AVIATION SALES CO, 10-K/A, 1998-04-30

AVIATION SALES CO
10-K/A, 1998-04-30
INDUSTRIAL MACHINERY & EQUIPMENT

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

FORM 10-K/A
AMENDMENT NO. 1

(Mark One)

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

For the fiscal year ended DECEMBER 31, 1997

[ ] 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. 1-11775

AVIATION SALES COMPANY
(Exact name of registrant as specified in its charter)

DELAWARE 65-0665658
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

6905 N.W. 25TH STREET, MIAMI, FLORIDA 33122
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (305) 592-4055

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

Title of each class Name of each exchange on which registered

Common Stock, par value $.001 per share New York Stock Exchange

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

None

Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter periods 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

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

As of March 26, 1998, 9,586,871 shares of common stock were outstanding and the
aggregate market value (based on the closing price on the New York Stock
Exchange on February 20, 1997, which was $43.25 per share) of the common stock
held by non-affiliates was approximately $211,818,560.

DOCUMENTS INCORPORATED BY REFERENCE

Certain exhibits listed in Part IV of this Annual Report on Form 10-K,
as amended, are incorporated by reference from prior filings made by the
registrant under the Securities Act of 1933, as amended, and the Exchange Act of
1934, as amended.

================================================================================

<PAGE>

The purpose of this Amendment No. 1 on Form 10-K/A of Aviation Sales
Company (the "Company") is to amend the Company's previously filed Form 10-K for
its fiscal year ended December 31, 1997 ("10-K") as follows: (i) amend Part II,
Item 7 of the 10-K by replacing said section in its entirety with the Part II,
Item 7 included herein, (ii) add the information required by Items 10, 11, 12
and 13 of Part III of Form 10-K and (iii) amend Part IV, Item 14 of the 10-K by
replacing pages F-8 through F-27 of the 10-K with the pages F-8 through F-26
included herein.

PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW

The Company's predecessor, Aerospace International Services ("AIS"),
commenced operations in February 1992 through the acquisition of certain
aircraft spare parts owned by Eastern Air Lines, Inc. (the "Eastern Inventory"),
for an aggregate purchase price of $55.2 million. During the period between
February 1992 and December 1994, the primary business of AIS was the marketing
and sale of the Eastern Inventory. During December 1994, AIS organized ASC
Acquisition Partners L.P. (the "Partnership"), and completed the acquisition of
certain assets and assumed certain liabilities of the Aviation Sales Company
business unit ("ASC") from Aviall Services, Inc. for an aggregate purchase price
of $46.8 million.

On July 2, 1996, the Company closed its initial public offering ("IPO") of
3,250,000 shares of its common stock at an offering price of $19 per share. On
July 25, 1996, the Company sold an additional 487,500 shares of its common stock
at the same price upon the exercise of an underwriters' over-allotment option.

Immediately prior to the IPO, all but one of the parties holding interests
in the Partnership contributed their interest in the Partnership to the Company
in exchange for shares of common stock. Simultaneously, one of the parties
holding an interest in the Partnership contributed its interest in the
Partnership to the Company in exchange for shares of common stock and an amount
equal to the proceeds to be received by the Company from the underwriters for
575,000 shares of common stock sold in the offering.

The Company received aggregate net proceeds in the IPO of $64.6 million. Of
this amount, $10.2 million was used to repay the indebtedness incurred to one of
the stockholders of the Company in connection with the formation of the Company
and the balance was used to repay senior and subordinated indebtedness. As a
result of the repayment of indebtedness with the proceeds of the IPO, the
Company wrote-off approximately $3.1 million in deferred financing costs
relating to that debt.

Subsequent to the completion of the IPO, on August 9, 1996, the Company
completed the acquisition of certain assets of the business of Dixie relating
primarily to the sale of new bearings for use in aircraft for the purchase price
of approximately $9.0 million. The acquisition was accounted for using the
purchase method of accounting. As a result of the Dixie acquisition, the
Company's operating revenues increased approximately $7.0 million from the date
of the acquisition through December 31, 1996.

On December 10, 1996 (effective November 30, 1996), the Company completed
the acquisition of AvEng for a purchase price of approximately $8.0 million,
payable by the issuance of an aggregate of 400,000 shares of the Company's
common stock. The acquisition was accounted for using the pooling of interests
method of accounting. As a result of the acquisition, the Company's operating
revenues include AvEng's total revenues for 1996, amounting to approximately
$9.3 million.

During 1997, the Company completed three acquisitions. The first
acquisition, which was completed in September 1997, was a merger accounted for
as a pooling of interests with Aerocell. Aerocell operates an FAA-licensed
overhaul and repair facility. The purchase price paid for Aerocell was
approximately $18.8 million, payable by issuance of an aggregate of 620,970
shares of the Company's common stock. As a result of the acquisition of
Aerocell, the Company's operating revenues for the year ended December 31, 1997
increased by approximately $19.3 million. The second acquisition, which was
completed in October 1997, was of the assets of Kratz, a company which
specializes in the manufacture of machined components primarily for jet engines
(and also produces certain automotive and faucet components). The Company paid
approximately $39.6 million, including acquisition costs and net of cash
acquired, to acquire the assets of Kratz and accounted for the acquisition under
the purchase method of accounting. As a result of the acquisition of Kratz, the
Company's operating revenues increased by approximately $6.5 million from the
date of acquisition through December 31, 1997. The third acquisition, which was
completed in December 1997 and was accounted for in a transaction accounted for
as a pooling of interests, was the acquisition of Apex, a precision aerospace
manufacturer specializing in the machining of metal parts,

1
<PAGE>

including precision shafts, fuel shrouds, housings and couplings for aerospace
actuating systems, fuel controls and engines. The purchase price paid to acquire
Apex was $8.4 million, payable by the issuance of an aggregate of 238,572 shares
of the Company's common stock. As a result of the acquisition of Apex, the
Company's operating results for the year ended December 31, 1997 increased by
approximately $7.3 million.

To date during 1998, the Company has completed one acquisition. On March 6,
1998, the Company acquired Caribe and its wholly-owned subsidiary Aircraft. The
acquisition was a merger accounted for as a purchase. Caribe is an FAA-licensed
repair station. Aircraft manufactures plastic cabin interior replacement parts
and refurbishes aircraft interior components. The purchase price paid to acquire
Caribe and Aircraft consisting of the following: (i) $5.0 million in cash; (ii)
$5.0 million in the form of promissory notes payable over two years; and (iii)
$7.0 million in shares of the Company's authorized but unissued common stock
(182,143 shares). Additionally, as part of the merger transaction, the Company
repaid approximately $7.5 million of Caribe's and Aircraft's indebtedness due to
a financial institution. The operations of Caribe and Aircraft will be included
in the Company's consolidated financial statements from the date of acquisition.
Caribe and Aircraft had consolidated fiscal 1997 revenues of approximately $27
million. The pre-acquisition operations of Caribe are not material to the
operations of the Company.

A key element of the Company's strategy involves growth through the
acquisition of additional inventories of aircraft spare parts and the
acquisition of other companies, assets or product lines that would complement or
expand the Company's existing business. The Company's ability to grow by
acquisition is dependent upon, and may be limited by, the availability of
suitable aircraft parts inventories, acquisition candidates and capital, and by
restrictions contained in the Company's credit agreements. In addition,
acquisitions involve risks that could adversely affect the Company's operating
results, including the assimilation of the operations and personnel of acquired
companies, the potential amortization of acquired intangible assets and the
potential loss of key employees of acquired companies. There can be no assurance
that the Company will be able to consummate acquisitions on satisfactory terms.

RESULTS OF OPERATIONS

Operating revenues consist primarily of gross sales, net of allowances for
returns. Cost of sales consists primarily of product costs, freight charges,
commissions to outside sales representatives and an inventory provision for
damaged and obsolete products. Product costs consist of the acquisition cost of
the products and any costs associated with repairs, overhaul or certification.

Operating revenues and gross profit depend in large measure on the volume
and timing of bookings received during the quarter and the mix of aircraft spare
parts contained in the Company's inventory. Revenues and gross profit can be
impacted by the timing of bulk inventory purchases. In general, bulk inventory
purchases allow the Company to obtain large inventories of aircraft spare parts
at a lower cost than can ordinarily be obtained by purchasing such parts on an
individual basis.

The Company's operating results are affected by many factors, including the
timing of orders from large customers, the timing of expenditures to purchase
inventory in anticipation of future sales, the timing of bulk inventory
purchases and the mix of available aircraft spare parts contained, at any time,
in the Company's inventory. A large portion of the Company's operating expenses
are relatively fixed. Since the Company typically does not obtain long-term
purchase orders or commitments from its customers, it must anticipate the future
volume of orders based upon the historic purchasing patterns of its customers
and upon its discussions with its customers as to their future requirements.
Cancellations, reductions or delays in orders by a customer or group of
customers could have a material adverse effect on the Company's business,
financial condition and results of operations.

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<PAGE>

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1997

The following table sets forth certain information relating to the
Company's operations for the periods indicated:

<TABLE>
<CAPTION>
1996 1997
------------------------- -------------------------
$ % $ %
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating revenues ........................................ $161,944 100.0% $256,899 100.0%
Cost of sales ............................................. 110,359 68.1% 180,713 70.3%
-------- ----- -------- -----
51,585 31.9% 76,186 29.7%
-------- ----- -------- -----
Operating Expenses
Operating ................................................ 9,320 5.8% 14,286 5.6%
Selling .................................................. 6,977 4.3% 9,665 3.8%
General and administrative ............................... 10,681 6.6% 14,147 5.5%
Depreciation and amortization ............................ 2,323 1.4% 3,094 1.2%
-------- ----- -------- -----
29,301 18.1% 41,192 16.1%
-------- ----- -------- -----
Income from operations .................................... 22,284 13.8% 34,994 13.6%
Interest expense, net ..................................... 5,350 3.3% 7,432 2.9%
-------- ----- -------- -----
Income before income taxes and extraordinary item ......... 16,934 10.5% 27,562 10.7%
Income tax expense (benefit) .............................. (426) ( 0.2%) 10,781 4.2%
-------- ----- -------- -----
Income before extraordinary item .......................... 17,360 10.7% 16,781 6.5%
Extraordinary item, net of income taxes ................... 1,862 1.1% -- --
-------- ----- -------- -----
Net income ................................................ $ 15,498 9.6% $ 16,781 6.5%
======== ===== ======== =====
</TABLE>

The Company's operating revenues increased by approximately $95.0 million,
or 58.6%, from 1996 to 1997. Of this amount, approximately $33.1 million was
derived from the operations associated with Aerocell, Kratz and Apex, all of
which were acquired during 1997. Operating revenues also increased due to the
inclusion during 1997 of a full year of Dixie's sales (Dixie was acquired on
August 9, 1996), increased revenues from leasing activities, increased customer
penetration, increased sales due to the Company's investment in and availability
of increased amounts of inventory and the continued expansion of inventory
management services being offered to and utilized by the Company's customers.
During this period, domestic sales increased 90.2% from $94.6 million to $179.9
million and international sales increased 14.4%, from $67.3 million to $77.0
million.

The Company's gross profit increased 47.7%, from $51.6 million in 1996 to
$76.2 million in 1997. Gross margin declined from 31.9% in 1996 to 29.7% in
1997. The decline in gross profit margin was expected as the mix of inventories
sold during 1997 continued to reflect a declining contribution from bulk
inventories acquired prior to 1995 and an increase in revenues from the
Company's lower margin bearings distribution business acquired in August 1996.

The Company's operating expenses for 1997, in absolute dollars, increased
$11.9 million, or 40.6%, compared to 1996. Approximately $4.4 million of the
increase is attributable to the operating expenses of Aerocell, Kratz and Apex,
with the balance attributable to higher sales levels resulting in higher selling
and operating expenses and increased reserves, offset in part by a $2.6 million
gain on a legal settlement with a former employee and stockholder. Primarily due
to economies of scale and improved operating efficiencies, operating expenses as
a percentage of revenue decreased from 18.1% in 1996 to 16.0% in 1997. See Note
7 to Notes to Consolidated Financial Statements.

Interest expense and amortization of deferred financing costs increased
$2.1 million, or 38.9% from 1996 to 1997 primarily due to the increase in
borrowings necessary to fund the Company's growth.

As a result of the above factors, income before income taxes and
extraordinary item increased $10.6 million, or 62.8%, from 1996 to 1997.

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<PAGE>

Income taxes for 1996 were offset by one-time deferred tax benefits of
approximately $4.9 million associated with the organization of the Company. See
Notes 1 and 11 to Notes to Consolidated Financial Statements. No such tax
benefit was realized in 1997.

In connection with the IPO, the Company repaid certain debt. As a result,
during 1996 the Company wrote-off approximately $3.1 million in deferred
financing costs relating to that debt, which resulted in an extraordinary item,
net of taxes, of approximately $1.9 million. See Note 5 to Notes to Consolidated
Financial Statements.

4
<PAGE>

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1996

The following table sets forth certain information relating to the
Company's operations for the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1995 1996
------------------------- -------------------------
$ % $ %
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating revenues ........................................ $113,803 100.0% $161,944 100.0%
Cost of sales ............................................. 71,314 62.7% 110,359 68.1%
-------- ----- -------- -----
Gross profit .............................................. 42,489 37.3% 51,585 31.9%
-------- ----- -------- -----
Operating Expenses
Operating ................................................ 8,989 7.9% 9,320 5.8%
Selling .................................................. 4,820 4.2% 6,977 4.3%
General and administrative ............................... 8,641 7.6% 10,681 6.6%
Depreciation and amortization ............................ 1,466 1.3% 2,323 1.4%
-------- ----- -------- -----
Total .................................................... 23,916 21.0% 29,301 18.1%
-------- ----- -------- -----
Income from operations .................................... 18,573 16.3% 22,284 13.8%
Interest and other expenses, net .......................... 8,287 7.3% 5,350 3.3%
-------- ----- -------- -----
Income before income taxes and extraordinary item ......... 10,286 9.0% 16,934 10.5%
Income tax expense (benefit) .............................. -- -- (426) ( 0.2%)
-------- ----- -------- -----
Income before extraordinary item .......................... 10,286 9.0% 17,360 10.7%
Extraordinary item, net of income taxes ................... -- -- 1,862 1.1%
-------- ----- -------- -----
Net Income ................................................ $ 10,286 9.0% $ 15,498 9.6%
======== ===== ======== =====
</TABLE>

The Company's operating revenues increased by approximately $48.1 million,
or 42.3%, from 1995 to 1996. Of this amount, approximately $16.3 million was
derived from the operations associated with AvEng and Dixie, both of which were
acquired during 1996. The balance represents increased sales due to the
expansion of the Company's customer base and increased sales to existing
customers. During this period, domestic sales increased 39.1% from $68.0 million
to $94.6 million and international sales increased 47.3%, from $45.7 million to
$67.3 million.

The Company's gross profit increased 21.4%, from $42.5 million in 1995 to
$51.6 million in 1996. The increase in gross profit is primarily attributable to
the increase in sales. Gross margins decreased from 37.3% in 1995 to 31.9% in
1996 due to a change in the mix of inventories sold. Due to the acquisition of
ASC in December 1994, the Company's gross profit was benefited by the impact of
this bulk inventory acquisition throughout 1995. No such acquisition of
inventory favorably benefited gross margins during 1996.

The Company's operating expenses for 1996, in absolute dollars, increased
$5.4 million, or 22.5%, compared to 1995 (of which approximately $1.5 million of
the increase is attributable to the operating expenses of AvEng and Dixie during
1996 and the balance is attributable to the Company's existing operations).
Primarily due to economies of scale and improved operating efficiencies, total
operating expenses as a percentage of revenue decreased from 21.0% in 1995 to
18.1% in 1996.

Interest and other expenses decreased $2.9 million, or 35.4% from 1995 to
1996 as a result of the repayment and restructuring of the Company's credit
facility during 1996.

As a result of the above factors, income from operations (before income
tax (benefit) expense and extraordinary item) increased $6.6 million, or 64.6%,
from 1995 to 1996.

5
<PAGE>

Based on all of the above factors, the Company's 1996 net income was $17.4
million, or $2.22 per share, an increase of $7.1 million, or 68.8 %, compared
to 1995 income before extraordinary item of $10.3 million.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operations was $14.0 million for the year ended December
31, 1995. Cash used in operations was $8.0 million and $53.7 million for the
years ended December 31,1996 and 1997, respectively. Cash used in investing
activities for the years ended December 31, 1995, 1996 and 1997 was $4.7
million, $17.8 million and $49.9 million, respectively. Cash provided by
financing activities was $26.8 million and $107.9 million for the years ended
December 31, 1996 and 1997, respectively. Cash used in financing activities for
the year ended December 31,1995 was $10.5 million.

The Company and its subsidiaries have entered into the Credit Facility with
certain financial institutions. At present, the Credit Facility consists of a
$91.4 million revolving loan and letter of credit facility, subject to an
availability calculation based on the eligible borrowing base (the "Revolving
Credit Facility"). The eligible borrowing base includes certain receivables and
inventories of the Company. The letter of credit portion of the Revolving Credit
Facility is subject to a $15.0 million sublimit, with the imposition of certain
borrowing criteria based on the satisfaction of certain debt ratios. The
interest rate on the Credit Facility is, at the option of the Company, (a) prime
plus a margin, or (b) LIBOR plus a margin, where the margin determination is
made based upon the Company's financial performance over a 12 month period
(ranging from 0.0% to 1.25% in the event prime is utilized, or 1.50% to 2.75% in
the event LIBOR is utilized). At December 31, 1997, the margin was .25% for
prime rate loans and 1.75% for LIBOR rate loans.

The Credit Facility contains certain financial covenants regarding the
financial performance of the Company and certain other covenants, including
limitations on the amount of annual capital expenditures and the incurrence of
additional debt, and provides for the suspension of the Credit Facility and
repayment of all debt in the event of a material adverse change in the business
or a change in control. In addition, the Credit Facility requires mandatory
repayments from the proceeds of a sale of assets or an issuance of equity or
debt securities or as a result of insufficient collateral to meet the borrowing
base requirements thereunder. Substantially all of the Company's assets are
pledged as collateral for amounts borrowed. The Revolving Credit Facility will
terminate on July 31, 2002. At December 31, 1997, the Company was in compliance
with all covenants of the Credit Facility. At March 20, 1998, $13.1 million was
outstanding under the Credit Facility.

On February 17, 1998, the Company sold $165 million in senior subordinated
notes (the "Notes") due in 2008 with a coupon rate of 8.125% at a price of
99.395%. Proceeds were used to repay amounts outstanding under the Credit
Facility (including amounts due under a $58.6 million term loan facility) and to
fund the cash requirements relating to the acquisition of Caribe.

The Notes mature on February 15, 2008. Interest is payable on February 15
and August 15 of each year, commencing August 15, 1998. The Notes are general
unsecured obligations of the Company, subordinated in right of payment to all
existing and future senior debt of the Company, including indebtedness
outstanding under the Credit Facility and under facilities which may replace the
Credit Facility in the future. In addition, the Notes are effectively
subordinated to all secured obligations to the extent of the assets securing
such obligations, including the Credit Facility. The indenture pursuant to which
the Notes have been issued (the "Indenture") permits the Company and its
subsidiaries to incur additional indebtedness, including Senior Debt, subject to
certain limitations. The Notes are also effectively subordinated in right of
payment to all existing and future liabilities of any subsidiaries of the
Company which do not guarantee the Notes.

The Notes are unconditionally guaranteed, on a senior subordinated basis,
by substantially all of the Company's existing subsidiaries and each subsidiary
that will be organized in the future by the Company, unless such

6
<PAGE>

subsidiary is designated as an unrestricted subsidiary (the "Subsidiary
Guarantors"). Subsidiary Guarantees are joint and several, general unsecured
obligations of Subsidiary Guarantors. Subsidiary Guarantees are subordinated in
right of payment to all existing and future Senior Debt of Subsidiary
Guarantors, including the Credit Facility, and are also effectively
subordinated to all secured obligations of Subsidiary Guarantors to the extent
of the assets securing such obligations, including the Credit Facility.
Furthermore, the Indenture permits Subsidiary Guarantors to incur additional
indebtedness, including senior debt, subject to certain limitations.

The Notes are redeemable, at the option of the Company, in whole or in
part, at any time after February 15, 2003, at the following redemption prices,
plus accrued and unpaid interest and liquidated damages, if any, to the
redemption date: (i) 2003--104.063%; (ii) 2004--102.708%; (iii) 2005--101.354%;
and (iv) 2006 and thereafter--100%. In addition, on or prior to February 15,
2001, the Company may redeem up to 35% of the aggregate principal amount of the
Notes at a redemption price of 108.125% of the principal amount thereof, plus
accrued and unpaid interest and liquidated damages, if any, thereon to the
redemption date with the net proceeds of a public offering of common stock of
the Company; provided, that at least 65% of the aggregate principal amount of
the Notes originally issued remains outstanding immediately after the occurrence
of such redemption.

Upon the occurrence of a change of control, the Company will be required to
make an offer to repurchase all or any part of holder's Notes at a repurchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest and liquidated damages, if any, thereon to the repurchase date. There
can be no assurance that the Company will have the financial resources necessary
to purchase the Notes upon a change of control or that such repurchase will be
permitted under the Credit Facility.

The Indenture contains certain covenants that, among other things, will
limit the ability of the Company and its subsidiaries to incur additional
indebtedness and issue preferred stock, pay dividends or make other
distributions, make investments, dispose of assets, issue capital stock of
subsidiaries, create certain liens securing indebtedness, enter into certain
transactions with affiliates, sell assets or enter into certain mergers and
consolidations or sell all or substantially all of their assets.

Pursuant to a registration rights agreement, the Company has agreed to (a)
file a registration statement on or prior to April 3, 1998 with respect to an
offer to exchange the Notes for a new issue of debt securities of the Company
registered under the Securities Act of 1933, as amended, with terms
substantially identical to those of the Notes (the "Exchange Offer") which
registration statement was filed on March 26, 1998 and (b) use their best
efforts to cause the registration statement to be declared effective by the
Securities and Exchange Commission on or prior to June 17, 1998. The Company has
also agreed to file a shelf registration statement relating to the resale of the
Notes under certain circumstances. If the Company fails to satisfy these
registration obligations, it will be required to pay liquidated damages to
holders of Notes under certain circumstances.

On August 5, 1997, a subsidiary of the Company, Aviation Sales SPS I, Inc.,
entered into a term loan agreement in a principal amount of $7.2 million which
was guaranteed by the Company, to finance certain equipment and rotable parts on
long-term lease, which secure the loan. This loan is payable in 59 consecutive
equal monthly payments of $91,750 commencing September 14, 1997, with a final
balloon payment due on August 14, 2002. Interest on this term loan is fixed at
8.21%. The Company has leased the underlying equipment and rotable parts to
unrelated third parties. Interim payments under the term loan will be made from
the proceeds of these parts leases. This term loan contains financial and other
covenants and mandatory prepayment events, as defined. At December 31, 1997, the
Company was in compliance with all covenants of this term loan.

In connection with its acquisition of Kratz, AVS/Kratz-Wilde Machine
Company, a subsidiary of the Company, delivered a non-interest bearing
promissory note in the original principal amount of $2.2 million, which was
guaranteed by the Company, to the seller. At December 31, 1997, the Company was
in compliance with the terms of this promissory note.

In connection with its acquisition of Caribe, on March 6, 1998, a
subsidiary of the Company, Aviation Sales Manufacturing & Repair Company,
delivered a promissory note in the original principal amount of $5.0

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<PAGE>

million, which was guaranteed by the Company, to the seller. The note is payable
over a two year period with interest at the rate of 8% per annum.

During the years ended December 31, 1995, 1996 and 1997, the Company
incurred capital expenditures of approximately $0.9 million, $1.1 million and
$4.4 million, respectively, primarily to make enhancements to the Company's
management information systems, telecommunications systems and other capital
equipment and improvements. The Company's current management information
statement is not Year 2000 compliant. The Company is currently implementing a
new management information system, which among other things, will allow the
Company to continue to maintain its competitive advantage resulting from the
availability of information regarding its market and will mitigate any Year 2000
issues currently inherent in the Company's existing systems. The cost of the new
MIS system is expected to be approximately $8.0 million, which will be incurred
over approximately a two year period. Financing for the new system will be
provided from operations and from borrowings under the Credit Facility.

As part of its growth strategy, the Company intends to continue to pursue
acquisitions of bulk inventories of aircraft spare parts and complementary
businesses. Additionally, the Company is actively considering the prospect of
consolidating its various facilities into a single warehouse facility. Financing
for such activities would be provided from operations and from borrowings under
the Credit Facility. The Company may also in the future issue additional debt
and/or equity securities in connection with financing one or more of its
activities. The Company believes that cash flow from operations and borrowing
availability under the Credit Facility will be sufficient to satisfy the
Company's anticipated working capital requirements over the next twelve months.

8
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.

BOARD OF DIRECTORS

The Articles of Incorporation and By-laws of the Company presently provide
for a Board of Directors ("Board") divided into three classes, as nearly equal
in size as possible, with staggered terms of three years. At the date of this
report the current members of the Board and the expiration of their terms as
Directors were as follows:

<TABLE>
<CAPTION>
TERM
NAME AGE POSITIONS EXPIRES
- ---- --- --------- -------

<S> <C> <C> <C>
Dale S. Baker(1)(4) 40 Chairman of the Board, President
and Chief Executive Officer 1999

Harold M. Woody(4) 52 Director and Executive Vice 1999
President of the Company and
President of Aviation Sales
Leasing Company

Robert Alpert(1)(2)(3)(4) 48 Director 1998

Sam Humphreys(2)(3) 37 Director 2000

Kazutami Okui(2) 56 Director 2000

Tim L. Watkins, who served as a director of the Company during 1997, resigned
from such position on April 23, 1998.
</TABLE>

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

(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
(4) Member of the Nominating Committee

<PAGE>

BUSINESS EXPERIENCE

DALE S. BAKER has been the President and Chief Executive Officer of the
Company since February 1992. Prior thereto, Mr. Baker was Senior Vice President
and Manager of GE Capital's Corporate Investment Finance Group.

HAROLD M. WOODY has been the Executive Vice President of the Company
since February 1992 and the President of Aviation Sales Leasing Company, a
subsidiary of the Company, since early 1997. Prior thereto, from 1989 to 1992,
Mr. Woody was Senior Vice President-Sales and Marketing for Japan Fleet Service
(Singapore) Pte. Ltd. ("JFSS") and from 1987 to 1989, Mr. Woody was Executive
Vice President of the Aviation Sales Company business unit of Aviall Services,
Inc. ("ASC").

ROBERT ALPERT is a private investor. In addition to his investment in
the Company, Mr. Alpert has invested significantly in business ventures in the
steel, environmental and waste industries, and oil service industries.

SAM HUMPHREYS is a Managing Director of Main Street Merchant Partners,
a merchant banking firm and has been a partner in that firm and its predecessor
since January 1996. Since March 1997, Mr. Humphreys has also been the Chairman
of PalEx, Inc., the largest manufacturer of pallets in the United States. From
April 1993 until March 1997, Mr. Humphreys held various executive positions with
U.S. Delivery Systems, Inc., a provider of same-day local delivery services, and
Envirofil, Inc., an environmental services company. Prior thereto, he was a
partner in the law firm of Andrews & Kurth.

KAZUTAMI OKUI has served as the General Manager of the Electronics and
Aircraft Department of Tomen Corporation, located in Tokyo, Japan, for more than
five years.

COMMITTEES OF THE BOARD

In January 1997, the Board established an Executive Committee, an Audit
Committee, a Compensation Committee and a Nominating Committee.

The Executive Committee is authorized to meet between meeting of the
Board of Directors and to exercise the powers of the Board, subject to
limitations imposed by law.

The Audit Committee is responsible for maintaining communications
between the Board and the Company's independent auditors, monitoring performance
of the independent auditors, reviewing audit scope and results, reviewing the
organization and performance of the Company's internal systems of audit and
financial controls, and recommending the retention or, where appropriate, the
replacement of independent auditors.

The Compensation Committee's responsibilities include reviewing and
approving compensation policies and practices for all elected corporate officers
and for fixing the total compensation of the Chief Executive Officer. The
Compensation Committee also administers the Company's 1996 Stock Option Plan.

The Nominating Committee's responsibility is to recommend to the Board
qualified candidates for election as directors and to consider the performance
of incumbent directors to determine whether they should be recommended to the
Board for renomination for election.

<PAGE>

EXECUTIVE OFFICERS

The following list reflects the Company's executive officers, as of this
date, the capacity in which they serve the Company, and when they assumed
office:

<TABLE>
<CAPTION>
EXECUTIVE
NAME AGE POSITIONS OFFICER SINCE
---- --- --------- -------------

<S> <C> <C> <C>
Dale S. Baker 40 President and Chief Executive February 1992
Officer

Harold M. Woody 52 Executive Vice President of the
Company and President of February 1992
Aviation Sales Leasing Company

William H. Alderman 35 Senior Vice President, Corporate September 1996
Development

Michael A. Saso 42 Senior Vice President-Purchasing December 1994

Joseph E. Civiletto 38 Vice President and Chief Financial February 1992
Officer

James D. Innella 37 Vice President and Chief Operating December 1994
Officer
</TABLE>

BUSINESS EXPERIENCE

DALE S. BAKER. See the biographical information contained in "Board of
Directors" above.

HAROLD M. WOODY. See the biographical information contained in "Board
of Directors" above.

WILLIAM H. ALDERMAN has been the Senior Vice President of Corporate
Development since September 1996. Prior thereto, from May 1995 to September
1996, Mr. Alderman was a Managing Director and principal of the financial
advisory firm of International Aviation Management Group. Prior thereto, Mr.
Alderman was Vice President of Structured Finance of GE Capital Aviation
Services.

MICHAEL A. SASO has been the Senior Vice President, Purchasing of the
Company since December 1994. From 1986 until December 1994, Mr. Saso served as
Vice President - Purchasing for ASC.

JOSEPH E. CIVILETTO has been the Vice President and Chief Financial
Officer of the Company since February 1992. Prior thereto from 1982 to 1992, Mr.
Civiletto held various financial, planning and audit positions with Baker Hughes
Inc. and Arthur Andersen LLP.

JAMES D. INNELLA has been the Vice President and Chief Operating
Officer of the Company since December 1994. Prior thereto: (i) from July 1993 to
December 1994, Mr. Innella served as General Manager of ASC; (ii) from 1991 to
July 1993, Mr. Innella was a Director of Operations for Ryder Airlines Services;
and

<PAGE>

(iii) from 1988 to 1991, Mr. Innella was the Director of Operations and
Purchasing for Aviparts, Inc., a subsidiary of Ryder Airlines Services.

FAMILY RELATIONSHIPS

There are no family relationships between or among any of the directors
and executive officers.

COMPLIANCE WITH SECTION 16(A)

Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company pursuant to Rule 16a-3(d) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), during the Company's fiscal year
ended December 31, 1997 and any Forms 5 and amendments thereto furnished to the
Company with respect to its most recent fiscal year, and any written
representations referred to in subparagraph (b)(2)(i) of Item 405 of Regulation
S-K, except as set forth below, no person who at any time during the fiscal year
ended December 31, 1997 was a director, officer or, to the knowledge of the
Company, a beneficial owner of more than 10% of any class of equity securities
of the Company registered pursuant to Section 12 of the Exchange Act failed to
file on a timely basis, as disclosed in Forms 3, 4 and 5, reports required by
Section 16(a) of the Exchange Act during the fiscal year ended December 31,
1997. The Company has been advised that each of Dale S. Baker, Harold S. Woody,
Michael A. Saso and James D. Innella have not filed a Form 4 that was due, that
Joseph E. Civiletto has not filed an amendment to a Form 5 that was due and that
William H. Alderman has not filed a Form 5 that was due. The Company has been
advised that each of the foregoing persons intends to make such filings in the
immediate future.

<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth information about the compensation paid
or accrued during 1997, 1996 and 1995 to the Company's Chief Executive Officer
and to each of the four other most highly compensated executive officers of the
Company whose aggregate direct compensation exceeded $100,000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------
SALARY BONUS OTHER ANNUAL ALL OTHER
NAME YEAR ($) ($) COMPENSATION COMPENSATION
- ------------------------------------- ------ --------- --------- ------------------------------------
<S> <C> <C> <C> <C> <C>
Dale S. Baker........................ 1997 258,670 212,627 (1) (2)
1996 248,416 124,208 (1) --
1995 237,500 118,750 (1) --

Harold M. Woody...................... 1997 231,442 116,385 (2)
1996 222,267 111,134 -- --
1995 212,500 106,250 -- --

Michael A. Saso...................... 1997 186,889 153,623 (2)
1996 160,510 80,255 -- --
1995 125,000 62,500 -- --

Joseph E. Civiletto.................. 1997 141,588 116,385 (2)
1996 135,975 67,988 -- --
1995 130,000 65,000 -- --

James D. Innella..................... 1997 153,735 126,370 (2)
1996 141,977 70,959 -- --
1995 125,000 62,500 -- --
</TABLE>

- --------------------
(1) Mr. Baker also receives $5,000 per year for life insurance premiums. See
"Employment Agreements with Named Executive Officers" below.

(2) In December 1997, the Company issued to such person 3,000 shares of
restricted Company common stock for past services rendered to the
Company. The 3,000 shares had a value of $112,875 on the date of
issuance.

No long-term compensation awards were made to management during the
three years ended December 31, 1997.

<PAGE>

OPTION GRANTS DURING LAST FISCAL YEAR

The following table sets forth information concerning options to
purchase shares of Company common stock granted during the fiscal year ended
December 31, 1997 to those persons named in the Summary Compensation Table.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
% OF TOTAL APPRECIATION
OPTIONS FOR OPTION TERM(1)
GRANTED TO --------------------
NUMBER OF SHARES EMPLOYEES EXERCISE
UNDERLYING IN FISCAL PRICE EXPIRATION
NAME OPTIONS GRANTED YEAR ($/SHARE) DATE 5%($) 10%($)
- --------------------------- ------------------ --------- ----------- ----------------- ------- --------
<S> <C> <C> <C>
Dale S. Baker.............. 10,000 4.8 $25.25 3/3/2002 69,761 154,154
5,000 2.4 $24.38 6/30/2002 33,679 74,421
Harold M. Woody............ 10,000 4.8 $25.25 3/3/2002 69,761 154,154
5,000 2.4 $24.38 6/30/2002 33,679 74,421
Michael A. Saso............ 10,000 4.8 $25.25 3/3/2002 69,761 154,154
Joseph E. Civiletto........ 10,000 4.8 $25.25 3/3/2002 69,761 154,154
15,000 7.2 $37.62 12/30/2002 155,906 344,511
James D. Innella........... 10,000 4.8 $25.25 3/3/2002 69,761 154,154
</TABLE>

- ---------------------
(1) These amounts represent assumed rates of appreciation in the price of
common stock during the term of the options in accordance with rates
specified in applicable federal securities regulations. Actual gains, if
any, on stock option exercises will depend on the future price of the
Company common stock and overall stock market conditions. There is no
representation that the rates of appreciation reflected in the table
will be achieved.

AGGREGATED OPTIONS EXERCISED DURING LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES

The following table sets forth information concerning the exercise of
stock options to purchase Company common stock during the 1997 fiscal year and
the value of unexercised stock options to purchase Company common stock at the
end of the 1997 fiscal year for the persons named in the Summary Compensation
Table.

<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END($)*
NUMBER OF SHARES ---------------------- -------------------------
ACQUIRED ON VALUE
NAME EXERCISE REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------------------- ---------------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Dale S. Baker................... -- -- 21,667/ 3,333 $334,870/$ 41,230
Harold M. Woody................. -- -- 21,667/ 3,333 $334,870/$ 41,230
Michael A. Saso................. -- -- 6,667/ 3,333 $ 82,470/$ 41,230
Joseph E. Civiletto............. -- -- 21,667/ 13,333 $268,670/$ 41,230
James D. Innella................ -- -- 14,999/ 6,667 $195,950/$ 82,470
</TABLE>

- -------------------
* Computed based upon the difference between the closing price of the
Common Stock at December 31, 1997 and the exercise price. No value has
been assigned to options which are not in-the-money.

<PAGE>

COMPENSATION OF DIRECTORS

Each director who is not an employee of the Company receives an annual
retainer fee at the rate of $12,000 per year for serving in such capacity. In
addition, each director who is not an employee of the Company receives $1,000
for each meeting of the Board of Directors attended and $1,000 for each
committee meeting attended.

Also, all directors receive on an annual basis mandatory stock option
grants under the 1996 Director Stock Option Plan for serving on the Board.
Five-year options to purchase 5,000 shares of Common Stock are automatically
granted to each director on July 1 of each year at an option exercise price
equal to the closing price of the Common Stock on such date. Existing directors,
upon the organization of the Company, were granted five-year options to purchase
10,000 shares of Common Stock, all of which are immediately exercisable, at an
option exercise price of $19.00 per share. Additionally, directors appointed to
the Board in the future will be granted options to purchase 10,000 shares of
Common Stock when they are appointed to the Board, at an option exercise price
equal to the closing price of the Common Stock on the date of their appointment
to the Board.

EMPLOYMENT AGREEMENTS

Effective December 2, 1994, the Company entered into an employment
agreement with Mr. Baker. The employment agreement provides for an annual base
salary of $237,500 (to be increased annually by a cost of living adjustment). In
addition, the Company agreed to provide Mr. Baker with all employee benefits
established by the Company, and to pay Mr. Baker an additional sum of $5,000 per
year for insurance premiums to maintain a whole life insurance policy. The
employment agreement requires Mr. Baker to use his best efforts to perform the
duties of President and Chief Executive Officer.

Mr. Woody has an employment agreement with the Company under which he is
entitled to an annual base salary of $212,500 (to be increased annually by a
cost of living adjustment), and all employee benefits established by Company.

The employment agreements between the Company and Messrs. Baker and
Woody each provide for an initial term expiring on December 31, 1999.
Thereafter, the respective agreements each shall run for successive one-year
periods unless terminated by the Company upon six months' prior written notice,
or by Messrs. Baker or Woody upon three months' prior written notice.

Mr. Saso has an employment agreement with the Company to serve as Senior
Vice President, Purchasing under which he is entitled to an annual base salary
of $185,000 (to be increased annually by a cost of living adjustment), and all
employee benefits established by the Company. The agreement provides for an
initial term expiring on May 31, 2001, running for successive one-year terms
thereafter, unless terminated by the Company upon six months' prior written
notice, or by Mr. Saso upon three months' prior written notice.

Mr. Civiletto has an employment agreement with the Company to serve as
Vice President and Chief Financial Officer under which he is entitled to an
annual base salary of $130,000 (to be increased annually by a cost of living
adjustment), and all employee benefits established by the Company. The agreement
provides for an initial term which expired on December 31, 1997, and runs for
successive one-year terms thereafter, unless terminated by the Company upon six
months' prior written notice, or by Mr. Civiletto upon three months' prior
written notice.

<PAGE>

Mr. Innella has an employment agreement with the Company to serve as
Vice President and Chief Operating Officer under which he is entitled to an
annual base salary of $150,000 (to be increased annually by a cost of living
adjustment), and all employee benefits established by the Company. The agreement
provides for an initial term expiring on May 31, 2001, running for successive
one-year terms thereafter, unless terminated by the Company upon six months'
prior written notice, or by Mr. Innella upon three months' prior written notice.

Each of Messrs. Baker, Woody, Saso, Civiletto and Innella has further
agreed in his respective employment agreement that he shall refer to the Company
all opportunities in the aerospace industry relating to parts purchasing,
leasing, financing, repair, distribution and manufacturing, and aircraft
purchasing, leasing and financing to which he might become exposed in carrying
out his duties and responsibilities.

Each of the employment agreements for Messrs. Baker, Woody, Saso,
Civiletto and Innella also provides for participation in the Company's EBITDA
Incentive Compensation Plan whereby each of them has the opportunity to earn an
incentive bonus of between 20% and 250% of their base salary (under the
Company's 1997 EBITDA Incentive Compensation Plan, such percentages increase to
be between 20% and 250% of base salary for calendar years commencing January 1,
1997 or thereafter). Further, each of the employment agreements provides that in
the event of (a) a change in control of the Company including the vesting of
decision-making authority in one of the Company's current principal
stockholders; (b) the sale of all or substantially all of the assets of the
Company to a third party for which the executive officer does not continue in
employment; or (c) the merger or consolidation of the Company with an entity for
which the executive officer does not continue in employment, the employment
agreement shall be terminable by the executive officer upon 90 days' notice and
one year's base salary shall be payable to the executive officer as a
termination fee.

Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") generally disallows an income tax deduction to public companies for
compensation over $1.0 million paid in a year to any one of the chief executive
officer or the four most highly compensated other executive officers, to the
extent that this compensation is not "performance based" within the meaning of
Section 162(m). As a result of this limitation, there can be no assurance that
all of the compensation paid to the Company's executive officers in the future
will be deductible.

STOCK OPTIONS

The Board of Directors of the Company and stockholders have adopted two
stock option plans (the "Plans"). Pursuant to the 1996 Director Stock Option
Plan (the "Director Plan"), options to acquire a maximum of the greater of
150,000 shares or 2% of the number of shares of the Company common stock then
outstanding may be granted to directors of the Company. Pursuant to the 1996
Stock Option Plan, options to acquire a maximum of the greater of 650,000 shares
common stock or 8% of the number of shares of common stock then outstanding may
be granted to executive officers, employees (including employees who are
directors), independent contractors and consultants of the Company. Options to
purchase 386,057 shares at exercise prices ranging from $19.00 per share to
$25.25 per share are currently outstanding under the Plans, 254,800 of which are
immediately exercisable.

The Plans are administered by the Compensation Committee of the Board of
Directors which was formed in January 1997. Prior to the formation of the
Compensation Committee, the Board of Directors administered the Plans. The
Compensation Committee determines which persons will receive options and the
number of options to be granted to such persons. The Director Plan also provides
for annual mandatory grants

<PAGE>

of options to directors. See "Compensation of Directors." The Compensation
Committee will also interpret the provisions of the Plans and make all other
determinations that it may deem necessary or advisable for the administration of
the Plans.

Pursuant to the Plans, the Company may grant Incentive Stock Options
("ISOs") as defined in Section 422(b) of the Code, and Non-Qualified Stock
Options ("NQSOs"), not intended to qualify under Section 422(b) of the Code. The
price at which the Company's common stock may be purchased upon the exercise of
options granted under the Plans will be required to be at least equal to the per
share fair market value of the common stock on the date the particular options
are granted. Options granted under the Plans may have maximum terms of not more
than ten years and are not transferable, except by will or the laws of descent
and distribution. None of the ISOs under the Plans may be granted to an
individual owning more than 10% of the total combined voting power of all
classes of stock issued by the Company unless the purchase price of the common
stock under such option is at least 110% of the fair market value of the shares
issuable on exercise of the option determined as of the date the option is
granted, and such option is not exercisable more than five years after the grant
date.

Generally, options granted under the Plans may remain outstanding and
may be exercised at any time up to three months after the person to whom such
options were granted is no longer employed or retained by the Company or serving
on the Company's Board of Directors.

Pursuant to the Plans, unless otherwise determined by the Compensation
Committee, one-third of the options granted to an individual are exercisable
upon grant, one-third are exercisable on the first anniversary of such grant and
the final one-third are exercisable on the second anniversary of such grant.
However, options granted under the Plans shall become immediately exercisable if
the holder of such options is terminated by the Company or is no longer a
director of the Company, as the case may be, subsequent to certain events which
are deemed to be a "change in control" of the Company. A "change in control" of
the Company generally is deemed to occur when (a) any person becomes the
beneficial owner of or acquires voting control with respect to more than 20% of
the common stock (or 35% if such person was a holder of common stock on July 2,
1996, the date of the Company's initial public offering); (b) a change occurs in
the composition of a majority of the Company's Board of Directors during a
two-year period, provided that a change with respect to a member of the
Company's Board of Directors shall be deemed not to have occurred if the
appointment of a member of the Company's Board of Directors is approved by a
vote of at least 75% of the individuals who constitute the then existing Board
of Directors; or (c) the Company's stockholders approve the sale of all or
substantially all of the Company's assets.

ISOs granted under the Plans are subject to the restriction that the
aggregate fair market value (determined as of the date of grant) of options
which first become exercisable in any calendar year cannot exceed $100,000.

The Plans provide for appropriate adjustments in the number and type of
shares covered by the Plans and options granted thereunder in the event of any
reorganization, merger, recapitalization or certain other transactions involving
the Company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

In January 1997, the Board organized a Compensation Committee comprised
of Robert Alpert, Sam Humphreys and Tim L. Watkins. During the past fiscal year,
none of the Company's directors or executive officers (i) served as a member of
the compensation committee or similar committee of another entity, one of

<PAGE>

whose executive officers served on either the Company's Board or the Company's
Compensation Committee; or (ii) served as a director of another entity, one of
whose executive officers served on either the Company's Board or the Company's
Compensation Committee.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of the date of this report, certain
information regarding the common stock, owned of record or beneficially by (i)
each person who owns beneficially more than 5% of the outstanding common stock;
(ii) each of the Company's directors and named executive officers; and (iii) all
directors and executive officers as a group. Unles otherwise specified, the
address for each beneficial owner is c/o Aviation Sales Company, 6905 N.W. 25th
Street, Miami, Florida.

<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT OF
NAME OWNED(1) CLASS
- ---- -------- -----
<S> <C> <C>
Robert Alpert(2)(3)....................................................... 2,362,000 24.6%

JFSS(4)................................................................... 750,500 7.8%

Tomen Corporation(5)...................................................... 630,500 6.6%

FMR Corp.(6).............................................................. 608,000 6.3%

Dale S. Baker(3)(7)(8).................................................... 342,667 3.4%

Harold M. Woody(3)(7)(8).................................................. 224,667 2.3%

Kazutami Okui(3)(9)....................................................... 15,000 *

Sam Humphreys(3).......................................................... 15,000 *

Michael A. Saso(8)........................................................ 84,667 *

James D. Innella(6)(10)................................................... 92,999 *

Joseph E. Civiletto(6)(11)................................................ 49,667 *

All directors and executive officers as a group (9 persons)............... 3,203,334 32.8%
</TABLE>

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

* Less than one percent

(1) Unless otherwise indicated, each person named in the table has the sole
voting and investment power with respect to the shares beneficially
owned.

(2) Shares are primarily owned of record by two corporate entities
controlled by Mr. Alpert.

(3) Includes five-year options to purchase 10,000 shares at an option
exercise price of $19.00 per share and five-year options to purchase
5,000 shares at an option exercise price of $24.38 per share.

(4) Shares are owned of record by a corporate entity controlled by JFSS.

<PAGE>

(5) Shares are owned of record by two corporate entities controlled by
Tomen Corporation.

(6) As of December 31, 1997 based on a Schedule 13G filed with the
Securities and Exchange Commission on February 9, 1998. The address
shown in the Schedule 13G is 82 Devonshire Street, Boston,
Massachusetts.

(7) Shares shown as beneficially owned, except for 3,000 shares and
currently exercisable options, are pledged to secure payment of the
certain promissory notes representing the purchase price paid for their
interest in the Company.

(8) Includes five-year options to purchase 6,667 shares at an option
exercise price of $25.25 per share.

(9) Mr. Okui disclaims beneficial ownership of the shares owned by Tomen
Corporation.

(10) Includes (i) five-year options to purchase 1,666 shares at an option
exercise price of $19.00 per share, and (ii) five-year options to
purchase 13,333 shares at an option exercise price of $25.25 per share.

(11) Includes (i) five-year options to purchase 10,000 shares at an option
exercise price of $19.00 per share, (ii) five-year options to purchase
6,667 shares at an option exercise price of $25.25 per share and (iii)
five-year options to purchase 5,000 shares at an option exercise price
of $37.62 per share. Excludes five-year option to purchase 10,000
shares at an option exercise price of $37.62, which options have not
vested.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

As of December 2, 1994, the Company entered into a 20-year lease with
Aviation Properties, a Delaware general partnership ("Aviation Properties"),
pursuant to which the Company leases its corporate headquarters and warehouse in
Miami, Florida (the "Miami Property"). The Company makes annual payments under
such lease in the amount of approximately $892,990. The sole partners of
Aviation Properties are (a) AVAC Corporation ("AVAC") and (b) J/T Aviation
Partners, a Delaware general partnership ("J/T"). The sole stockholder and
president of AVAC is Robert Alpert, a principal stockholder and director of the
Company. J/T was also a principal stockholder of the Company.

In connection with Aviation Properties' purchase of the Miami Property,
the Company and Aviation Properties entered into a loan agreement (the "Loan
Agreement") whereby the Company made a $2.5 million loan to Aviation Properties,
which loan bears interest at 8.0% per annum, with principal and interest due in
a single payment on December 2, 2004.

As of December 2, 1994, the Company entered into a six-year lease with
Aviation Properties of Texas, a Delaware general partnership ("AVTEX"), pursuant
to which the Company leases a warehouse in Pearland, Texas (the "Pearland
Property"). Until it acquired the Pearland Property through a wholly-owned
subsidiary, the Company made annual payments under such lease in the amount of
$114,468. The sole partners of AVTEX are AVAC and J/T.

In March, 1998, Aviation Sales Operating Company ("ASOC") acquired the
Pearland Property from AVTEX in exchange for (i) ASOC's cancellation of all
outstanding principal balance and unpaid accrued interest on a promissory note
of AVTEX held by ASOC in the principal amount of $434,244 and (ii) ASOC's
assumption of indebtedness in the principal amount of $1,128,855 which was
secured by a deed of trust in favor of a third party.

The Company believes the terms of the Loan Agreement, the terms of the
leases with Aviation Properties and AVTEX and the then terms of the purchase of
the Pearland Property are no less favorable than could be obtained from an
unaffiliated third party.

<PAGE>

At January 1, 1995, Messrs. Baker, Woody, Saso, Civiletto and Innella
were granted options (the "Options") by the partners of ASC Acquisition
Partners, LP d/b/a Aviation Sales Company (the "Partnership") (AVAC and J/T) to
purchase an aggregate of 13.5% of the outstanding limited partnership interests
in the Partnership for an exercise price greater than the fair market value of
the interests in the Partnership at that date. At January 1, 1996, the Options
were exercised in full by delivery to AVAC and J/T of full recourse promissory
notes (the "Promissory Notes") in the aggregate principal amounts set forth
below, representing the payment in full of the exercise price of the Options:

<TABLE>
<CAPTION>
LIMITED PARTNER'S
PERCENTAGE INTEREST IN
PARTNERSHIP ACQUIRED PRINCIPAL AMOUNT
NAME UPON EXERCISE OF OPTIONS OF PROMISSORY NOTES
- ---- ------------------------ -------------------

<S> <C> <C>
Dale S. Baker ......................................... 6.0% $638,678.75
Harold M. Woody ....................................... 4.0% 425,785.83
James D. Innella....................................... 1.5% 159,669.69
Michael A. Saso........................................ 1.5% 159,669.69
Joseph E. Civiletto.................................... 0.5% 53,223.23
</TABLE>

Management's interests in the Partnership were subject to a first
priority pledge to the lenders under the Company's revolving credit facility and
a second priority pledge to AVAC and J/T to secure the repayment of their
respective Promissory Notes. The Promissory Notes bear interest at the rate of
8.0% per annum, with principal and interest due and payable on the earlier of
January 1, 2001 or from the net proceeds available upon the sale of any portion
of the collateral securing the Promissory Notes. Immediately prior to the
Company's initial public offering in June 1996, management contributed their
interests in the Partnership to the Company in exchange for shares of the common
stock. At such time, management pledged their shares of the common stock to
secure the repayment of their respective Promissory Notes. The exercise price of
the Options after giving effect to the exchange of Partnership interests for
shares of common stock would effectively have been $2.13 per share. In April
1998, Mr. Saso paid in full the amounts outstanding under his Promissory Notes
to AVAC and J/T.

The Company was obligated to pay a fee of $50,000 per quarter to an
entity controlled by Mr. Alpert for consulting services. The Company's
obligation to pay this fee expired in February 1997.

On December 31, 1997, the Company issued 3,000 shares of restricted
shares of the Company's common stock in consideration of past services to each
of Messrs. Baker, Woody, Innella, Saso, Civiletto and Alderman. The fair value
of these shares on the date of issuance was $677,250 in the aggregate or
$112,875 per person.

<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K

AVIATION SALES COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND OPERATIONS

Aviation Sales Company ("ASC" or the "Company") is a Delaware corporation.
The operations of the Company were initially conducted by AJT Capital Partners
d/b/a Aerospace International Services ("AIS"). AIS was formed in February 1992
to acquire certain aircraft spare parts owned by Eastern Air Lines, Inc. (the
"EAL Inventory") and certain outstanding accounts receivable. On December 2,
1994, (effective November 30, 1994) AIS organized ASC Acquisition Partners,
L.P. (the "Partnership") to acquire the Aviation Sales Company business unit
from Aviall Services, Inc. ("Aviall") and to operate the business of AIS and
the Partnership on a going forward basis. Simultaneously with the acquisition,
AIS contributed all of its assets to the Partnership. For accounting purposes,
the Partnership and AIS were considered related parties as the ultimate
ownership interests of the Partnership were held by parties who owned
substantially the same ownership percentage in AIS. As a result, the
combination was accounted for in a manner similar to a pooling of interests.

The Company was formed on June 26, 1996, when: (i) all but one of the
parties holding interests in the Partnership contributed their interests in the
Partnership to the Company in exchange for 2,924,000 shares of the Company's
common stock, and (ii) one of the parties holding an interest in the
Partnership, J/T Aviation Partners ("J/T"), contributed its interest in the
Partnership to the Company in exchange for 1,501,000 shares of the Company's
common stock and an amount equal to the proceeds to be received by the Company
for 575,000 shares of common stock sold in the offering, as more completely
described below.

On June 26, 1996, the Company's registration statement on Form S-1 was
declared effective. On July 2, 1996, the Company closed its public offering of
3,250,000 shares of its common stock at $19 per share. In addition, the Company
granted the underwriters of its public offering a 30-day option to purchase up
to 487,500 additional shares of its common stock to cover the over-allotment
option. On July 25, 1996, the underwriters exercised the over-allotment option
and the Company sold an additional 487,500 shares of its common stock.

The net proceeds from the offering after all expenses were $64,576,607. Of
such proceeds, $10,160,250 was used to pay indebtedness due to J/T in
connection with the formation of the Company. The remaining proceeds were used
to repay senior and subordinated indebtedness. See Note 5.

ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
ASC and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.

F-8
<PAGE>

AVIATION SALES COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 1--GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
CASH AND CASH EQUIVALENTS

The Company considers all deposits with an original maturity of three
months or less to be cash equivalents. Cash and cash equivalents at December
31, 1996 and 1997, include cash held by the Company in demand deposit accounts.

REVENUE RECOGNITION

Sales of aircraft parts are recognized as revenues when the product is
shipped and title has passed to the customer. The Company records reserves for
estimated sales returns in the period sales are made. Reserves for returns as
of December 31, 1996 and 1997 were $1,227,598 and $1,740,813, respectively. The
Company also warehouses and sells inventories on behalf of others under
consignment arrangements. The Company records commission revenues on the sale
of consignment inventories upon shipment of the product. The Company exchanges
rotable parts in need of service or overhaul for new, overhauled or serviceable
parts in its inventory for a fee. Fees on exchanges are recorded in revenue at
the time the product is shipped. The Company performs inventory repair
management and warehouse management services to customers on a contractual
basis. These service fees are recorded in revenue over the course of the
contract as the services are rendered. Gain on sale of equipment on lease is
included in rentals from leases and other.

INVENTORIES

Inventories, which consist primarily of aviation parts, are stated at the
lower of cost or market on primarily a specific identification basis. In
instances where bulk purchases of inventory items are made, cost is determined
based upon an allocation by management of the bulk purchase price to the
individual components. Expenditures required for the recertification of parts
are capitalized as inventory and are expensed as the parts associated with the
re-certification are sold. The Company enters into consignment arrangements for
bulk quantities of inventory items. Costs to disassemble and warehouse bulk
items are capitalized and expensed as the consigned items are sold. As a result
of the acquisitions of Aerocell and Kratz in 1997, the Company maintains raw
materials and work in progress inventories in support of those manufacturing
and overhaul facilities. At December 31, 1996 and 1997, inventories consisted
of the following:

<TABLE>
<CAPTION>
1996 1997
-------------- ----------------
<S> <C> <C>
Finished goods ........... $72,974,397 $ 131,582,005
Work in process .......... -- 2,114,408
Raw materials ............ -- 5,617,309
----------- -------------
$72,974,397 $ 139,313,722
=========== =============
</TABLE>

EQUIPMENT ON LEASE

The Company, primarily through Aviation Sales Leasing Company, leases
engines and spare parts inventories to the airline industry on a worldwide
basis through operating leases. Operating lease income is recognized on a
straight-line basis over the term of the underlying leases. The cost of
equipment on lease is amortized, principally on a straight-line basis, to the
estimated remaining net realizable value over the lease term or the economic
life of the equipment.

F-9
<PAGE>

AVIATION SALES COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 1--GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

PROPERTY AND EQUIPMENT

At December 31, 1996 and 1997, property and equipment consisted of the
following:

<TABLE>
<CAPTION>
1996 1997
--------------- ---------------
<S> <C> <C>
Land ................................. $ -- $ 396,810
Buildings ............................ -- 3,890,493
Machinery and equipment .............. 475,666 14,452,515
Furniture and fixtures ............... 3,857,404 6,763,125
------------ ------------
4,333,070 25,502,943
Accumulated depreciation .......... (2,027,197) (5,008,668)
------------ ------------
$ 2,305,873 $ 20,494,275
============ ============
</TABLE>

For financial reporting purposes, the Company provides for depreciation of
property and equipment using the straight-line method at annual rates
sufficient to amortize the cost of the assets less estimated salvage values
over their estimated useful lives. Estimated useful lives range from 3 to 15
years for the Company's property and equipment.

Maintenance and repair expenditures are charged to expense as incurred,
and expenditures for betterments and major renewals are capitalized. The
carrying amounts of assets which are sold or retired and the related
accumulated depreciation are removed from the accounts in the year of disposal,
and any resulting gain or loss is reflected in income. Such gains or losses
were not significant during the years ended December 31, 1995, 1996 and 1997.

Depreciation expense amounted to $510,455, $746,626 and $1,777,559 for the
years ended December 31, 1995, 1996 and 1997, respectively.

INTANGIBLE ASSETS

The costs associated with obtaining financing are included in the
accompanying consolidated balance sheets as deferred financing costs and are
being amortized over the initial terms of the loans to which such costs relate.
Amortization expense for the years ended December 31, 1995, 1996 and 1997 was
$666,607, $616,183 and $385,582, respectively. During the first quarter of
1998, the Company completed the offering and sale of $165 million in senior
subordinated notes, using a portion of the proceeds to retire existing debt. In
connection with these transactions, the Company will write off the deferred
financing costs related to the term loan agreements eliminated with the
proceeds. See Note 14.

The excess of the purchase price over the fair values of the net assets
acquired from Kratz-Wilde Machine Company, Inc. in 1997 was approximately $17.9
million. This amount has been recorded as goodwill, which is being amortized on
a straight-line basis over 20 years. Amortization expense for the year ended
December 31, 1997 was $189,602.

F-10
<PAGE>

AVIATION SALES COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 1--GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1997
------------- ---------------
<S> <C> <C>
Deferred financing costs:
Original basis ................... $1,055,184 $ 3,243,882
Accumulated amortization ......... (182,616) (568,198)
---------- -----------
$ 872,568 $ 2,675,684
========== ===========
Goodwill
Original basis ................... $ -- $17,901,747
Accumulated amortization ......... -- (189,602)
---------- -----------
$ -- $17,712,145
========== ===========
</TABLE>

The Company continually evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful life of intangible
assets or whether the remaining balance of intangible assets should be
evaluated for possible impairment. The Company uses an estimate of the related
undiscounted cash flows over the remaining life of the intangible assets in
measuring their recoverability.

DEFERRED INCOME

Advance payments and deposits received on operating leases are initially
deferred and subsequently recognized as the Company's obligations under the
lease agreement are fulfilled.

STOCK COMPENSATION PLANS

At December 31, 1997, the Company has two stock-based compensation plans,
which are more fully described in Note 12. The Company accounts for the fair
value of its grants under those plans in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25").
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") on January 1, 1996.

INCOME TAXES

Prior to June 26, 1996, the business of the Company was conducted by the
Partnership and therefore was not subject to income taxes. The Company, as a
result of the transfer of the net assets of the Partnership to the Company and
the initial public offering of its common stock, became subject to federal and
state income taxes. At that time, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
Deferred income taxes, which arose primarily as a result of temporary
differences between the Partnership's book and tax basis of certain assets and
liabilities, were recorded, resulting in an adjustment to the Company's
reported earnings in the period of adoption. A deferred income tax benefit of
$914,459 was credited to operations at the time of adoption. The transfer of
J/T's interest in the Partnership to the Company described in Note 1 resulted
in a step-up in basis in the Company's net assets for tax purposes. As a
result, during 1996, a deferred tax benefit of $3,962,498 was recorded. See
Note 11.

F-11
<PAGE>

AVIATION SALES COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 1--GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

Under SFAS 109, deferred tax assets or liabilities are computed based upon
the difference between the financial statement and income tax basis of assets
and liabilities using the enacted marginal tax rate applicable when the related
asset or liability is expected to be realized or settled. Deferred income tax
expenses or benefits are based on the changes in the asset or liability from
period to period. If available evidence suggests that it is more likely than
not that some portion or all of the deferred tax assets will not be realized, a
valuation allowance is required to reduce the deferred tax assets to the amount
that is more likely than not to be realized. Future changes in such valuation
allowance would be included in the provision for deferred income taxes in the
period of change.

FINANCIAL INSTRUMENTS

The carrying amounts of cash and cash equivalents, accounts receivable and
accounts payable approximate fair value due to the short maturity of the
instruments and the provision for what management believes to be adequate
reserves for potential losses. Management believes the fair value of long-term
debt approximates the carrying amount of long-term debt in the accompanying
consolidated balance sheets as substantially all of the Company's long-term
debt reprices to market based on variable interest rate terms.

YEAR 2000 SYSTEMS COSTS

The Company utilizes software and related technologies throughout its
businesses that will be affected by the date change in the year 2000. The
Company is currently in the early stages of purchasing and implementing a new
management information system which management believes will mitigate the Year
2000 issues currently inherent in the Company's existing systems. However, the
Company cannot measure the impact that the Year 2000 issue will have on its
vendors, suppliers, customers and other parties with which it conducts
business. The cost of the new MIS system is expected to be approximately $8.0
million, which will be incurred over approximately a two-year period.

RECENTLY ISSUED ACCOUNTING STANDARDS

Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128"), is effective for fiscal years ending after December 15, 1997.
This statement specifies the computation, presentation and disclosure
requirements for earnings per share for entities with publicly held common
stock or potential common stock. Earnings per share have been restated to
comply with SFAS 128 for all periods presented. See Note 10.

The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets
to be Disposed Of" ("SFAS 121") in 1996. SFAS 121 establishes accounting
standards for recording the impairment of long-lived assets, certain
identifiable intangibles and goodwill. The adoption of SFAS 121 did not have a
material impact on the Company's financial position or results of its
operations.

Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), was issued by the Financial Accounting
Standards Board in June 1997. This statement establishes standards for the
reporting and display of comprehensive income and its components in a

F-12
<PAGE>

AVIATION SALES COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 1--GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

full set of financial statements. The objective of SFAS 130 is to report a
measure (comprehensive income) of all changes in equity of an enterprise that
result from transactions and other economic events in a period other than
transactions with owners. Management believes the adoption of SFAS 130 will not
have a material impact on the Company's consolidated financial statements, and
upon adoption, will disclose comprehensive income in the consolidated statement
of stockholders' equity.

Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"), was issued by
the Financial Accounting Standards Board in June 1997. This statement
establishes standards for reporting information about operating segments in
annual financial statements and requires reporting of selected information
about operating segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products and
services, geographic areas and major customers. The Company will adopt SFAS 131
effective December 31, 1998.

NOTE 2--BUSINESS COMBINATIONS

ACQUISITIONS ACCOUNTED FOR UNDER THE PURCHASE METHOD OF ACCOUNTING:

On August 9, 1996, the Company completed the acquisition of certain assets
of the business of Dixie Bearings, Incorporated ("Dixie") relating primarily to
the sale of new bearings for use in aircraft for a purchase price of
approximately $9.0 million. The acquisition was accounted for using the
purchase method of accounting. Accordingly, the operations of Dixie since the
acquisition have been included in the accompanying consolidated financial
statements from the date of acquisition. The historical operations of Dixie,
when compared to the historical operations of the Company, are not significant.
In connection with the acquisition, the Company borrowed $6,000,000 of senior
notes payable to financial institutions and paid the balance in cash. See Note
5.

On October 17, 1997 the Company completed the acquisition of substantially
all of the assets of the business of Kratz-Wilde Machine Company, a Kentucky
corporation ("Kratz-Wilde") for a purchase price, including acquisition costs
and net cash acquired, of approximately $39.6 million in cash and notes and the
assumption of certain liabilities of Kratz-Wilde in the approximate amount of
$2.2 million. Kratz-Wilde specializes in the manufacture of machined components
primarily for jet engines, and also produces some automotive and faucet
components. The acquisition was accounted for using the purchase method of
accounting and accordingly, the purchase price has been allocated to the assets
purchased and the liabilities assumed based upon the fair values at the date of
acquisition. The operations of Kratz-Wilde since the acquisition have been
included in the accompanying consolidated financial statements from the date of
acquisition. As a result of the Kratz-Wilde acquisition, the Company's
operating revenues increased approximately $6.5 million from the date of the
acquisition through December 31, 1997. In connection with the acquisition, the
Company borrowed $40,000,000 of senior notes payable to financial institutions,
with the remainder of the acquisition price payable to the prior owners over a
two year period. See Note 5.

F-13
<PAGE>

AVIATION SALES COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 2--BUSINESS COMBINATIONS--(CONTINUED)

The Company's unaudited pro forma consolidated results of operations
assuming the Kratz-Wilde acquisition had occurred on January 1, 1996 are as
follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997
---------------- -----------
(IN $ MILLIONS EXCEPT EARNINGS PER SHARE)
<S> <C> <C>
Revenue ...................................................... $ 186.5 $ 286.6
Income before extraordinary item ............................. 8.0(a) 19.3
Diluted earnings per share before extraordinary item ......... $ 1.03 $ 2.03
</TABLE>

- ----------------
(a) Includes an adjustment to record pro forma income tax expense as if the
Company had been a C corporation since January 1, 1996.

The unaudited pro forma results of operations are presented for
informational purposes only and may not necessarily reflect the future results
of operations of the Company or what the results of operations would have been
had the Company owned and operated this business as of January 1, 1996.

ACQUISITIONS ACCOUNTED FOR UNDER THE POOLING OF INTERESTS METHOD OF ACCOUNTING:

Shares issued to consummate acquisitions accounted for under the pooling
of interests method of accounting are reflected as outstanding for all periods
presented in the accompanying financial statements.

On December 10, 1996, the Company acquired AvEng Trading Partners, Inc.
("AvEng"), a company that was formed in 1995, for consideration of 400,000
shares of the Company's common stock. Although the acquisition was accounted
for using the pooling of interests method of accounting, the accompanying
consolidated statements of income, partners' capital and stockholders' equity
and cash flows prior to December 31, 1995 have not been restated to give
retroactive effect for the acquisition due to the immateriality of the restated
amounts.

On September 30, 1997, the Company acquired Aerocell Structures, Inc.
("Aerocell") for consideration of 620,970 shares of the Company's common stock.
Although the acquisition was accounted for using the pooling of interests
method of accounting, the accompanying consolidated financial statements prior
to December 31, 1996 have not been restated to give retroactive effect for the
acquisition due to the immateriality of the restated amounts.

On December 31, 1997, the Company acquired Apex Manufacturing, Inc.
("Apex") for consideration of 238,572 shares of the Company's common stock.
Although the acquisition was accounted for using the pooling of interests
method of accounting, the accompanying consolidated financial statements prior
to December 31, 1996 have not been restated to give retroactive effect for the
acquisition due to the immateriality of the restated amounts.

F-14
<PAGE>

AVIATION SALES COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 2--BUSINESS COMBINATIONS--(CONTINUED)

Details of the results of operations of the Company and the pooled
entities for the periods before the pooling of interest combinations were
consummated are as follows:

<TABLE>
<CAPTION>
1996 1997
----------- -----------
(IN $ MILLIONS)
<S> <C> <C>
Revenue:
The Company ............................................... $ 152.6 $ 230.3
AvEng ..................................................... 9.3 --
Aerocell and Apex ......................................... -- 26.6
-------- --------
$ 161.9 $ 256.9
======== ========
Income from continuing operations before extraordinary item:
The Company ............................................... $ 16.6 $ 13.7
AvEng ..................................................... 0.8 --
Aerocell and Apex ......................................... -- 3.1
-------- --------
$ 17.4 $ 16.8
======== ========
</TABLE>

The preliminary purchase price allocations for business combinations
accounted for under the purchase method of accounting (including historical
accounts of immaterial acquisitions accounted for under the pooling of
interests method of accounting) were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1995 1996 1997
------------- -------------- ---------------
<S> <C> <C> <C>
Cash and cash equivalents ................................ $ -- $ -- $ 2,970,714
Accounts receivable ...................................... -- 2,898,460 7,010,977
Inventories .............................................. (522,439) 6,000,000 8,502,904
Prepaid expenses ......................................... -- -- 19,472
Deposits and other ....................................... -- -- 619,072
Fixed assets ............................................. -- 100,000 15,571,528
Goodwill ................................................. -- -- 17,901,747
Accounts payable ......................................... 1,582,977 (44,640) (1,828,468)
Accrued expenses ......................................... -- -- (2,231,763)
Deferred income taxes .................................... -- -- (557,270)
Notes payable ............................................ -- -- (3,445,825)
Common stock issued and paid in capital received ......... -- -- (1,615,528)
---------- ---------- ------------
1,060,538 8,953,820 42,917,560
Less cash acquired ....................................... -- -- (2,970,714)
---------- ---------- ------------
Cash used in acquisitions, net of cash acquired .......... $1,060,538 $8,953,820 $ 39,946,846
========== ========== ============
</TABLE>

F-15
<PAGE>

AVIATION SALES COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--ACCOUNTS RECEIVABLE

The Company distributes products in the United States and abroad to
commercial airlines, air cargo carriers, distributors, maintenance facilities,
corporate aircraft operators and other aerospace companies. The Company's
credit risks consist of accounts receivable from customers in the aviation
industry. The Company performs periodic credit evaluations of its customers'
financial conditions and provides allowances for doubtful accounts as required.
No single customer represents greater than 10 percent of total revenues or
accounts receivable for the years ended December 31, 1995, 1996 or 1997.

NOTE 4--EQUIPMENT ON LEASE

In the normal course of business, the Company leases engines and spare
parts to third parties pursuant to noncancelable operating leases ranging from
one to ten years. The cost and accumulated amortization of equipment on lease
are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1997
-------------- --------------
<S> <C> <C>
Equipment on lease, at cost ......... $ 20,551,852 $ 26,384,671
Accumulated amortization ............ (2,601,069) (3,626,522)
------------ ------------
$ 17,950,783 $ 22,758,149
============ ============
</TABLE>

At December 31, 1996 and 1997, $8,464,366 and $5,417,271, respectively, of
equipment on lease was maintained in the Far East.

Deposits of $890,065 and $962,063, respectively, received from the leases
are recorded as deferred income in the accompanying December 31, 1996 and 1997
consolidated balance sheets and will be applied in connection with final
settlement of these leases.

Amortization expense amounted to $955,460, $1,576,165 and $1,924,120 for
the years ended December 31, 1995, 1996 and 1997, respectively.

Future minimum lease receivables under the leases are as follows:

<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
---------------------------
<S> <C>
1998 ................ $ 3,989,647
1999 ................ 3,205,884
2000 ................ 2,888,948
2001 ................ 1,707,384
2002 ................ 1,398,474
Thereafter .......... 3,744,000
-----------
$16,934,337
===========
</TABLE>

F-16
<PAGE>

AVIATION SALES COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--NOTES PAYABLE

At December 31, 1996 and 1997, notes payable consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1997
---------------- ----------------
<S> <C> <C>
Amended Term Loan ................................... $ 17,142,857 $ 17,642,857
Amended Revolving Credit Facility:
Revolving loan ..................................... 16,697,985 86,413,959
Acquisition loan facility .......................... 5,142,857 38,000,000
Term loan--leased assets ............................ -- 7,028,084
Note payable to prior owners of Kratz-Wilde ......... -- 2,200,000
Less--Current maturities ............................ (24,126,556) (98,672,350)
------------- -------------
Net long-term notes payable ......................... $ 14,857,143 $ 52,612,550
============= =============
</TABLE>

Future maturities of notes payable at December 31, 1997 are as follows:

<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1998 ................. $ 98,672,350
1999 ................. 13,346,159
2000 ................. 13,522,188
2001 ................. 12,414,538
2002 ................. 13,329,665
------------
$151,284,900
============
</TABLE>

Prior to July 2, 1996, the Company financed its working capital needs
primarily through, (a) a series of term loans (with $55 million in principal
outstanding at December 31, 1995) payable periodically through November 30,
2000, and (b) a $20 million revolving credit facility expiring November 30,
1999.

On July 2, 1996, the Company completed the repayment of indebtedness and
restructuring of its Revolving Credit Facility per the terms of an amended
credit facility (the "Amended Credit Facility") dated June 27, 1996. The
Amended Credit Facility consisted of (a) a term loan facility in an original
principal amount of $20.0 million and (b) a $50.0 million revolving loan,
letter of credit and acquisition loan facility. In connection with the
repayment and restructuring of the previous bank lending agreement, the Company
wrote-off $3,052,688 of deferred financing costs (resulting in an extraordinary
item, net of income taxes of $1,862,140).

On August 22, 1997, the Company amended its Amended Credit Facility
pursuant to the terms of a Second Amended and Restated Credit Agreement, which
was, itself, amended on October 17, 1997.

On October 17, 1997, the Company amended the Second Amended Credit
Agreement pursuant to the terms of a Third Amended and Restated Credit
Agreement (the "Third Amended Credit Agreement"). Pursuant to the Third Amended
Credit Agreement, the Company has obtained a credit facility consisting of (a)
a term loan facility (the "Third Amended Term Loan") in a principal amount of

F-17
<PAGE>

AVIATION SALES COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 5--NOTES PAYABLE--(CONTINUED)

$18.6 million, and (b) a $131.4 million revolving loan, letter of credit and
acquisition loan facility, subject to an availability calculation based on the
eligible borrowing base (the "Third Amended Revolving Credit Facility"). The
eligible borrowing base includes certain receivables and inventories of the
Company. The letter of credit portion of the Third Amended Revolving Credit
Facility is subject to a $15 million sublimit and the acquisition loan portion
of the Third Amended Revolving Credit Facility is subject to a $40 million
sublimit, with the imposition of certain borrowing criteria based on the
satisfaction of certain debt ratios. The interest rate on the Third Amended
Credit Agreement is, at the option of the Company, (a) prime plus a margin, or
(b) LIBOR plus a margin, where the margin determination is made based upon the
Company's financial performance over the 12 month period (ranging from 0.0% to
1.25% in the event prime is utilized, or 1.50% to 2.75% in the event LIBOR is
utilized). At December 31, 1997, the margin was .25% for prime rate loans and
1.75% for LIBOR rate loans.

The Third Amended Term Loan, as well as any portion of the revolving
credit facility utilized to make acquisitions, amortizes in equal quarterly
installments and terminates on July 31, 2002. Interim payments under the Third
Amended Revolving Credit Facility will be made from daily collections of the
Company's accounts receivable. The Third Amended Revolving Credit Facility will
terminate on July 31, 2002. The Third Amended Credit Agreement contains
financial and other covenants and mandatory prepayment events, as defined. At
December 31, 1997, the Company was in compliance with all covenants of the
Third Amended Credit Agreement. The Third Amended Credit Agreement is secured
by a lien on substantially all of the assets of the Company. On December 31,
1997, the outstanding balances under the Third Amended Term Loan and Third
Amended Revolving Credit Facility were $55.6 million (including $38.0 million
borrowed under the acquisition subfacility) and $86.4 million, respectively.

The Company entered into a subordinated loan agreement (the "Subordinated
Debt") on December 2, 1994, whereby the Partnership borrowed $7,000,000 from
the partners which was payable in a single lump sum on the earlier of June 2,
2001, or six months after amounts borrowed pursuant to the credit facility have
been paid in full. Upon the earlier to occur of June 2, 2001 or the repayment
of the Subordinated Debt in full, the Company was required to pay to the
partners an additional facility fee of $350,000, provided that, if the
Subordinated Debt was prepaid in full prior to June 2, 1996, the Company would
be released from its obligation to pay such facility fee. On July 2, 1996, the
Company repaid the Subordinated Debt in full and the facility fee with a
portion of the proceeds of the initial public offering. The Subordinated Debt
bore interest at prime plus 5 percent.

On August 5, 1997, the Company entered into a term loan agreement in a
principal amount of $7.2 million to finance certain equipment and rotable parts
on a long-term lease, which secure the loan. This loan is payable in 59
consecutive equal monthly payments of $91,750 commencing September 14, 1997,
with a final balloon payment due on August 14, 2002. Interest on this term loan
is fixed at 8.21%. The Company has leased the underlying equipment and rotable
parts to unrelated third parties. Interim payments under the term loan will be
made from the proceeds of these parts leases. This term loan contains financial
and other covenants and mandatory prepayment events, as defined. At December
31, 1997, the Company was in compliance with all covenants of this term loan.

As described in Note 2, the Company borrowed $6.0 million on August 9,
1996, under the acquisition loan portion of the Amended Revolving Credit
Facility for the acquisition of certain assets of the business of Dixie. This
credit facility has since been amended, as described above.

F-18
<PAGE>

AVIATION SALES COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 5--NOTES PAYABLE--(CONTINUED)

In connection with the October 17, 1997 acquisition of Kratz-Wilde (See
Note 2), the company entered into an agreement with the prior owners to pay
$2.2 million of the acquisition price over a two year period. Payments of
$1,250,000 are due on January 1, 1999 and January 1, 2000. Interest on this
note has been imputed at 8%.

NOTE 6--RELATED-PARTY TRANSACTIONS

The Company leases its corporate headquarters and warehouse in Miami,
Florida (the "Miami Property") and a warehouse in Pearland, Texas (the
"Pearland Property") from related parties. The lease on the Miami Property
calls for annual payments in the amount of $892,990 expiring on December 2,
2014. The Company is required to make annual payments under the Pearland
Property lease in the amount of $114,468. This lease expires December 2, 2000.
The Company believes the terms of these leases are no less favorable than could
be obtained from an unaffiliated third party. As described more thoroughly in
Note 14, the Company purchased the Pearland Property on March 13, 1998 for
approximately $1.8 million.

In connection with the purchase of the Miami Property by the related
party, the Company made an unsecured $2,465,519 loan to the related party,
which bears interest at 8% per annum, with principal and interest due in a
single payment on December 2, 2004. The outstanding balance is included in
amounts due from related parties in the accompanying balance sheets. The
Company believes the terms of this loan are no less favorable than could be
obtained from an unaffiliated third party.

At December 31, 1997, as payment of bonuses, six officers of the Company
were each granted 3,000 shares of the Company's common stock. The fair value of
these shares on the date of issuance, $677,250, has been included in general and
administrative expenses in the accompanying 1997 statement of operations.

NOTE 7--COMMITMENTS AND CONTINGENCIES

The Company is currently involved in various lawsuits and other
contingencies arising out of operations in the normal course of business. In
the opinion of management, the ultimate resolution of those claims and lawsuits
will not have a material adverse effect on the financial position or results of
operations of the Company.

The Company has certain employment agreements with officers and employees
dated December 1994, which extend from three to five years and are renewable in
one-year periods thereafter. The employment agreements provide that such
officers and employees may earn bonuses, based upon a sliding percentage scale
of their base salaries, provided the Company achieves certain financial
operating results, as defined. Further, each of the employment agreements
provides that in the event of (a) a change in control of the Company including
the vesting of decision-making authority in one of the Company's current
officers; (b) the sale of all or substantially all of the assets of the Company
to a third party for which the executive officer does not continue in
employment; or (c) the merger or consolidation of the Company with an entity
for which the executive officer does not continue in employment, the employment
agreement shall be terminable by the executive officer upon 90 days' notice and
one year's base salary shall be payable to the executive officer as a
termination fee.

At January 1, 1995, five officers and employees of the Company were
granted options (the "Options") by the partners to purchase an aggregate of
13.5% of the outstanding limited partnership

F-19
<PAGE>

AVIATION SALES COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 7--COMMITMENTS AND CONTINGENCIES--(CONTINUED)

interests in the Partnership for an aggregate exercise price of $1,437,027,
which was greater than the fair market value, as determined by an independent,
third party, of the interests in the Partnership at that date. At January 1,
1996, the Options were exercised in full by delivery to the partners of full
recourse promissory notes representing the payment in full of the exercise
price of the Options.

On November 26, 1997, the Company settled an outstanding legal claim
against a former employee and shareholder of the Company. As part of this
settlement, the employee agreed to leave the Company and transfer 75,000 shares
of the Company's common stock back to the Company, which shares the Company
immediately retired. The fair value of the shares at the date of the
settlement, approximately $2.6 million, has been reflected as a reduction of
general and administrative expense in the accompanying 1997 statement of
operations.

The Company has purchase commitments to various airlines whereby the
Company sells aircraft inventory as agent for such airlines. Pursuant to such
agreements, the Company has commitments to various airlines requiring the
Company to purchase a minimum amount of inventory from such airlines if minimum
sales targets are not met. In the opinion of management, the Company's
commitments will be realized through future sales of aircraft inventory owned
by such airlines.

Effective January 1, 1995, the Company established a qualified defined
contribution plan (the "Plan") for eligible employees. The Plan provides that
employees may contribute up to the maximum percent of pretax earnings as
allowed by the U.S. tax code and the Company may elect, at its discretion, to
make contributions to the Plan in any year. The Company contributed
approximately $197,000, $309,000 and $296,000 to the Plan in 1995, 1996 and
1997, respectively. The Company does not provide retired employees any health
or life insurance benefits.

NOTE 8--LEASES

The Company leases certain buildings and office equipment under operating
lease agreements. Two of the buildings are leased from related parties of the
Company (See Note 6). For the years ended December 31, 1995, 1996 and 1997,
rent expense under these leases amounted to $1,554,677, $1,813,113 and
$2,300,585, respectively. Minimum rental commitments under operating leases are
as follows:

<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, TO RELATED PARTIES TO THIRD PARTIES
- --------------------------- -------------------- -----------------
<S> <C> <C>
1998 ................ $ 1,007,458 $1,466,654
1999 ................ 1,007,458 760,537
2000 ................ 997,919 461,099
2001 ................ 892,990 377,960
2002 ................ 892,990 293,522
Thereafter .......... 10,715,884 290,688
----------- ----------
$15,514,699 $3,650,460
=========== ==========
</TABLE>

F-20
<PAGE>

AVIATION SALES COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 9--DOMESTIC AND EXPORT SALES INFORMATION

Substantially all of the Company's operating profits and identifiable
assets are sourced from or located in the United States. Information about the
Company's domestic and export sales for the three years ended December 31, 1997
follows (in thousands):

<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
NET REVENUES BY GEOGRAPHICAL AREAS
United States ................... $ 68,052 $ 94,591 $179,876
Export Sales:
Europe ......................... 28,666 40,308 43,318
Far East ....................... 7,525 13,907 13,852
Latin America .................. 9,560 13,138 19,853
-------- -------- --------
$113,803 $161,944 $256,899
======== ======== ========
</TABLE>

NOTE 10--EARNINGS PER SHARE

The Company adopted Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings Per Share" during 1997. SFAS 128 establishes standards
for computing and presenting basic and diluted earnings per share. Basic
earnings per share is computed by dividing net income by the weighted average
common shares outstanding during the year. Diluted earnings per share is based
on the combined weighted average number of common shares and common share
equivalents outstanding which include, where appropriate, the assumed exercise
of options. In computing diluted earnings per share, the Company has utilized
the treasury stock method. All prior period earnings per share data have been
restated to conform with SFAS 128.

The computation of weighted average common and common equivalent shares
used in the calculation of basic and diluted earnings per share is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Weighted average shares outstanding used in calculating
basic earnings per share ............................... 6,259,542 7,811,229 9,423,195
Effect of dilutive options .............................. -- 8,608 60,902
--------- --------- ---------
Weighted average common and common equivalent shares
used in calculating diluted earnings per share ......... 6,259,542 7,819,837 9,484,097
========= ========= =========
</TABLE>

For business combinations accounted for as pooling of interests, earnings
per share computations are based on the aggregate of the weighted-average
outstanding shares of the constituent businesses, adjusted to equivalent shares
of the surviving business for all periods presented.

PRO FORMA EARNINGS PER SHARE

Prior to June 26, 1996, the operations of the Company were conducted by
the Partnership, a Delaware general partnership and, therefore, the results of
operations for the year ended December 31, 1995 and for the period January 1,
1996 through June 26, 1996, do not include a provision for income taxes, as the
income of the Partnership passed directly to its partners.

The following pro forma adjustments to record income taxes at the
Company's estimated effective tax rate have been reflected in the pro forma
earnings per share data presented in the accompanying consolidated statements
of income for the years ended December 31, 1995 and 1996:

F-21
<PAGE>

AVIATION SALES COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 10--EARNINGS PER SHARE--(CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996
-------------- --------------
<S> <C> <C>
Historical income before income taxes
and extraordinary item ............................ $10,285,723 $16,933,815
Pro forma provision for income taxes ............... 4,011,432 6,604,188
----------- -----------
Pro forma income before extraordinary item ......... 6,274,291 10,329,627
Extraordinary item, net of income taxes ............ -- 1,862,140
----------- -----------
Pro forma net income ............................... $ 6,274,291 $ 8,467,487
=========== ===========
</TABLE>

Pro forma basic earnings per share have been computed by dividing pro
forma net income by the weighted average number of common shares outstanding.
Pro forma diluted earnings per share is based on the combined weighted average
number of common shares and common share equivalents outstanding which include,
where appropriate, the assumed exercise of options. For periods prior to the
closing of the Company's public offering, the pro forma weighted average number
of common shares outstanding assumes that the 4,425,000 shares issued to the
partners and the 575,000 shares of common stock, the net proceeds in respect of
which were paid to J/T, were outstanding in all periods.

NOTE 11--INCOME TAXES

The income tax (benefit) expense for the years ended December 31, 1996 and
1997 consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997
--------------- -------------
<S> <C> <C>
Current
Federal ..................................... $ 3,279,832 $ 8,480,389
State ....................................... 482,328 969,187
------------ -----------
3,762,160 9,449,576
------------ -----------
Deferred
Federal ..................................... (4,689,159) 1,195,333
State ....................................... (689,582) 136,610
------------ -----------
(5,378,741) 1,331,943
------------ -----------
Total income tax (benefit) expense ......... (1,616,581) 10,781,519
Less: benefit for income taxes relating to
extraordinary item ...................... (1,190,548) --
------------ -----------
Income tax (benefit) expense relating to
continuing operations ................... $ (426,033) $10,781,519
============ ===========
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of deferred tax assets as of December 31, 1996 and 1997 are as
follows:

F-22
<PAGE>

AVIATION SALES COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 11--INCOME TAXES--(CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1997
------------- -------------
<S> <C> <C>
Deferred tax assets, net:
Allowance for doubtful accounts ......... $1,103,384 $ 534,106
Inventories ............................. 1,144,941 1,783,222
Property and equipment .................. 3,735,079 2,215,910
Spare parts on lease .................... (198,626) (692,936)
Other ................................... 11,706 66,969
---------- ----------
5,796,484 3,907,271
Less: valuation allowance .............. (417,743) (417,743)
---------- ----------
Net deferred tax assets ................ $5,378,741 $3,489,528
========== ==========
</TABLE>

The reconciliation of the federal statutory rate and the Company's
effective tax rate is as follows:

<TABLE>
<CAPTION>
1996 1997
------------ ----------
<S> <C> <C>
Federal income tax at the statutory rate ........................... 35.0% 35.0%
Increases (reductions) in tax rate resulting from:
Partnership income not subject to taxation ........................ (12.2) 0.0
Step-up in tax basis resulting from transfer of J/T's interest (see
Note 1) ......................................................... (21.0) 0.0
Transfer of net assets of the Partnership to the Company (see
Note 1) ......................................................... ( 7.1) 0.0
State income taxes, net of federal tax benefit .................... 4.6 4.1
Other ............................................................. ( 1.8) 0.0
----- ----
Effective income tax rate .......................................... ( 2.5)% 39.1%
===== ====
</TABLE>

NOTE 12--STOCK OPTION PLANS

In connection with the organization of the Company, the Company adopted
two stock option plans (the "Plans"). Pursuant to the 1996 Director Stock
Option Plan (the "Director Plan"), options to acquire a maximum of the greater
of 150,000 shares or 2% of the number of shares of Common Stock then
outstanding may be granted to directors of the Company. Pursuant to the 1996
Stock Option Plan (the "1996 Plan"), options to acquire a maximum of the
greater of 650,000 shares of Common Stock or 8% of the number of shares of
Common Stock then outstanding may be granted to executive officers, employees
(including employees who are directors), independent contractors and
consultants of the Company. The price at which the Company's common stock may
be purchased upon the exercise of options granted under the Plans will be
required to be at least equal to the per share fair market value of the Common
Stock on the date the particular options are granted. Options granted under the
Plans may have maximum terms of not more than ten years. Generally, options
granted under the Plans may remain outstanding and may be exercised at any time
up to three months after the person to whom such options were granted is no
longer employed or retained by the Company or serving on the Company's Board of
Directors.

F-23
<PAGE>

AVIATION SALES COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 12--STOCK OPTION PLANS--(CONTINUED)

A summary of activity in the Company's stock option plans through December
31, 1997 is as follows:

<TABLE>
<CAPTION>
SHARES UNDER WEIGHTED AVERAGE
OPTION EXERCISE PRICE
-------------- -----------------
<S> <C> <C>
Outstanding at January 1, 1996 .................. -- --
Granted ........................................ 197,600 $ 19.00
-------
Outstanding at December 31, 1996 ................ 197,600 $ 19.00
Granted(a) ..................................... 208,800 $ 25.08
Exercised ...................................... (34,890) $ 20.65
Cancelled ...................................... (13,614) $ 20.84
-------
Outstanding at December 31, 1997 ................ 357,896 $ 22.32
=======
Options exercisable:
At December 31, 1996 ........................... 122,200 $ 19.00
At December 31, 1997 ........................... 224,384 $ 21.45
Available to grant at December 31, 1997 ......... 442,104
</TABLE>

- ----------------
(a) 1997 grant prices ranged from $24.07 per share to $25.86 per share.

The following table summarizes information about outstanding and
exercisable stock options at December 31, 1997:

<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
--------------------------------------- ----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
RANGE OF EXERCISE PRICE SHARES LIFE PRICE SHARES PRICE
- -------------------------- --------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
$ 19.00 162,325 8.5 $ 19.00 131,833 $ 19.00
$24.07 - $25.86 195,571 9.5 $ 25.07 92,551 $ 24.93
------- -------
357,896 9.0 $ 22.32 224,384 $ 21.45
======= =======
</TABLE>

Pursuant to the Plans, unless otherwise determined by the compensation
committee, one-third of the options granted under the Plans are exercisable
upon grant, one-third are exercisable on the first anniversary of such grant
and the final one-third are exercisable on the second anniversary of such
grant. However, options granted under the Plans shall become immediately
exercisable if the holder of such options is terminated by the Company or is no
longer a director of the Company, as the case may be, subsequent to certain
events which are deemed to be a "change in control" of the Company.

F-24
<PAGE>

AVIATION SALES COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 12--STOCK OPTION PLANS--(CONTINUED)
The Company accounts for the fair value of its grants under those plans in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" whereby no compensation cost related to stock
options is deducted in determining net income. Had compensation cost for the
Company's stock option plans been determined pursuant to Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), the Company's net income and earnings per share would have decreased
accordingly. Using the Black-Scholes option pricing model, the Company's pro
forma net income, pro forma earnings per share and pro forma weighted average
fair value of options granted, with related assumptions, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1997
---------------- ----------------
<S> <C> <C>
Pro forma net income ......................... $14,679,681 $15,286,498
Pro forma basic earnings per share ........... $ 1.88 $ 1.62
Pro forma diluted earnings per share ......... $ 1.88 $ 1.61
Risk free interest rates ..................... 6% 7%
Expected lives ............................... 7 years 7 years
Expected volatility .......................... 40% 40%
Weighted-average grant-date fair value ....... 9.80 13.43
</TABLE>

NOTE 13--QUARTERLY FINANCIAL DATA (UNAUDITED)

Results have been restated for pooling transactions in the year of
acquisition. See Note 2.

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ---------------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C> <C>
1997:
Operating revenues ......................................... $ 54,853 $ 58,118 $ 67,104 $ 76,824
Income from operations ..................................... 6,087 8,475 9,207 11,225(a)
Net income ................................................. 3,048 4,251 4,484 4,998
Diluted income before extraordinary item per share ......... $ 0.32 $ 0.45 $ 0.47 $ 0.53
Diluted net income per share ............................... $ 0.32 $ 0.45 $ 0.47 $ 0.53
1996:
Operating revenues ......................................... $ 35,554 $ 36,159 $ 41,181 $ 49,050
Income from operations ..................................... 5,426 5,027 5,911 5,920
Net income ................................................. 3,395 3,904 5,079 3,120
Pro forma diluted income before extraordinary item
per share ................................................. $ 0.26 $ 0.30 $ 0.51 $ 0.24
Pro forma diluted net income per share ..................... $ 0.26 $ 0.30 $ 0.27 $ 0.24
1995:
Operating revenues ......................................... $ 28,451 $ 28,749 $ 28,781 $ 27,822
Income from operations ..................................... 6,034 5,165 3,966 3,408
Net income ................................................. 3,951 3,065 1,872 1,398
Pro forma diluted income before extraordinary item
per share ................................................. $ 0.38 $ 0.30 $ 0.18 $ 0.14
Pro forma diluted net income per share ..................... $ 0.38 $ 0.30 $ 0.18 $ 0.14
</TABLE>

- ----------------
(a) Includes gain on legal settlement with former employee and shareholder of
approximately $2.6 million.

F-25
<PAGE>

AVIATION SALES COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14-- SUBSEQUENT EVENTS

On March 9, 1998 the Company completed the acquisition of Caribe Aviation,
Inc. ("Caribe") and Caribe's wholly owned subsidiary Aircraft Interior Design,
Inc. ("Aircraft"). The purchase price was approximately $25 million, consisting
of $5 million in cash, and $5 million in promissory notes payable over two
years; the issuance of 182,143 shares of the Company's authorized, but unissued,
common stock; and the repayment of approximately $7.5 million of indebtedness
owed by Caribe and Aircraft to a financial institution. The acquisition will be
accounted for using the purchase method of accounting and accordingly, the
purchase price will be allocated to the assets purchased and the liabilities
assumed based upon the fair market value at the date of acquisition. The
estimated excess of the purchase price over the fair values of the net assets
acquired is approximately $10.7 million. This amount will be recorded as
goodwill and will be amortized on a straight-line basis over 20 years. The
operations of Caribe and Aircraft will be included in the Company's consolidated
financial statements from the date of acquisition. Caribe and Aircraft had
consolidated fiscal 1997 revenues of approximately $27 million. The
pre-acquisition operations of Caribe are not material to the operations of the
Company.

On February 17, 1998, the Company completed the offering and sale of $165
million in senior subordinated notes (the "Notes") due in 2008 with a coupon
rate of 8.125% at a price of 99.395%. Proceeds were used to repay debt and for
general corporate purposes, including acquisitions, working capital needs and
capital expenditures. In connection with this transaction, the Company will
write off the deferred financing costs related to term loan agreements
eliminated with the proceeds from the senior subordinated notes. The Notes are
unconditionally guaranteed, on a senior subordinated basis, by substantially
all of the Company's existing subsidiaries.

On March 13, 1998, the Company entered into an agreement to purchase its
Pearland, Texas warehouse facility from a related party (see Note 6). The total
purchase price of approximately $1.8 million was paid in cash and through the
reduction of amounts receivable from the related party at the date of the
transaction.

On March 26, 1998, the Company entered into a definitive agreement with
Whitehall Corporation, pursuant to which the two companies will merge. Under the
terms of the agreement, at the effective date of the merger, the shareholders of
Whitehall will receive 0.5143 shares of Aviation Sales' common stock for each
share of Whitehall stock outstanding on such date. Based on the approximately
6.0 million Whitehall shares outstanding, Aviation Sales will issue
approximately 3.1 million shares of Aviation Sales' common stock to Whitehall's
stockholders in the merger transaction. Based upon the closing price of Aviation
Sales' common stock on March 25, 1998, the value of the transaction is
approximately $142 million, which includes the assumption of approximately $9.4
million of Whitehall's outstanding indebtedness. The transaction, which will be
accounted for as a pooling of interest, is expected to close at the end of the
second quarter of 1998. Whitehall had fiscal 1997 revenues of approximately
$65.8 million.

F-26

<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 amendment to this
report to be signed on its behalf by the undersigned thereunto duly authorized.

AVIATION SALES COMPANY

By:/S/ JOSEPH E. CIVILETTO
------------------------------------------
Joseph E. Civiletto
Vice President and Chief Financial Officer
(Authorized Executive Officer)

DATE: April 29, 1998