UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] For the fiscal year ended December 31, 1995
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No fee Required] For the transition period from
___________ to ____________
Commission file number: 0-16836
JETSTREAM, L.P.
Exact name of registrant as specified in its charter
Delaware 84-1053359
State or other jurisdiction I.R.S Employer
of incorporation or organization Identification No.
Attn: Andre Anderson, 10285
3 World Financial Center, 29th Floor, Zip Code
New York, New York
Address of principal executive offices
Registrant's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP DEPOSITORY UNITS (the "Units")
LIMITED PARTNERSHIP INTERESTS (underlying the Units)
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the 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. [ X ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: Not applicable
DOCUMENTS INCORPORATED BY REFERENCE:
Prospectus of the registrant dated September 10, 1987, as filed pursuant to
rule 424(c) of the Securities Act of 1933, as amended (Portions of Parts I, II,
III and IV).
Annual Report to Unitholders for the year ended December 31, 1995 (Portions of
Parts I, II, III & IV).
PART I
Item 1. Business.
General Development of Business
JetStream, L.P. (the "Partnership") is a limited partnership organized under
the laws of the State of Delaware on April 16, 1987. The general partners of
the Partnership (the "General Partners") are CIS Aircraft Partners, Inc., the
Managing General Partner ("CAP"), a Delaware corporation that is an affiliate
of Continental Information Systems Corporation, and Jet Aircraft Leasing, Inc.,
the Administrative General Partner, a Delaware corporation that is an affiliate
of Lehman Brothers Inc. ("Lehman") (See Item 10).
Although the Partnership was organized on April 16, 1987, the Partnership
conducted no activities and recognized no revenues, profits or losses prior to
October 28, 1987, at which time the Partnership commenced operations. During
the period between October 29, 1987 and November 4, 1987, the Partnership
acquired for cash nine used commercial aircraft (together, the "Aircraft"). As
of December 31, 1995, the Partnership had six of the nine original Aircraft
remaining in its portfolio. For a description of the investments in the
Aircraft, please refer to the "Portfolio Review" section and Note 4 to the
financial statements of the Partnership's Annual Report to Unitholders for the
year ended December 31, 1995, which is filed as an exhibit under Item 14 and
incorporated herein by reference.
On September 10, 1987, the Partnership commenced an offering (the "Offering")
on a "best efforts basis" of $97,900,000 of limited partnership depositary
units ("Units"). The closing of the offering occurred on October 28, 1987,
with a total of 4,895,005 Units being sold at a price of $20.00 per Unit, for a
total of approximately $97,900,000. The net proceeds of the offering after
payment of offering and organization costs and acquisition fees aggregated
$85,747,510.
Narrative Description of Business
The Partnership is engaged in the business of managing a portfolio of used
commercial aircraft subject to triple net operating leases with commercial air
carriers. The Partnership is required to dissolve and distribute all of its
assets not later than December 31, 2027. The Partnership may reinvest the
proceeds of sales of Aircraft occurring prior to October 28, 1998; thereafter,
the net proceeds of sales of Aircraft will be distributed to the partners,
after deductions of amounts necessary for working capital and certain reserves.
The Partnership's investment objectives are to:
(1) generate quarterly cash distributions to holders of Units (the
"Unitholders"), substantially tax-sheltered during the initial years of
the Partnership's operations, initially at a rate of approximately 12%,
subject to conditions stated in the prospectus pursuant to which the
Units were offered and sold (the "Prospectus"), dated September 10,
1987;
(2) preserve and protect the value of the Partnership's assets.
The following table describes the Partnership's portfolio of aircraft as of
December 31, 1995. This table provides certain operational statistics and
estimated market values for the aircraft in the portfolio. The estimated
market values of the Aircraft are affected by, and subject to future changes in
a variety of factors, including, but not limited to, the Aircrafts' usage, age
and lease rate, the credit worthiness of the lessee, government noise and
maintenance regulations and the supply and demand of aircraft in the market
place with similar lift capacity. Reference is made to the "Portfolio Review"
section and Note 4 to the Financial Statements of the Partnership's Annual
Report to Unitholders for the year ended December 31, 1995, for a discussion of
the lease terms for each aircraft. Reference is also made to the Message to
Investors section of the Partnership's Annual Report to Unitholders for the
year ended December 31, 1995, for an overview of the aircraft leasing industry.
Estimated
Aircraft Model Acquisition Net Book Market
Year Delivered Lessee Cost Value Value
MD-80 Series Continental $ 27,396,997 $ 10,592,120 $ 17,097,000
1986
B-737-200 Eastwind $ 7,601,999 $ 416,672 $ 2,312,000
1971
B-737-200 Eastwind $ 7,601,999 $ 416,672 $ 2,312,000
1971
B-737-200 ADV Delta $ 15,222,609 $ 3,459,584 $ 5,585,000
1979
B-727-200 TWA $ 5,448,499 $ 0 $ 818,500
1969
B-727-200 TWA $ 5,448,499 $ 0 $ 818,500
1969
Totals $ 68,720,602 $ 14,885,048 $ 28,943,000
- --------------------------
(CONT.)
Aircraft
Model Cumulative Cumulative
Year Lease Noise Flight Flight
Delivered Expiration (4) Compliance Cycles (5) Hours (5)
MD-80 03/15/98 Stage 3 13,660 27,240
Series
1986
B-737-200 11/30/99 Stage 2 66,730 57,800
1971
B-737-200 11/30/99 Stage 2 66,425 58,140
1971
B-737-200 09/30/99 Stage 2 33,230 50,700
ADV
1979
B-727-200 N/A(6) Stage 2 44,860 66,025
1969
B-727-200 N/A(6) Stage 2 44,330 66,080
1969
________________
NOTES:
(1) Includes a 1.5% fee paid to the Managing General Partner at the
acquisition of the Aircraft. Totals do not include aircraft which have
been sold.
(2) As of December 31, 1995.
(3) Estimated market values for the Aircraft are based upon annual
independent appraisals. These estimates are subject to a variety of
assumptions. Additionally, there can be no assurance that the
Partnership would receive an amount equal to the market value shown
above upon the sale of any of the Aircraft.
(4) Lease expiration dates do not include renewal options.
(5) As of February 8, 1996.
(6) TWA currently leases the Partnership's two remaining 727-200
non-advanced aircraft on a month-to-month basis. The Partnership's
727-200 non-advanced aircraft which was returned by TWA in November
1994 was subsequently sold by the Partnership in June 1995 for net
proceeds of approximately $752,000.
Aging Aircraft Maintenance - The Federal Aviation Administration (the "FAA"),
acting on recommendations from industry trade groups, has adopted a series of
Airworthiness Directives ("AD's") for certain Boeing and McDonnell Douglas
aircraft models. AD's are mandates requiring the airline to perform a specific
maintenance task within a specified period of time. The FAA imposes strict
requirements governing aircraft inspection and certification, maintenance,
equipment requirements, corrosion control, noise levels and general operating
and flight rules. In addition to mandating more intensive inspections of
certain structural components, including the fuselage, wing and tail sections,
certain of these AD's mandate that structural modifications to certain aircraft
be completed within specified periods, generally not less than 48 months from
the effective date of the relevant AD. Aircraft are generally subject to these
structural modification requirements based on flight cycle, flight hour and
chronological age thresholds.
Four of the Partnership's six Aircraft are subject to AD's mandating structural
modification, specifically the two B-727 aircraft, which are currently leased
to TWA, and the two B-737 aircraft leased to Eastwind. AD's presently
applicable to the Boeing aircraft owned by the Partnership require extensive
repetitive inspections of such aircraft. There can be no assurance that such
inspections will not lead to mandatory structural modifications similar to
those noted above.
The Partnership's existing leases require the lessees to maintain the
Partnership's aircraft in accordance with FAA approved maintenance programs
during the lease term. At the end of the leases, each lessee is required to
return the aircraft in airworthy condition, including compliance with all AD's
for which action is mandated by the FAA during the lease term. Thus, certain of
the modifications required by the new AD's may not be effected by the
Partnership's lessees prior to the expiration of the current leases since, in
many cases, the relevant AD will not require action before the expiration of
the lease term.
In negotiating future leases or in selling aircraft now owned by the
Partnership, the Partnership may be required to bear some or all of the costs
of compliance with future AD's or AD's that have been issued but which did not
mandate action during the previous lessee's lease term or in respect of which
the previous lessee failed to comply. The aggregate effect on the Partnership
of compliance with these standards is not determinable at this time and will
depend upon a variety of factors, including, but not limited to, the state of
the commercial aircraft market, the extent of the AD, the status of
availability of capable repair facilities and the effect, if any, that such
compliance may have on the service lives of the affected aircraft. As
described above, the cost to the Partnership of such compliance may be reduced
to the extent that current or future lessees of the Partnership's aircraft
effect such modifications under the terms of the current or future operating
leases.
Aircraft Noise - Beginning in 1985, the FAA and various airport industry task
forces released reports suggesting various alternatives for reducing the number
of Stage 2 aircraft operating in the United States, including a proposed
requirement to bring all aircraft operating in the United States into
compliance with Stage 3 requirements in the 1990s or shortly thereafter. The
FAA has categorized aircraft types according to engine noise decibel levels.
Stage 1 aircraft, which have the highest noise level, are no longer allowed to
operate from civil airports in the United States. Stage 2 aircraft meet
current FAA requirements. Stage 3 aircraft are the most quiet and will be the
future standard of all aircraft. Only one of the aircraft owned by the
Partnership is Stage 3, the remainder are Stage 2 aircraft.
Effective November 6, 1990, Congress passed the Airport Noise and Capacity Act
of 1990 (the "Act") which required the development of a National Noise Policy.
On September 25, 1991, final regulations (the "Regulations") were announced and
became effective immediately. The Regulations provide, among other things,
phase-out and non-addition rules under which the number of Stage 2 aircraft
operated by domestic carriers were limited to 75% of 1990 base levels by the
end of 1994, with further reductions to 50% of 1990 base levels by the end of
1996, 25% of 1990 base levels by the end of 1998, and ultimately to 0% by
December 31, 1999. The Regulations would allow the issuance of transferable
Stage 2 operating rights that expire in increments over the life of the
phase-out period. These transferable rights would allow an operator that at
any time reduced its Stage 2 fleet below that required by the phase-out
schedule to transfer the "unused" base level to another operator.
Several modification programs to hushkit or re-engine an aircraft to meet Stage
3 requirements have been announced, including programs for the B-727 and the
B-737 series. Hushkitting is a procedure for retrofitting existing engines to
comply with Stage 3 requirements. Re-engining is the replacement of existing
engines with technologically-advanced engines complying with Stage 3
requirements. The decision whether to hushkit or re-engine an aircraft will
depend upon a variety of factors, including, without limitation, the
differential effects of the two approaches on the operating costs of the
aircraft, the relative costs and feasibility of the two approaches and the
General Partners' assessment of the remaining useful life and fair market value
of the aircraft. Where available, hushkits currently cost up to $3.0 million
per aircraft while the costs of re-engining programs are significantly higher.
No assurances are possible in respect to the actual cost which the Partnership
would be required to pay in order to effect a hushkit or re-engining
modification as now available or as may be developed in the future. With the
exception of the Partnership's 737-200 advanced aircraft currently on-lease to
Delta, the General Partners do not believe that it is economically viable for
the Partnership to hushkit any of its Stage 2 aircraft. In addition to FAA
activity in noise abatement, other countries have adopted or are considering
adopting noise compliance standards which would have a similar effect of
reducing the ability of an airline to operate Stage 2 aircraft in such
jurisdictions. In 1989, the European Economic Community adopted a non-addition
rule which directed each member country to pass the necessary legislation to
prohibit airlines from adding Stage 2 aircraft to their fleets after November
1, 1990. The rule has specific exceptions for leased aircraft and does allow
the continued use of Stage 2 aircraft which were in operation before November
1, 1990, although adoption of rules requiring eventual phase-out of Stage 2
aircraft in the member countries is anticipated. The Partnership does not
currently have any aircraft on lease to airlines outside the United States. The
effect of these regulations limits the market for these aircraft unless they
are hushkitted to comply with Stage 3 requirements.
Competition
The aircraft leasing industry is highly competitive and the success of any
lessor is largely dependent upon the nature of the aircraft within its
portfolio. The Partnership competes with aircraft manufacturers, distributors,
airlines, and other operators, equipment managers, leasing companies, financial
institutions and other parties engaged in leasing, managing, and marketing
aircraft. Such competitors may lease or sell aircraft at lower rates or prices
than the Partnership and provide benefits, such as direct maintenance crews,
and support services which the Partnership cannot provide. Competition may
include certain affiliates of the General Partners.
Since the Partnership's aircraft are subject to operating leases, the
Partnership will be required to re-lease or sell such aircraft after the
expiration of the current lease terms. Conditions in the market for commercial
aircraft have remained intensely competitive in recent years as the number of
Stage 2, narrow-body commercial aircraft which are being offered for sale or
re-lease has remained in excess of demand.
Within this intensely competitive environment, the General Partners' ability to
renew leases or to sell the aircraft owned by the Partnership is dependent
upon, among other factors: (a) general economic conditions and economic
conditions affecting the airline industry in particular; (b) the current
operating profile of the aircraft, encompassing the age of the aircraft and the
number of hours and cycles flown and compliance with all issued AD's as well as
the general maintenance conditions of the aircraft; (c) the current fleet plans
of the major end-users of the aircraft type; (d) any costs required to
refurbish aircraft and to reconfigure aircraft to comply with all issued AD's
and to conform with similar aircraft within a potential lessee's fleet; (e) any
cost required to conform the aircraft to future Stage 3 noise restrictions; (f)
the availability to the lessee or potential lessee of other similar aircraft
from the Partnership's competition; and (g) the ability of the Managing Ge
General Partner to effectively market the aircraft. It is possible that any
future lease renewals might be at lower lease rates than the Partnership
currently receives, adversely impacting revenue.
Employees
The Partnership has no employees. The officers, directors and employees of the
General Partners and their affiliates perform services on behalf of the
Partnership. The General Partners are entitled to certain fees and
reimbursement of certain out-of-pocket expenses incurred in connection with the
performance of these management services. Reference is made to Note 7 to the
Financial Statements of the Partnership's Annual Report to Unitholders for the
year ended December 31, 1995, for a discussion of the fees and reimbursable
expenses paid to the General Partners and their affiliates.
Item 2. Properties
Incorporated by reference to the "Portfolio Review" section and Note 4 to the
Financial Statements of the Partnership's Annual Report to Unitholders for the
year ended December 31, 1995.
Item 3. Legal Proceedings
The Partnership filed an administrative claim against Pan American World
Airways, Inc. ("Pan Am") in the Bankruptcy Court as a result of Pan Am's return
of the Partnership's aircraft in November 1991. The aircraft was subsequently
sold in February 1992. The Partnership is seeking to recover certain rent and
maintenance costs associated with Pan Am's failure to comply with the return
provisions of its lease. Given the status of Pan Am's estate, the General
Partners are doubtful that the Partnership will obtain a significant recovery.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the fourth quarter of 1995.
PART II
Item 5. Market for the Partnership's Limited Partnership Interests and Related
Security Holders Matters The Units represent the economic rights attributable
to limited partnership interests in the Partnership.
There is no established public trading market for the purchase and sale of
Units. As of December 31, 1995, the number of Unitholders was 7,482.
Information concerning the quarterly cash distributions paid per limited
partnership unit is incorporated herein by reference to the inside front cover,
the Message to Investors and Note 6 of the Notes to Financial Statements of the
Partnership's Annual Report to Unitholders for the year ended December 31,
1995.
Item 6. Selected Financial Data
Incorporated by reference to the "Financial Results" section of the
Partnership's Annual Report to Unitholders for the year ended December 31,
1995.
Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
Liquidity and Capital Resources
As of December 31, 1995, all six of the Partnership's aircraft were on-lease.
Two aircraft were on lease to Eastwind Airlines ("Eastwind"), two aircraft were
on-lease to Trans World Airlines Inc. ("TWA"), one aircraft was on-lease to
Delta Air Lines, Inc. ("Delta") and one aircraft was on-lease to Continental
Airlines ("Continental").
The Partnership entered into an agreement with Eastwind Airlines ("Eastwind")
in July 1995 to lease the Partnership's two 737-200 non-advanced aircraft,
which had previously been on-lease to USAir. Eastwind placed the aircraft into
service in late August 1995. Under the terms of the lease agreements, which
expire on November 30, 1999, Eastwind pays the Partnership a monthly lease rate
of $35,000 per aircraft. In addition, the airline is required to pay the
Partnership an engine charge based on usage and is also required to pay
airframe maintenance charges effective August 1995. The Partnership will fund
approximately $850,000 for heavy maintenance checks on each of the aircraft
on-lease to Eastwind. These heavy maintenance or "Q" checks, which are
expected to be completed by mid-year, entail refurbishing the airframe and
repairing or replacing various time sensitive components of the aircraft,
excluding the engines. It is anticipated that costs incurred by the
Partnership in connection with the Q checks will be recovered by the
maintenance charges which are expected to be paid by Eastwind over the term of
the leases. Any costs associated with the Q checks in excess of $850,000 will
be borne by Eastwind. During the course of the Q checks, which are anticipated
to take approximately four to five weeks for each aircraft, the Partnership
will not receive rental payments from Eastwind.
TWA continues to lease the Partnership's two remaining 727-200 non-advanced
aircraft on a month-to-month basis and remains current on its monthly lease
payments of $32,500 per aircraft. To date, TWA has not given any indication to
the Partnership as to how long it will continue to lease these aircraft. Once
the aircraft are returned to the Partnership, the General Partners believe that
it will be very difficult to re-lease them to another airline.
An agreement was reached with Delta in November 1995 to amend and extend the
lease for the Partnership's 737-200 advanced aircraft until September 30, 1999
at a monthly lease rate of $80,000. While this rate represents a decline from
the previous rate of $95,000 per month, it is in line with prevailing market
rates. Under the terms of the amended lease, Delta does not have the option of
returning the aircraft prior to the new expiration date as it did under the
previous lease agreement.
Pursuant to the terms of the lease agreement executed with Continental in
February 1994, the Partnership agreed to provide up to $600,000 of financing to
the airline to perform modification work on the Partnership's MD-80 Series
aircraft, including advanced avionics, interior furnishings and exterior paint.
On June 7, 1994, the Partnership made its first advance to Continental in the
amount of $278,203. The modification financing is repayable over the life of
the lease at an interest rate of 8% per annum for advances made before February
1, 1996, and, with respect to advances made after February 1, 1996, a rate per
annum equal to the yield to maturity of United States Treasury Notes having a
maturity closest to the remaining term of the lease, plus 4.25 percent. As of
December 31, 1995, Continental had made principal payments on the loan totaling
$105,567. Payments made on this loan are the reason for the decrease in the
Partnership's loan receivable balance, which totaled $172, 636 at December 31,
1995, compared to $239,994 at December 31, 1994. Continental makes monthly
lease payments to the Partnership of $180,000.
The Partnership is faced with an intensely competitive environment in the
aircraft leasing industry which has had a material impact on the business of
the Partnership. In particular, the large oversupply of aircraft available for
lease has resulted in significant reductions in market lease rates over the
past several years, thereby impacting the lease rates obtained by the
Partnership as leases for the aircraft have been either renewed or extended.
At December 31, 1995, the Partnership had unrestricted cash and cash
equivalents of $3,494,433, as compared to $2,785,283 at December 31, 1994. The
$709,150 increase in unrestricted cash and cash equivalents is attributable to
the proceeds received from the sale in June 1995 of the 727-200 non-advanced
aircraft which TWA returned to Partnership subsequent to its lease expiration
in November 1994. The Partnership's restricted cash balance of $321,797 at
December 31, 1995 remains unchanged from December 31, 1994. The Partnership's
restricted cash is comprised of the balance of modification work financing
committed to Continental in accordance with the 1994 lease agreement.
At December 31, 1995, the Partnership had a rent receivable balance totaling
$58,758, compared to $0 at December 31, 1994. The balance at December 31, 1995
represents maintenance and engine charges earned by the Partnership in
accordance with the lease agreements with Eastwind.
As of December 31, 1995, the Partnership had a security deposit balance
totaling $50,000, compared to $0 at December 31, 1994. The balance at
December 31, 1995 represents a security deposit made to the Partnership by
Eastwind in conjunction with the lease executions for the Partnership's two
737-200 non-advanced aircraft in the third quarter of 1995.
During the year ended December 31, 1995, the Partnership paid distributions to
the Unitholders for the period from October 1, 1994 to December 31, 1994 and
for the first three quarters of 1995, in the amounts of $1,162,881 and
$3,185,357, respectively, which represent approximately $.24 and approximately
$.65 per Unit, respectively. At December 31, 1995, the Partnership had a
distribution payable to Unitholders of $1,048,190 or approximately $.21 per
Unit. This amount reflects the 1995 fourth quarter cash distribution which was
funded from cash flow from operations. This distribution was subsequently paid
on February 2, 1996. Future cash distributions will be determined on a
quarterly basis after an evaluation of the Partnership's current and expected
financial position.
On March 18, 1996, based upon, among other things, the advice of Partnership
counsel, Skadden, Arps, Slate, Meagher & Flom, the General Partners adopted a
resolution that states, among other things, if a Change of Control (as defined
below) occurs, the General Partners may distribute the Partnership's cash
balances not required for its ordinary course day-to-day operations. "Change
of Control" means any purchase or offer to purchase more than 10% of the Units
that is not approved in advance by the General Partners. In determining the
amount of the distribution, the General Partners may take into account all
material factors. In addition, the Partnership will not be obligated to make
any distribution to any partner and no partner will be entitled to receive any
distribution until the General Partners have declared the distribution and
established a record date and distribution date for the distribution. The
Partnership filed a Form 8-K disclosing this resolution on March 21, 1996.
Results of Operations
Substantially all of the Partnership's revenue was generated from the leasing
of the Partnership's aircraft to commercial air carriers under triple net
operating leases. The balance of the Partnership's revenue during 1995
consisted of interest income.
1995 compared to 1994
For the twelve months ended December 31, 1995, the Partnership reported a net
loss of $170,290 as compared to a net loss of $783,993 for the corresponding
period in 1994. The decrease in net loss is primarily attributable to a gain
on the June 1995 sale of the 727-200 non-advanced aircraft formerly on-lease to
TWA totaling $446,375, and, to a lesser extent, an increase in interest income
and a decline in depreciation expense. These factors were partially offset by
a decrease in rental income during 1995 as compared to 1994.
Rental income for the twelve months ended December 31, 1995 was $4,837,439 as
compared to $5,067,500 in 1994. The decrease in rental income is primarily
attributable to (i) the lease expiration in November 1994 and subsequent sale
in June 1995 of the 727-200 non-advanced aircraft formerly on-lease to TWA,
(ii) the reduction of the monthly lease rates paid by TWA as a result of the
lease extensions negotiated for the Partnership's two remaining 727-200
non-advanced aircraft in the fourth quarter of 1994, (iii) the temporary idle
status of the Partnership's two 737-200 non-advanced aircraft subsequent to the
expiration of the leases with USAir in May 1995 and (iv) the reduction of the
monthly lease rate paid by Delta in accordance with the lease extension for the
Partnership's 737-200 advanced aircraft effected in November 1995.
Interest income for the twelve months ended December 31, 1995 totaled $215,050
as compared to $112,523 in 1994. The increase is primarily attributable to an
increase in the Partnership's invested cash balance, higher interest rates, and
interest income earned on the loan to Continental.
Depreciation expense for the twelve months ended December 31, 1995 was
$4,919,101 as compared to $5,224,476 for the corresponding period in 1994. The
decrease is primarily attributable to the June 1995 sale of the 727-200
non-advanced aircraft, as discussed above.
General and administrative expenses for the twelve months ended December 31,
1995 totaled $191,715 as compared to $212,674 for the corresponding period in
1994. The decrease is primarily attributable to legal expenses which were
incurred in the first quarter of 1994 in connection with the lease agreement
with Continental.
For the year ended December 31, 1995, operating expenses totaled $49,707 as
compared to $71,789 in 1994. The decrease is primarily attributable to a
decrease in insurance expenditures during 1995, partially offset by increased
storage and maintenance fees incurred by the Partnership during 1995, primarily
as a result of the idle status of the 727-200 non-advanced aircraft which was
returned to the Partnership by TWA in the fourth quarter of 1994 and
subsequently sold in June 1995.
1994 compared to 1993
For the twelve months ended December 31, 1994, the Partnership reported a net
loss of $783,993 as compared to a net loss of $17,876,870 for the corresponding
period in 1993. The decrease in net loss is primarily attributable to the
write-down of the net book values of the Partnership's aircraft in December
1993. Excluding the writedown, the Partnership would have realized net income
of $389,152 for the year ended December 31, 1993.
Rental income for the twelve months ended December 31, 1994, was $5,067,500 as
compared to $4,979,382, respectively, for the corresponding period in 1993.
The increase is due to the new lease agreement with Continental which became
effective on March 15, 1994, partially offset by a reduction in income
resulting from the new lease agreement with TWA and the absence of revenue from
the aircraft formerly leased to Carnival Airlines that was sold in February
1994.
Interest income for the twelve months ended December 31, 1994 totaled $112,523
as compared to $104,832 for the corresponding period in 1993. The increase is
mainly attributable to an increase in interest rates on the Partnership's cash
accounts, and interest income recorded on the loan to Continental.
Other income for the twelve months ended December 31, 1994 was $13,228 as
compared to $2,177,884 for the corresponding period in 1993. Upon the
expiration of the previous lease with Continental in April 1993, $2,060,656
remaining in the maintenance reserve previously established to provide funding
for maintenance on the Partnership's MD-80 Series aircraft was retained by the
Partnership in accordance with the terms of the lease agreement and recognized
as other income.
Depreciation expense totaled $5,224,476 for the twelve months ended December
31, 1994 as compared to $6,135,828 for the corresponding period in 1993. The
decrease is primarily attributable to the write-down of the net book values of
the Partnership's aircraft in December 1993.
Management fees for the twelve months ended December 31, 1994, were $448,305 as
compared to $360,017 for the corresponding period in 1993. Management fees are
based on rental income and operating cash flow. The increase is attributable
to higher rental income during 1994 as a result of the new lease agreement with
Continental.
For the twelve months ended December 31, 1994, operating expenses were $71,789
as compared to $170,071 for the corresponding period in 1993. Operating
expenses were higher in 1993 primarily as a result of storage, maintenance and
insurance costs incurred as a result of the idle status of the Partnership's
MD-80 Series aircraft.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1995.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Partnership
The Partnership has no officers or directors. The General Partners jointly
manage and control the affairs of the Partnership and have
general responsibility and authority in all matters affecting its business.
Information concerning the directors and executive officers of the General
Partners are as follows:
Jet Aircraft Leasing Inc.
Name Office
Moshe Braver Director and President
John Stanley Vice President and Chief Financial Officer
Certain officers and directors of Jet Aircraft Leasing, Inc. are now serving
(or in the past have served) as officers or directors of entities which act as
general partners of a number of limited partnerships which have sought
protection under the provisions of the Federal Bankruptcy Code. Those
partnerships sought the protection of the bankruptcy laws to protect the
partnerships' assets from the loss through foreclosure.
Moshe Braver, 42, is currently a Managing Director of Lehman Brothers and has
held such position since October 1985. During this time, he has held positions
with the Business Analysis Group, International and Capital Markets
Administration and currently, with the Diversified Asset Group. Mr. Braver
joined Shearson Lehman Brothers in August 1983 as Senior Vice President. Prior
to joining Shearson, Mr. Braver was employed by the accounting firm of Coopers
& Lybrand from January 1975 through August 1983 as an Audit Manager. He
received a Bachelor of Business Administration degree from Bernard Baruch
College in January 1975 and is a Certified Public Accountant.
John D. Stanley, 33, Vice President, has worked with the Diversified Asset
Group since October 1988. Mr. Stanley received a B.A. in Economics from the
University of Wisconsin-Madison in 1984 and a Master of Management Degree from
Northwestern University in 1988. From 1984 to 1986, Mr. Stanley worked as a
Financial Analyst for Kidder, Peabody and Co.
CIS Aircraft Partners, Inc.
Name Office
Thomas J. Prinzing Director and President
Frank J. Corcoran Director, Vice President and Treasurer
Robin A. Konicek Vice President
Susan E. Weatherwax Secretary
As reported on the Partnership's Current Report on Form 8-K, dated February 28,
1989, on Friday, January 13, 1989, Continental Information Systems Corporation,
and certain of its subsidiaries, including CIS Corporation, filed voluntary
petitions for reorganization under Chapter 11 of the Federal Bankruptcy Code.
As described below, various directors and executive officers of CAP hold
similar positions for Continental Information Systems Corporation, CIS
Corporation and such subsidiaries.
On November 29, 1994, the Bankruptcy Court for the Southern District of New
York confirmed the Trustee's Proposed Joint Plan of Reorganization. The
approved Plan became effective on December 21, 1994. As a result of the
reorganization, the Directors and Officers of CAP resigned from and took on
various directorships for Continental Information Systems Corporation, CIS
Corporation, and their subsidiaries.
Thomas J. Prinzing, 50, is President of CIS Aircraft Partners, Inc. and of
Continental Information Systems Corporation. From 1991 to December 1995, Mr.
Prinzing was President of CIS Aircraft Partners, Inc. Mr. Prinzing, a
Certified Public Accountant, received a Bachelor of Commerce degree from the
University of Windsor.
Frank J. Corcoran, 45, joined CIS Corporation in November 1994 as Senior Vice
President and Chief Financial Officer. From 1992 until joining CIS
Corporation, Mr. Corcoran was Vice President and General Manager of Unisys
Finance Corporation, an equipment leasing and finance subsidiary of Unisys
Corporation. Previously, he served as Chief Financial Officer and Controller
of Unisys Finance Corporation. Prior to that, Mr. Corcoran held positions of
Corporate Tax Manager at Unisys Corporation; Controller, U.S. Operations of
Lucas Industries, Inc.; Financial Analyst with Detroit Edison Company; and a
Senior Accountant with KPMG Peat Marwick. Mr. Corcoran holds a B.S. in
Business Administration from Wayne State University, an M.S. in Taxation from
Walsh College, and is a Certified Public Accountant.
Robin A. Konicek, 39, is a Vice President of CIS Aircraft Partners, Inc. and is
responsible for domestic and international aircraft marketing. She has been
active in the financing, trading and management of aircraft since 1982. Prior
to joining CIS in 1986, Ms. Konicek was a Vice President of Crocker Bank
Airlines and Aerospace Group, with major responsibility for developing the U.S.
market. She holds an A.B. from Stanford University and an M.B.A. from the
University of California, Los Angeles.
Susan E. Weatherwax, 38, is Senior Counsel and Assistant Secretary of CIS
Corporation. She has been employed at CIS Corporation since August 1987 and
prior to that served as Corporate Counsel of United Computer Capital
Corporation. Ms. Weatherwax received a Bachelor of Arts degree from Indiana
University and her Juris Doctor from Syracuse University College of Law.
Item 11. Executive Compensation
No compensation was paid by the Partnership to the officers and directors of
the General Partners. See Item 13 below for a description of the compensation
and fees paid to the General Partners and their affiliates by the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners As of the date hereof,
no person is known by the Partnership to be the beneficial owner of
more than five percent of the Units of the Partnership.
(b) Security ownership of management The Partnership has no directors or
officers, and neither of the General Partners of the Partnership owns
any Units. The Assignor Limited Partners for the Partnership, CIS
Assignor L.P.A., Inc. (an affiliate of CIS), owns 5 Units.
None of the directors or officers of the General Partners owned any
Units as of December 31, 1995.
(c) Changes in control Other than as described herein, the Partnership
knows of no arrangements, the operation of the terms of which may at a
subsequent date result in a change in control of the Partnership.
Item 13. Certain Relationships and Related Transactions.
The General Partners and their affiliates received or will receive certain
types of compensation, fees, or other distributions in connection with the
operation of the Partnership. The fees and compensation were not determined
by, and may not necessarily reflect, arm's length negotiations. None of the
officers and directors of the General Partners received any compensation from
the Partnership. First Data Investor Services Group, an unaffiliated company,
provides partnership accounting and investor relations services for the
Partnership. Prior to May 1993, these services were provided by an affiliate
of a general partner. Transfer agent services and certain tax reporting
services are provided by Service Data Corporation, an unaffiliated company.
For additional information on fees paid to the General Partners and affiliates,
refer to Note 7 of the Notes to the Financial Statements of the Partnership's
Annual Report to Unitholders for the year ended December 31, 1995.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements:
Page
Number
Balance Sheets - December 31, 1995 and 1994 (1)
Statements of Partners' Capital (Deficit) - For the years
ended December 31, 1995, 1994 and 1993 (1)
Statements of Operations - For the years ended
December 31, 1995, 1994 and 1993 (1)
Statements of Cash Flows - For the years ended
December 31, 1995, 1994 and 1993 . (1)
Notes to Financial Statements (1)
Report of Independent Public Accountants (1)
(1) Incorporated by reference to the Partnership's Annual Report to
Unitholders for the year ended December 31, 1995.
2. Financial Statement Schedules
No schedules are presented because the information is not
applicable or is included in the Financial Statements or the
notes thereto.
3. Exhibits
(3) Articles of Incorporation and bylaws (Incorporated by
reference to the Partnership's Prospectus filed with the
Commission on April 17, 1987.)
(4) Depositary Agreement (Incorporated by reference to
Exhibit 4.5 to the Partnership's Registration Statement on Form
S-1 filed with the Commission on April 17, 1987.)
(10) Escrow Agreement (Incorporated by reference to Exhibit
10.12 to the Partnership's Registration Statement on Form S-1
filed with the Commission on April 17, 1987.)
(13) Annual Report to Unitholders for the year ended
December 31, 1995.
(27) Financial Data Schedule
(b) The Partnership filed no current reports on Form 8-K during the last
quarter of the period covered on this Report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
JETSTREAM, L.P.
BY: Jet Aircraft Leasing Inc.
Administrative General Partner
Date: March 22, 1996
BY: /s/Moshe Braver
Name: Moshe Braver
Title: Director and President
BY: CIS Aircraft Partners, Inc.
Managing General Partner
Date: March 22, 1996
BY: /s/Thomas J. Prinzing
Name: Thomas J. Prinzing
Title: Director and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
CIS AIRCRAFT PARTNERS, INC.
A General Partner
Date: March 22, 1996
BY: /s/Thomas J. Prinzing
Thomas J. Prinzing
Director and President
Date: March 22, 1996
BY: /s/Frank J. Corcoran
Frank J. Corcoran
Director, Vice President
and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
JET AIRCRAFT LEASING INC.
A General Partner
Date: March 22, 1996
BY: /s/Moshe Braver
Moshe Braver
Director and President
Date: March 22, 1996
BY: /s/John Stanley
John Stanley
Vice President and
Chief Financial Officer
JetStream, L.P.
EXHIBIT 13
JetStream, L.P.
1995 Annual Report
JetStream, L.P. commenced operations in 1987, and was formed to acquire used
commercial aircraft subject to triple net operating leases with commercial
aircraft carriers. Since inception, limited partners have received cash
distributions totaling approximately $14.36 per $20.00 limited partnership unit
("Unit"). The following table provides the quarterly cash distributions per
Unit paid by the Partnership for the years ended December 31, 1995 and 1994.
Quarter Declared 1995 1994
1st Quarter $ .220 $ .255
2nd Quarter .217 .261
3rd Quarter .214 .247
4th Quarter .214 .237
TOTAL $ .865 $ 1.00
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144-2596 Attn: Financial Communications
(800) 223-3464 (select option 1) (800) 223-3464 (select option 2)
Contents
1 Message to Investors
3 Portfolio Review
4 Financial Statements
7 Notes to Financial Statements
13 Report of Independent Public Accountants
Message to Investors
We are pleased to present for your review the 1995 Annual Report for
JetStream, L.P. (the "Partnership"). This message includes a brief overview of
conditions in the airline and aircraft leasing industries, an update on the
Partnership's portfolio of aircraft and highlights of the Partnership's
financial results for the past five years. Following this letter are the
Partnership's audited financial statements for the year ended December 31,
1995.
Industry Overview
After years of massive losses, the U.S. airline industry showed signs of
recovery in the past year. U.S. airlines realized overall net profits of
approximately $2 billion in 1995, as compared to a total loss of approximately
$280 million in 1994. Primary among the factors that contributed to the
turnaround in 1995 were the ability of airlines to sustain higher air fares, an
increase in passenger traffic and cost-cutting efforts by the major airlines,
in an effort to improve cash flow and compete more effectively against
low-cost, short-haul air carriers. While industry analysts are hopeful that
conditions will continue to improve through 1996, such improvement will likely
be modest and could be tempered by mounting labor issues, consumer satisfaction
issues and continued competition from low-cost air carriers.
While the improvement in the airline industry had a modest positive impact on
the level of leasing activity for certain types of aircraft, overall
conditions in the aircraft leasing industry remain competitive, particularly
for lessors of older Stage 2 aircraft, as there still remains a lingering
oversupply of this type of aircraft available for lease. Furthermore, future
viable leasing opportunities will be limited as a result of the implementation
of noise compliance regulations developed in accordance with the Airport Noise
and Capacity Act of 1990, which requires airlines to reduce the number of
older aircraft in their fleets. These regulations provide, among other
things, phase-out and non-addition rules under which the number of Stage 2
aircraft operated by domestic carriers were limited to 75% of 1990 base levels
by the end of 1994, with further reductions to 50% of 1990 base levels by the
end of 1996, 25% of 1990 base levels by the end of 1998 and ultimately to 0%
by December 31, 1999. The scheduled phase-out of Stage 2 aircraft combined
with the prolonged difficulties in the airline industry during the first half
of the 1990's has had a substantial impact on the aircraft leasing industry
and on residual aircraft values of Stage 2 aircraft, such as the
Partnership's. The level of demand for aircraft will continue to be a
function of changes in passenger demand and the ability of operators to match
demand with their seat availability.
Portfolio Update
The Partnership's investment consists of a fleet of six commercial aircraft,
all of which are currently on-lease. During the past year, the General
Partners were successful in negotiating a lease extension with Delta Air Lines
("Delta") for the Partnership's 737-200 advanced aircraft and new leases with
Eastwind Airlines ("Eastwind"), a start-up airline, for the Partnership's two
737-200 non-advanced aircraft. The leases with Eastwind averted a decrease in
the Partnership's rental revenue and, consequently, in the level of cash
distributions to limited partners as the Partnership encountered significant
difficulties in finding another lessee in light of the problems in the leasing
market for older Stage 2 aircraft, as discussed above. While Eastwind has
posted operating losses since commencing operations in the third quarter of
1995, it remains current on its lease payments to the Partnership. The
Partnership will fund approximately $850,000 for heavy maintenance checks on
each of the aircraft on lease to Eastwind. These heavy maintenance or "Q"
checks, which are expected to be completed by mid-year, entail refurbishing the
airframe and repairing or replacing various time-sensitive components of the
aircraft, excluding the engines. It is anticipated that costs incurred by the
Partnership in connection with the Q checks will be recovered by the
maintenance charges which are expected to be paid by Eastwind over the term of
the leases. Any costs associated with the Q checks in excess of $850,000 will
be borne by Eastwind. During the course of the Q checks, which are anticipated
to take approximately four to five weeks for each aircraft, the Partnership
will not receive rental payments from Eastwind.
Of the Partnership's three remaining aircraft, one is on-lease to Continental
Airlines ("Continental") and two are on-lease to Trans World Airlines ("TWA"),
which emerged from Chapter 11 Bankruptcy proceedings in August 1995. TWA
continues to lease the Partnership's two remaining 727-200 aircraft on a
month-to-month basis and has not given any indication as to how long it will
continue to lease these aircraft. Once the aircraft are returned to the
Partnership, the General Partners believe that it will be very difficult to
re-lease them to another airline and the level of cash available for
distribution to limited partners will in all likelihood be reduced. Please
refer to the Portfolio Review section on page 3 of this report for additional
information on the leasing status of the Partnership's aircraft.
Financial Results
The following table summarizes the Partnership's financial results for the
years ended December 31, 1995, 1994, 1993, 1992 and 1991. For additional
information, please refer to the financial statements and notes to the
financial statements beginning on page 4 of this report.
1995 1994 1993 1992 1991
Rental
Revenues $ 4,837,439 $ 5,067,500 $ 4,979,382 $ 7,696,005 $10,829,114
Write-down
of Aircraft - - 18,266,022 - -
Total
Expenses 5,669,154 5,977,244 25,138,968 7,181,496 10,446,082
Net Income
(Loss) (170,290) (783,993) (17,876,870) 672,078 647,877(1)
Net Income
(Loss) per
Limited
Partnership
Unit(2) (0.03) (0.16) (3.62) .14 .13(1)
Total
Assets 18,936,402 23,457,496 29,886,833 55,476,952 64,522,301(1)
Partners'
Capital 17,492,977 21,939,577 27,674,021 50,067,951 57,554,215(1)
Net Cash
Provided by
Operating
Activities 4,282,201 6,301,101 3,979,973 6,516,611 10,566,761
Cash
Distributions
per
Unit(2)(3) .865 1.00 .91 1.65 2.30
(1) Includes a provision for loss of $2,897,697 on disposition of assets
reflecting the February 13, 1992 sale of the Boeing 727-200 previously
on lease to Pan Am.
(2) 4,895,005 Units outstanding.
(3) Distribution amounts are reflected in the year for which they are
declared. The Partnership's fourth quarter cash distribution is usually paid in
late January or early February of the following year.
- - Rental revenues for the year ended December 31, 1995 decreased from
1994, primarily due to; (i) the lease expiration in November 1994 and
subsequent sale in June 1995 of the 727-200 non-advanced aircraft
formerly on-lease to TWA, (ii) the reduction in the monthly lease rates
paid by TWA as a result of the lease extensions negotiated for the
Partnership's two remaining 727-200 non-advanced aircraft in the fourth
quarter of 1994, (iii) the idle status of the Partnership's two 737-200
non-advanced aircraft subsequent to the expiration of the leases with
USAir in May 1995 and (iv) the reduction in the monthly lease rate paid
by Delta in accordance with the lease extension for the Partnership's
737-200 advanced aircraft effected in November 1995.
- - The decrease in net loss from 1994 to 1995 is primarily attributable to
a gain on the June 1995 sale of the 727-200 non-advanced aircraft
totaling $446,375, and, to a lesser extent, an increase in interest
income and a decline in depreciation expense. These items were
partially offset by the decrease in rental income.
- - The highly competitive and weakened conditions in the aircraft leasing
industry during the past several years have had a significant negative
impact on the residual value of the Partnership's fleet of aircraft. It
is the General Partners' belief that the total value has declined
substantially. Accordingly, as of December 31, 1993, the General
Partners reduced the carrying value of the aircraft by $18,266,022.
Excluding the write-down, the Partnership would have realized net
income of $389,152 for the year ended December 31, 1993. The
write-down is also the primary reason for the increase in total
expenses during 1993.
Summary
The General Partners will continue their efforts to effectively manage the
Partnership's assets. To that end, our focus remains on keeping the
Partnership's aircraft on-lease and generating revenue. It is important to
note, however, that since the total return from your investment in the
Partnership is dependent upon the aircrafts' ultimate selling prices, declines
in residual values over the past several years have had an adverse impact on
your investment. The future performance of the Partnership will be dependent
upon the General Partners' ability to keep the remaining aircraft on-lease,
which, in turn, is dependent on the strength of the airline industry and the
stabilization of the supply and demand for used aircraft. We will continue to
update you on the status of the Partnership's operations in future
correspondence.
Very truly yours,
Jet Aircraft Leasing Inc. CIS Aircraft Partners, Inc.
A General Partner A General Partner
/s/Moshe Braver /s/Thomas J. Prinzing
Moshe Braver Thomas J. Prinzing
President President
March 22, 1996
Portfolio Review
Following is a review of leasing activity during 1995:
- - 737-200 Non-advanced Aircraft - The Partnership entered into an agreement
with Eastwind Airlines in July 1995 to lease the Partnership's two 737-200
non-advanced aircraft, which had previously been on-lease to USAir.
Eastwind placed the aircraft into service in late August 1995. Under the
terms of the lease agreements, which expire on November 30, 1999, Eastwind
pays the Partnership a monthly lease rate of $35,000 per aircraft. In
addition, the airline is required to pay the Partnership an engine charge
based on usage and is also required to pay airframe maintenance charges
effective August 1995.
- - 737-200 Advanced Aircraft - An agreement was reached with Delta in November
1995 to amend and extend the current lease for this aircraft until
September 30, 1999 at a monthly lease rate of $80,000. While this rate
represents a decline from the previous rate of $95,000 per month, it is in
line with prevailing market rates. Under the terms of the amended lease,
Delta does not have the option of returning the aircraft prior to the
new expiration date as it did under the previous lease agreement.
The following table highlights the Partnership's portfolio of aircraft as of
December 31, 1995 and includes estimated market values as of that date.
Estimated
Aircraft Model Acquisition Market Lease Noise
Year Delivered Lessee Cost (1) Value (2) Expiration Compliance
MD-80 Series Continental $27,396,997 $17,097,000 03-15-98 Stage 3
1986
B-737-200 Eastwind 7,601,999 2,312,000 11-30-99 Stage 2
1971
B-737-200 Eastwind 7,601,999 2,312,000 11-30-99 Stage 2
1971
B-737-200 ADV Delta 15,222,609 5,585,000 09-30-99 Stage 2
1979
B-727-200 TWA 5,448,499 818,500 N/A(4) Stage 2
1969
B-727-200 TWA 5,448,499 818,500 N/A(4) Stage 2
1969
(1) Includes a 1.5% fee paid to the Managing General Partner at the
acquisition of the aircraft.
(2) Estimated market values for the aircraft are based upon annual
independent appraisals. These estimates are subject to a variety of
assumptions. Additionally, there can be no assurance that the Partnership
would receive an amount equal to the market value shown above upon the sale of
any of the aircraft.
(3) Lease expiration dates do not include renewal options.
(4) TWA currently leases the Partnership's two 727-200 non-advanced
aircraft on a month-to month basis.
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Aircraft, at cost $ 24,287,000 $ 25,334,000
Less-accumulated depreciation 9,401,952 5,224,476
14,885,048 20,109,524
Cash and cash equivalents 3,494,433 2,785,283
Restricted cash 321,797 321,797
Rent receivable
(net of allowance for doubtful accounts
of $70,000 in 1995) 58,758 0
Loan receivable 172,636 239,994
Interest receivable 605 898
Prepaid expenses 3,125 0
Total Assets $ 18,936,402 $ 23,457,496
Liabilities and Partners' Capital
Liabilities:
Accounts payable
and accrued expenses $ 244,647 $ 253,292
Distribution payable 1,058,778 1,174,627
Deferred revenue 90,000 90,000
Security deposit 50,000 0
Total Liabilities 1,443,425 1,517,919
Partners' Capital (Deficit):
General Partners (803,082) (758,616)
Limited Partners
(4,895,005 units outstanding) 18,296,059 22,698,193
Total Partners' Capital 17,492,977 21,939,577
Total Liabilities and
Partners' Capital $18,936,402 $ 23,457,496
Statements of Partners' Capital (Deficit)
For the years ended December 31, 1995, 1994 and 1993
General Limited
Partners Partners Total
Balance at January 1, 1993 $ (477,332) $ 50,545,283 $ 50,067,951
Net loss (178,769) (17,698,101) (17,876,870)
Cash distributions (45,170) (4,471,890) (4,517,060)
Balance at December 31, 1993 (701,271) 28,375,292 27,674,021
Net loss (7,840) (776,153) (783,993)
Cash distributions (49,505) (4,900,946) (4,950,451)
Balance at December 31, 1994 (758,616) 22,698,193 21,939,577
Net loss (1,703) (168,587) (170,290)
Cash distributions (42,763) (4,233,547) (4,276,310)
Balance at December 31, 1995 $ (803,082) $ 18,296,059 $ 17,492,977
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Income 1995 1994 1993
Rental $ 4,837,439 $ 5,067,500 $ 4,979,382
Interest 215,050 112,523 104,832
Other (Note 4) - 13,228 2,177,884
Total Income 5,052,489 5,193,251 7,262,098
Expenses
Depreciation 4,919,101 5,224,476 6,135,828
Management fees 438,631 448,305 360,017
General and administrative 191,715 212,674 207,030
Operating 49,707 71,789 170,071
Bad debt expense 70,000 20,000 -
Write-down of aircraft
(Note 2) - - 18,266,022
Total Expenses 5,669,154 5,977,244 25,138,968
Net Loss from Operations $ (616,665) $ (783,993) $(17,876,870)
Other Income
Gain on sale of aircraft
(Note 5) 446,375 - -
Net Loss $ (170,290) $ (783,993) $(17,876,870)
Net Loss Allocated:
To the General Partners $ (1,703) $ (7,840) $ (178,769)
To the Limited Partners (168,587) (776,153) (17,698,101)
$ (170,290) $ (783,993) $(17,876,870)
Per limited partnership unit
(4,895,005 units outstanding) $ (0.03) $ (0.16) $ (3.62)
Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
Cash Flows from Operating Activities: 1995 1994 1993
Net loss$ $ (170,290) $ (783,993) $(17,876,870)
Adjustments to reconcile net
loss to net cash
provided by operating activities:
Depreciation 4,919,101 5,224,476 6,135,828
Write-down of aircraft - - 18,266,022
Gain on sale of aircraft (446,375) - -
Restricted cash - 2,727,087 (160,311)
Increase (decrease) in cash
arising from changes
in operating assets and liabilities:
Rent receivable (58,758) 20,000 45,000
Interest receivable 293 6,405 (3,463)
Prepaid expenses (3,125) 36,841 (20,796)
Accounts payable and accrued expenses (8,645) 1,285 (39,144)
Maintenance payable - (791,000) (2,017,573)
Deferred revenue - (60,000) (348,720)
Security deposit 50,000 (80,000) -
Net cash provided by
operating activities 4,282,201 6,301,101 3,979,973
Cash Flows from Investing Activities:
Loan receivable 67,358 (239,994) -
Proceeds from sale of aircraft - net 751,750 350,000 -
Net cash provided by investing activities 819,108 110,006 -
Cash Flows from Financing Activities:
Cash distributions (4,392,159) (4,715,629) (5,307,812)
Net cash used for financing activities (4,392,159) (4,715,629) (5,307,812)
Net increase (decrease) in cash and
cash equivalents 709,150 1,695,478 (1,327,839)
Cash and cash equivalents at beginning
of period 2,785,283 1,089,805 2,417,644
Cash and cash equivalents at end
of period $ 3,494,433 $ 2,785,283 $ 1,089,805
Notes to Financial Statements
December 31, 1995, 1994 and 1993
1. Organization
JetStream, L.P. (the "Partnership"), a Delaware limited partnership, was formed
on April 16, 1987 for the purpose of acquiring and leasing used commercial
aircraft. The Managing General Partner of the Partnership is CIS Aircraft
Partners, Inc. ("CAP"), a third-tier, wholly owned subsidiary of Continental
Information Systems Corporation. The Administrative General Partner is Jet
Aircraft Leasing Inc. ("JAL"), formerly Hutton Aircraft Leasing, Inc., an
affiliate of Lehman Brothers Inc.
Upon formation of the Partnership, the General Partners each contributed $500
and the initial Limited Partner contributed $100 for five limited partner
units. An additional 4,895,000 limited partnership depositary units were then
sold at a price of $20.00 per unit. The Partnership had a closing for these
additional units on October 28, 1987 and received gross offering proceeds of
$97,900,000.
The Partnership is required to dissolve and distribute all of its assets no
later than December 31, 2027. The Partnership may reinvest the proceeds from
sales of aircraft occurring prior to October 28, 1998. Thereafter, the net
proceeds of any sales of aircraft will be distributed to the partners.
Title to the leased aircraft owned by the Partnership is held by nonaffiliated
trusts of which the Partnership is the beneficiary. The purpose of this method
of holding title is to satisfy certain registration requirements of the Federal
Aviation Administration.
On March 18, 1996, based upon, among other things, the advice of Partnership
counsel, Skadden, Arps, Slate, Meagher & Flom, the General Partners adopted a
resolution that states, among other things, if a Change of Control (as defined
below) occurs, the General Partners may distribute the Partnership's cash
balances not required for its ordinary course day-to-day operations. "Change
of Control" means any purchase or offer to purchase more than 10% of the Units
that is not approved in advance by the General Partners. In determining the
amount of the distribution, the General Partners may take into account all
material factors. In addition, the Partnership will not be obligated to make
any distribution to any partner and no partner will be entitled to receive any
distribution until the General Partners have declared the distribution and
established a record date and distribution date for the distribution. The
Partnership filed a Form 8-K disclosing this resolution on March 21, 1996.
2. Significant Accounting Policies
Basis of Accounting. The accompanying financial statements have been prepared on
the accrual basis of accounting in accordance with generally accepted
accounting principles. Revenues are recognized as earned and expenses are
recorded as obligations are incurred.
Aircraft and Depreciation. The aircraft were recorded at cost, which includes
acquisition costs. Through December 31, 1993, depreciation to an estimated
salvage value of 10% was computed using the straight-line method over an
estimated average economic life of twelve years for all aircraft owned by the
Partnership. Beginning in 1994, depreciation was computed using the
straight-line method over an estimated remaining economic life of two to six
years for all aircraft owned by the Partnership.
The highly competitive and weakened conditions in the aircraft leasing industry
have had a significant and negative impact on the residual value of the
Partnership's fleet of aircraft. As of December 31, 1993, it was the General
Partners' belief that the total value of the Partnership's fleet of aircraft
had declined substantially. The General Partners' estimated market values for
the aircraft, as of December 31, 1993, were based on independent appraisals,
third party publications, the General Partners' own experience and the unique
circumstances regarding the equipment and the lessee. In 1993, the General
Partners reduced the carrying value of the Partnership's fleet by $18,266,022
and, therefore, established a new cost basis of $25,684,000 at December 31,
1993.
Improvements to aircraft required to comply with regulatory requirements will
be capitalized when incurred and depreciated over the useful life of the
improvement.
Accounting for Impairment. In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("FAS 121"), which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. FAS 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. The Partnership
adopted FAS 121 in the fourth quarter of 1995. Based on current circumstances,
the adoption of FAS 121 had no impact on the financial statements.
Cash Equivalents. Cash equivalents consist of highly liquid short-term
investments with maturities of three months or less from the date of issuance.
The carrying amount approximates fair value because of the short maturity of
these instruments.
Restricted Cash. Restricted cash consists of funds the General Partners believe
will be expended by the Partnership to comply with maintenance requirements, as
well as security deposits held by the Partnership.
Concentration of Credit Risk. Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consists of cash
in excess of the financial institutions' insurance limits. The Partnership
invests available cash with high credit quality financial institutions.
Operating Leases. The aircraft leases are accounted for as operating leases.
Lease revenues, including payments for maintenance and power-by-the-hour
charges, are recognized over the terms of the related leases.
Deferred Revenue. Some of the Partnership's operating leases require rental
payments to be paid in advance. Rental payments received in advance are
deferred and then recognized as income when earned.
Income Taxes. No provision for income taxes has been made in the accompanying
financial statements since such taxes are the responsibility of individual
partners rather than the Partnership (Note 8).
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount 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 period. Actual results could differ from those estimates.
3. Partnership Allocations
The Partnership Agreement ("Agreement") substantially provides for the
following:
Cash Distributions. Cash flow from operations, at the discretion of the General
Partners, will be distributed on a quarterly basis, 99% to the Limited Partners
and 1% to the General Partners. Cash flow is defined in the Partnership
Agreement as including cash receipts from operations and interest income
earned, less expenses incurred and paid in connection with the operation and
ownership of the aircraft. Distributable proceeds from sales of aircraft in
liquidation of the Partnership will be distributed in accordance with the
partners' capital accounts after all allocations of income and losses.
Allocation of Income and Losses. Generally, income and losses for any year are
allocated 99% to the Limited Partners and 1% to the General Partners. Gains on
sale of aircraft shall first be allocated to the General Partners until they
have been allocated an amount of gain equal to the lesser of their respective
deficit account balances or 1.01% of all capital contributions by Limited
Partners. Any additional gain recognized by the Partnership upon the sale of
aircraft shall be allocated 99% to the Limited Partners and 1% to the General
Partners.
Dissolution of Partnership. If, upon dissolution of the Partnership, the
General Partners have a negative capital account, they shall contribute capital
equal to the lesser of their respective capital deficit account balances or
1.01% of all capital contributed by the Limited Partners.
4. Aircraft under Operating Leases
The Partnerships' aircraft leases are triple net operating leases, requiring
the lessees to pay substantially all expenses associated with the aircraft
during the term of the leases, except with respect to the Eastwind and
Continental leases as described below:
USAir, Inc. On October 30, 1987, the Partnership acquired three Boeing 737-200
non-advanced aircraft for a total purchase price of $22,805,997. These
aircraft were subject to an operating lease with USAir. The first lease
expired in July 1990, and the aircraft was returned to the Partnership. On
December 15, 1991, the lease terms for the second and third aircraft were
extended from May 1992 to May 1997, with the lessee having the option to
terminate the lease on or after May 1, 1995. Effective May 15, 1992, the
quarterly rental for each aircraft was reduced to $105,000. The lessee
exercised its option to terminate its lease on May 1, 1995.
Eastwind Airlines. On July 12, 1995, the Partnership entered into two lease
agreements ("Agreements") with Eastwind Airlines, Inc. ("Eastwind"). The
Agreements provide for Eastwind to lease two Boeing 737-200 aircraft,
previously on lease with USAir, for a term of four years. Effective November
15, 1995, Eastwind shall pay $35,000 per aircraft per month in advance. In
addition, Eastwind shall pay maintenance charges effective August 1, 1995 based
on flight hours or flight cycles. Maintenance charges shall be $80 per
airframe flight hour for scheduled "Q" checks and $7.50 per flight hour for
scheduled landing gear overhaul. For each engine, power-by-the-hour charges
shall be $60 per engine flight hour or cycle, whichever is greater. Eastwind
paid to the Partnership a security deposit of $25,000 per aircraft.
The Partnership will expend $850,000 per aircraft for an FAA mandated heavy
maintenance check ("Q" Check) for each of the aircraft leased to Eastwind. The
cost of the "Q" Check will be capitalized and amortized over a four year
period. After the "Q" Check is complete, maintenance charges will be increased
to the greater of $81 per flight hour or $20,240 per month. This will enable
the Partnership to recover its $850,000 investment per aircraft over the period
up to the next required "Q" Check.
Delta Air Lines, Inc. On November 2, 1987, the Partnership acquired a Boeing
737-200 advanced aircraft for a total purchase price of $15,222,609. This
aircraft is subject to an operating lease with Delta Air Lines, Inc. ("Delta").
In June 1992, the General Partners and Delta agreed to amend the original lease
agreement. The amendment provided for rent of $95,000 per month through the
new expiration date in December 1994. In May 1994, Delta exercised its option
to extend the lease for a term of two years from the previous expiration date,
with the option to cancel the lease with seven months notice and the remaining
terms of the lease unchanged.
In November 1995, an agreement was reached with Delta to amend and extend the
current lease until September 30, 1999 at a monthly lease rate of $80,000.
While this rate represents a decline from the previous rate of $95,000 per
month, it is in line with prevailing market rates.
Trans World Airlines, Inc. On November 2, 1987, the Partnership acquired three
Boeing 727-200 non-advanced aircraft for a total purchase price of $16,345,497.
These aircraft were subject to operating leases with Trans World Airlines, Inc.
("TWA"), the terms of which are described below. The lease provided for rent
of $55,000 per month commencing June 1, 1991 and continuing through August 31,
1993 for one aircraft and September 30, 1993 for the other two aircraft.
In August 1993, the General Partners and TWA agreed to amend the original
leases. As a result, TWA paid the Partnership rent of $40,000 per month per
aircraft in advance quarterly commencing September 1, 1993 and continuing
through October 31, 1994 for one aircraft and November 30, 1994 for the other
two aircraft.
On September 30, 1994, TWA agreed to extend the leases on two of the aircraft
to April 30, 1995. Thereafter, TWA continues to lease the two aircraft on a
month-to-month basis at $32,500 per month per aircraft paid in advance. The
third aircraft was returned to the Partnership in December 1994 and sold in
June 1995. (See Note 5)
Continental Airlines, Inc. On October 29, 1987, the Partnership acquired a
McDonnell Douglas MD-80 Series aircraft for a total purchase price of
$27,396,997. This aircraft was subject to an operating lease with Continental
Airlines, Inc., the term of which expired on April 28, 1993. The Partnership
received monthly rent of $168,720 for the period January 1, 1993 through April
28, 1993. Subsequent to the expiration date of April 28, 1993, Continental
returned the aircraft to the Partnership.
The original lease agreement with Continental provided that upon the expiration
of the lease, the amounts remaining in the maintenance reserve funds were to be
retained by the Partnership. Therefore, $2,060,656 was recognized as Other
Income in the accompanying Statements of Operations during 1993, with the
balance of $750,000 to be distributed to Continental in accordance with the
terms of a new lease described below.
On February 9, 1994, the Partnership entered into a new lease agreement with
Continental. The agreement provides for Continental to lease the plane for a
term of four years, and pay $180,000 per month in advance effective March 15,
1994. In addition, the Partnership made a one-time payment of $750,000 from
the maintenance reserve funds in March 1994 to perform various maintenance work
on the plane. Also, the Partnership has agreed to provide up to $600,000 of
financing to Continental to perform modification work on the aircraft,
including advanced avionics, interior furnishings and exterior paint. The
modification financing is repayable over the life of the lease at an interest
rate of 8% per annum for advances made before February 1, 1996, and with
respect to advances made after February 1, 1996, a rate per annum equal to the
yield to maturity of United States Treasury Notes having a maturity closest to
the remaining term of the lease, plus 4.25 percent. On June 7, 1994, the
Partnership made its first advance to Continental in the amount of $278,203.
The fair value of the loan receivable from Continental as of December 31, 1995
is equal to the carrying value of the asset.
Carnival Air Lines, Inc. In December 1993, Carnival Air Lines ("Carnival")
returned the Boeing 737-200 it had previously leased from the Partnership and
terminated the lease in accordance with the provisions of the lease agreement.
Reference is made to Note 5 for a discussion on the February 1994 sale of the
aircraft previously on-lease to Carnival.
Funds in the Carnival maintenance reserve in the amount of $117,228 were
recognized as Other Income during 1993, in accordance with the Carnival lease
agreement.
Revenues from each of the airlines as a percentage of the Partnership's total
rental revenues are as follows:
Percent of Rental Revenues
Airline 1995 1994 1993
USAir 8.7% 16.6% 16.9%
Eastwind 7.3 - -
Delta 23.2 22.5 22.9
TWA 16.1 27.2 36.8
Continental 44.7 33.7 13.5
Carnival - - 9.9
The following is a schedule, by year, of future minimum rental income under the
leases as of December 31, 1995.
Year Amount
1996 3,960,000
1997 3,960,000
1998 2,250,000
1999 1,490,000
Total $ 11,660,000
The above schedule of future minimum rental income is based on the existing
terms of the leases and does not include the rental income that may result from
the renewal of existing leases or the re-leasing of the aircraft, if any.
5. Sale of Aircraft
In June 1995, the General Partners sold aircraft N44316 formerly on lease with
TWA for net sale proceeds of $751,750. The aircraft had a carrying value of
$305,375 on the date of sale resulting in a gain on sale of $446,375.
On February 23, 1994, the Partnership sold the aircraft previously on lease to
Carnival for a total of $360,250. Accordingly, the General Partners reduced
the carrying value of the aircraft from $3,775,409 to $350,000 at December 31,
1993, which is equal to the sale proceeds less the resale fee of 3% payable to
the Managing General Partner.
6. Distributions
Distributions paid or payable aggregated $4,276,310 (approximately $.86 per
unit), $4,950,451 (approximately $1.00 per unit) and $4,517,060 (approximately
$.91 per unit) for the years ended December 31, 1995, 1994 and 1993,
respectively, of which $360,250 in 1994 represented proceeds from sale of
aircraft. As of December 31, 1995, the Partnership had declared a distribution
of $1,058,778, of which $1,048,190 (approximately $.21 per unit) was paid to
the Limited Partners and $10,588 was paid to the General Partners on February
2, 1996.
7. Transactions with Affiliates
Cash and Cash Equivalents. Cash and cash equivalents reflected on the
Partnership's balance sheets at December 31, 1995 and 1994 were on deposit with
an affiliate of the General Partner.
Base Management Fee. The General Partners receive a quarterly fee subordinated
to the Limited Partners receiving their Preferred Return (8% simple interest
per annum cumulative, but not compounded) in an amount equal to 1.5% of gross
aircraft rentals. Of this amount, 1.0% is payable to CAP and .5% is payable to
JAL.
Incentive Management Fee. CAP receives a quarterly fee of 4.5% of quarterly
cash flow subordinated to the Limited Partners receiving their Preferred
Return.
Re-lease Fee. The General Partners receive a quarterly fee subordinated to the
Limited Partners receiving their Preferred Return, for re-leasing aircraft or
renewing a lease in an amount equal to 3.5% of the gross rentals from such
re-lease or renewal for each quarter for which such payment is made. Of this
amount, 2.5% is payable to CAP and 1.0% is payable to JAL.
Resale Fee. CAP receives a subordinated fee with respect to each aircraft sold
by the Partnership in an amount equal to the lesser of (i) 3% of the contract
sales price of the aircraft or (ii) an amount that is competitive with fees
charged by nonaffiliates rendering comparable services. Such fees will be
reduced (but not below zero) for any resale fees or commissions payable to
third parties. During 1995, $23,250 was accrued based on 3% of the gross sale
proceeds totaling $775,000 from the sale of one Boeing 727-200. During 1994,
$10,808 was accrued based on 3% of the sale proceeds totaling $360,250 from the
sale of one Boeing 727-200 aircraft. The resale fee is subordinate to the
Limited Partners receiving a priority return equal to their original capital
contribution plus their preferred return. No resale fees were earned during
1993.
The following is a summary of amounts earned by the General Partners and their
affiliates during the years ended December 31, 1995, 1994 and 1993.
Unpaid at
December 31, ---------Earned-------------
1995 1995 1994 1993
Base Management Fee $ 18,840 $ 70,022 $ 73,352 $ 73,182
Incentive Management Fee 51,216 199,299 197,590 186,228
Re-lease Fee 45,555 169,310 177,363 100,607
Resale Fee 53,558 23,250 10,808 -
$169,169 $461,881 $459,113 $360,017
8. Reconciliation of Difference between Net Loss in the Financial Statements
(Accrual Basis - Generally Accepted Accounting Principles) and Net Income
(Loss) in the Partnership's Tax Return
1995 1994 1993
Net loss, as reported $ (170,290) $ (783,993) $ (17,876,870)
Adjustments-
Write-down of Aircraft - - 18,266,022
Prepaid insurance (3,125) 36,841 (20,796)
Deferred revenue - (60,000) (348,720)
Maintenance reserve fund - (791,000) (2,017,573)
Loss on sale of asset (547,529) (1,413,850) -
Allowance for doubtful
accounts 70,000 - -
Depreciation differential
between the Modified
Accelerated Cost Recovery
System and depreciation for
financial reporting purposes 823,052 (1,424,742) (1,202,462)
Legal fees,
net of amortization 20,982 (5,976) (29,208)
Total adjustments 363,380 (3,658,727) 14,647,263
Net income (loss), per the
Partnership's tax return $ 193,090 $(4,442,720) $ (3,229,607)
Net income (loss) determined
on the income tax basis is
allocated to the partners
as follows:
Limited partners
(4,895,005 units) $ 191,159 $(4,398,293) $ (3,197,311)
General partners 1,931 (44,427) (32,296)
$ 193,090 $(4,442,720) $ (3,229,607)
Taxable income (loss)
per limited partner unit $ 0.04 $ (0.90) $ (0.65)
As of December 31, 1995, the tax basis of total assets and total liabilities is
$19,641,993 and $1,319,919, respectively.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
JetStream, L.P.:
We have audited the accompanying balance sheets of JetStream, L.P. (a Delaware
limited partnership) as of December 31, 1995 and 1994, and the related
statements of operations, partners' capital (deficit) and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of JetStream, L.P. as of December
31, 1995 and 1994, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 23, 1996
except for Note 1, as to which
the date is March 18, 1996
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,816,230
<SECURITIES> 000
<RECEIVABLES> 231,999
<ALLOWANCES> 000
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<CURRENT-ASSETS> 4,051,354
<PP&E> 24,287,000
<DEPRECIATION> (9,401,952)
<TOTAL-ASSETS> 18,936,402
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000
000
<OTHER-SE> 17,492,977
<TOTAL-LIABILITY-AND-EQUITY> 18,936,402
<SALES> 000
<TOTAL-REVENUES> 5,052,489
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<OTHER-EXPENSES> 5,599,154
<LOSS-PROVISION> 70,000
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<INCOME-PRETAX> (170,290)
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<NET-INCOME> (170,290)
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