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 March 31, 2001

                                       OR

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

               For the transition period from _______ to ________


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

                          Commission File No. 333-82153

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


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

                                   51-6512392
                        (IRS Employer 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 22 pages.
<PAGE>

                             Aircraft Finance Trust

            FORM 10-Q - For the Quarterly Period Ended March 31, 2001




                                      INDEX



Part I.       Financial Information                                         Page

         Item 1.      Financial Statements

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

              b)  Consolidated Statements of Income - Three Months Ended
                  March 31, 2001 and March 31, 2000...........................4

              c)  Consolidated Statements of Comprehensive Income (Loss) -
                  Three Months Ended March 31, 2001 and March 31, 2000........5

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

              e)  Consolidated Statements of Cash Flows - Three Months
                  Ended March 31, 2001 and March 31, 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.......................16

         Signatures   .......................................................17



                                       2
<PAGE>

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

Item 1.       Financial Statements


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

                                                        March 31,   December 31,
                                                          2001          2000
                                                       -----------  ------------
                                     Assets

Cash and cash equivalents                              $    73,550   $    76,658
Restricted cash                                             18,286        17,761
Rents and other receivables                                  3,662         3,352
Aircraft, net                                            1,120,599     1,129,322
Other assets                                                    33           131
                                                       -----------   -----------

     Total assets                                      $ 1,216,130   $ 1,227,224
                                                       ===========   ===========

              Liabilities and Beneficial Interest Holders' Equity

Accounts payable and accrued liabilities               $     3,950   $     5,007
Deferred rental income                                       4,815         4,927
Derivative contracts                                        15,770          --
Security and other deposits                                 39,789        37,489
Notes payable:
     Class A-1                                             512,500       512,500
     Class A-2                                             309,830       322,801
     Class B                                               120,401       121,542
     Class C                                               106,000       106,000
     Class D                                                64,000        64,000
                                                       -----------   -----------
     Total notes payable                                 1,112,731     1,126,843
                                                       -----------   -----------

     Total liabilities                                   1,177,055     1,174,266
                                                       -----------   -----------

Beneficial interest holders' equity:
     Beneficial interest                                    54,845        52,958
     Accumulated other comprehensive income (loss)         (15,770)         --
                                                       -----------   -----------

     Total beneficial interest holders' equity              39,075        52,958
                                                       -----------   -----------

     Total liabilities and beneficial interest
        holders' equity                                $ 1,216,130   $ 1,227,224
                                                       ===========   ===========

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

                                       3
<PAGE>

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


                                                 Three Months      Three Months
                                                     Ended            Ended
                                                 March 31, 2001   March 31, 2000
                                                 --------------   --------------

Revenues:
   Rental and other income from operating leases    $36,405          $35,703
   Interest Income                                    1,289            1,212
                                                    -------          -------

       Total revenues                                37,694           36,915
                                                    -------          -------

Expenses:
   Interest Expense                                  18,878           19,467
   Depreciation Expense                              10,977           10,678
   Operating Expense                                  4,480            4,358
   Administration and other                           1,472            1,531
                                                    -------          -------

       Total expenses                                35,807           36,034
                                                    -------          -------

Net Income                                          $ 1,887          $   881
                                                    =======          =======

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


                                       4
<PAGE>

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


                                                 Three Months     Three Months
                                                     Ended            Ended
                                                 March 31, 2001   March 31, 2000
                                                 --------------   --------------

Net Income                                          $  1,887        $    881
Accumulated Other Comprehensive Income (Loss)
  (Notes 3 and 4)                                    (15,770)             --
                                                    --------        --------

Comprehensive Income (Loss)                         $(13,883)       $    881
                                                    --------        --------

                 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, 1999               $   --            $ 47,544  $ 47,544

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

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

   Net Income                                  --               1,887     1,887

   Other Comprehensive Income:
   Changes in derivative instruments
     Cumulative effect of adopting
       FAS 133                                1,711              --       1,711
     Changes in fair value of
       derivatives                          (17,481)             --     (17,481)
                                           --------          --------  --------

   Total Other Comprehensive Income         (15,770)             --     (15,770)
                                           --------          --------  --------

Balance at March 31, 2001                  $(15,770)         $ 54,845  $ 39,075
                                           ========          ========  ========


                 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)

                                                   Three Months   Three Months
                                                       Ended          Ended
                                                  March 30, 2001  March 31, 2000
                                                  --------------  --------------

Cash Flows from Operating Activities:
Net income                                           $  1,887       $    881
Adjustments to reconcile net income to net cash
     provided by operating activities:
     Depreciation expense                              10,977         10,678
Changes in assets and liabilities:
     Rents and other receivables                         (310)           540
     Restricted cash                                     (525)         1,193
     Other assets                                          98            103
     Accounts payable and accrued liabilities          (1,057)        (1,734)
     Deferred rental income                              (112)        (1,595)
     Security and other deposits                        2,300            797
                                                     --------       --------

     Net cash provided by operating activities         13,258         10,863
                                                     --------       --------

Cash Flows from Investing Activities:
Aircraft improvements                                  (2,254)          (433)
                                                     --------       --------

     Net cash used in investing activities             (2,254)          (433)
                                                     --------       --------

Cash Flows from Financing Activities:
Repayment of notes payable                            (14,112)        (8,508)
                                                     --------       --------

     Net cash used in financing activities            (14,112)        (8,508)
                                                     --------       --------

Net (Decrease) Increase in Cash and Cash
  Equivalents                                          (3,108)         1,922

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

Cash and Cash Equivalents at End of Period           $ 73,550       $ 74,604
                                                     ========       ========


Supplemental Cash Flow Information:
     Cash paid for interest expense                  $ 18,981       $ 19,528
                                                     ========       ========

                 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)

                                 March 31, 2001


Note 1 - Organization

         Aircraft  Finance Trust is a special purpose  statutory  business trust
that was formed on April 13, 1999 under the laws of Delaware.  Aircraft  Finance
Trust and its two 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
annual  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 (an asset 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 March 31,  2001,  the fair  value of these  interest  rate swaps was
approximately  ($15.8) million  compared to $1.7 million on December 31, 2000, a
change in fair value of the derivatives of ($17.5) million.


Note 4 - Derivative Financial Instruments

Interest Rate Swap Agreements

         As of March 31, 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 March 31, 2001. Under the
agreements,  Aircraft  Finance will pay a fixed rate of interest on the notional
amount to the  counterparty  and, in turn,  the  counterparty  will pay Aircraft
Finance a rate of interest on the notional  amount based on LIBOR.  On March 31,
2001,  the fair values of these  interest rate swaps was  approximately  ($15.8)
million  compared to $1.7 million on December 31, 2000. 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 March 31, 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   $     (418)
  175,000         5.56%              LIBOR        October 15, 2002       (2,447)
  345,000         5.65%              LIBOR        January 15, 2004       (6,250)
  230,000         5.71%              LIBOR       November 15, 2004       (4,422)
   20,000         7.14%              LIBOR        October 15, 2002         (392)
   20,000         7.13%              LIBOR        January 15, 2002         (749)
   15,000         7.17%              LIBOR            May 15, 2005       (1,092)
                                                                     ----------
                                                                     $  (15,770)
                                                                     ==========

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 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  contingent  liabilities.  The indenture governing the Notes requires
that  Aircraft  Finance  maintain  a  cash  reserve  balance  on  deposit  in  a
collections account and permits Aircraft Finance to establish a credit facility,
in order to provide a source of liquidity for Aircraft Finance's obligations.

         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

                                       10
<PAGE>

statements are based on assumptions  and opinions  concerning a variety of known
and  unknown  risks.  If  any  assumptions  or  opinions  prove  incorrect,  any
forward-looking  statements  made  on  that  basis  may  also  prove  materially
incorrect.  Aircraft Finance assumes no obligation to update any forward-looking
statements to reflect  actual  results or changes in the factors  affecting such
forward-looking statements.

Recent Developments

The Aircraft and Lessees

         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 of 6
months. 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. On March 23,
2001,  TWA paid rents due as of March 22, 2001. By order of Judge Peter J. Walsh
dated March 12, 2001, the Bankruptcy Court authorized American Airlines,  Inc.'s
("American") bid,  submitted on February 28, 2001, to sell  substantially all of
TWA's assets to American.  As of March 12,  2001,  Aircraft  Finance has entered
into a new agreement with American with respect to the TWA lease.  The new lease
term has an expiration  date of September  22, 2002. At March 31, 2001,  TWA was
current in its payments, which are due in arrears.

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 an increased  scheduled  principal payment to the Class A
Notes in March 2001.

         As of March 31, 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  $5.8 million at March 31, 2001.  One of these  lessees,  based in
Brazil,  owed  approximately  $1.0  million  at March 31,  2001 for  outstanding
maintenance  reserve  payments,  after the  application  of a $1.0  million cash
security   deposit.   The  second   lessee  based  in  the  United  States  owed
approximately $1.2 million at March 31, 2001 for outstanding maintenance reserve
payments after the  application of $0.8 million of cash security  deposits and a
letter of credit.  The third lessee,  based in Turkey,  owed  approximately $3.6
million at March 31, 2001 for outstanding rent and maintenance  reserve payments
after the  application of $1.1 million of cash security  deposits and letters of
credit.

         As of March 31,  2001,  Aircraft  Finance has repaid  principal  on the
Notes of $96.3  million,  as  compared  to $81.5  million  based on revenue  and

                                       11
<PAGE>

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-1, 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 2001 Quarter, 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 this
period,  AFT-II,  Inc. also  transferred  certain of its remaining  interests to
AFT-III, Inc., a wholly-owned indirect subsidiary of UniCapital. As of March 31,
2001, the 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.  UniCapital and the entity that directly owns AFT-II, Inc. and AFT-III,
Inc.  have  petitions for  reorganization  under Chapter 11 of the United States
Bankruptcy Code.

Results of Operations

         Aircraft  Finance  reported net income of $1.9 million during the three
months ended March 31, 2001 (2001  Quarter),  on total revenues of $37.7 million
compared to net income of $0.9  million,  on total  revenues  of $36.9  million,
during the three  months  ended March 31, 2000 (2000  Quarter).  The increase is
primarily due to lower interest  expense and higher rental and other income from
operating leases.  Aircraft  Finance's  revenues consisted of rental income from
operating leases and interest income earned on cash balances.

         Rental and other income from  operating  leases during the 2001 Quarter
and the 2000 Quarter was $36.4 and $35.7 million,  respectively. The increase is
primarily due to several  aircraft being re-leased to lessees who are current on
payments as well as termination fee income during the 2001 Quarter.

         Interest  income  during the 2001 Quarter and the 2000 Quarter was $1.3
million and $1.2 million,  respectively.  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,  net of interest rate swap proceeds of $0.1 million,
was $18.9 million during the the 2001 Quarter compared to $19.5, net of interest
rate swap proceeds of $1.0 million during the 2000 Quarter.  Interest expense is
paid on Aircraft Finance's outstanding Notes. The weighted average interest rate
on the Notes  during the 2001  Quarter and the 2000 Quarter was 6.74% and 6.59%,
respectively.  The outstanding  balance of the Notes at March 31, 2001 and March
31, 2000 was  $1,112.7  million and  $1,167.7  million,  respectively.  Interest
expense  varies based on the actual  interest  rates on the floating rate Notes,
the interest rate swap costs or proceeds and the outstanding  principal balances
of the Notes.

         Depreciation  expense  during the 2001 Quarter and the 2000 Quarter was
$11.0 million and $10.7 million,  respectively. The increase in the 2001 Quarter
is primarily due to the depreciation of additional capitalized improvements.

         Operating expense during the 2001 Quarter and the 2000 Quarter was $4.5
million and $4.4 million, respectively.  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 amounts
are  included  in rental  and other  income  from  operating  leases.  Under the
provisions  for many  leases,  for certain  airframe and engine  overhauls,  the

                                       12
<PAGE>

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 during the 2001 Quarter and the 2000
Quarter were $1.5 million for both periods.  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 in each 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 March  31,  2001,  the fair  value of the  interest  rate  swaps was
approximately  ($15.8) million  compared to $1.7 million on December 31, 2000, a
difference of ($17.5) million.  This accumulated other  comprehensive  income of
($15.8)  million was recorded in the  Consolidated  Statement  of  Comprehensive
Income.

Liquidity

         Aircraft Finance held cash and cash  equivalents of $73.6 million,  and
restricted cash of $18.3 million at March 31, 2001 compared to $76.7 million and
$17.8 million,  respectively,  at March 31, 2000. The liquidity  reserve amount,
which is  included  in cash and cash  equivalents,  was $52 million at March 31,
2001 and March 31, 2000, respectively.  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 Quarter amounted
to $13.3 million,  primarily  reflecting net income of $1.9 million  adjusted by
non-cash  depreciation  expense of $11 million,  and an increase in security and
other  deposits  of $2.3  million.  These were offset by  decreases  in accounts
payable and accrued liabilities of $1.1 million and increases in restricted cash
of $0.5 million and rent and other receivables of $0.3 million.

         Net cash provided by operating activities for the 2000 Quarter amounted
to $10.9 million,  primarily  reflecting net income of $0.9 million  adjusted by
non-cash depreciation expense of $10.7 million, a decrease in restricted cash of
$1.2  million and an increase in security  and other  deposits of $0.8  million.
These were offset by decreases in accounts  payable and accrued  liabilities  of
$1.7 million and deferred rental income of $1.6 million.

Cash Flows from Investing and Financing Activities

         Net cash used in investing  activities for the 2001 Quarter amounted to
$2.3 million for capitalized  aircraft  improvements and aircraft delivery costs
compared to $0.4 million for the 2000 Quarter.

         Net cash used in financing  activities for the 2001 Quarter amounted to
$14.1 million due to principal repayment on the Notes. As a result, the balances
of these Notes were $1,112.7 million at March 31, 2001. Generally, principal and

                                       13
<PAGE>

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, for the 2001 Quarter  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 Quarter amounted to
$8.5 million due to principal  repayment on the Notes. As a result,  the balance
of these Notes was $1,167.7 million at March 31, 2000.

         At March 31, 2001,  Aircraft Finance was a party to seven interest rate
swap  agreements.  Four of these agreements were entered into on May 5, 1999 and
the other three were entered into on June 29, 2000 but had an effective  date of
July 15, 2000. The net aggregate  amounts due to be paid or received by Aircraft
Finance under these agreements is determined  monthly and is due on the same day
as the payments under the Notes.  The net economic effect of these interest rate
swaps was to hedge  Aircraft  Finance's  variable  interest  rate  exposure from
movements in interest rates over the duration of 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.
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 will consist primarily of the affiliates of
major   United   States   and   European   financial   institutions,   including
special-purpose  derivative vehicles,  that have credit ratings, or that provide
collateralization  arrangements,  consistent with maintaining the ratings of the
Notes.

         Aircraft  Finance is a party to five  classes of Notes.  The  estimated
fair value of these Notes at March 31,  2001 was  approximately  $1,106  million
compared to $1,121  million at December 31, 2000. The terms of each class of the
Notes,  including the  outstanding  principal  amount at March 31, 2001,  are as
follows: (dollars in thousands)

                                       14
<PAGE>


             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      309,830        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
            ----------
            $1,112,731
            ==========

         Aircraft  Finance was a party to seven interest rate swap agreements at
March 31, 2001. Under the agreements,  Aircraft Finance will pay a fixed rate of
interest  on  the  notional  amount  to  the  counterparty  and,  in  turn,  the
counterparty will pay Aircraft Finance a rate of interest on the notional amount
based on one month LIBOR.  The one month LIBOR rate with respect to the Notes as
of March 31, 2001 and December 31, 2000 was 5.16% and 6.71%, respectively.

         The  following  table  presents,  as of March  31,  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           air value
  ------         -------             -------            ----           ---------
   60,000         5.50%               LIBOR         January 15, 2002   $   (418)
  175,000         5.56%               LIBOR         October 15, 2002     (2,447)
  345,000         5.65%               LIBOR         January 15, 2004     (6,250)
  230,000         5.71%               LIBOR        November 15, 2004     (4,422)
   20,000         7.14%               LIBOR         October 15, 2002       (392)
   20,000         7.13%               LIBOR         January 15, 2002       (749)
   15,000         7.17%               LIBOR             May 15, 2005     (1,092)
                                                                       --------
                                                                       $(15,770)
                                                                       ========

         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 March 31, 2001, Aircraft Finance filed
        reports on Form 8-K dated January 16, 2001, February 15, 2001 and March
        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


         May 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    May 14, 2001
----------------------------                                   ---------------
David H. Treitel


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


/S/DONALD G. BUTLER           Equity Trustee and Controlling     May 14, 2001
----------------------------  Trustee                          ---------------


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


                                       17