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


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

                                    FORM 10-Q

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


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

                  For the quarterly period ended June 30, 2001

                                       OR

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

               For the transition period from _______ to ________


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

                          Commission File No. 333-82153

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


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

                                   51-6512392
                        (IRS Employer Identification No.)

                                    DELAWARE
         (State or other jurisdiction of incorporation or organization)

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




Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                          Yes  X                  No
                              ---                    ---

                      This document consists of 23 pages.
<PAGE>

                             Aircraft Finance Trust

            FORM 10-Q - For the Quarterly Period Ended June 30, 2001




                                      INDEX



Part I.       Financial Information                                         Page

         Item 1.      Financial Statements

              a)  Consolidated Balance Sheets - June 30, 2001 and
                  December 31, 2000...........................................3

              b)  Consolidated Statements of Income - Three and Six
                  Months Ended June 30, 2001 and June 30, 2000................4

              c)  Consolidated Statements of Comprehensive Income
                  (Loss) - Three and Six Months Ended June 30, 2001
                  and June 30, 2000...........................................5

              d)  Consolidated Statement of Changes in Beneficial
                  Interest Holders' Equity - Six Months Ended
                  June 30, 2001 and Year Ended December 31, 2000..............6

              e)  Consolidated Statements of Cash Flows - Six Months
                  Ended June 30, 2001 and June 30, 2000.......................7

              f)  Notes to Consolidated Financial Statements..................8

         Item 2.      Management's Discussion and Analysis of
                      Financial Condition and Results of Operations..........10

         Item 3.      Quantitative and Qualitative Disclosures about
                      Market Risk............................................14


Part II.      Other Information

         Item 6.      Exhibits and Reports on Form 8-K.......................17

         Signatures   .......................................................18



                                       2
<PAGE>

                          Part I. Financial Information
                          -----------------------------

Item 1.       Financial Statements

                     Aircraft Finance Trust and Subsidiaries
                           Consolidated Balance Sheets
                                   (unaudited)
                             (dollars in thousands)

                                                        June 30,    December 31,
                                                          2001          2000
                                                          ----          ----
                                     Assets

Cash and cash equivalents                             $    70,601    $    76,658
Restricted cash                                            17,727         17,761
Rents and other receivables                                 3,184          3,352
Aircraft, net                                           1,109,510      1,129,322
Other assets                                                  410            131
                                                      -----------    -----------

     Total assets                                     $ 1,201,432    $ 1,227,224
                                                      ===========    ===========

              Liabilities and Beneficial Interest Holders' Equity

Accounts payable and accrued liabilities              $     3,802    $     5,007
Deferred rental income                                      4,036          4,927
Derivative contracts                                       12,864           --
Security and other deposits                                42,997         37,489
Notes payable:
     Class A-1                                            512,500        512,500
     Class A-2                                            291,313        322,801
     Class B                                              120,401        121,542
     Class C                                              106,000        106,000
     Class D                                               64,000         64,000
                                                      -----------    -----------
     Total notes payable                                1,094,214      1,126,843
                                                      -----------    -----------

     Total liabilities                                  1,157,913      1,174,266
                                                      -----------    -----------

Beneficial interest holders' equity:
     Beneficial interest                                   56,383         52,958
     Accumulated other comprehensive loss                 (12,864)          --
                                                      -----------    -----------

     Total beneficial interest holders' equity             43,519         52,958
                                                      -----------    -----------

     Total liabilities and beneficial interest
       holders' equity                                $ 1,201,432    $ 1,227,224
                                                      ===========    ===========


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

                                       3
<PAGE>

                     Aircraft Finance Trust and Subsidiaries
                        Consolidated Statements of Income
                                   (unaudited)
                             (dollars in thousands)




                                        Three Months Ended     Six Months Ended
                                             June 30,              June 30,
                                         2001       2000        2001      2000
                                         ----       ----        ----      ----
Revenues:
   Rental and other income
      from operating leases             $36,112    $38,237    $72,517    $73,940
   Interest income                          957      1,465      2,246      2,677
                                        -------    -------    -------    -------

      Total revenues                     37,069     39,702     74,763     76,617
                                        -------    -------    -------    -------

Expenses:
   Interest expense                      18,361     19,548     37,239     39,015
   Depreciation expense                  11,089     10,695     22,066     21,372
   Operating expense                      4,567      4,562      9,047      8,921
   Administration and other               1,514      1,519      2,986      3,050
                                        -------    -------    -------    -------

      Total expenses                     35,531     36,324     71,338     72,358
                                        -------    -------    -------    -------

Net Income                              $ 1,538    $ 3,378    $ 3,425    $ 4,259
                                        =======    =======    =======    =======

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


                                       4
<PAGE>

                     Aircraft Finance Trust and Subsidiaries
             Consolidated Statements of Comprehensive Income (Loss)
                                   (unaudited)
                             (dollars in thousands)


                                   Three Months Ended        Six Months Ended
                                        June 30,                  June 30,
                                    2001         2000        2001         2000
                                    ----         ----        ----         ----

Net income                        $  1,538     $  3,378    $  3,425     $  4,259

Other comprehensive
 loss (Notes 3 and 4)              (12,864)        --       (12,864)        --
                                  --------     --------    --------     --------

Comprehensive
income (loss)                     $(11,326)    $  3,378    $ (9,439)    $  4,259
                                  ========     ========    ========     ========

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


                                       5
<PAGE>

                     Aircraft Finance Trust and Subsidiaries
    Consolidated Statement of Changes in Beneficial Interest Holders' Equity
                                   (unaudited)
                             (dollars in thousands)


                                           Accumulated
                                       Other Comprehensive   Beneficial
                                           Income (Loss)      Interest    Total
                                           -------------      --------    -----

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

   Net income                                   --             3,425      3,425

   Other comprehensive loss:
   Changes in derivative instruments
     Cumulative effect of adopting FAS 133     1,711            --        1,711
     Changes in fair value of derivatives    (14,575)           --      (14,575)
                                            --------        --------   --------

   Total other comprehensive loss            (12,864)           --      (12,864)
                                            --------        --------   --------

Balance at June 30, 2001                    $(12,864)       $ 56,383   $ 43,519
                                            ========        ========   ========


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

                                       6
<PAGE>

                     Aircraft Finance Trust and Subsidiaries
                      Consolidated Statement of Cash Flows
                                   (unaudited)
                             (dollars in thousands)

                                                             Six Months Ended
                                                                 June 30,
                                                             2001        2000
                                                             ----        ----


Cash Flows from Operating Activities:
Net income                                                 $  3,425    $  4,259
Adjustments to reconcile net income to net cash
     provided by operating activities:
     Depreciation expense                                    22,066      21,372
Changes in assets and liabilities:
     Rents and other receivables                                168         185
     Restricted cash                                             34       2,438
     Other assets                                              (279)       (145)
     Accounts payable and accrued liabilities                (1,205)     (1,827)
     Deferred rental income                                    (891)     (2,264)
     Security and other deposits                              5,508       3,417
                                                           --------    --------

     Net cash provided by operating activities               28,826      27,435
                                                           --------    --------

Cash Flows from Investing Activities:
Aircraft improvements                                        (2,254)       (900)
                                                           --------    --------

     Net cash used in investing activities                   (2,254)       (900)
                                                           --------    --------

Cash Flows from Financing Activities:
Repayment of notes payable                                  (32,629)    (20,210)
                                                           --------    --------

     Net cash used in financing activities                  (32,629)    (20,210)
                                                           --------    --------

Net (Decrease) Increase in Cash and Cash Equivalents         (6,057)      6,325

Cash and Cash Equivalents at Beginning of Period             76,658      72,682
                                                           --------    --------

Cash and Cash Equivalents at End of Period                 $ 70,601    $ 79,007
                                                           ========    ========

Supplemental Cash Flow Information:
     Cash paid for interest expense                        $ 37,512    $ 39,137
                                                           ========    ========


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

                                       7
<PAGE>

                     Aircraft Finance Trust and Subsidiaries
                   Notes to Consolidated Financial Statements
                                   (unaudited)

                                  June 30, 2001


Note 1 - Organization

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

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


Note 2 - Basis of Presentation

         The accompanying  unaudited consolidated financial statements have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States of America and the rules and  regulations  of the  Securities  and
Exchange Commission for interim financial statements. Accordingly, these interim
statements do not include all of the information  and  disclosures  required for
complete  financial  statements.  In the opinion of management,  all adjustments
(consisting  solely of adjustments of a normal recurring nature) necessary for a
fair  statement of these interim  results have been included.  All  intercompany
accounts  and  transactions  have been  eliminated.  The results for the interim
periods are not  necessarily  indicative  of the results to be expected  for the
year ended December 31, 2001.

         These interim  unaudited  consolidated  financial  statements should be
read in conjunction with Aircraft Finance's  consolidated  financial  statements
and  accompanying  notes included in the Annual Report on Form 10-K for the year
ended December 31, 2000 filed with the Securities and Exchange Commission.

Use of Estimates

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

                                       8
<PAGE>

Note 3 - New Accounting Pronouncements

         In June 1998, the Financial  Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 133 ("FAS 133"),  "Accounting for
Derivative  Instruments and Hedging  Activities".  In June 1999, the FASB issued
SFAS No. 137,  "Accounting for Derivative  Instruments and Hedging  Activities -
Deferral  of the  Effective  Date of FASB  Statement  No.  133",  to  defer  the
effective date of FAS 133 by one year. In June 2000,  the FASB issued  Statement
of Financial  Accounting  Standard No. 138 ("FAS 138")  "Accounting  for Certain
Derivative  Instruments  and Certain  Hedging  Activities - an Amendment of FASB
Statement No. 133". FAS 138 amends the accounting and reporting standards of FAS
133 for certain derivative instruments and certain hedging activities.  FAS 133,
as amended,  is effective for all fiscal  quarters of all fiscal years beginning
after June 15, 2000  (January 1, 2001 for  Aircraft  Finance).  FAS 133 requires
that all  derivative  instruments be recorded on the balance sheet at their fair
value.  Changes in the fair value of  derivatives  are  recorded  each period in
current  earnings  or  other  comprehensive  income,   depending  on  whether  a
derivative is designated as part of a hedge  transaction and, if it is, the type
of hedge  transaction.  For Aircraft  Finance's swap  agreements  which meet the
definition of cash-flow hedge transactions, in which Aircraft Finance is hedging
the variability of cash flows related to a variable-rate asset,  liability, or a
forecasted  transaction,  changes in the fair value of the derivative instrument
are reported in other  comprehensive  income. As a result of the adoption of FAS
133,  as  amended,  on January 1, 2001,  Aircraft  Finance  recorded  derivative
contracts  on the  balance  sheet  reflecting  the  estimated  fair value of its
outstanding swaps and a corresponding  increase to other comprehensive income, a
component of beneficial interest holders' equity, of $1.7 million.

         On June 30,  2001,  the fair  value of these  interest  rate  swaps was
approximately  ($12.9)  million  compared to $1.7 million on January 01, 2001, a
change in fair value of the derivatives of ($14.6) million.


Note 4 - Derivative Financial Instruments

Interest Rate Swap Agreements

         As of June 30,  2001,  Aircraft  Finance was a party to seven  interest
rate  swap  agreements.  Four of them were  entered  into on May 5, 1999 and the
other three on July 15,  2000.  The total  aggregate  gross  notional  principal
amount of these interest rate swaps is $865 million at June 30, 2001.  Under the
agreements,  Aircraft  Finance will pay a fixed rate of interest on the notional
amount to the  counterparty  and, in turn,  the  counterparty  will pay Aircraft
Finance a rate of interest on the notional  amount  based on LIBOR.  On June 30,
2001,  the fair values of these  interest rate swaps was  approximately  ($12.9)
million  compared to $1.7  million on December 31,  2000.  Due to the  potential
volatility  of LIBOR,  the fair value of Aircraft  Finance's  interest rate swap
agreements are also subject to volatility. The change in fair value of the seven
interest rate swaps was due to changes in market interest rates. This change was
recorded  in other  comprehensive  income in the equity  section of the  balance
sheet.

         The  following  table  presents,  as of June 30, 2001, a summary of the
terms  of  Aircraft  Finance's  interest  rate  swap  agreements:   (dollars  in
thousands)

                                       9
<PAGE>


  Fixed      Rate to be          Rate to be
 Notional  paid by Aircraft  received by Aircraft     Maturity        Estimated
  Amount        Finance             Finance             Date          fair value
  ------        -------             -------             ----          ----------
$ 60,000         5.50%              LIBOR          January 15, 2002   $   (506)
 175,000         5.56%              LIBOR          October 15, 2002     (2,711)
 345,000         5.65%              LIBOR          January 15, 2004     (5,107)
 230,000         5.71%              LIBOR         November 15, 2004     (2,599)
  20,000         7.13%              LIBOR          January 15, 2002       (344)
  20,000         7.14%              LIBOR          October 15, 2002       (707)
  15,000         7.17%              LIBOR            May 15, 2005         (890)
                                                                      --------
                                                                      $(12,864)
                                                                      ========


Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

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

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

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

         Any statements  contained herein that are not historical facts, or that
might be considered an opinion or projection,  whether expressed or implied, are
meant as, and should be considered,  forward-looking  statements as that term is
defined in the Private Securities Litigation Reform Act of 1995. Forward-looking
statements are based on assumptions  and opinions  concerning a variety of known
and  unknown  risks.  If  any  assumptions  or  opinions  prove  incorrect,  any

                                       10
<PAGE>

forward-looking  statements  made  on  that  basis  may  also  prove  materially
incorrect.  Aircraft Finance assumes no obligation to update any forward-looking
statements to reflect  actual  results or changes in the factors  affecting such
forward-looking statements.

Recent Developments

The Aircraft and Lessees

         In January 2001, a B737-300  aircraft formerly leased by a lessee based
in Ireland was returned early. In March 2001,  Aircraft  Finance  delivered this
aircraft to a lessee based in the United  Kingdom for a short-term  lease ending
October 31, 2001. This aircraft  represents  approximately 2.4% of the aggregate
appraised value at December 31, 2000.

         On January  10,  2001,  Trans  World  Airlines,  Inc.  ("TWA"),  one of
Aircraft  Finance's lessees,  filed for Chapter 11 bankruptcy  protection in the
United States  Bankruptcy  Court for the District of Delaware  (the  "Bankruptcy
Court"). TWA leases one aircraft from Aircraft Finance, which represents 4.9% of
the aircraft by aggregate  appraised  value as of December 31, 2000. By order of
Judge Peter J. Walsh dated  March 12,  2001,  the  Bankruptcy  Court  authorized
American Airlines,  Inc.'s  ("American") bid, submitted on February 28, 2001, to
sell  substantially  all of TWA's  assets to  American.  As of March  12,  2001,
Aircraft  Finance has entered into a new agreement with American with respect to
the TWA lease.  The new lease term has an expiration date of September 22, 2002.
At June 30, 2001, TWA was current in its payments, which are due in arrears.

         In June 2001, Aircraft Finance signed a contract with a lessee based in
the  Ukraine  for a five year  lease of one  B737-300  aircraft,  which  will be
returned  from  British  Midland  in  March  2002.   This  aircraft   represents
approximately 2.5% of the aggregate appraised value at December 31, 2000.

Other Developments

         Under the terms of the  indenture,  Aircraft  Finance  is  required  to
obtain annual  appraisals of its aircraft.  In February 2001,  Aircraft  Finance
received  appraisals  of the adjusted base values of the aircraft as of December
31, 2000 from three independent appraisers that are members of the International
Society of  Transport  Aircraft  Trading,  as  required  by the  indenture.  The
aggregate of the average of the three  appraisals (the current  appraised value)
of the aircraft at December 31, 2000 was $1,177.4 million. Such average is below
the assumed  portfolio  values set forth in the indenture  relating to the notes
for  certain  months  in 2001.  This  reduction  in the  appraised  value of the
portfolio  resulted in  increased  scheduled  principal  payments to the Class A
Notes.

         As of June 30,  2001,  there were three former  lessees on  non-accrual
status.  With respect to these  lessees,  all four  aircraft  have been returned
early.  The total amount of rent and maintenance  reserve  payments  outstanding
under the leases for the four  aircraft  from these  three  lessees  amounted to
approximately  $5.6 million at June 30,  2001.  One of these  lessees,  based in
Brazil,  owed  approximately  $1.0  million  at June 30,  2001  for  outstanding
maintenance  reserve  payments,  after the  application  of a $1.0  million cash
security  deposit.   The  second  lessee,  based  in  the  United  States,  owed
approximately $1.0 million at June 30, 2001 for outstanding  maintenance reserve
payments after the  application of $1.1 million of cash security  deposits and a
letter of credit.  The third lessee,  based in Turkey,  owed  approximately $3.6
million at June 30, 2001 for outstanding  rent and maintenance  reserve payments
after the  application of $1.1 million of cash security  deposits and letters of
credit.

                                       11
<PAGE>


         As of June 30, 2001, Aircraft Finance has repaid principal on the Notes
of $114.8  million,  as compared to $93.1  million  based on revenue and expense
assumptions  found in the Offering  Memorandum  dated April 21, 1999. For a more
detailed analysis of Aircraft Finance's  performance compared to the assumptions
in the Offering Memorandum, see the unaudited Exhibit 99.1.

         The beneficial  interests in Aircraft Finance were originally purchased
by UniCapital AFT-I, Inc. (51%) and UniCapital AFT-II, Inc. (49%), each of which
were  wholly-owned  indirect  subsidiaries  of  UniCapital  Air Group,  Inc.,  a
wholly-owned  subsidiary of  UniCapital  Coporation  (UniCapital).  During 1999,
2000, and the period ended June 30, 2001,  UniCapital  sold all of its ownership
of AFT-I, Inc., and AFT-I, Inc. and AFT-II Inc. sold certain of their beneficial
interests in Aircraft  Finance to  financial  services  companies.  In addition,
during the period ended June 30, 2001, AFT-II,  Inc. also transferred certain of
its remaining interests to AFT-III,  Inc., a wholly-owned indirect subsidiary of
UniCapital.  As of June 30, 2001,  financial  services  companies owned 68.4% of
Aircraft Finance,  AFT-II, Inc. owned 1.6% of Aircraft Finance and AFT-III, Inc.
owned 30% of Aircraft Finance.  On December 11, 2000,  UniCapital and the entity
that  directly  owns  AFT-II,  Inc.  and  AFT-III,   Inc.  filed  petitions  for
reorganization  under Chapter 11 of the United States  Bankruptcy Code in the U.
S.  Bankruptcy  Court for the  Southern  District  of New York (the  "Bankruptcy
Court").  As of August 10, 2001,  UniCapital  is still  operating as a debtor in
possession under the jurisdiction of the Bankruptcy Court.

Results of Operations

         Aircraft  Finance  reported net income of $1.5 million during the three
months ended June 30, 2001 ("2001  Quarter") on total  revenues of $37.1 million
compared to $3.4  million on total  revenues of $39.7  million  during the three
months ended June 30, 2000 ("2000  Quarter"),  and net income of $3.4 million on
total revenue of $74.8 million  during the six months ended June 30, 2001 ("2001
Period")  compared to $4.3 million on total revenue of $76.6 million  during six
months  ended June 30,  2000  ("2000  Period").  The  decrease  in net income is
primarily due to decreases in rental and other income from operating  leases and
interest income  partially  offset by a decrease in interest  expense.  Aircraft
Finance's  revenues  consisted of rental and other income from operating  leases
and interest income earned on cash balances.

         Rental and other income from operating leases was $36.1 million for the
2001 Quarter  compared to $38.2 million for the 2000 Quarter,  and $72.5 million
for the 2001 Period compared to $73.9 million for the 2000 Period.  The decrease
of rental and other income in 2001 Period is primarily due to decrease in rental
rate of new leases.

         Interest income was $1.0 million for the 2001 Quarter  compared to $1.5
million for the 2000 Quarter,  and $2.2 million for the 2001 Period  compared to
$2.7  million  for the 2000  Period.  These  decreases  are the  result of lower
average  cash  balances  and a  decline  in the  interest  rate  earned on those
balances.  Interest income is earned on Aircraft Finance's cash balances,  which
are  invested in  short-term  highly  liquid  investments  as  permitted  by the
indenture.  The amount of interest  income  earned varies based upon the current
interest rates paid on such  investments  and the level of cash balances held by
Aircraft Finance.

         Interest  expense,  including  interest  rate  swap  payments  of  $2.4
million,  was $18.4 million for the 2001 Quarter compared to $19.5 million,  net
of interest rate swap proceeds of $1.7 million,  for the 2000 Quarter, and $37.2
million, including net interest rate swap payments of $2.3 million, for the 2001
Period  compared  to $39  million,  net of interest  rate swap  proceeds of $2.7
million,  for the 2000 Period.  Interest  expense is paid on Aircraft  Finance's
outstanding  Notes. The weighted average interest rate on the Notes for the 2001
Quarter and 2001 Period was 6.60% and 6.67%, respectively, compared to 6.67% and
6.63%  for the 2000  Quarter  and 2000  Period,  respectively.  The  outstanding
balance of the Notes at June 30, 2001 and June 30, 2000 was $1,094.2 million and
$1,156.0  million,  respectively.  Interest  expense  varies based on the actual

                                       12
<PAGE>

interest  rates on the  floating  rate Notes,  the  interest  rate swap costs or
proceeds and the outstanding principal balances of the Notes.

         Depreciation expense was $11.1 million for the 2001 Quarter compared to
$10.7  million  for the 2000  Quarter,  and $22.1  million  for the 2001  Period
compared to $ 21.4 million for the 2000 Period. The increase in the 2001 Quarter
and 2001 Period as compared to the 2000 Quarter and 2000 Period is primarily due
to the depreciation of additional capitalized improvements.

         Operating  expense was $4.6  million for both the 2001  Quarter and the
2000 Quarter,  and $9.0 million for the 2001 Period compared to $8.9 million for
the 2000 Period.  Operating expense consists  primarily of aircraft  maintenance
expense and lease related  costs.  Most of Aircraft  Finance's  lease  contracts
require the lessee to bear the obligation for maintenance costs on airframes and
engines,  and  require  the  lessee  to make  certain  payments  to the  lessor,
calculated  on  measures  of usage  to cover  the  expected  costs of  scheduled
maintenance  charges,  including  major  airframe  and  engine  overhauls.  Such
payments are included in rental and other income from  operating  leases.  Under
the provisions for many leases,  for certain airframe and engine overhauls,  the
lessee is  reimbursed  for costs  incurred  up to,  but not  exceeding,  related
payments  made by the lessee,  to the lessor  based on those  measures of usage.
Reserves are maintained at amounts  considered  adequate to cover those expected
payments for maintenance costs.

         Administrative  and other  expenses were $1.5 million for both the 2001
Quarter and the 2000 Quarter,  and $3.0 million for the 2001 Period  compared to
$3.1 million for the 2000 Period.  These expenses consist primarily of fees paid
to the service  providers and other general and  administrative  costs. The most
significant  of these fees was the servicer fee,  which amounted to $1.1 million
for both the 2001 Quarter and 2000  Quarter,  and $2.2 million for both the 2001
Period  and the 2000  Period.  A  significant  portion  of the fees  paid to the
Servicer  corresponds to rental payments due and received.  These fees are based
upon a fixed  percentage of rental  receipts and will vary with rental income of
Aircraft Finance.

         On June  30,  2001,  the fair  value of the  interest  rate  swaps  was
approximately  ($12.9) million  compared to $1.7 million on December 31, 2000, a
difference of ($14.6) million.  This accumulated other  comprehensive  income of
($14.6)  million was recorded in the  Consolidated  Statement  of  Comprehensive
Income.

Liquidity

         Aircraft Finance held cash and cash  equivalents of $70.6 million,  and
restricted cash of $17.7 million at June 30, 2001, compared to $79.0 million and
$17.0 million,  respectively,  at June 30, 2000. The liquidity  reserve  amount,
which is included in cash and cash  equivalents,  was $52.0 million at both June
30, 2001 and June 30, 2000.  The liquidity  reserve amount is required under the
terms of the  indenture  and is intended to serve as a source of  liquidity  for
Aircraft Finance's maintenance obligations and other contingent costs.

Cash Flows from Operating Activities

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

         Net cash provided by operating  activities for the 2001 Period amounted
to $28.8 million,  primarily  reflecting net income of $3.4 million  adjusted by
non-cash  depreciation  expense of $22.0 million,  and increases in security and
other  deposits of $5.5 million and rent and other  receivables of $0.2 million.

                                       13
<PAGE>

These were offset by decreases in accounts  payable and accrued  liabilities  of
$1.2 million,  deferred rental income of $0.9 million,  and other assets of $0.3
million.

         Net cash provided by operating  activities for the 2000 Period amounted
to $27.4 million,  primarily  reflecting net income of $4.3 million  adjusted by
non-cash depreciation expense of $21.4 million, a decrease in restricted cash of
$2.4  million and an increase in security  and other  deposits of $3.4  million.
These were offset by decreases in accounts  payable and accrued  liabilities  of
$1.8 million and deferred rental income of $2.3 million.

Cash Flows from Investing and Financing Activities

         Net cash used in investing  activities for the 2001 Period  amounted to
$2.3  compared to $0.9 million for the 2000 Period.  Aircraft  Finance  incurred
greater expenditures on capitalized aircraft  improvements and aircraft delivery
costs in the 2001 Period compared to the 2000 Period.

         Net cash used in financing  activities for the 2001 Period  amounted to
$32.6 million due to principal repayment on the Notes. As a result, the balances
of these Notes were $1,094.2 million at June 30, 2001. Generally,  principal and
interest is repaid on these Notes  monthly  based upon the cash  collected,  the
anticipated  expenses  and the cash  balances  held by  Aircraft  Finance on the
calculation date. As a result, monthly principal payments on the Notes will vary
depending on Aircraft Finance's revenues and expenses for the month. In addition
to the factors discussed above, during the 2001 Period additional  principal was
redirected  to certain  Classes  of Notes as a result of the  annual  base value
appraisals of aircraft.

         Net cash used in financing  activities for the 2000 Period  amounted to
$20.2 million due to principal  repayment on the Notes. As a result, the balance
of these Notes was $1,156.0 million at June 30, 2000.

         At June 30, 2001,  Aircraft  Finance was a party to seven interest rate
swap  agreements.  Four of these agreements were entered into on May 5, 1999 and
the other three were entered into on June 29, 2000 but had an effective  date of
July 15, 2000. The net aggregate  amounts due to be paid or received by Aircraft
Finance under these agreements is determined  monthly and is due on the same day
as the payments under the Notes.  The net economic effect of these interest rate
swaps was to hedge  Aircraft  Finance's  variable  interest  rate  exposure from
movements in interest rates over the duration of certain lease terms. Please see
"Item 3. Quantitative and Qualitative Disclosures about Market Risk" for further
information about these interest rate swap agreements.


Item 3.  Quantitative and Qualitative Disclosures about Market Risk

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

         The controlling  trustees of Aircraft  Finance,  with the assistance of
Bankers Trust Company and Lehman  Brothers Inc., are  responsible  for reviewing
and approving  the overall  interest rate  management  policies and  transaction
authority  limits.  Counterparty  risk will be  monitored  on an ongoing  basis.

                                       14
<PAGE>

Counterparties  will  be  subject  to the  prior  approval  of  the  controlling
trustees.  Currently,  Aircraft Finance's counterparty is an affiliate of Lehman
Brothers Inc. Future  counterparties  may consist primarily of the affiliates of
major   United   States   and   European   financial   institutions,   including
special-purpose  derivative vehicles,  that have credit ratings, or that provide
collateralization  arrangements,  consistent with maintaining the ratings of the
Notes.

         Aircraft  Finance is a party to five  classes of Notes.  The  estimated
fair value of these  Notes at June 30,  2001 was  approximately  $1,086  million
compared to $1,121  million at December 31, 2000. The terms of each class of the
Notes,  including  the  outstanding  principal  amount at June 30, 2001,  are as
follows: (dollars in thousands)

              Outstanding
 Class of      Principal                    Expected Final            Final
  Notes         Amount     Interest Rate     Payment Date         Maturity Date
  -----         ------     -------------     ------------         -------------
 Class A-1   $  512,500    LIBOR + 0.48%      May 15, 2004         May 15, 2024
 Class A-2      291,313    LIBOR + 0.50%     June 15, 2008         May 15, 2024
 Class B        120,401    LIBOR + 1.15%      May 15, 2016         May 15, 2024
 Class C        106,000            8.00%     July 15, 2016         May 15, 2024
 Class D         64,000           11.00%   August 15, 2016         May 15, 2024
             ----------
             $1,094,214
             ==========

         Aircraft  Finance was a party to seven interest rate swap agreements at
June 30, 2001.  Under the agreements,  Aircraft Finance will pay a fixed rate of
interest  on  the  notional  amount  to  the  counterparty  and,  in  turn,  the
counterparty will pay Aircraft Finance a rate of interest on the notional amount
based on one month LIBOR.  The one month LIBOR rate with respect to the Notes as
of June 30, 2001 and December 31, 2000 was 3.98% and 6.71%, respectively. Due to
the volatility of LIBOR, the fair value of Aircraft Finance's interest rate swap
agreements are also subject to volatility.

         The  following  table  presents,  as of June  30,  2001,  the  terms of
Aircraft Finance's interest rate swap agreements: (dollars in thousands)

  Fixed      Rate to be          Rate to be
Notional  paid by Aircraft  received by Aircraft     Maturity         Estimated
 Amount        Finance             Finance             Date          fair value
 ------        -------             -------             ----          ----------
$ 60,000        5.50%               LIBOR          January 15, 2002   $   (506)
 175,000        5.56%               LIBOR          October 15, 2002     (2,711)
 345,000        5.65%               LIBOR          January 15, 2004     (5,107)
 230,000        5.71%               LIBOR         November 15, 2004     (2,599)
  20,000        7.13%               LIBOR          January 15, 2002       (344)
  20,000        7.14%               LIBOR          October 15, 2002       (707)
  15,000        7.17%               LIBOR              May 15, 2005       (890)
                                                                      --------
                                                                      $(12,864)
                                                                       ========

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

                                       15
<PAGE>

                           Part II. Other Information
                           --------------------------

Item 6.  Exhibits and Reports of Form 8-K

a.      Exhibits (numbered in accordance with Item 601 of Regulation S-K)

        99.1  Other information - Analysis of actual cash flows versus assumed
              case

b.      Reports on Form 8-K

        During the quarterly period ended June 30, 2001,  Aircraft Finance filed
        reports  on Form 8-K dated  April 17,  2001,  May 15,  2001 and June 15,
        2001. Such reports on Form 8-K included copies of the monthly reports to
        holders of the Notes.


                                       16
<PAGE>

                                   SIGNATURES



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


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


       August 14, 2001                   By:    /S/CHARISSE L. RODGERS
       ---------------                          ----------------------
           Date                          Name:  Charisse L. Rodgers
                                         Title: Assistant Vice President


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



SIGNATURE                      TITLE                             DATE
---------                      -----                             ----


/S/DAVID H. TREITEL            Independent Controlling Trustee   August 14, 2001
-------------------                                              ---------------
David H. Treitel


/S/RICHARD E. CAVANAGH         Independent Controlling           August 14, 2001
----------------------         Trustee                           ---------------
Richard E. Cavanagh


/S/DONALD G. BUTLER            Equity Trustee and Controlling    August 14, 2001
-------------------            Trustee                           ---------------
Donald G. Butler


/S/CHARISSE L. RODGERS         Owner Trustee                     August 14, 2001
----------------------                                           ---------------
Wilmington Trust Company, not
in its individual capacity but
solely as the Owner Trustee


                                       17