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, 1997
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 of
incorporation or organization I.R.S. Employer 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, 1997
(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, 1997, 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, 1997, 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 tables describe the Partnership's portfolio of aircraft
as of December 31, 1997. These tables 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, 1997, 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, 1997, for an overview of the aircraft leasing industry.
Estimated
Aircraft Model Acquisition Net Book Market
Year Delivered Lessee Cost(1) Value(2) Value(3)
MD-80 Series 1986 Continental $27,396,997 $6,459,266 $15,925,700
B-737-200 ADV 1979 Delta $15,222,609 $1,919,168 $ 4,284,600
B-737-200 1971 Eastwind $ 7,601,999 $ 0 $ 1,362,500
B-737-200 1971 Eastwind $ 7,601,999 $ 0 $ 1,508,200
B-727-200 1969 TWA $ 5,448,499 $ 0 $ 524,000
B-727-200 1969 TWA $ 5,448,499 $ 0 $ 524,000
TOTALS $68,720,602 $8,378,433 $24,129,000
Cumulative Cumulative
Aircraft Model Lease Noise Flight Flight
Year Delivered Expiration Compliance Cycles Hours
MD-80 Series 1986 3/15/99 Stage 3 16,840 34,420
B-737-200 ADV 1979 9/30/99 Stage 2 37,250 55,770
B-737-200 1971 11/30/99 Stage 2 71,500 62,570
B-737-200 1971 11/30/99 Stage 2 71,010 62,710
B-727-200 1969 N/A (6) Stage 2 47,870 70,750
B-727-200 1969 N/A (6) Stage 2 47,060 69,430
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, 1997.
(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) Eastwind and TWA data as of March 6, 1998; Continental data as
of March 9, 1998; and Delta data as of March 12, 1998.
(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 implemented 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, 1997, 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, 1997.
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
1997.
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, 1997, the number of Unitholders was
7,185.
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, 1997.
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, 1997.
Item 7. Management's Discussion and Analysis of Financial Conditions
and Results of Operations
Liquidity and Capital Resources
As of December 31, 1997, 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. During the
second quarter, certain repairs and maintenance work was performed on
each of the aircraft at a total cost to the Partnership of $220,000.
This work included the replacement of landing gear on one aircraft,
and replacement seats on both.
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. During the third quarter of 1997,
Continental paid off the remaining balance of the loan, which had
totaled $41,031 just prior to repayment. Payments made on this loan
during 1997 are the reason for the decrease in the Partnership's loan
receivable balance, which totaled $0 at December 31, 1997 as compared
to $99,688 at December 31, 1996. Continental makes monthly lease
payments to the Partnership of $180,000. The lease made with
Continental was previously scheduled to expire in 1998. However, in
September 1997, the Partnership made and Continental agreed to extend
the lease through March 1999, with the remaining terms of the lease
unchanged. This modification financing is also discussed in Note 4 of
the Notes to Financial Statements.
At December 31, 1997, the Partnership had unrestricted cash and cash
equivalents of $2,131,335, compared to $1,573,594 at December 31,
1996. The increase in cash and cash equivalents is primarily due to
cash flow from operations and loan receivable collections throughout
1997 which exceeded distributions paid. The Partnership had a
restricted cash balance of $0 at December 31, 1997, as compared with
$321,797 at December 31, 1996. In 1997, the restricted cash is no
longer required due to the completion of all maintenance requirements.
At December 31, 1997, the Partnership had a rent receivable balance
totalling $79,053, compared to $603,311 at December 31, 1996. The
decrease is primarily due to the receipt in January 1997 of delinquent
rental payments for the final four months of 1996, as well as monthly
maintenance reserve payments for the third and fourth quarters of
1996, owed to the Partnership by Eastwind.
Accounts payable and accrued expenses totaled $307,831 at December 31,
1997 as compared to $302,075 at December 31, 1996. The decrease is
primarily attributable to the timing of management fee payments.
During the year ended December 31, 1997, the Partnership paid
distributions to the Unitholders for the period from October 1, 1996
to December 31, 1996 and for the first three quarters of 1997, in the
amounts of $1,335,241 and $3,372,020, respectively, which represent
approximately $.27 and approximately $.69 per Unit, respectively. At
December 31, 1997, the Partnership had a distribution payable to
Unitholders of $1,419,551 or approximately $.29 per Unit. This amount
reflects the 1997 fourth quarter cash distribution paid on February 2,
1998, which was primarily funded from cash flow from operations.
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.
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 1997 consisted of interest and other income.
1997 compared to 1996
For the twelve months ended December 31, 1997, the Partnership
generated net income in the amount of $1,149,074, compared to income
of $687,834 for the corresponding period in 1996. The increase in net
income is primarily attributable to a decrease in depreciation
expense, which was partially offset by a decrease in rental income and
increases in all other expenses. Additionally, net income for the
1996 period includes a $130,000 gain on the August 1996 sale of the
737-200 aircraft formerly on lease to Eastwind.
Rental income for the twelve months ended December 31, 1997 was
$5,037,980, compared to $5,248,593 for the corresponding period in
1996. The decrease in rental income is primarily due to the fact that
the two aircraft leased by Eastwind were not being operated on a daily
basis for the first two months of 1997 because of maintenance-related
issues, including the installation of a hushkit on one aircraft.
Other income totaled $99,722 for the twelve months ended December 31,
1997, compared to $43,353 for the corresponding period in 1996. The
increase primarily represents payment received from USAir, Inc.
("USAir") for the settlement and release of claims relating to the
lease and maintenance of the Boeing 737-200 aircraft, previously on
lease with USAir. The balance of $43,353 at December 31, 1996
reflects a payment received by the Partnership as settlement of an
administrative claim by the Partnership against Pan American World
Airways, Inc. ("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.
Interest income for the twelve months ended December 31, 1997 totaled
$129,090, compared to $150,740 for the corresponding period in 1996.
The decrease is primarily due to a decrease in the Partnership's
invested cash balance during the 1997 period.
Depreciation expense for the twelve months ended December 31, 1997
totaled $3,211,650, compared to $4,076,214 for the corresponding
period in 1996. The decrease is primarily attributable to the full
depreciation of Eastwind's aircraft N220US and N221US as of December
31, 1996.
General and Administrative expenses at December 31, 1997 totaled
$230,295 as compared with $192,656 at December 31, 1996. During the
1997 period, certain expenses incurred by an unaffiliated third party
service provider in servicing the Partnership , which were voluntarily
absorbed by affiliates of Jet Aircraft Leasing Inc. in prior periods,
were reimbursable to Jet Aircraft Leasing Inc. and its affiliates.
Operating expenses for the twelve months ended December 31, 1997
totaled $227,905, compared to $194,231 for the corresponding period in
1996. The increase is primarily attributable to maintenance and
repairs on the aircraft leased by Eastwind.
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 totaled $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 totaled
$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
totaled $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
totaled $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 totaled
$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.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to
Unitholders for the year ended December 31, 1997.
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
Rocco F. Andriola Director
Jeffrey C. Carter Director, President & CFO
Michael T. Marron Vice President
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.
Rocco F. Andriola, 39, is a Managing Director of Lehman Brothers in
its Diversified Asset Group and has held such position since October
1996. Since joining Lehman in 1986, Mr. Andriola has been involved in
a wide range of restructuring and asset management activities
involving real estate and other direct investment transactions. From
June 1991 through September 1996, Mr. Andriola held the position of
Senior Vice President in Lehman's Diversified Asset Group. From June
1989 through May 1991, Mr. Andriola held the position of First Vice
President in Lehman's Capital Preservation and Restructuring Group.
From 1986 to 1989, Mr. Andriola served as a Vice President in the
Corporate Transactions Group of Shearson Lehman Brothers' office of
the general counsel. Prior to joining Lehman, Mr. Andriola practiced
corporate and securities law at Donovan Leisure Newton & Irvine in New
York. Mr. Andriola received a B.A. from Fordham University, a J.D.
from New York University School of Law, and an LL.M in Corporate Law
from New York University's Graduate School of Law.
Jeffrey C. Carter, 52, is a Senior Vice President of Lehman Brothers
in the Diversified Asset Group. Mr. Carter joined Lehman Brothers in
September 1988. From 1972 to 1988, Mr. Carter held various positions
with Helmsley-Spear Hospitality Services, Inc. and Stephen W. Brener
Associates, Inc. including Director of Consulting Services at both
firms. From 1982 through 1987, Mr. Carter was President of Keystone
Hospitality Services, an independent hotel consulting and brokerage
company. Mr. Carter received his B.S. degree in Hotel Administration
from Cornell University and an M.B.A. degree from Columbia University.
Michael T. Marron, 34, is a Vice President of Lehman Brothers and has
been a member of the Diversified Asset Group since 1990 where he has
actively managed and restructured a diverse portfolio of syndicated
limited partnerships. Prior to joining Lehman Brothers, Mr. Marron
was associated with Peat Marwick Mitchell & Co. serving in both its
audit and tax divisions from 1985 to 1989. Mr. Marron received his
B.S. degree from the State University of New York at Albany and an MBA
from Columbia University.
CIS Aircraft Partners, Inc.
Name Office
Thomas J. Prinzing Director and President
Robin A. Konicek Vice President
As reported on the Partnership's 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, 52, 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.
Robin A. Konicek, 41, 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, 1997.
(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. During the 1997 periods, certain expenses incurred by an
unaffiliated third party service provider in servicing the
Partnership, which were voluntarily absorbed by affiliates of Jet
Aircraft Leasing, Inc. in prior periods, were reimburseable to Jet
Aircraft Leasing Inc. and its affiliates. 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, 1997.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements:
Page
Number
Balance Sheets - December 31, 1997 and 1996 (1)
Statements of Partners' Capital (Deficit) - For the
years ended December 31, 1997, 1996 and 1995 (1)
Statements of Operations - For the years ended
December 31, 1997, 1996 and 1995 (1)
Statements of Cash Flows - For the years ended
December 31, 1997, 1996 and 1995 (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, 1997.
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, 1997.
(27) Financial Data Schedule
(b) The Partnership filed no current reports on Form 8-K during the
last quarter of the period covered by 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 27, 1998
BY: /s/Jeffrey C. Carter
Name: Jeffrey C. Carter
Title: Director, President and
Chief Financial Officer
BY: CIS Aircraft Partners, Inc.
Managing General Partner
Date: March 27, 1998
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 27, 1998
BY: /s/Thomas J. Prinzing
Thomas J. Prinzing
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.
JET AIRCRAFT LEASING INC.
A General Partner
Date: March 27, 1998
BY: /s/Rocco F. Andriola
Rocco F. Andriola
Director
Date: March 27, 1998
BY: /s/Jeffrey C. Carter
Jeffrey C. Carter
Director, President and
Chief Financial Officer
Date: March 27, 1998
BY: /s/Michael T. Marron
Michael T. Marron
Vice President
EXHIBIT 13
JetStream, L.P.
1997 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 $16.32 per $20.00
Unit. The following table provides the quarterly cash
distributions per Unit paid by the Partnership for the
years ended December 31, 1997 and 1996.
Quarter Declared 1997 1996
First Quarter $ .244 $ .226
Second Quarter .169 .258
Third Quarter .275 .227
Fourth Quarter .290 .273
Total $ .978 $ .984
Contents
1 Message to Investors
2 Portfolio and Financial Highlights
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 1997 Annual Report for JetStream,
L.P. (the "Partnership"). This message includes an 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. Also provided are the
Partnership's audited financial statements for the year ended
December 31, 1997.
Industry Overview
The U.S. airline industry continued to improve during 1997, with a
strong economy contributing to increased passenger traffic and
increased net profits for the industry. The approximate 5.7% growth
in passenger traffic combined with reduced fuel costs and strict
cost containment initiatives, led to significant improvement in
operating profitability and net earnings for the industry in 1997.
These conditions have had a favorable effect on the level of
aircraft leasing activity, and have brought about a sustained
reduction in the number of serviceable aircraft available for lease.
The reduced inventory of available planes has, in turn, favorably
affected lease rates.
Future opportunities for leasing Stage 2 aircraft, such as the
Partnership's, however, are likely to be restricted due to the
implementation of noise compliance regulations developed in
accordance with the Airport Noise and Capacity Act of 1990,
requiring airlines to reduce the number of older aircraft in their
fleets. These regulations specify, among other things, phase-out
and non-addition rules under which the number of Stage 2 aircraft
operated by domestic carriers are limited 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
The Partnership's investment is comprised of a fleet of six
commercial aircraft, all of which are currently on lease. The lease
agreement with Continental Airlines ("Continental") for the
Partnership's MD-80 Series aircraft was previously scheduled to
expire in March 1998. In September 1997, the Partnership reached
an agreement with Continental to extend the lease through March
1999, with the remaining terms of the lease unchanged. The lease
agreement requires Continental to make monthly lease payments to
the Partnership of $180,000. Of the Partnership's five remaining
aircraft, one is on-lease to Delta Air Lines ("Delta"), two are on-
lease to Eastwind Airlines ("Eastwind") and two are on lease to
Trans World Airlines ("TWA"). Please refer to the Aircraft
Portfolio Highlights section on page 2 of this report for
additional information on these leases.
General Information
As you are probably aware, several third parties have commenced tender
offers to purchase Units of the Partnership at prices which are
below the Partnership's estimate of net asset value per Unit. In
response, we recommended that limited partners reject these offers
because we believe that they do not reflect the underlying value of
the Partnership's assets. According to published industry sources,
most of the investors who hold units of limited partnerships similar
to the Partnership have rejected these types of tender offers due to
their inadequacy.
Summary
The General Partners will continue their efforts to effectively manage
the Partnership's assets and our focus remains on keeping the
Partnership's aircraft on-lease and producing revenue. It must be
noted, however, that since the total return from your investment in
the Partnership relies upon the aircrafts' ultimate selling prices,
declines in residual values in recent 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/Jeffrey C. Carter /s/Thomas J. Prinzing
Jeffrey C. Carter Thomas J. Prinzing
President President
March 27, 1998
Portfolio and Financial Highlights
Aircraft Portfolio Highlights
Estimated Monthly Noise
Aircraft Model Acquisition Market Lease Lease Com-
Year Delivered Lessee Cost(1) Value(2) Expiration(3) Rate pliance
MD-80 Series Continental $27,396,997 $15,925,700 3-15-99 $180,000 Stage 3
1986
B-737-200 ADV Delta 15,222,609 4,284,600 9-30-99 $ 80,000 Stage 2
1979
B-737-200 Eastwind 7,601,999 1,362,500 11-30-99 $ 35,000 Stage 2
1971
B-737-200 Eastwind 7,601,999 1,508,200 11-30-99 $ 35,000 Stage 2
1971
B-727-200 TWA 5,448,499 524,000 N/A(4) $ 32,500 Stage 2
1969
B-727-200 TWA 5,448,499 524,000 N/A(4) $ 32,500 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 which 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.
1997 1996 1995 1994 1993
Rental Revenues $5,037,980 $5,248,593 $4,837,439 $5,067,500 $ 4,979,382
Write-down of
Aircraft _ _ _ _ 18,266,022
Total Expenses 4,117,718 4,884,852 5,669,154 5,977,244 25,138,968
Net Income (Loss) 1,149,074 687,834 (170,290) (783,993)(17,876,870)
Net Income (Loss)
per Limited
Partnership Unit(1) .23 .14 (0.03) (0.16) (3.62)
Total Assets 11,507,572 15,107,551 18,936,402 23,457,496 29,886,833
Partners' Capital 9,625,851 13,316,748 17,492,977 21,939,577 27,674,021
Net Cash Provided by
Operating Activities 5,212,862 4,150,326 4,282,201 6,301,101 3,979,973
Cash Distributions
per Unit (1)(2) .98 .98 .87 1.00 .91
(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, 1997
decreased slightly from 1996 primarily due to a reduction in the
maintenance reserve on the two aircraft leased by Eastwind.
Pursuant to the terms of the lease agreements with Eastwind, in
addition to its monthly payments, Eastwind is required to pay
maintenance charges based on usage. These maintenance charges
decreased in 1997 because both aircraft were not operated on a
daily basis for the first two months of 1997 due to maintenance
work.
* Total expenses during 1997 decreased from 1996 due primarily
to a decrease in depreciation expense recorded by the Partnership
as a result of the two aircraft currently on-lease to Eastwind
being fully depreciated in December 1996. The decrease in
depreciation expense is also the primary reason for the increase
in net income for 1997.
The increase in net cash from operating activities is primarily
due to the receipt, in January 1997, of rental income from
Eastwind for the third and fourth quarters of 1996.
Balance Sheets At December 31, At December 31,
1997 1996
Assets
Aircraft, at cost: $ 25,987,000 $ 25,987,000
Less accumulated depreciation (16,689,816) (13,478,166)
9,297,184 12,508,834
Cash and cash equivalents 2,131,335 1,573,594
Restricted cash _ 321,797
Rent receivable (net of allowance
for doubtful accounts of $0 in 1997
and $70,000 in 1996) 79,053 603,311
Loan receivable _ 99,688
Interest receivable _ 327
Total Assets $ 11,507,572 $ 15,107,551
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 307,831 $ 302,075
Distribution payable 1,433,890 1,348,728
Deferred revenue 90,000 90,000
Security deposit 50,000 50,000
Total Liabilities 1,881,721 1,790,803
Partners' Capital (Deficit):
General Partners (880,452) (843,544)
Limited Partners (4,895,005 units
outstanding) 10,506,303 14,160,292
Total Partners' Capital 9,625,851 13,316,748
Total Liabilities and
Partners'Capital $ 11,507,572 $ 15,107,551
Statements of Partners' Capital (Deficit)
For the years ended December 31, 1997, 1996 and 1995
General Limited
Partners Partners Total
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
Net income 11,491 1,137,583 1,149,074
Distributions (48,399) (4,791,572) (4,839,971)
Balance at December 31, 1997 $ (880,452) $10,506,303 $ 9,625,851
Statements of Operations
For the years ended December 31, 1997 1996 1995
Income
Rental $ 5,037,980 $ 5,248,593 $ 4,837,439
Interest 129,090 150,740 215,050
Other 99,722 43,353 _
Total Income 5,266,792 5,442,686 5,052,489
Expenses
Depreciation 3,211,650 4,076,214 4,919,101
Management fees (Note 7) 447,868 421,751 438,631
General and administrative 230,295 192,656 191,715
Operating 227,905 194,231 49,707
Bad debt expense _ _ 70,000
Total Expenses 4,117,718 4,884,852 5,669,154
Income (Loss) from Operations 1,149,074 557,834 (616,665)
Other Income
Gain on sale of aircraft
and engine (Note 5) _ 130,000 446,375
Net Income (Loss) $ 1,149,074 $ 687,834 $ (170,290)
Net Income (Loss) Allocated:
To the General Partners $ 11,491 $ 6,878 $ (1,703)
To the Limited Partners 1,137,583 680,956 (168,587)
$ 1,149,074 $ 687,834 $ (170,290)
Per limited partnership unit
(4,895,005 outstanding) $0.23 $0.14 $(0.03)
Statements of Cash Flows
For the years ended December 31, 1997 1996 1995
Cash Flows From Operating Activities
Net Income (Loss) $ 1,149,074 $ 687,834 $ (170,290)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation 3,211,650 4,076,214 4,919,101
Gain on sale of aircraft and engine _ (130,000) (446,375)
Increase (decrease) in cash arising from
changes in operating assets and
liabilities:
Restricted cash 321,797 _ _
Rent receivable 524,258 (544,553) (58,758)
Interest receivable 327 278 293
Prepaid expenses _ 3,125 (3,125)
Accounts payable and accrued expenses 5,756 57,428 (8,645)
Security deposit _ _ 50,000
Net cash provided by operating activities 5,212,862 4,150,326 4,282,201
Cash Flows From Investing Activities
Additions to aircraft _ (1,700,000) _
Loan receivable 99,688 72,948 67,358
Proceeds from sale of aircraft and
engine-net _ 130,000 751,750
Net cash provided by (used for)
investing activities 99,688 (1,497,052) 819,108
Cash Flows From Financing Activities
Cash distributions (4,754,809) (4,574,113) (4,392,159)
Net cash used for financing activities (4,754,809) (4,574,113) (4,392,159)
Net increase (decrease) in cash and
cash equivalents 557,741 (1,920,839) 709,150
Cash and cash equivalents, beginning
of period 1,573,594 3,494,433 2,785,283
Cash and cash equivalents, end
of period $ 2,131,335 $ 1,573,594 $ 3,494,433
Notes to the Financial Statements
December 31, 1997, 1996 and 1995
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.
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 - The Partnership accounts for impairment
losses 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.
Cash Equivalents - Cash equivalents consist of highly liquid
short-term investments with original 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 consisted of funds the General
Partners believed would be expended by the Partnership to comply
with maintenance requirements, as well as security deposits held
by the Partnership. As of December 31, 1997, restricted cash is
no longer required due to the completion of all maintenance
requirements permitted under the Participation Agreement dated
February 9, 1994, Sect. 7, with Continental Airlines.
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. 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 has continued 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.
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 provided 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 notes were prepaid in full in September
1997. Having made all of the modifications permitted under the
Participation Agreement, Continental no longer can borrow any
funds and the Partnership is released from its obligation to
lend.
The lease with Continental Airlines for the Partnership's MD-80
series aircraft was previously scheduled to expire in March 1998.
However, in September 1997, the Partnership reached an agreement
with Continental to extend the lease through March 1999, with the
remaining terms of the lease unchanged.
Revenues from each of the airlines as a percentage of the
Partnership's total rental revenues are as follows:
Percent of Rental Revenues
Airline 1997 1996 1995
USAir 0% 0% 8.7%
Eastwind 15.5 25.7 7.3
Delta 20.8 18.3 23.2
TWA 16.9 14.9 16.1
Continental 46.8 41.1 44.7
The following is a schedule, by year, of future minimum rental
income under the leases as of December 31, 1997.
Year Amount
1998 $3,960,000
1999 1,940,000
Total $5,900,000
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 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.
6. Distributions
Distributions declared aggregated $4,839,971 (approximately $.98
per unit), $4,864,063 (approximately $.98 per unit) and
$4,276,310 (approximately $.86 per unit) for the years ended
December 31, 1997, 1996 and 1995, respectively, of which $130,000
in 1996 represented proceeds from the sale of an engine, and was
a return of capital to the Limited Partners. As of December 31,
1997, the Partnership had declared a distribution of $1,433,890,
of which $1,419,551 (approximately $.29 per unit) was paid to the
Limited Partners and $14,339 was paid to the General Partners on
February 2, 1998.
7. Transactions with Affiliates
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 1997 and 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.
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,
1997, 1996 and 1995.
Unpaid at
December 31, Earned
1997 1997 1996 1995
Base Management Fee $ 15,506 $ 62,872 $ 67,228 $ 70,022
Incentive Management Fee 65,628 232,684 191,968 199,299
Re-lease Fee 37,494 152,312 162,555 169,310
Resale Fee 53,558 _ _ 23,250
$172,186 $447,868 $421,751 $461,881
8. Reconciliation of Difference between Net Income (Loss) in the
Financial Statements (Accrual Basis - Generally Accepted
Accounting Principles) and Net Income in the Partnership's Tax Return
1997 1996 1995
Net income (loss), as reported $ 1,149,074 $ 687,834 $ (170,290)
Adjustments-
Prepaid insurance _ 3,125 (3,125)
Bad debt reserve (70,000) _ _
Loss on sale of asset _ (130,000) (547,529)
Allowance for doubtful accounts _ _ 70,000
Depreciation differential
between the Modified Accelerated
Cost Recovery System and
depreciation for financial
reporting purposes 1,856,804 139,871 823,052
Amortization (6,361) _ _
Legal fees, net of amortization _ (7,476) 20,982
Total adjustments 1,780,443 5,520 363,380
Net income, per Partnership's
tax return $2,929,517 $ 693,354 $ 193,090
The net income (loss) determined
on the income tax basis is
allocated to the partners as
follows:
Limited partners
(4,895,005 units) $ 2,900,222 $ 686,421 $ 191,159
General partners 29,295 6,933 1,931
$ 2,929,517 $ 693,354 $ 193,090
Taxable income per limited
partner unit $0.59 $0.14 $0.04
As of December 31, 1997, the tax basis of total assets and total
liabilities is $13,999,126 and $1,758,215, 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, 1997 and
1996, and the related statements of operations, partners' capital
(deficit) and cash flows for each of the three years in the
period ended December 31, 1997. 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, 1997 and 1996, and the
results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Dec-31-1997
<CASH> 2,131,335
<SECURITIES> 0
<RECEIVABLES> 79,053
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,210,388
<PP&E> 25,987,000
<DEPRECIATION> 16,689,816
<TOTAL-ASSETS> 11,507,572
<CURRENT-LIABILITIES> 1,881,721
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 9,625,851
<TOTAL-LIABILITY-AND-EQUITY> 11,507,572
<SALES> 0
<TOTAL-REVENUES> 5,266,792
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,117,718
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,149,074
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,149,074
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,149,074
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
