|
For leveraged leases, rentals receivable, net, represent unpaid rentals, net of principal and interest payments on third-party nonrecourse debt. PMCC’s rights to rentals receivable are subordinate to the third-party nonrecourse debt-holders, and the leased equipment is pledged as collateral to the debt-holders. The payment of the nonrecourse debt is collateralized only by lease payments receivable and the leased property, and is nonrecourse to all other assets of PMCC. As required by U.S. GAAP, the third-party nonrecourse debt of $18.3 billion and $19.4 billion at December 31, 2004 and 2003, respectively, has been offset against the related rentals receivable. There were no leases with contingent rentals in 2004 and 2003.
At December 31, 2004, PMCC’s investment in finance leases was principally comprised of the following investment categories: aircraft (27%), electric power (24%), surface transport (21%), real estate (13%), manufacturing (13%) and energy (2%). Investments located outside the United States, which are primarily dollar-denominated, represent 19% and 21% of PMCC’s investment in finance leases in 2004 and 2003, respectively.
Among its leasing activities, PMCC leases a number of aircraft, predominantly to major U.S. carriers. PMCC’s aggregate finance asset balance related to aircraft was $2.2 billion at December 31, 2004. Two of PMCC’s lessees, United Air Lines, Inc. (“UAL”) and US Airways Group, Inc. (“US Airways”) are currently under bankruptcy protection and therefore on non-accrual status.
PMCC leases 24 Boeing 757 aircraft to UAL with an aggregate finance asset balance of $569 million at December 31, 2004. PMCC has entered into an agreement with UAL to amend 18 direct finance leases subject to UAL’s successful emergence from bankruptcy and assumption of the leases. UAL remains current on lease payments due to PMCC on these 18 amended leases. PMCC continues to monitor the situation at UAL with respect to the six remaining aircraft financed under leveraged leases, in which PMCC has an aggregate finance asset balance of $92 million. PMCC has no amended agreement relative to these leases since its interests are subordinate to those of public debt holders associated with the leveraged leases. Accordingly, since UAL has declared bankruptcy, PMCC has received no lease payments relative to these six aircraft and remains at risk of foreclosure on these aircraft by the senior lenders under the leveraged leases.
In addition, PMCC leases 16 Airbus A-319 aircraft to US Airways financed under leveraged leases with an aggregate finance asset balance of $150 million at December 31, 2004. US Airways filed for bankruptcy protection in September 2004. Previously, US Airways emerged from Chapter 11 bankruptcy protection in March 2003, at which time PMCC’s leveraged leases were assumed pursuant to an agreement with US Airways. Since entering bankruptcy again in September 2004, US Airways has not announced its plans with respect to PMCC’s aircraft. If US Airways rejects the leases on these aircraft, PMCC is at risk of having its interest in these aircraft foreclosed upon by the senior lenders under the leveraged leases.
PMCC has an aggregate finance asset balance of $258 million at December 31, 2004, relating to six Boeing 757, nine Boeing 767 and four McDonnell Douglas (MD-88) aircraft leased to Delta Air Lines, Inc. (“Delta”) under long-term leveraged leases. PMCC and many other aircraft financiers entered into restructuring agreements with Delta in November 2004. As a result of its agreement, PMCC recorded a charge to the allowance for losses of $40 million. Delta remains current under its lease obligations to PMCC.
In recognition of ongoing concerns within its airline portfolio, PMCC recorded a provision for losses of $140 million in the fourth quarter of 2004. Previously, PMCC had recorded a provision for losses of $290 million in the fourth quarter of 2002 for its airline exposures. It is possible that further adverse developments in the airline industry may require PMCC to increase its allowance for losses, which was $497 million at December 31, 2004.
Rentals receivable in excess of debt service requirements on third-party nonrecourse debt related to leveraged leases and rentals receivable from direct finance leases at December 31, 2004, were as follows:
|
Leveraged |
Direct |
|
| (in millions) |
Leases |
Finance Leases |
Total |
 |
| 2005 |
$ 210 |
$ 78 |
$ 288 |
| 2006 |
276 |
56 |
332 |
| 2007 |
246 |
40 |
286 |
| 2008 |
358 |
27 |
385 |
| 2009 |
309 |
28 |
337 |
| 2010 and thereafter |
7,327 |
518 |
7,845 |
|
| Total |
$8,726 |
$747 |
$9,473 |
|
Included in net revenues for the years ended December 31, 2004, 2003 and 2002, were leveraged lease revenues of $351 million, $333 million and $363 million, respectively, and direct finance lease revenues of $38 million, $90 million and $99 million, respectively. Income tax expense on leveraged lease revenues for the years ended December 31, 2004, 2003 and 2002, was $136 million, $120 million and $142 million, respectively.
Income from investment tax credits on leveraged leases and initial direct costs and executory costs on direct finance leases were not significant during the years ended December 31, 2004, 2003 and 2002.
|
|