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
For the fiscal year ended December 31, 1996
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission file 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,
3 World Financial Center, 29th Floor,
New York, New York 10285
Address of principal executive offices Zip Code
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, 1996 (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, 1996, 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 Message to Investors and Note 4 to the financial
statements of the Partnership's Annual Report to Unitholders for the year ended
December 31, 1996, 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, 1996. 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 Aircraft's 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 Message to
Investors and Note 4 to the Financial Statements of the Partnership's Annual
Report to Unitholders for the year ended December 31, 1996, for additional
information on 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, 1996, for an overview of the aircraft leasing
industry.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Estimated Cumulative Cumulative
Aircraft Model Acquisition Net Book Market Lease Noise Flight Flight
Year Delivered Lessee Cost (1) Value (2) Value (3) Expiration (4) Compliance Cycles (5) Hours (5)
MD-80 Series Continental $27,396,997 $8,525,697 $16,564,900 3/15/98 Stage 3 14,803 29,865
1986
B-737-200 ADV Delta $15,222,609 $2,689,387 $5,060,800 9/30/99 Stage 2 34,699 52,536
1979
B-737-200 Eastwind $7,601,999 $646,875 $1,666,958 11/30/99 Stage 2 68,706 59,599
1971
B-737-200 Eastwind $7,601,999 $646,875 $2,071,874 11/30/99 Stage 2 68,438 59,984
1971
B-727-200 TWA $5,448,499 $0 $818,500 N/A (6) Stage 2 46,176 68,080
1969
B-727-200 TWA $5,448,499 $0 $818,500 N/A (6) Stage 2 45,573 67,074
1969
TOTALS $68,720,602 $12,508,834 $27,001,532
</TABLE>
_________________
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, 1996.
(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) Continental and Eastwind data as of 12/31/96; Delta data as of 11/17/96;
and TWA data as of 11/5/96.
(6) TWA currently leases the Partnership's two remaining 727-200 non-advanced
aircraft on a month-to-month basis.
Aging Aircraft Maintenance - The Federal Aviation Administration (the "FAA"),
acting on recommendations from industry trade groups, 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 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, 50% of 1990 base levels by the end of 1996, with further
reductions to 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.
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 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,
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. 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 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, 1996, 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 Message to Investors section and Note 4 to the
Financial Statements of the Partnership's Annual Report to Unitholders for the
year ended December 31, 1996.
Item 3. Legal Proceedings
The Partnership filed an administrative claim against Pan American World
Airways, Inc. ("Pan Am") in 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 was seeking to recover certain rent and
maintenance costs associated with Pan Am's failure to comply with the return
provisions of its lease. The case was settled in the second quarter of 1996.
The Partnership received $43,353 as settlement of this claim in 1996.
There are no material pending legal proceedings to which the General Partners
or the Partnership is a party or to which its assets are subject.
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 1996.
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, 1996, the number of Unitholders was 7,487.
Information concerning the quarterly cash distributions paid per limited
partnership unit is incorporated herein by reference to the page prior to the
Message to Investors, the Message to Investors, and Note 6 of the Notes to the
Financial Statements of the Partnership's Annual Report to Unitholders for the
year ended December 31, 1996.
Item 6. Selected Financial Data
Incorporated by reference to the "Financial Highlights" section of the Message
to Investors of the Partnership's Annual Report to Unitholders for the year
ended December 31, 1996.
Item 7. Management's Discussion and Analysis of Financial Conditions
and Results of Operations
Liquidity and Capital Resources
As of December 31, 1996, 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's two 737-200 non-advanced aircraft are currently on- lease to
Eastwind. Under the terms of the lease agreements, which expire on November
30, 1999, Eastwind is required to pay the Partnership a monthly lease rate of
$35,000 per aircraft. In addition, the airline is required to pay the
Partnership an engine charge and airframe maintenance charges based on usage.
Eastwind had been in default under the terms of the lease agreements as a
result of its inability to make monthly rental payments to the Partnership for
the final four months of 1996 and January 1997, as well as monthly maintenance
reserve payments for the third and fourth quarters of 1996 and January 1997.
Eastwind's failure to make such payments were attributable to operating losses
incurred by the airline during the third and fourth quarters of 1996. However,
Eastwind was successful in securing additional financing and paid all
delinquent amounts owed to the Partnership in January 1997.
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 the 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.
The lease with Delta for the Partnership's 737-200 advanced aircraft expires in
September 1999. In accordance with the terms of the lease agreement, Delta
pays the Partnership a monthly lease rate of $80,000.
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, 1996, Continental had made cumulative principal payments on the
loan totalling $178,515. Payments made on this loan are the reason for the
decrease in the Partnership's loan receivable balance, which totalled $99,688
at December 31, 1996 as compared to $172,636 at December 31, 1995. Continental
makes monthly lease payments to the Partnership of $180,000. The lease with
Continental expires in March 1998.
At December 31, 1996, the Partnership had unrestricted cash and cash
equivalents of $1,573,594, compared to $3,494,433 at December 31, 1995. The
$1,920,839 decrease is primarily due to payments made by the Partnership during
the first half of 1996 in connection with heavy maintenance or "Q" checks
completed during the first half of 1996 on the two 737-200 non-advanced
aircraft on-lease to Eastwind. The Partnership's restricted cash balance of
$321,797 remained unchanged from December 31, 1995. 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, 1996, the Partnership had a rent receivable balance totalling
$603,311, compared to $58,758 at December 31, 1995. The increase is due to
unpaid rent for the final four months of 1996, as well as monthly maintenance
reserve payments for the third and fourth quarters of 1996, owed by Eastwind
Airlines as of December 31, 1996. Such delinquent payments were subsequently
made by Eastwind in January 1997.
During the year ended December 31, 1996, the Partnership paid distributions to
the Unitholders for the period from October 1, 1995 to December 31, 1995 and
for the first three quarters of 1996, in the amounts of $1,048,190 and
$3,481,482, respectively, which represent approximately $.21 and approximately
$.71 per Unit, respectively. At December 31, 1996, the Partnership had a
distribution payable to Unitholders of $1,335,241 or approximately $.27 per
Unit. This amount reflects the 1996 fourth quarter cash distribution which was
primarily funded from cash flow from operations. The 1996 fourth quarter cash
distribution, which was paid on February 11, 1997, also included a portion of
1996 third quarter rental income and maintenance reserves paid by Eastwind in
January 1997.
Future cash distributions will be determined on a quarterly basis after an
evaluation of the Partnership's current and expected financial position. The
level of cash available for future distribution will be reduced if TWA
terminates the leases for the Partnership's two 727-200 non-advanced aircraft,
which are currently leased on a month-to-month basis.
On March 18, 1996, based upon, among other things, the advice of legal 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 airlines under triple net operating
leases. The balance of the Partnership's revenue during 1996 consisted of
interest income.
1996 compared to 1995
For the twelve months ended December 31, 1996, the Partnership generated net
income in the amount of $687,834, compared to a net loss of $170,290 for the
corresponding period in 1995. The change from net loss to net income is
primarily attributable to higher rental income and a decrease in depreciation
expense. The net loss for the 1995 period includes a $446,375 gain on the June
1995 sale of the 727-200 aircraft formerly on-lease to TWA. Excluding this
gain, the Partnership generated a loss from operations during 1995 totalling
$616,665. Net income for the 1996 period includes a $130,000 gain on the
August 1996 sale of an engine that was previously on one of the Partnership's
737-200 non-advanced aircraft currently on-lease to Eastwind. Excluding this
gain, the Partnership generated income from operations during 1996 totalling
$557,834.
Rental income for the twelve months ended December 31, 1996 was $5,248,593,
compared to $4,837,439 for the corresponding period in 1995. The increase in
rental income is primarily due to the execution of the leases with Eastwind in
the third quarter of 1995 for the Partnership's two 737-200 non-advanced
aircraft. The increases in both periods were partially offset by a reduction
in the monthly lease rate paid by Delta in accordance with the lease extension
for the Partnership's 737-200 advanced aircraft executed in November 1995 and
the expiration of the leases with USAir in May 1995.
Other income totalled $43,353 for the twelve months ended December 31, 1996,
compared to $0 for the corresponding period in 1995. The balance for the
twelve months ended December 31, 1996 reflects payments received by the
Partnership as settlement of an administrative claim by the Partnership against
Pan Am, which was filed in Bankruptcy Court in 1992. The Partnership was
seeking to recover certain rent and maintenance costs associated with Pan Am's
failure to comply with the return provisions of its lease. The case was
settled during the second quarter of 1996.
Interest income for the twelve months ended December 31, 1996 totalled
$150,740, compared to $215,050 for the corresponding period in 1995. The
decrease is primarily due to a decrease in the Partnership's invested cash
balance during the 1996 period.
Depreciation expense for the twelve months ended December 31, 1996 totalled
$4,076,214, compared to $4,919,101 for the corresponding period in 1995. The
decrease is primarily attributable to the June 1995 sale of the 727-200
non-advanced aircraft formerly on-lease to TWA and the two aircraft currently
on-lease to TWA being fully depreciated in April 1995.
Operating expenses for the twelve months ended December 31, 1996 totalled
$194,231, compared to $49,707 for the corresponding period in 1995. The
increase is primarily attributable to the payment of approximately $130,000 to
reimburse one of the Partnership's General Partners for previously incurred
aircraft operating expenses paid by the General Partner, and, to a lesser
extent, costs incurred by the Partnership in connection with the Q-checks
performed on the Partnership's two aircraft on-lease to Eastwind during the
first half of 1996.
Bad debt expense for the twelve months ended December 31, 1996 totalled $0,
compared to $70,000 for the corresponding period in 1995. The balance for the
twelve months ended December 31, 1995 represents June 1995 rent that was owed
to the Partnership by USAir.
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 was primarily attributable to a gain
on the June 1995 sale of the 727-200 non-advanced aircraft formerly on-lease to
TWA totalling $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 was 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 totalled $215,050
as compared to $112,523 in 1994. The increase was 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 was 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 totalled $191,715 as compared to $212,674 for the corresponding period in
1994. The decrease was 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 totalled $49,707 as
compared to $71,789 in 1994. The decrease was 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.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1996.
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 loss through foreclosure.
Moshe Braver, 43, 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, 34, 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
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, 51, 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, 46, 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, 40, 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.
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, 1996.
(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, 1996.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements:
Page
Number
Balance Sheets - December 31, 1996 and 1995 (1)
Statements of Partners' Capital (Deficit) - For the
years ended December 31, 1996, 1995 and 1994 (1)
Statements of Operations - For the years ended December 31,
1996, 1995 and 1994 (1)
Statements of Cash Flows - For the years ended December 31,
1996, 1995 and 1994 (1)
Notes to the 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, 1996.
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, 1996.
(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 17, 1997
BY: /s/ Moshe Braver
Name: Moshe Braver
Title: Director and President
BY: CIS Aircraft Partners, Inc.
Managing General Partner
Date: March 17, 1997
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 17, 1997
BY: /s/ Thomas J. Prinzing
Thomas J. Prinzing
Director and President
Date: March 17, 1997
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 17, 1997
BY: /s/ Moshe Braver
Moshe Braver
Director and President
Date: March 17, 1997
BY: /s/ John Stanley
John Stanley
Vice President and
Chief Financial Officer
JetStream, L.P.
EXHIBIT 13
JetStream, L.P.
1996 Annual Report
JetStream, L.P.
JetStream, L.P. commenced operations in 1987, and was formed to acquire used
commercial aircraft subject to triple net operating leases with commercial
airlines. Since inception, limited partners have received cash distributions
totalling approximately $15.34 per $20.00 Unit. The following table provides
the quarterly cash distributions per Unit paid by the Partnership for the years
ended December 31, 1996 and 1995.
Quarter Declared 1996 1995
First Quarter $ .226 $ .220
Second Quarter .258 .217
Third Quarter .227 .214
Fourth Quarter .273 .214
Total $ .984 $ .865
Contents
1 Message to Investors
3 Financial Statements
6 Notes to the Financial Statements
11 Report of Independent Public Accountants
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 800-223-3464
Message to Investors
Presented for your review is the 1996 Annual Report for JetStream, L.P. (the
"Partnership"). This message will provide an overview of conditions in the
airline and aircraft leasing industries, an update on the Partnership's
portfolio of aircraft, including recent developments concerning Eastwind
Airlines ("Eastwind"), and highlights of the Partnership's financial results
for the past five years. Also included are the Partnership's audited financial
statements for the year ended December 31, 1996.
Industry Overview
The upturn in the U.S. airline industry continued in 1996 as evidenced by
overall net profits reaching a record $3.5 billion, an increase from
approximately $2 billion in 1995. Primary among the factors contributing to
the continued improvement were a strengthening economy, an increase in
passenger traffic, which was up by 7% from 1995, and cost-cutting initiatives,
all of which have resulted in improved cash flow and operating results for many
airlines. While strong operating results are expected to continue in 1997,
they could be tempered by high fuel costs and potential labor issues.
These improving conditions and the resulting increase in aircraft utilization
have had a positive impact on the level of aircraft leasing activity, as
evidenced by the significant reduction in the number of serviceable aircraft
available for lease during the past two years. Additionally, as reported in a
recent edition of Aviation Week & Space Technology, it is possible that the
number of surplus commercial aircraft available for sale or lease could
disappear altogether during 1997. However, it is important to note that,
despite this increase in leasing activity, future viable leasing opportunities
for Stage 2 aircraft, such as the Partnership's, 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, 50% of 1990 base levels by the end of 1996, with
further reductions to 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
early 1990's has had a substantial impact on residual aircraft values of Stage
2 aircraft.
Portfolio Update
As discussed in recent correspondence, Eastwind, which leases the Partnership's
two 737-200 non-advanced aircraft, had been in default under the terms of the
lease agreements as a result of its inability to make monthly rental payments
of $35,000 per aircraft to the Partnership for the final four months of 1996
and January 1997, as well as monthly maintenance reserve payments for the third
and fourth quarters of 1996 and January 1997. Eastwind's failure to make such
payments were attributable to operating losses incurred by the airline during
the third and fourth quarters of 1996. We are pleased to report that Eastwind
was successful in securing additional financing and paid all delinquent amounts
owed to the Partnership in January 1997.
Of the Partnership's four remaining aircraft, two are on-lease to Trans World
Airlines ("TWA"), one is on-lease to Continental Airlines ("Continental") and
one is on-lease to Delta Air Lines ("Delta"). The following table highlights
the Partnership's portfolio of aircraft as of December 31, 1996 and includes
estimated market values as of that date.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Estimated
Aircraft Model Acquisition Market Lease Monthly Noise
Year Delivered Lessee Cost (1) Value (2) Expiration (3) Lease Rate Compliance
MD-80 Series Continental $27,396,997 $16,564,900 3-15-98 $180,000 Stage 3
1986
B-737-200 ADV Delta 15,222,609 5,060,800 9-30-99 $80,000 Stage 2
1979
B-737-200 Eastwind 7,601,999 2,071,874 11-30-99 $35,000 Stage 2
1971
B-737-200 Eastwind 7,601,999 1,666,958 11-30-99 $35,000 Stage 2
1971
B-727-200 TWA 5,448,499 818,500 N/A (4) $32,500 Stage 2
1969
B-727-200 TWA 5,448,499 818,500 N/A (4) $32,500 Stage 2
1969
</TABLE>
(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.
Financial Results
The following table summarizes the Partnership's financial results for the last
five years. For additional information, please refer to the financial
statements and notes to the financial statements beginning on page 3 of this
report.
1996 1995 1994 1993 1992
Rental Revenues $ 5,248,593 $ 4,837,439 $ 5,067,500 $ 4,979,382 $ 7,696,005
Write-down
of Aircraft -- -- -- 18,266,022 --
Total Expenses 4,884,852 5,669,154 5,977,244 25,138,968 7,181,496
Net Income (Loss) 687,834 (170,290) (783,993) (17,876,870) 672,078
Net Income (Loss)
per Limited
Partnership
Unit (1) .14 (0.03) (0.16) (3.62) .14
Total Assets 15,107,551 18,936,402 23,457,496 29,886,833 55,476,952
Partners'
Capital 13,316,748 17,492,977 21,939,577 27,674,021 50,067,951
Net Cash
Provided by
Operating
Activities 4,150,325 4,282,201 6,301,101 3,979,973 6,516,611
Cash Distributions
per Unit (1)(2) .98 .87 1.00 .91 1.65
(1) 4,895,005 units outstanding
(2) 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, 1996 increased from 1995 due
primarily to the execution of the leases with Eastwind in the third quarter
of 1995. The increase was partially offset by a reduction in the monthly
lease rate paid by Delta in accordance with the lease extension executed in
November 1995 and the expiration of the leases with USAir in May 1995.
* The decrease in total expenses from 1995 to 1996 is primarily due to a
decrease in depreciation expense recorded by the Partnership as a result of
the sale of an aircraft in June 1995 and the two aircraft currently on-lease
to TWA being fully depreciated in April 1995.
* The change from a net loss in 1995 to net income in 1996 is primarily
attributable to higher rental income and a decrease in depreciation expense.
The net loss for the 1995 period includes a gain on the June 1995 sale of
the aircraft formerly on-lease to TWA. Excluding this gain, the Partnership
generated a loss from operations during 1995 totalling $616,665. Net income
for the 1996 period includes a $130,000 gain on the August 1996 sale of an
engine. Excluding this gain, the Partnership generated income from
operations totalling $557,834.
General Information
As you are aware, a third party issued a partial tender offer in October 1996
to purchase units of the Partnership at a grossly inadequate price which was
substantially below the Partnership's estimated net asset value. In response,
we recommended that limited partners reject this offer because it did not
reflect the underlying value of the Partnership's assets. Holders of over 98%
of the outstanding units agreed that this offer was inadequate, rejected the
offer and did not tender their units. Please be assured that if any additional
tender offers are made for your units, we will make every effort to provide you
with our position regarding such offer on a timely basis.
Summary
The General Partners will continue their efforts to keep the Partnership's
aircraft on-lease. It is important to note, however, that since the total
return from your investment in the Partnership is dependent upon the aircraft's
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 largely dependent on the
demand of aircraft by the airline industry. We will 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 17, 1997
Balance Sheets At December 31, At December 31,
1996 1995
Assets
Aircraft, at cost: $ 25,987,000 $ 24,287,000
Less accumulated depreciation (13,478,166) (9,401,952)
12,508,834 14,885,048
Cash and cash equivalents 1,573,594 3,494,433
Restricted cash 321,797 321,797
Rent receivable (net of allowance for doubtful
accounts of $70,000 in 1996 and 1995) 603,311 58,758
Loan receivable 99,688 172,636
Interest receivable 327 605
Prepaid expenses -- 3,125
Total Assets $ 15,107,551 $ 18,936,402
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 302,075 $ 244,647
Distribution payable 1,348,728 1,058,778
Deferred revenue 90,000 90,000
Security deposit 50,000 50,000
Total Liabilities 1,790,803 1,443,425
Partners' Capital (Deficit):
General Partners (843,544) (803,082)
Limited Partners
(4,895,005 units outstanding) 14,160,292 18,296,059
Total Partners' Capital 13,316,748 17,492,977
Total Liabilities and Partners' Capital $ 15,107,551 $ 18,936,402
Statements of Partners' Capital (Deficit)
For the years ended December 31, 1996, 1995 and 1994
General Limited
Partners Partners Total
Balance at December 31, 1993 $(701,271) $28,375,292 $27,674,021
Net loss (7,840) (776,153) (783,993)
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)
Distributions (42,763) (4,233,547) (4,276,310)
Balance at December 31, 1995 $(803,082) $18,296,059 $17,492,977
Net income 6,878 680,956 687,834
Distributions (47,340) (4,816,723) (4,864,063)
Balance at December 31, 1996 $(843,544) $14,160,292 $13,316,748
Statements of Operations
For the years ended December 31, 1996 1995 1994
Income
Rental $5,248,593 $4,837,439 $5,067,500
Interest 150,740 215,050 112,523
Other 43,353 -- 13,228
Total Income 5,442,686 5,052,489 5,193,251
Expenses
Depreciation 4,076,214 4,919,101 5,224,476
Management fees 421,751 438,631 448,305
General and administrative 192,656 191,715 212,674
Operating 194,231 49,707 71,789
Bad debt expense -- 70,000 20,000
Total Expenses 4,884,852 5,669,154 5,977,244
Income (Loss) from Operations $ 557,834 $ (616,665) $ (783,993)
Other Income
Gain on sale of aircraft
and engine (Note 5) 130,000 446,375 --
Net Income (Loss) $ 687,834 $ (170,290) $ (783,993)
Net Income (Loss) Allocated:
To the General Partners $ 6,878 $ (1,703) $ (7,840)
To the Limited Partners 680,956 (168,587) (776,153)
$ 687,834 $ (170,290) $ (783,993)
Per limited partnership unit
(4,895,005 outstanding) $0.14 $(0.03) $(0.16)
Statements of Cash Flows
For the years ended December 31, 1996 1995 1994
Cash Flows From Operating Activities
Net Income (Loss) $ 687,834 $ (170,290) $ (783,993)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation 4,076,214 4,919,101 5,224,476
Gain on sale of aircraft and engine (130,000) (446,375) --
Restricted cash -- -- 2,727,087
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Rent receivable (544,553) (58,758) 20,000
Interest receivable 278 293 6,405
Prepaid expenses 3,125 (3,125) 36,841
Accounts payable and accrued expenses 57,428 (8,645) 1,285
Maintenance payable -- -- (791,000)
Deferred revenue -- -- (60,000)
Security deposit -- 50,000 (80,000)
Net cash provided by operating activities 4,150,326 4,282,201 6,301,101
Cash Flows From Investing Activities
Additions to aircraft (1,700,000) -- (239,994)
Decrease in loan receivable 72,948 67,358 --
Proceeds from sale of aircraft
and engine-net 130,000 751,750 350,000
Net cash provided by (used for)
investing activities (1,497,052) 819,108 110,006
Cash Flows From Financing Activities
Cash distributions (4,574,113) (4,392,159) (4,715,629)
Net cash used for financing activities (4,574,113) (4,392,159) (4,715,629)
Net increase (decrease) in cash and
cash equivalents (1,920,839) 709,150 1,695,478
Cash and cash equivalents,
beginning of period 3,494,433 2,785,283 1,089,805
Cash and cash equivalents,
end of period $ 1,573,594 $ 3,494,433 $ 2,785,283
Notes to the Financial Statements
December 31, 1996, 1995 and 1994
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 from any sales of aircraft will be distributed to the partners.
Title to the 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 legal 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.
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.
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 consist 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. 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 Amended and Restated Limited Partnership Agreement ("Agreement") executed
on September 10, 1987 substantially provides for the following:
Cash Distributions -- Cash flow from operations as defined in the Agreement, 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.
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 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. The
aircraft was subsequently re-leased to Carnival Airlines ("Carnival") in May
1991. The lease with Carnival was terminated in December 1993 and the aircraft
was subsequently sold in February 1994. 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 non-advanced
aircraft, previously on lease with USAir, for a term of four years. Effective
November 15, 1995, Eastwind is required to pay $35,000 per aircraft per month
in advance. In addition, Eastwind is also required to 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. At December 31, 1996, Eastwind owed the Partnership base
rent and maintenance reserve payments totalling $603,311, which amounts were
received by the Partnership in January 1997.
The Partnership paid $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 has been capitalized and is being amortized over a four
year period. Maintenance charges have been increased to the greater of $81 per
flight hour or $20,240 per month.
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.
The remaining terms of the lease were 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.
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.
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. Subsequent to the
expiration date of April 28, 1993, Continental returned the aircraft to the
Partnership.
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, 1996
is equal to the carrying value of the asset.
Revenues from each of the airlines as a percentage of the Partnership's total
rental revenues are as follows:
Percent of Rental Revenues
Airline 1996 1995 1994
USAir 0% 8.7% 16.6%
Eastwind 25.7 7.3 --
Delta 18.3 23.2 22.5
TWA 14.9 16.1 27.2
Continental 41.1 44.7 33.7
The following is a schedule, by year, of future minimum rental income under the
leases as of December 31, 1996.
Year Amount
1997 $ 3,960,000
1998 2,250,000
1999 1,490,000
Total $ 7,700,000
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 and Engine
In August 1996, the Partnership sold an engine that was previously on one of
the Partnership's 737-200 aircraft currently on-lease to Eastwind for a
$130,000 gain.
In June 1995, the Partnership 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 resale fees of 3% payable to the
Managing General Partner.
6. Distributions
Distributions declared aggregated $4,864,063 (approximately $.98 per unit),
$4,276,310 (approximately $.86 per unit) and $4,950,451 (approximately $1.00
per unit) for the years ended December 31, 1996, 1995 and 1994, respectively,
of which $130,000 in 1996 represented proceeds from sale of engine and $360,250
in 1994 represented proceeds from sale of aircraft. As of December 31, 1996,
the Partnership had declared a distribution of $1,348,728, of which $1,335,241
(approximately $.27 per unit) was paid to the Limited Partners and $13,487 was
paid to the General Partners on February 11, 1997.
7. Transactions with Affiliates
Cash and Cash Equivalents -- Cash and cash equivalents reflected on the
Partnership's balance sheet at December 31, 1995 were on deposit with an
affiliate of a general partner. As of December 31, 1996, no cash and cash
equivalents were on deposit with an affiliate of a general partner or the
Partnership.
Base Management Fee -- The General Partners receive a quarterly fee
subordinated to the Limited Partners receiving their Preferred Return as
defined in the Agreement 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. No resale fees were earned during 1996. During 1995, $23,250
was accrued based on 3% of the gross sale proceeds totalling $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.
The following is a summary of amounts earned by the General Partners and their
affiliates during the years ended December 31, 1996, 1995 and 1994.
Unpaid at
December 31, Earned
1996 1996 1995 1994
Base Management Fee $ 29,873 $ 67,228 $ 70,022 $ 73,352
Incentive Management Fee 81,116 191,968 199,299 197,590
Re-lease Fee 72,231 162,555 169,310 177,363
Resale Fee 53,558 -- 23,250 10,808
$ 236,778 $ 421,751 $ 461,881 $ 459,113
8. Reconciliation of Difference between Net Income (Loss) in the Financial
Statements (Accrual Basis - Generally Accepted Accounting Principles) and
Net Income (Loss) in the Partnership's Tax Return
1996 1995 1994
Net income (loss), as reported $ 687,834 $ (170,290) $ (783,993)
Adjustments-
Prepaid insurance 3,125 (3,125) 36,841
Deferred revenue -- -- (60,000)
Maintenance reserve fund -- -- (791,000)
Loss on sale of asset (130,000) (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 139,871 823,052 (1,424,742)
Legal fees, net of amortization (7,476) 20,982 (5,976)
Total adjustments 5,520 363,380 (3,658,727)
Net income (loss), per Partnership's
tax return $ 693,354 $ 193,090 $(4,442,720)
The net income (loss) determined on the income tax basis is allocated to the
partners as follows:
Limited partners (4,895,005 units) $ 686,421 $ 191,159 $(4,398,293)
General partners 6,933 1,931 (44,427)
$ 693,354 $ 193,090 $(4,442,720)
Taxable income (loss) per limited
partner unit $0.14 $0.04 $(0.90)
As of December 31, 1996, the tax basis of total assets and total liabilities is
$15,818,662 and $1,667,297, 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, 1996 and 1995, and the related
statements of operations, partners' capital (deficit) and cash flows for each
of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 21, 1997
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Dec-31-1996
<CASH> 1,573,594
<SECURITIES> 0
<RECEIVABLES> 773,326
<ALLOWANCES> 70,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,177,232
<PP&E> 25,987,000
<DEPRECIATION> 13,478,166
<TOTAL-ASSETS> 15,107,551
<CURRENT-LIABILITIES> 1,790,803
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 13,316,748
<TOTAL-LIABILITY-AND-EQUITY> 15,107,551
<SALES> 0
<TOTAL-REVENUES> 5,442,686
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,884,852
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 687,834
<INCOME-TAX> 0
<INCOME-CONTINUING> 687,834
<DISCONTINUED> 0
<EXTRAORDINARY> 130,000
<CHANGES> 0
<NET-INCOME> 687,834
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
