(6) Related Party Transactions

During 1999, the Company purchased aircraft from ILFC aggregating
$91,700,000. At December 31, 2001 and 2000, 94% of the Companys gross fleet
cost was comprised of aircraft acquired from ILFC. The Company financed these
acquisitions through bank loans, partially guaranteed by ILFC, as well as loans
from ILFC. ILFC provides these guarantees to lenders through an AVG. ILFCs
financial support has allowed the Company to finance aircraft purchases at more
favorable leverage than the Company could otherwise obtain. The Companys
typical operating lease transaction with an AVG requires a cash investment by
the Company of approximately 5% to 15% of the aircraft purchase price while the
industry standard ranges from 20% to 30%. At December 31, 2001 and 2000,
$127,634,340 or 54% and $30,055,909 or 12%, of long-term debt was covered by
AVGs and $95,008,184, or 40%, and $133,103,607, or 52%, was due to ILFC,
respectively. In March 2002, we restructured $95,008,184 of notes payable to
ILFC, reducing the debt payments and extending the term of the notes.

The Company had one aircraft leased to ILFC which is subleased to an
airline at December 31, 2001 and 2000. The Company recognized rental income of
$687,500, $940,000 and $942,500 from this lease in each of the years ended
2001, 2000 and 1999, respectively. The lease expires in August 2002.

During 2001, 2000 and 1999, the Company leased aircraft to third parties
for which ILFC guaranteed certain rental revenue. In connection with one of
the leases, ILFC also guaranteed repayment of the related lease deposit to the
lessee of $1,632,000 included in the accompanying consolidated balance sheet.
The lease terminated in 1999.

The Company has an agreement with ILFC related to the December 1995
purchase of an aircraft which provides for recovery of an operating loss, as
defined, in the acquired lease. Accordingly, the Company reduced the purchase
price of the related aircraft and recognized a receivable for the present value
of the estimated recovery aggregating $579,000. The balance was paid at
December 31, 1999. The loss stems from a stated lease rate which was less than
the market lease rate at the date of acquisition. Accordingly, the Company
allocated additional cost to the purchase price and recognized deferred rent
aggregating $1,747,000 for the present value of the difference between the
market and stated rent. Deferred rent will be amortized on the straight-line
method over the remaining lease term. At December 31, 2001 and 2000, deferred
rent from the lease was $247,000 and $497,000, respectively.

(7) Rental Income

Minimum future rental income on noncancelable operating leases of flight
equipment at December 31, 2001 is as follows:

|                         |  |   |            | 
|------------------------ |  | - | ---------- | 
|Year ending December 31: |  |   |            | 
|2002                     |  | $ | 27,998,752 | 
|2003                     |  |   | 16,379,084 | 
|2004                     |  |   | 10,420,500 | 
|2005                     |  |   | 6,030,125  | 
|2006                     |  |   | 2,792,500  | 
|Thereafter               |  |   | 13,440,000 | 
|                         |  |   |            | 
|                         |  | $ | 77,060,961 | 
|                         |  |   |            | 

Fifteen of the Companys aircraft are leased under short-term to
medium-term leases with remaining terms expiring within one to four years. One
aircraft is being marketed for sale or lease. The Company entered into a
direct financing lease in 2001 which expires in 2014.

42



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INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(8) Commitments and Contingencies

Operating Leases

The Company leases offices from a third party under a noncancelable
operating lease. Future minimum lease payments are:

|                         |  |   |         | 
|------------------------ |  | - | ------- | 
|Year ending December 31: |  |   |         | 
|2002                     |  | $ | 62,688  | 
|2003                     |  |   | 64,928  | 
|2004                     |  |   | 27,220  | 
|2005                     |  |   |        | 
|2006                     |  |   |        | 
|Thereafter               |  |   |        | 
|                         |  |   |         | 
|                         |  | $ | 154,836 | 
|                         |  |   |         | 

Total rent expense under operating leases for the years ended December 31,
2001, 2000 and 1999 was $55,768, $44,313 and $40,559, respectively.

Government Regulations

The maintenance and operation of aircraft are regulated by the Federal
Aviation Administration (FAA) and foreign aviation authorities which oversee
such matters as aircraft certification, inspection, maintenance, certification
of personnel, and record-keeping. All current leases require the lessee to bear
the costs of complying with governmental regulations. However, in the event a
lessee fails to maintain aircraft in accordance with the terms of a lease, the
Company could be required to repair or recondition the aircraft. Failure of a
lessee to fulfill lease maintenance and operation obligations could have a
material adverse effect on the Companys financial condition and results of
operations.

The FAA and civil aviation authorities of most countries and international
entities issue regulations limiting permitted noise and other emissions from
aircraft. Older non-complying aircraft can be brought into compliance by
modifying the engines. At December 31, 2001, two of the Companys aircraft
were on lease to an airline which operate in jurisdictions which do not require
these modifications. These two aircraft may require this work to be performed
after their leases expire in June and August 2002, unless the aircraft are
re-leased and operated in an area that does not require the modification.

(9) Shareholders Equity

The Companys Board of Directors has authorized the repurchase of up to
1,027,379 shares of the Companys common stock. During 2001, 2000 and 1999,
the Company repurchased 114,800, 477,211 and 42,500 shares, respectively of its
common stock. At December 31, 2001, the Company had remaining authorization to
repurchase 111,568 shares of the Companys common stock.

In accordance with the underwriting agreement related to the Companys
November 1997 initial public offering, the Company granted the underwriters
warrants to purchase 260,000 shares of common stock at $12 per share. The
warrants expired in November 2001.

During March 1997, the Company extended the expiration date on 496,664
employee stock options to March 31, 2007, which vested 25% in 1997 and 25% in
each of the following three years. Accordingly, the Company recognized
aggregate compensation expense of approximately $1 million for the difference
between the value of the options on the extension date and the exercise price.
The Company recognized $250,000 in stock compensation during the years ended
December 31, 2000 and 1999 related to the amortization of such cost. If
the related employee is terminated, the respective stock options will
43Table of Contents

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

vest in full. At December 31, 2001, 485,554 options with an exercise price of $4.50
per share were outstanding and exercisable.

During 1997, the Company adopted the 1997 Employee Stock Option and Award
Plan (the Employee Plan). The Employee Plan was amended in 1999. A maximum of
325,000 shares of common stock (subject to certain anti-dilutive adjustments)
may be issued pursuant to grants and awards under the Employee Plan. The
maximum number of shares that may be subject to qualifying share-based awards,
either individually or in aggregate, that can be granted under the Employee
Plan to any one participant during any calendar year will not exceed 150,000
(subject to certain anti-dilutive adjustments). During 2000 and 1999, options
were granted under the Employee Plan to purchase 121,000 and 55,000 shares,
respectively of the Companys common stock at $5.50 and between $6.38 and $7.25
per share, respectively. At December 31, 2001, 156,000 options have been
issued under the plan and 100,500 of the options are vested and the remainder
vest through 2003. The options expire from 2003 to 2005.

During 1997, the Company adopted the 1997 Eligible Directors Stock Option
Plan (the Directors Plan). The Directors Plan was amended in 1999. The
Directors Plan provides that annually an Eligible Director will receive an
option to purchase 10,000 shares of common stock at an exercise price equal to
the market price of common stock on the date of grant. Under the Directors
Plan 125,000 shares of common stock are authorized for issuance. During 2001,
2000 and 1999, options were granted under the Directors Plan to purchase
60,000, 50,000 and 50,000 shares, respectively of the Companys common stock at
$4.00, $5.875 and $6.38 per share, respectively. At December 31, 2001, 210,000
options have been issued under the plan and 125,088 of the options are vested
and the remainder vest through 2004. The options expire from 2003 to 2006.

Changes in outstanding options under the Companys stock option plans
during the three years ended December 31, 2001 and options exercisable at
December 31 2001 are as follows:

|                                                                                                               |                            |  |           |         |                |   |          |      | 
|-------------------------------------------------------------------------------------------------------------- | -------------------------- |  | --------- | ------- | -------------- | - | -------- | ---- | 
|                                                                                                               |                            |  |           |         |                |   | Weighted
|                                                                                                               |                            |  | Number    |         | Average       
|                                                                                                               |                            |  | of shares |         | Exercise Price
|                                                                                                               |                            |  |           |         |               
|Outstanding at December 31, 1998                                                                               |                            |  | 515,554   |         |                | $ | 4.79     |     
|                                                                                                               | Granted at $6.375 to $7.25 |  |           | 105,000 |                |   | $        | 6.75 | 
|                                                                                                               |                            |  |           |         |                |   |          |     
|Outstanding at December 31, 1999                                                                               |                            |  | 620,554   |         |                | $ | 5.12     |     
|                                                                                                               | Granted at $5.50 to $5.875 |  |           | 171,000 |                |   | $        | 5.61 | 
|                                                                                                               |                            |  |           |         |                |   |          |     
|Outstanding at December 31, 2000 at $4.50 to $10.25                                                            |                            |  | 791,554   |         |                | $ | 5.23     |     
|                                                                                                               | Granted at $4.00           |  |           | 60,000  |                |   | $        | 4.00 | 
|                                                                                                               |                            |  |           |         |                |   |          |     
|Outstanding at December 31, 2001 at $4.00 to
$10.25 (weighted average remaining
contractual life of 4.4 years) |                            |  | 851,554   |         |                | $ | 5.14     |     
|                                                                                                               |                            |  |           |         |                |   |          |     

The number of options exercisable at December 31, 2001, 2000 and 1999 was
711,142, 609,122 and 438,796, respectively at weighted average exercise prices
of $5.15, $5.06 and $5.63, respectively.

The weighted average grant date fair value of options granted during the
years ended December 31, 2001, 2000 and 1999 was $2.43, $2.46 and $3.12,
respectively. The exercise price of all options granted in 2001, 2000 and 1999
was equal to market price at the date of grant.

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INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

At December 31, 2001, options outstanding were as follows:

|                     |  |        |         |                |  |                  |      |           |  |                  |  | 
|-------------------- |  | ------ | ------- | -------------- |  | ---------------- | ---- | --------- |  | ---------------- |  | 
|                     |  |        |         |                |  |                  |      |           |  | Weighted average
|                     |  |        |         |                |  | Weighted average |      | remaining
|Options outstanding: |  | Number |         | exercise price |  | contractual life
|                     |  |        |         |                |  |                 
|At $4.00 to $5.88    |  |        | 721,554 |                |  | $                | 4.73 |           |  | 4.8 years       
|At $6.38 to 10.25    |  |        | 130,000 |                |  | $                | 7.42 |           |  | 2.1 years       
|                     |  |        |         |                |  |                  |      |           |  |                  |  | 
|Total                |  |        | 851,554 |                |  | $                | 5.14 |           |  | 4.4 years       
|                     |  |        |         |                |  |                  |      |           |  |                  |  | 

At December 31, 2001, options exercisable were as follows:

|                     |  |        |         |                |  |                  |      | 
|-------------------- |  | ------ | ------- | -------------- |  | ---------------- | ---- | 
|                     |  |        |         |                |  | Weighted average
|Options exercisable: |  | Number |         | exercise price
|                     |  |        |         |               
|At $4.00 to $5.88    |  |        | 589,573 |                |  | $                | 4.67 | 
|At $6.38 to 10.25    |  |        | 121,569 |                |  | $                | 7.50 | 
|                     |  |        |         |                |  |                  |      | 
|Total                |  |        | 711,142 |                |  | $                | 5.15 | 
|                     |  |        |         |                |  |                  |      | 

(10) Subsequent Event

On March 26, 2002, the Company restructured $95,008,184 of notes payable to
ILFC. The restructuring extended the term of the notes payable and reduced the
payments. See Notes 5 and 6.

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INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(11) Quarterly Financial Data (Unaudited)

|                                                                       |  |                    |           |         |  |              |           |             |  |   |            |  |  |   |             |    
|---------------------------------------------------------------------- |  | ------------------ | --------- | ------- |  | ------------ | --------- | ----------- |  | - | ---------- |  |  | - | ----------- | ---
|                                                                       |  | Three months ended
|                                                                       |  |                   
|2001:                                                                  |  | March 31           |           | June 30 |  | September 30 |           | December 31
|                                                                       |  |                    |           |         |  |              |           |            
|Revenues                                                               |  | $                  | 9,904,140 |         |  | $            | 9,833,797 |             |  | $ | 10,402,795 |  |  | $ | 9,601,278   |    
|Expenses                                                               |  |                    | 9,718,644 |         |  |              | 9,728,710 |             |  |   | 9,434,239  |  |  |   | 29,410,289  | (1)
|                                                                       |  |                    |           |         |  |              |           |             |  |   |            |  |  |   |             |    
|Income (loss) before income taxes                                      |  |                    | 185,496   |         |  |              | 105,087   |             |  |   | 968,556    |  |  |   | (19,809,011 | )  
|Income tax expense (benefit)                                           |  |                    | 74,198    |         |  |              | 42,035    |             |  |   | 387,422    |  |  |   | (3,397,261  | )  
|                                                                       |  |                    |           |         |  |              |           |             |  |   |            |  |  |   |             |    
|Net income (loss)                                                      |  | $                  | 111,298   |         |  | $            | 63,052    |             |  | $ | 581,134    |  |  | $ | (16,411,750 | )  
|                                                                       |  |                    |           |         |  |              |           |             |  |   |            |  |  |   |             |    
|Basic earnings (loss) per share*                                       |  | $                  | .03       |         |  | $            | .02       |             |  | $ | .16        |  |  | $ | (4.58       | )  
|                                                                       |  |                    |           |         |  |              |           |             |  |   |            |  |  |   |             |    
|Diluted earnings (loss) per share*                                     |  | $                  | .03       |         |  | $            | .02       |             |  | $ | .16        |  |  | $ | (4.58       | )  
|                                                                       |  |                    |           |         |  |              |           |             |  |   |            |  |  |   |             |    
|Weighted average number of common shares
outstanding                   |  |                    | 3,682,433 |         |  |              | 3,681,773 |             |  |   | 3,620,903  |  |  |   | 3,581,773   |    
|Weighted average number of common shares
outstanding-assuming dilution |  |                    | 3,695,567 |         |  |              | 3,681,773 |             |  |   | 3,625,712  |  |  |   | 3,581,773   |    

|                                                                       |  |                    |            |         |  |              |            |             |  |   |            |  |  |   |            |  
|---------------------------------------------------------------------- |  | ------------------ | ---------- | ------- |  | ------------ | ---------- | ----------- |  | - | ---------- |  |  | - | ---------- | -
|                                                                       |  | Three months ended
|                                                                       |  |                   
|2000:                                                                  |  | March 31           |            | June 30 |  | September 30 |            | December 31
|                                                                       |  |                    |            |         |  |              |            |            
|Revenues                                                               |  | $                  | 11,053,484 |         |  | $            | 10,784,541 |             |  | $ | 11,035,682 |  |  | $ | 10,326,514 |  
|Expenses                                                               |  |                    | 10,305,036 |         |  |              | 10,576,954 |             |  |   | 10,198,874 |  |  |   | 11,828,006 |  
|                                                                       |  |                    |            |         |  |              |            |             |  |   |            |  |  |   |            |  
|Income (loss) before income taxes                                      |  |                    | 748,448    |         |  |              | 207,587    |             |  |   | 836,808    |  |  |   | (1,501,492 | )
|Income tax expense (benefit)                                           |  |                    | 280,668    |         |  |              | 77,845     |             |  |   | 313,803    |  |  |   | (476,590   | )
|                                                                       |  |                    |            |         |  |              |            |             |  |   |            |  |  |   |            |  
|Net income (loss)                                                      |  | $                  | 467,780    |         |  | $            | 129,742    |             |  | $ | 523,005    |  |  | $ | (1,024,902 | )
|                                                                       |  |                    |            |         |  |              |            |             |  |   |            |  |  |   |            |  
|Basic earnings (loss) per share*                                       |  | $                  | .11        |         |  | $            | .03        |             |  | $ | .13        |  |  | $ | (.27       | )
|                                                                       |  |                    |            |         |  |              |            |             |  |   |            |  |  |   |            |  
|Diluted earnings (loss)  per share*                                    |  | $                  | .11        |         |  | $            | .03        |             |  | $ | .13        |  |  | $ | (.27       | )
|                                                                       |  |                    |            |         |  |              |            |             |  |   |            |  |  |   |            |  
|Weighted average number of common shares
outstanding                   |  |                    | 4,164,792  |         |  |              | 3,987,757  |             |  |   | 3,876,231  |  |  |   | 3,816,428  |  
|Weighted average number of common shares
outstanding-assuming dilution |  |                    | 4,293,965  |         |  |              | 4,066,541  |             |  |   | 3,960,267  |  |  |   | 3,816,428  |  



|*   | Per share data may not always add up to the total for the year since each
figure is independently calculated.                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In the three month period ended December 31, 2001, the Company wrote down the value of six aircraft
as a result of permanent impairment as is more fully discussed in
Note 1.

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SIGNATURES

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



| | INTERNATIONAL AIRCRAFT INVESTORS
| | --------------------------------



|Date: March 29, 2002 | By:    /s/  MICHAEL P. GRELLA
Michael P. Grella
President
|-------------------- | ---------------------------------------------------------

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

|                                               |  |                                                                                           |  |               
|---------------------------------------------- |  | ----------------------------------------------------------------------------------------- |  | --------------
|Signature                                      |  | Title                                                                                     |  | Date          
|                                              
|/s/ WILLIAM E. LINDSEYWilliam E. Lindsey       |  | Chairman of the Board,
Chief Executive Officer and
Director (Principal
Executive Officer) |  | March 29, 2002
|                                              
|/s/ MICHAEL P. GRELLAMichael P. Grella         |  | President,
Chief Operating Officer and
Director (Principal Operating
Officer)             |  | March 29, 2002
|                                              
|/s/ RICK O. HAMMONDRick O. Hammond             |  | Vice PresidentFinance,
Chief Financial Officer
(Principal Financial Officer)             |  | March 29, 2002
|                                              
|/s/ ALAN G. STANFORD, JR.Alan G. Stanford, Jr. |  | Vice President-Finance- Treasurer
(Principal Accounting
Officer)                          |  | March 29, 2002
|                                              
|/s/ MAGNUS GUNNARSSONMagnus Gunnarsson         |  | Director                                                                                  |  | March 29, 2002
|                                              
|/s/ RALPH O. HELLMOLDRalph O. Hellmold         |  | Director                                                                                  |  | March 29, 2002
|                                              
|/s/ ALEX R. LIEBLONGAlex R. Lieblong           |  | Director                                                                                  |  | March 29, 2002
|                                              
|/s/ AARON MENDELSOHNAaron Mendelsohn           |  | Director                                                                                  |  | March 29, 2002
|                                              
|/s/ CHRISTER SALENChrister Salen               |  | Director                                                                                  |  | March 29, 2002
|                                              
|/s/ KENNETH TAYLORKenneth Taylor               |  | Director                                                                                  |  | March 29, 2002
|                                              
|/s/ STUART M. WARRENStuart M. Warren           |  | Director                                                                                  |  | March 29, 2002

47