Using a measurement date of December 31, 2002, had the estimate of collateral value used to calculate its obligation related to trade-in agreements been 10% higher or lower than the Company’s actual assessment, accounts payable and other liabilities would have decreased or increased by approximately $121 million. The Company continually updates its assessment of the likelihood of its trade-in aircraft purchase obligations and continues to monitor all these obligations for adverse developments.

Asset valuation for equipment under operating lease, held for re-lease and collateral on receivables The fair value of owned assets (equipment under operating leases and assets held for re-lease) and collateral on receivables is periodically assessed to determine if the fair value is less than the carrying value. Differences between carrying value and fair value are considered in determining the allowance for losses on receivables and, in certain circumstances, recorded as impairment for owned assets.

The Company uses the average published value from multiple sources based on the type and age of the aircraft to determine the fair value of aircraft. Under certain circumstances, the Company applies judgment based on the attributes of the specific aircraft to determine fair value, usually when the features or utilization of the aircraft varies significantly from the more generic aircraft attributes covered by outside publications.

Impairment review for equipment under operating leases and held for re-lease The Company reviews these assets for impairment when events or circumstances indicate that the carrying amount of these assets may not be recoverable. An asset under operating lease or held for re-lease is considered impaired when the expected undiscounted cash flow over the remaining useful life is less than the book value. Various assumptions are used when determining the expected undiscounted cash flow. These assumptions include lease rates, lease term(s), periods in which the asset may be held in preparation for a follow-on lease, maintenance costs, remarketing costs and the life of the asset. The determination of expected lease rates is generally based on outside publications. The Company uses historical information and current economic trends to determine the remaining assumptions. When impairment is indicated for an asset, the amount of impairment loss is the excess of carrying value over fair value. The Company estimates that had the fair value of such assets deemed impaired during 2002 been 10% higher or lower at the time each specific impairment had been taken, the impairment expense would have decreased or increased by approximately $6 million. The Company is unable to predict the magnitude of any future impairments.

Allowance for losses on receivables The allowance for losses on receivables (valuation allowance) is a valuation account used to provide for potential impairment of receivables on the balance sheet. The balance is an accounting estimate of probable but unconfirmed losses in the receivable portfolio. The valuation allowance relates to two components of receivables: (a) specifically identified receivables that are evaluated individually for impairment, and (b) pools of receivables that are evaluated for impairment.

A specific receivable is reviewed for impairment when, based on current information and events, it is probable that the Company will be unable to collect amounts due according to the contractual terms of the receivable agreement. Factors considered in assessing uncollectibility include a customer’s extended delinquency, requests for restructuring and filing for bankruptcy. A specific impairment allowance is provided based on the difference between the carrying value of the receivable and the estimated fair value of the related collateral.

The Company reviews the adequacy of the general valuation allowance attributable to the remaining pool of receivables by assessing both the collateral exposure and the applicable default rate. Collateral exposure for a particular receivable is the excess of the carrying value over the applicable collateral value of the related asset. A receivable with an estimated collateral value in excess of the carrying value is considered to have no collateral exposure. The applicable default rate is determined using two components: customer credit ratings and weighted-average remaining portfolio term. Credit ratings are identified for each customer in the portfolio. Customer credit ratings are updated based on current rating agency information or the Company’s best estimates.

For each credit rating category, the collateral exposure is multiplied by an applicable historical default rate, yielding a credit-adjusted collateral exposure. Historical default rates are published by Standard & Poor’s reflecting both the customer credit rating and the weighted-average remaining portfolio term. The sum of the credit-adjusted collateral exposures generates an initial estimate of the general valuation allowance. In recognition of the uncertainty of the ultimate loss experience and relatively long duration of the portfolio, a range of reasonably possible outcomes of the portfolio’s credit-adjusted collateral exposure is calculated by varying the applicable default rate by approximately plus and minus 15%. The valuation allowance recorded represents the best estimate within the resulting range of credit-adjusted collateral exposure, factoring in considerations of risk of individual credits, current and projected economic and political conditions, and prior loss experience.

The resulting range of the credit-adjusted collateral exposure as of December 31, 2002, was approximately $280 million to $355 million. The Company adjusted the valuation allowance to $342 million at December 31, 2002.

Goodwill impairment The Company accounts for its goodwill under Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. This statement requires an impairment-only approach to accounting for goodwill. Because the composition of the Company has changed significantly due to various acquisitions, goodwill constitutes a significant portion of the Company’s long-term assets. As a result of the adoption of SFAS No. 142, the Company recorded a pre-tax goodwill impairment charge of $2,410 million during the first quarter of 2002.

The SFAS No. 142 goodwill impairment model is a two-step process. First, it requires a comparison of the book value of net assets to the fair value of the related operations that have goodwill assigned to them. If the fair value is determined to be less than book value, a second step is performed to compute the amount of the impairment. In this process, a fair value for goodwill is estimated, based in part on the fair value of the operations used in the first step, and is compared to its carrying value. The shortfall of the fair value below carrying value represents the amount of goodwill impairment. SFAS No. 142 requires goodwill to be tested for impairment annually at the same time every year, and when an event occurs or circumstances change such that it is reasonably possible that an impairment may exist. The Company selected April 1 as its annual testing date.