<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
JETSTREAM, L.P.
-----------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
-----------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Limited Partnership Units
(2) Aggregate number of securities to which transaction applies: 4,837,505
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): $4.82*
(4) Proposed maximum aggregate value of transaction: $23,335,000
(5) Total fee paid: $4,667
|X| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
_________________
* Estimated solely for purposes of calculating filing fee. Based on the
estimated gross proceeds from the sale of JetStream, L.P.s assets.
<PAGE>
JETSTREAM, L.P.
3 World Financial Center, 29th Floor
New York, New York 10285
(212) 526-3183
October 15, 1999
Dear Unitholder:
On behalf of JetStream, L.P., we are writing to recommend that you
authorize us, as the general partners of JetStream, to liquidate the assets of
JetStream and wind up its affairs. Because you are an investor in JetStream, we
are required to ask for your consent to complete the liquidation.
In connection with the proposed liquidation, enclosed are the
following:
1. Consent Solicitation Statement - this document
describes the terms of the proposed liquidation.
Please carefully review the information in the
enclosed consent solicitation statement before
voting; and
2. Consent of Unitholder and Return Envelope - please
mark your vote and sign this blue form and return it
in the enclosed, postage-prepaid envelope or by
facsimile to (212) 929-0308 by 5:00 p.m., Eastern
Time, on November 19, 1999.
If you have any questions or require assistance completing the enclosed
blue consent card, please call JetStream's consent solicitation agent at (800)
322-2885.
Sincerely, Sincerely,
/s/ Michael L. Rosen /s/ Michael T. Marron
- ------------------------------- -------------------------------
Michael L. Rosen Michael T. Marron
President President
CIS Aircraft Partners, Inc., as Jet Aircraft Leasing, Inc., as
Managing General Partner Administrative General Partner
- --------------------------------------------------------------------------------
Your response to this solicitation is very important
in order to ensure that your interests will be represented.
The General Partners recommend that unitholders vote "FOR" the liquidation.
- --------------------------------------------------------------------------------
<PAGE>
JETSTREAM, L.P.
3 WORLD FINANCIAL CENTER, 29TH FLOOR
NEW YORK, NEW YORK 10285
(212) 526-3183
==========================================
NOTICE OF CONSENT SOLICITATION
==========================================
NOTICE IS HEREBY GIVEN, to the holders of limited partnership interests
and units (collectively, the "unitholders") of JetStream, L.P. ("JetStream" or
the "Partnership") that CIS Aircraft Partners, Inc., the Managing General
Partner, and Jet Aircraft Leasing, Inc., the Administrative General Partner, of
the Partnership (together, the "General Partners"), are soliciting consents on
behalf of the Partnership to approve the following:
(1) the sale of all of the Partnership's assets and the dissolution of the
Partnership pursuant to a Plan of Liquidation and Dissolution;
(2) the amendment of the Amended and Restated Limited Partnership
Agreement, dated September 10, 1987, to permit the engagement of the
General Partners to market and sell the assets of the Partnership for a
fee pursuant to the terms of the Joint Marketing Agreement, dated July
13, 1999, among each of the General Partners and the Partnership; and
(3) the grant of authority to the General Partners to take any action
necessary or incidental and consistent with the Partnership Agreement,
as amended, the proposed Plan of Liquidation and Dissolution and the
Joint Marketing Agreement to complete the foregoing on the terms
described in this consent solicitation statement.
The matters for which your consent is being solicited are collectively
referred to in this document as the "Liquidation." The Liquidation is a single
proposal that will be effective only upon approval of unitholders holding more
than 50% of the units entitled to vote.
The General Partners have fixed the close of business on October 12,
1999 as the record date for determining the unitholders entitled to notice of
and to consent to the Liquidation. Only unitholders of record at the close of
business on that date will be entitled to notice of and to vote in the consent
solicitation. The consent solicitation will terminate at 5:00 p.m., Eastern Time
on November 19, 1999, unless extended by the General Partners, in their sole
discretion.
If you require assistance completing the enclosed blue consent card,
please call the Partnership's consent solicitation agent, MacKenzie Partners,
Inc., toll free at (800) 322-2885.
New York, New York
October 15, 1999
- --------------------------------------------------------------------------------
Your response to this solicitation is very important. Please sign the enclosed
blue consent card and return it promptly in the enclosed postage-prepaid
envelope or fax it to the Partnership's consent solicitation agent, MacKenzie
Partners, Inc., at (212) 929-0308 to consent to the Liquidation. The General
Partners recommend that unitholders vote "FOR" the Liquidation.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Liquidation has not been approved or disapproved by the Securities and
Exchange Commission nor has the Commission passed upon the fairness or merits of
such transaction nor upon the accuracy or adequacy of the information contained
in this document. Any representation to the contrary is unlawful.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Sincerely, Sincerely, Sincerely,
/s/ Michael L. Rosen /s/ Michael T. Marron /s/ Michael L. Rosen
- ------------------------------- ------------------------------------- ----------------------------
Michael L. Rosen Michael T. Marron Michael L. Rosen
President President and Chief Financial Officer President
CIS Aircraft Partners, Inc., as Jet Aircraft Leasing Inc., as CIS Assignor L.P.A., Inc. as
Managing General Partner Administrative General Partner Assignor Limited Partner
</TABLE>
<PAGE>
JETSTREAM, L.P.
3 WORLD FINANCIAL CENTER, 29TH FLOOR
NEW YORK, NEW YORK 10285
(212) 526-3183
==========================================
CONSENT SOLICITATION STATEMENT
==========================================
This consent solicitation statement and the enclosed blue consent card
are being first mailed to the holders of limited partnership interests and
limited partnership depository units (collectively, the "unitholders") of
JetStream, L.P., ("JetStream" or the "Partnership") a Delaware limited
partnership, on or about October 15, 1999, by the General Partners, as
hereinafter defined, on behalf of the Partnership to solicit consents for
approval of the following:
(1) the sale of all of the Partnership's assets and the dissolution of the
Partnership pursuant to the Plan of Liquidation and Dissolution;
(2) the amendment of JetStream's Amended and Restated Limited Partnership
Agreement, dated September 10, 1987, to permit the engagement of the
General Partners to market and sell the assets of the Partnership for a
fee pursuant to the terms of the Joint Marketing Agreement, dated July
13, 1999, among each of the General Partners and the Partnership; and
(3) the grant of authority to the General Partners to take any action
necessary or incidental and consistent with the Partnership Agreement,
as amended, the proposed Plan of Liquidation and Dissolution and the
Joint Marketing Agreement to complete the foregoing on the terms
described in this consent solicitation statement.
The matters for which your consent is being solicited are collectively
referred to in this document as the "Liquidation." The Liquidation is a single
proposal that will be effective only upon the approval of unitholders holding
more than 50% of the units entitled to vote. For ease of reference in this
consent solicitation statement, "units" will include interests in the
Partnership held by both limited partners and unitholders.
CIS Aircraft Partners, Inc. is the Managing General Partner and Jet
Aircraft Leasing, Inc. is the Administrative General Partner of the Partnership.
Together, the Managing General Partner and the Administrative General Partner
are referred to in this document as the "General Partners." As described in this
consent solicitation statement, the General Partners are proposing to liquidate
JetStream, subject to approval by the affirmative vote of holders of more than
50% of the outstanding units of the Partnership on October 12, 1999. As part of
the Liquidation, the General Partners are proposing that the Partnership amend
the Partnership Agreement to permit the General Partners to receive a marketing
and sales fee for the sale of the Partnership's assets pursuant to the Joint
Marketing Agreement. See "WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION
- -- Amendment to the Partnership Agreement; Joint Marketing Agreement" and "--
Interests of Certain Persons in the Liquidation."
<PAGE>
If the holders of more than 50% of the outstanding units in the
Partnership approve the Liquidation by marking the box entitled "FOR" on the
enclosed blue consent card and the other conditions described herein are
satisfied, then the General Partners will: (1) sell the assets of the
Partnership and use the sales proceeds and/or other Partnership funds to pay all
expenses in connection with such sales, including the marketing and sales fee to
the General Partners, (2) pay or make provision for payment of all Partnership
obligations and liabilities and (3) distribute the remaining assets to the
unitholders and General Partners as set forth in JetStream's Partnership
Agreement, as amended, and as described in this consent solicitation statement.
See "WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION -- Effect of the
Liquidation on the Partnership and the Unitholders." JetStream will be dissolved
at such time as the General Partners determine that these actions have been
completed.
In addition to solicitation by use of the mails, directors, officers,
employees and agents of the General Partners may solicit consents in person or
by telephone, facsimile or other means of communication. The General Partners
have also engaged MacKenzie Partners, Inc., to assist them in the solicitation
of consents. MacKenzie Partners will receive a fee of $7,500, plus reasonable
expenses, in connection with its engagement.
- --------------------------------------------------------------------------------
The General Partners request that each unitholder complete and sign the enclosed
blue consent card and promptly return it in the enclosed postage-prepaid
envelope or fax it to the Partnership's consent solicitation agent, MacKenzie
Partners, Inc., at (212) 929-0308. The General Partners recommend that all
unitholders consent to the Liquidation by marking the box entitled "FOR" on the
enclosed consent card. Your consent is very important.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This consent solicitation statement contains forward-looking statements.
Discussions containing such forward-looking statements may be found in the
material set forth under "WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION"
as well as within this consent solicitation statement generally. In addition,
when used in this consent solicitation statement, the words "believes,"
"anticipates," "expects" and similar expressions are intended to identify
forward-looking statements; however, not all forward-looking statements will
contain such expressions. Such statements are subject to a number of risks and
uncertainties. Actual results or events in the future could differ materially
from those described in the forward-looking statements as a result of the
inability of the General Partners to find suitable purchasers for the aircraft,
the inability to agree on an acceptable purchase price or contract terms,
fluctuations in the market value of the aircraft, changes in regulations
governing the aircraft, general economic conditions and other factors set forth
in this consent solicitation statement. The General Partners further caution
unitholders that the discussion of these factors may not be exhaustive.
The General Partners undertake no obligation to publicly release any revisions
to these forward-looking statements that may be made to reflect any future
events or circumstances.
- --------------------------------------------------------------------------------
<PAGE>
==========================================
TABLE OF CONTENTS
==========================================
NOTICE OF CONSENT SOLICITATION ................................................1
CONSENT SOLICITATION STATEMENT.................................................2
QUESTIONS AND ANSWERS ABOUT THIS CONSENT SOLICITATION
STATEMENT AND THE PROPOSED LIQUIDATION................................1
THE PARTNERSHIP AND THE GENERAL PARTNERS.......................................4
JetStream.............................................................4
The General Partners..................................................5
The Assignor Limited Partner..........................................6
Historical Distributions to the Unitholders...........................7
Fees of the General Partners..........................................8
Market for the Units..................................................9
WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION..........................9
Plan of Liquidation and Dissolution...................................9
Approval and Recommendation of the General Partners..................10
Effect of the Liquidation on the Partnership and the Unitholders.....10
Liquidation Expenses.................................................13
Background and Reasons for the Liquidation...........................14
Review of Alternatives Considered by the General Partners............19
Advantages of the Liquidation........................................20
Risks of the Liquidation.............................................21
Amendment to the Partnership Agreement; Joint Marketing Agreement....23
Interests of Certain Persons in the Liquidation......................24
Appraisal of Partnership Assets......................................26
Other Conditions to the Liquidation..................................27
Material Federal Income Tax Considerations...........................28
Accounting Treatment.................................................30
Effective Time.......................................................30
Amendment of the Plan of Liquidation and Dissolution.................30
No Appraisal Rights..................................................30
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.......................................................31
General..............................................................31
Ownership Interest of the General Partners in the Partnership........31
i
<PAGE>
CONSENT PROCEDURES............................................................31
Timing of the Consent Solicitation...................................31
Record Date and Outstanding Units....................................31
Approval Date; Extensions; Amendment.................................32
Consent Card and Vote Required.......................................32
Revocability of Consent..............................................33
Solicitation of Consents; Solicitation Expenses......................33
Effect of a Failure to Approve the Liquidation.......................34
INCORPORATION BY REFERENCE....................................................34
APPENDICES....................................................................35
Appendix A -- Form of Plan of Liquidation and Dissolution
Appendix B -- Joint Marketing Agreement
Appendix C -- JetStream Annual Report on Form 10-K for the Year Ended
December 31, 1998
Appendix D -- JetStream Quarterly Report on Form 10-Q for the Period Ended
March 31, 1999
Appendix E -- JetStream Quarterly Report on Form 10-Q for the Period Ended
June 30, 1999
ii
<PAGE>
=====================================================
QUESTIONS AND ANSWERS
ABOUT THIS CONSENT SOLICITATION STATEMENT
AND THE PROPOSED LIQUIDATION
=====================================================
BACKGROUND
Q: WHY HAVE I RECEIVED THIS CONSENT SOLICITATION STATEMENT?
A: The General Partners are proposing to sell all of JetStream's aircraft,
pay or make provision for all Partnership obligations and liabilities,
distribute the available cash to unitholders and the General Partners
and to terminate the Partnership. The General Partners are proposing to
market and sell the Partnership's aircraft and to receive a marketing
and sales fee for their efforts pursuant to the Joint Marketing
Agreement, an amendment to the Partnership Agreement and any related
transactions.
You have received this consent solicitation statement because
JetStream's Partnership Agreement requires the approval of unitholders
holding at least 50% of the units entitled to vote on the Liquidation.
You are entitled to vote because, according to the records of the
Partnership, you owned units on October 12, 1999. Even if you have sold
some or all of your units since that date, if you owned units on
October 12, 1999, you are entitled to vote.
THE LIQUIDATION
Q: WHY ARE THE GENERAL PARTNERS RECOMMENDING THE LIQUIDATION AT THIS TIME?
A: The General Partners are recommending the Liquidation because the
principal benefits of owning units in the Partnership, namely: (1)
generating current income for unitholders by making cash distributions
that are substantially tax sheltered; and (2) providing safety by
preserving the value of the Partnership's assets, have substantially
declined in recent years and are likely to continue to decline.
The General Partners believe that in light of the declining
distributions to unitholders, the improved market for the sale of used
commercial aircraft, the increasing age of the Partnership's aircraft
and increasing administrative expenses, it would be in the best
interests of the Partnership and the unitholders to dispose of the
Partnership's assets and dissolve the Partnership at this time.
The tax shelter effect of the Partnership was only expected to defer,
not eliminate, a unitholder's tax liability. Due to the longevity of
the Partnership, an investment in the Partnership no longer provides
this benefit.
1
<PAGE>
Q: DO THE GENERAL PARTNERS RECOMMEND THAT I CONSENT TO THE LIQUIDATION?
A. Yes. The General Partners recommend that unitholders consent to the
Liquidation by marking the box entitled "FOR" on the enclosed blue
consent card and returning it promptly in the enclosed postage-prepaid
envelope or faxing it to the Partnership's consent solicitation agent,
MacKenzie Partners, Inc., at (212) 929-0308. The General Partners,
however, have conflicts of interest in recommending the Liquidation, in
part due to the marketing and sales fee that they will receive if
unitholders approve the Liquidation. For additional information
regarding the General Partners' conflicts of interest, see "WHAT YOU
SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION-- Interests of Certain
Persons in the Liquidation."
Q: WHAT WILL HAPPEN IF THE LIQUIDATION IS APPROVED?
A: The General Partners will market and sell the Partnership's aircraft
and distribute the net proceeds to unitholders and the General
Partners. Following these steps, the General Partners will take all
necessary steps to dissolve the Partnership. The General Partners
expect that it will take between 6 to 18 months from the date of the
unitholders' approval of the Liquidation to sell the Partnership's
aircraft. Dissolution can be a complex process which may depend on a
number of factors, and some of these factors are beyond the General
Partners' control. Completion of the Liquidation may also be subject to
certain risks, see "WHAT YOU SHOULD KNOW BEFORE VOTING ON THE
LIQUIDATION-- Risks of the Liquidation."
Q: WHAT WILL I RECEIVE IF THE LIQUIDATION IS APPROVED?
A: The General Partners cannot give you any assurance regarding the amount
of cash that you will actually receive or when you will receive it.
However, the General Partners have hired an independent appraiser (the
"Appraiser"), to value the Partnership's aircraft. The General Partners
have also estimated the expenses associated with the Liquidation. Based
on these figures and the Partnership's projected financial condition at
the time of the Liquidation, unitholders are expected to receive
approximately $2.84 to $3.54 per unit from the Liquidation. However, as
described under "WHAT YOU SHOULD KNOW BEFORE VOTING ON THE
LIQUIDATION-- Effect of the Liquidation on the Partnership and the
Unitholders," neither the General Partners nor the Appraiser can
guaranty the distributions that unitholders will receive in the
Liquidation.
Q: WILL I OWE ANY FEDERAL INCOME TAX AS A RESULT OF THE LIQUIDATION?
A: The sale of the aircraft will generate ordinary income to the
unitholders for United States federal income tax purposes. Distribution
of the Liquidation proceeds may result in a capital gain or loss to the
unitholders for United States federal income tax purposes. Tax matters
are very complicated and your tax consequences may depend on your
financial situation and whether you purchased your units in the
offering or secondary market. Please consult your tax advisor to
determine the tax consequences of the Liquidation. See "WHAT YOU SHOULD
KNOW BEFORE VOTING ON THE LIQUIDATION -- Material Federal Income Tax
Considerations."
2
<PAGE>
Q: WHAT IF THE LIQUIDATION IS NOT APPROVED?
A: If the Liquidation is not approved by the requisite number of units,
then the Partnership will continue to operate as a legal entity with
its assets and liabilities. The General Partners believe that
distributions from operations will continue to decline, due primarily
to the decline of the Partnership's asset base and the expiration of
aircraft leases in the near future.
CONSENT SOLICITATION PROCESS
Q: AM I REQUIRED TO VOTE ON THE LIQUIDATION?
A: No. You are not required to vote. However, the General Partners cannot
complete the Liquidation without the approval of unitholders holding at
least 50% of the units entitled to vote on the Liquidation.
Q: HOW DO I VOTE?
A: Please mark your vote, sign and return the blue consent card using the
enclosed postage pre-paid envelope provided or fax it to the
Partnership's consent solicitation agent, MacKenzie Partners, at (212)
929-0308. Your consent card must be received by 5:00 p.m., Eastern
Time, on November 19, 1999 (unless such date and/or time is extended
in the sole discretion of the General Partners).
Q: DO UNITHOLDERS HAVE APPRAISAL RIGHTS?
A: Under applicable state law, unitholders are not entitled to appraisal
rights. There will not be any procedure by which a unitholder can seek
an alternative valuation of his or her units, regardless of whether the
unitholder does or does not consent to the Liquidation.
Q: IF I HAVE CERTIFICATES REPRESENTING MY UNITS, SHOULD I SEND IN MY
CERTIFICATES NOW?
A: No. If you have certificates representing your units, you will receive
written instructions regarding your certificates in connection with
completion of the Liquidation.
3
<PAGE>
----------------------------------------
THE PARTNERSHIP AND THE GENERAL PARTNERS
----------------------------------------
JETSTREAM
JetStream is a Delaware limited partnership formed in 1987 to invest in
used commercial aircraft subject to triple net leases with domestic commercial
air carriers or, under certain circumstances, to foreign commercial carriers. In
general, a "triple net lease" is a lease in which the lessee undertakes to pay
all or substantially all expenses related to leased aircraft, including, but not
limited to, insurance (other than excess hull insurance), maintenance and taxes,
but excluding debt service, if any. JetStream owns five aircraft.
The following table describes the Partnership's portfolio of aircraft
as of June 30, 1999. This table provides certain operational statistics for the
aircraft in the portfolio. The table does not include aircraft that have been
sold.
<TABLE>
<CAPTION>
Age Acquisition Net Book Lease Noise Flight
Aircraft Model (years) Lessee Cost(1) Value Expiration(2) Compliance Flight Cycles Hours
- ------------------ --------- -------------- --------------- -------------- --------------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MD-80 Series 13 Continental $ 27,396,997 $ 3,359,619 3/15/00 Stage 3 18,750 38,405
B-737-200 ADV 20 Delta 15,222,609 763,856 9/30/01 Stage 3(3) 39,579 58,715
B-737-200 28 Eastwind(4) 7,601,999 178,125 11/30/99 Stage 2(5) 73,908 65,119
B-737-200 28 Eastwind(4) 7,601,999 178,125 11/30/99 Stage 2(5) 73,379 65,235
B-727-200 30 Sun Pacific(6) 5,448,499 -- Parked Stage 2(7) 47,871 70,446
------------- -----------
$ 63,272,103 $ 4,479,725
============= ===========
</TABLE>
(1) Includes a 1.5% fee paid to the Managing General Partner at the
acquisition of the aircraft.
(2) Lease expiration dates do not include renewal options.
(3) The aircraft will be returned by the lessee with a hushkit. See "WHAT
YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION -- Background and
Reasons for the Liquidation" for a discussion of hushkitting.
(4) Eastwind is delinquent on rental payments and maintenance reserves
totaling $878,144. The Partnership is currently in possession of the
aircraft and is evaluating its options with respect to disposition of
the planes. An involuntary petition of bankruptcy was filed against
Eastwind by three of its creditors. Prior to such filing, the
Partnership was working with Eastwind to maximize its collection of the
delinquent payments. The General Partners intend to continue to pursue
all remedies available to the Partnership with respect to the
collection of these receivables, subject to the decisions of the
Bankruptcy Court and the applicable provisions of the U.S. Bankruptcy
Code. See "Interests of Certain Persons in the Liquidation --
Affiliates of the Managing General Partner and the Administrative
General Partner; Liquidation of JetStream II."
4
<PAGE>
(5) The aircraft are currently hushkitted but are expected to be returned
by the lessee at lease end as Stage 2 aircraft (without hushkits). See
"WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION -- Background
and Reasons for the Liquidation" for a discussion of hushkitting.
(6) In September 1998, the Partnership entered into a lease agreement with
Sun Pacific for the 727-200 non-advanced aircraft which was previously
leased to TWA. The Partnership agreed to assign the above described
maintenance payments of $360,656 received from TWA in order for Sun
Pacific to perform the maintenance on the aircraft. At June 30, 1999,
the maintenance on the aircraft had not been completed and the funds
set aside to perform the maintenance have been exhausted. Furthermore,
the Partnership has not received rental payments from Sun Pacific
pursuant to the terms of the lease. The plane requires C-checks
(routine inspection and repair) and corrosion repair, for which
$200,000 has been reserved for June 30, 1999.
(7) The aircraft is not hushkitted because the General Partners believe
that it is not economically viable. See "WHAT YOU SHOULD KNOW BEFORE
VOTING ON THE LIQUIDATION -- Background and Reasons for the
Liquidation" for a discussion of hushkitting.
JetStream II, L.P. is a Delaware limited partnership which was
organized and is structured and operated similar to JetStream. JetStream II also
invests primarily in used commercial aircraft subject to triple net leases with
domestic air carriers. CIS Aircraft Partners, Inc. and Jet Aircraft Leasing,
Inc. are also the Managing General Partner and Administrative General Partner,
respectively, of JetStream II. JetStream and JetStream II have also engaged the
same attorneys, independent appraiser, accountants and consent solicitation
agent. The General Partners are currently proposing that the unitholders of
JetStream II approve a substantially identical liquidation to the one described
herein.
JetStream's principal place of business is 3 World Financial Center,
29th Floor, New York, New York 10285 and its telephone number at such address is
(212) 526-3183.
THE GENERAL PARTNERS
Managing General Partner. CIS Aircraft Partners, Inc., the Managing
General Partner, is a Delaware corporation which was organized in 1987 to
sponsor investment in JetStream and JetStream II. The Managing General Partner
is a wholly owned third tier subsidiary of Continental Information Systems
Corporation ("Continental"), a New York corporation. The Managing General
Partner owns a 0.5% interest in the Partnership (a "GP Interest") but does not
own any units in JetStream or JetStream II.
Administrative General Partner. Jet Aircraft Leasing, Inc. (formerly
Hutton Aircraft Leasing, Inc.), the Administrative General Partner, is a
Delaware corporation and is an affiliate of
5
<PAGE>
Lehman Brothers Inc. The Administrative General Partner was organized in 1987.
Like the Managing General Partner, the Administrative General Partner owns a
GP Interest in the Partnership but does not own any units in JetStream or
JetStream II.
Fiduciary Duties of the General Partners. Both the Managing General
Partner and the Administrative General Partner of the Partnership have fiduciary
duties to the Partnership under Delaware law in addition to the specific duties
and obligations imposed upon them under the Partnership Agreement. Subject to
the terms of the Partnership Agreement, the General Partners, in managing the
affairs of the Partnership, are expected to exercise good faith and integrity
with respect to the affairs of the Partnership, must make full disclosure in
their dealings with the Partnership and must disclose to the Partnership any
benefit or profit derived by them from any transaction connected with the
Partnership. Under these fiduciary duties, the General Partners are obligated to
ensure that the Partnership is treated fairly and equitably in transactions with
third parties, especially where consummation of such transactions may result in
the interests of the General Partners being opposed to, or not aligned with, the
interests of the unitholders. Accordingly, the General Partners of the
Partnership are required to assess whether the Liquidation is fair and
equitable, taking into account the unique characteristics of the Partnership
(such as the Partnership's revenues and expenses and the prospects for increases
or decreases in future cash flow) which affect the value of its assets.
Role of the General Partners. The Managing General Partner generally
manages and controls the day to day operations of the Partnership, and together
with the Administrative General Partner has general responsibility and overall
authority over matters affecting the interests of the Partnership. The
Administrative General Partner is responsible for cash management, filing of tax
returns, all accounting recordkeeping, and all communications between the
Partnership and the unitholders. In all cases, however, the approval of both
General Partners is necessary for the acquisition, lease, re-lease and sale of
all aircraft. The General Partners have joint and several liability for the
Partnership's obligations. Unitholders of the Partnership may not participate in
management of the Partnership without subjecting themselves to liability as a
general partner.
THE ASSIGNOR LIMITED PARTNER
General. CIS Assignor L.P.A. Inc., a Delaware corporation and an
affiliate of Continental, is the Assignor Limited Partner. The Assignor Limited
Partner was formed in anticipation of its participation in JetStream and
JetStream II, has no other business purpose and may not engage in any business
activity other than in connection with JetStream and JetStream II.
Role of the Assignor Limited Partner. The Assignor Limited Partner is
responsible for voting on behalf of unitholders in accordance with the
directions of the unitholders so that each unitholder's units will be voted
separately. The Assignor Limited Partner owns five units in the Partnership. For
ease of reference, the Assignor Limited Partner will be treated as a unitholder
for purposes of the consent solicitation statement.
6
<PAGE>
HISTORICAL DISTRIBUTIONS TO THE UNITHOLDERS
The following charts represent taxable net income and cash
distributions per unit for the Partnership for the years 1987 through 1998.
JETSTREAM
(4,895,005 units)
Cash
Distribution Taxable Income
Year per Unit(1) per Unit(1)
----------- ----------------- ----------------
1987 $ 0.430 $ (0.068)
1988 2.400 (0.864)
1989 2.400 0.054
1990 2.400 0.347
1991 2.300 0.722
1992 1.650 (0.413)
1993 0.913 (0.653)
1994 1.000 (0.899)
1995 0.865 0.039
1996 0.984 0.140
1997 0.978 0.592
1998 0.729 0.731
-------- --------
TOTAL $17.049 $(0.272)
======== ========
- -----------------
(1) Cash distributions per unit were $0.30 and $0.58, respectively for the
first and second quarters of 1999. The distribution for the second
quarter of 1999 represents a distribution of cash flow from operations
of $0.46 per unit and a distribution of net sale proceeds of $0.12 per
unit. Taxable income per unit is calculated on an annual basis and, as
a result, cannot be determined per quarter.
The units of the Partnership constitute equity interests entitling each
unitholder to his or her pro rata share of cash distributions made to the
unitholders of the Partnership. The Partnership makes quarterly distributions to
unitholders. The distributions payable to the unitholders are not fixed in
amount and are derived from unitholders' share of cash flow from operations, net
proceeds from sales or financings or constitute a return of the unitholders'
equity contributions to the Partnership.
The Partnership Agreement specifies how the cash available for
distribution is to be shared among the unitholders and General Partners.
Generally, cash available for distribution is distributed to the unitholders and
to the General Partners in proportion to their relative percentage ownership of
the Partnership; i.e. 99% to the unitholders and 1% to the General Partners.
However, in the event of a liquidation, net cash proceeds from sale of an
aircraft are distributed to the unitholders and the General Partners based upon
their relative capital accounts until the unitholders have received an amount
equal to their capital contributions, as adjusted pursuant to the Partnership
Agreement, plus a preferred return equal to 8% simple interest per year
cumulative, but not compounded (the "Preferred Return"). Thereafter, net cash
proceeds from sale of an aircraft are distributed 99% to the unitholders and 1%
to the General Partners. In
7
<PAGE>
a liquidation of the Partnership, as is contemplated herein, the General
Partners will distribute available cash as described in "WHAT YOU SHOULD KNOW
BEFORE VOTING ON THE LIQUIDATION -- Effect of the Liquidation on the Partnership
and the Unitholders."
FEES OF THE GENERAL PARTNERS
To date, in accordance with the Partnership Agreement, the General
Partners have received the following fees:
Base Management Fee. A Base Management Fee, subordinated to the payment
to unitholders of their Preferred Return is paid to the General Partners
quarterly in an amount equal to 1.5% of quarterly gross rentals from initial
leases of aircraft and 1.5% of gross rentals from re-leased aircraft (which
gross rentals from re-leases are net of Re-lease Fees described below). Out of
such Base Management Fee, 1% is paid to the Managing General Partner and 0.5% is
paid to the Administrative General Partner.
Re-lease Fee. The General Partners receive a Re-lease Fee for
re-leasing aircraft or renewing a lease, subordinated to the Preferred Return,
paid quarterly 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 being made. Of
the Re-lease Fee, 2.5% is paid to the Managing General Partner and 1% is paid to
the Administrative General Partner.
Incentive Management Fee. The Managing General Partner receives an
Incentive Management Fee, subordinated to the Preferred Return, in an amount
equal to 2.15% of cash flow for the first four and one-half years after the
initial closing of the initial offering of units and thereafter in an amount
equal to 4.5% of quarterly cash flow from operations less expenses.
Resale Fee. With respect to each aircraft sold by the Partnership, a
Resale Fee is paid to the Managing General Partner, subordinated to the
Preferred Return and the Internal Rate of Return to the Partnership as defined
below. The Resale Fee is equal to the lesser of (1) 3% of the contract sale
price of the aircraft or (2) an amount which is competitive in price and terms
with fees charged by non-affiliates rendering comparable services. The Internal
Rate of Return is 9.2% and is defined in the Partnership Agreement to mean the
discount percentage rate at which the present value of future cash flows of an
investment equals the cost of the investment (the "Internal Rate of Return").
This Resale Fee is reduced (but not below zero) for any resale fees or
commissions payable to independent third parties.
In connection with the Liquidation, the General Partners are proposing
to amend the Partnership Agreement to permit both of the General Partners to
receive a marketing and sales fee. Unlike the Resale Fee that is payable to the
Managing General Partner, this marketing and sales fee will not be subordinated
to the Preferred Return to unitholders or the Internal Rate of Return of the
Partnership. Pursuant to the Joint Marketing Agreement, this marketing and sales
fee will be limited to 3% of the sale price of each aircraft, which is less than
competitive rates charged by third party brokers. The proposed amendment to the
Partnership Agreement will require that the General Partners be liable for any
resale fees or commissions payable to any independent third parties in
connection with the Liquidation. As a result, the General Partners expect that
the cost to the Partnership will be lower if the General Partners market and
sell the
8
<PAGE>
aircraft rather than if the Partnership had engaged a third party broker or
agent. See "WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION -- Amendment
to the Partnership Agreement; Joint Marketing Agreement and -- Interests of
Certain Persons in the Liquidation."
MARKET FOR THE UNITS
The units are not listed on any national or regional securities
exchange or quoted on The Nasdaq Stock Market, and there is no established
public trading market for the units. Secondary sales activity for the units has
been limited and sporadic.
============================================
WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION
============================================
- --------------------------------------------------------------------------------
The information contained in this consent solicitation statement with
respect to the Liquidation is qualified in its entirety by reference to the Plan
of Liquidation and Dissolution and the Joint Marketing Agreement, copies of
which are attached to this consent solicitation statement as Appendices A and B,
respectively, and are incorporated herein by reference.
- --------------------------------------------------------------------------------
PLAN OF LIQUIDATION AND DISSOLUTION
The Liquidation is to be effected in accordance with the terms and
conditions set forth in the proposed Plan of Liquidation and Dissolution, the
Joint Marketing Agreement and the Partnership Agreement, as amended herein. Upon
approval of the Liquidation, the General Partners will (1) sell the assets of
the Partnership and use the sales proceeds and/or other Partnership funds to pay
all expenses in connection with such sales, including the marketing and sales
fee to the General Partners (2) pay or make provision for payment of all
Partnership obligations and liabilities and (3) distribute the remaining assets
to the unitholders and the General Partners as set forth in the Partnership
Agreement, as amended and as described in this consent solicitation statement.
The General Partners will then file a Certificate of Cancellation with the
Secretary of State of the State of Delaware, whereupon or at such later time as
may be specified in the Certificate of Cancellation, the Partnership will be
terminated and it will cease to exist.
Pursuant to the Plan of Liquidation and Dissolution, prior to
completing the Liquidation, the Partnership must file all tax returns with
federal, state and local tax authorities, and must file all reports with the
Securities and Exchange Commission and provide such reports to unitholders in
accordance with the Partnership Agreement. Pending the completion of the
Liquidation, in accordance with the Partnership Agreement, the General Partners
may continue to re-lease or sell the aircraft in the Partnership's portfolio in
their discretion.
9
<PAGE>
A unitholder's approval of the Liquidation constitutes consent to:
(i) the sale of all of the Partnership's assets and the
dissolution of the Partnership pursuant to the proposed Plan
of Liquidation and Dissolution;
(ii) the amendment of JetStream's Partnership Agreement to permit
the engagement of the General Partners to market and sell the
assets of the Partnership for a fee pursuant to the terms of
the Joint Marketing Agreement, dated July 13, 1999, among each
of the General Partners and the Partnership; and
(iii) the grant of authority to the General Partners to take any
action necessary or incidental and consistent with the
Partnership Agreement, the proposed Plan of Liquidation and
Dissolution and the Joint Marketing Agreement to complete the
foregoing on the terms described in this consent solicitation
statement.
For a description of the terms of the Joint Marketing Agreement, see "--
Amendment to the Partnership Agreement; Joint Marketing Agreement" and "--
Interests of Certain Persons in the Liquidation." Consummation of the
Liquidation is subject to the consent of unitholders and certain other
conditions. See "CONSENT PROCEDURES" and "-- Other Conditions to the
Liquidation."
APPROVAL AND RECOMMENDATION OF THE GENERAL PARTNERS
The General Partners have approved the Liquidation. The General
Partners believe that the Liquidation is more beneficial to unitholders than a
continuing investment in the Partnership. See "-- Advantages of the Liquidation"
and "-- Review of Alternatives Considered by the General Partners." Even though
the General Partners have conflicts of interest in recommending the Liquidation
(see "-- Interests of Certain Persons in the Liquidation"), the General Partners
believe that their recommendation was made consistent with their fiduciary
duties to unitholders. See "THE PARTNERSHIP AND THE GENERAL PARTNERS -- The
General Partners -- Fiduciary Duties of the General Partners." Consequently, the
General Partners recommend that the unitholders of the Partnership consent to
the Liquidation by marking the box entitled "FOR" on the enclosed consent card.
- --------------------------------------------------------------------------------
Unitholders are urged to consult with their independent
financial and tax advisors prior to consenting to the Liquidation.
- --------------------------------------------------------------------------------
EFFECT OF THE LIQUIDATION ON THE PARTNERSHIP AND THE UNITHOLDERS
Upon the completion of the Liquidation, the Partnership shall cease to
exist and the unitholders will no longer be holders of units of the Partnership
and will receive distributions from the net proceeds of the sale of the
Partnership's assets as provided for in the Plan of Liquidation and Dissolution
and the Partnership Agreement, as amended.
Pursuant to the Partnership Agreement, the General Partners, as
liquidating trustees, will apply and distribute the Partnership's available cash
balances (after payment of all expenses
10
<PAGE>
related to the sale of the aircraft, including payment of the marketing and
sales fee to the General Partners) in the following order of priority:
(1) to pay (or make provision for the payment of) all third party
creditors of the Partnership, including limited partners;
(2) to pay the General Partners for any loans or advances made by
them to the Partnership;
(3) after the payment (or the provision for payment) of all debts,
liabilities and obligations of the Partnership, to the
unitholders in the amount of their respective capital accounts on
the date of distribution;
(4) to the General Partners in the amount of their respective
adjusted capital accounts on the date of distribution; and
(5) to pay the General Partners for all accrued but unpaid management
fees. See "THE PARTNERSHIP AND THE GENERAL PARTNERS -- Fees of
the General Partners."
As described under "-- Appraisal of Partnership Assets," the General
Partners believe that lease encumbered value is a reasonable estimate of the
price that may be achieved if the Partnership's aircraft were sold as of
December 31, 1999. The market for aircraft of the type owned by the Partnership
may decline, however, and as a result, the value that the Partnership will
receive and the distribution that unitholders will receive may decline. As a
result, the General Partners believe that a range of 20% below lease encumbered
value to lease encumbered value represents a reasonable range of prices that the
Partnership may achieve upon sale of its aircraft. Based on the projected
independent appraisal of the Partnership's portfolio as of December 31, 1999,
the General Partners estimate that the gross proceeds to the Partnership would
be between $14.36 million and $17.97 million for the sale of all the
Partnership's aircraft. There can be no assurance that the Partnership would
receive these values shown above upon the sale of the aircraft.
- --------------------------------------------------------------------------------
The estimated market values of the aircraft are affected by, and subject to,
future changes in a variety of factors, including, but not limited to, the
aircrafts' usage, age and lease rate, the credit worthiness of the lessee,
government maintenance and noise regulations and the supply and demand of
aircraft in the market place with similar lift capacity. Estimated values for
the aircraft are also based upon a variety of assumptions regarding aircraft
condition, maintenance status, and market conditions.
- --------------------------------------------------------------------------------
Assuming the expenses of the Liquidation are as set forth below under
"-- Liquidation Expenses," based on the aggregate sales values above and the
Partnership's projected financial condition at the time of the Liquidation, the
General Partners believe that the Liquidation will result in cash distributions
to unitholders totaling between $2.84 and $3.54 per unit if the aircraft were
sold as of December 31, 1999. This estimated cash distribution does not include
any extraordinary expenses such as litigation which could substantially reduce
the amount available for distribution. In addition, as stated above, the General
Partners cannot provide any assurance
11
<PAGE>
to unitholders about market conditions or the availability of willing buyers. As
a result, the General Partners cannot predict the amount that the unitholders
will actually receive upon the Liquidation. For additional risks that may be
involved with the Liquidation, see "-- Risks of the Liquidation."
The General Partners expect to complete the sale of the aircraft in 6
to 18 months from the date of the unitholders' approval of the Liquidation.
Dissolution, however, can be a complex process which may depend on a number of
factors, and some of these factors are beyond the General Partners' control. For
example, the Partnership may be pursuing claims against others or defending
litigation or there may be other contingencies to which the Partnership may
become subject during the Liquidation. Consequently, the final liquidating
distribution may occur several months after all of the aircraft have been sold.
During the course of the Liquidation, the General Partners expect to continue
making distributions on a quarterly basis, including cash distributions from the
sale of aircraft, subject to appropriate reserves.
The Partnership will cease to exist when:
(1) all the assets of the Partnership have been converted into cash;
(2) all actual or contingent liabilities of the Partnership have been
satisfied;
(3) the Partnership's cash, after payment or due provision for all
debts, liabilities and obligations of the Partnership, has been
distributed to the unitholders and General Partners, as set forth
above; and
(4) the Certificate of Limited Partnership of the Partnership has
been canceled as required under Delaware law.
12
<PAGE>
LIQUIDATION EXPENSES
General. The Partnership will pay for the expenses of the solicitation
and, if approved by unitholders, the Liquidation. Expenses are estimated to be
as follows:
SOLICITATION/COMMUNICATION EXPENSES
Printing, Postage and Mailing Fees $ 72,500
Appraisals and Valuation 11,000
Accounting Fees and Expenses 17,500
Legal Fees and Expenses 220,000
Solicitation Agent 7,500
Other 25,000
----------
Sub Total $ 353,500
----------
LIQUIDATION COSTS
General Partners' Marketing Fees $ 539,100(1)
Legal Fees and Expenses 175,000
Accounting Fees and Expenses 55,000
Other 25,000
-----------
Sub Total $ 794,100
-----------
Total Costs $ 1,147,600
===========
- -------------------
(1) Assumes aggregate sales prices of $17.97 million, the maximum of the
anticipated liquidation range, received for the Partnership's aircraft.
Solicitation/Communication Expenses. For purposes of the Liquidation,
the term "Solicitation/Communication Expenses" includes expenses such as the
costs of mailing and printing this consent solicitation statement, any
supplements thereto or other documents related to the Liquidation, telephone
calls, legal fees, appraisal fees, accounting fees, consent solicitation agent
fees and other fees related to the solicitation of consents, as well as
reimbursement of expenses incurred by brokers and banks, if any, in forwarding
the consent solicitation statement to unitholders. The Partnership will pay
these expenses whether or not the Liquidation is consummated.
Liquidation Costs. For purposes of the Liquidation, the term
"Liquidation Costs" means sales and marketing fees paid to the General Partners
pursuant to the Joint Marketing Agreement, legal and accounting fees not
included under Solicitation/Communication Expenses, travel expenses and all
other fees related to the Liquidation, but not including Solicitation/
Communication Expenses or costs that would have otherwise been incurred by the
Partnership in the ordinary course of business.
13
<PAGE>
BACKGROUND AND REASONS FOR THE LIQUIDATION
Since the Partnership's formation, the Partnership's investment
objectives have been focused on generating cash distributions for unitholders
and preserving and protecting the value of the Partnership's assets. Since that
time, significant changes in the aircraft and aircraft leasing markets have
occurred.
The Partnership. The Partnership has been experiencing a continuous
decline in revenues with which to make cash distributions, and the General
Partners believe this trend will continue. Many of the Partnership's current
aircraft leases will soon expire and are projected to generate lower lease rates
than in prior years because of the older age of the aircraft. The projected
decrease in lease rates will most likely contribute to a continuous decrease in
revenue and cash distributions from operations. As a result of decreasing
revenues from older aircraft and fixed expenses, the General Partners believe
that unitholders will receive diminishing cash distributions from operations. In
addition, the Partnership's assets have been fully depreciated for income tax
purposes and the tax benefit of their depreciation will no longer be available
to the Partnership on a going forward basis.
The General Partners believe that another significant factor that will
affect the marketability and value of the Partnership's aircraft is whether the
aircraft comply with noise abatement requirements for commercial aircraft
prescribed by the Federal Aviation Administration ("FAA"). See "-- The Aircraft
Industry Outlook" and -- Regulation -- Aircraft Noise" below. Of the
Partnership's five aircraft, the engines of three of the aircraft have not yet
been brought into compliance with the FAA regulations. In some cases, the
lessees have committed to "hush-kit" these aircraft to comply by the December
31, 1999 deadline but regulations proposed by the European Union to come into
effect in May 2000 may have the effect of prohibiting such "hushkitted" aircraft
from flying over Europe. "Hushkitting" is the modification or re-engineering of
an aircraft in order to bring the aircraft into compliance with the decibel
noise level requirements of the FAA. Due to the remaining useful life of the
aircraft, their fair market value and the costs of hushkitting, the General
Partners believe that "hushkitting" the Eastwind B-737-200's and the Sun Pacific
B-727-200 may not be economically viable. Therefore, these aircraft may not be
as attractive as the remaining aircraft in the portfolio to potential
purchasers. Should the Partnership be required to hushkit an aircraft, no
assurances are possible with 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.
The Partnership is unable to retain any appreciable amount of capital
reserves with which to acquire additional aircraft and react to adverse market
conditions or changes in the market that may arise, in part because the
Partnership Agreement currently limits the amount of debt financing which may be
undertaken by the Partnership. The Partnership's access to capital is further
limited since cash available from operations after the payment of certain
expenses is generally distributed to unitholders. Because of restrictions
(described below) that became applicable in 1998 (after eleven years of
Partnership operations) the Partnership also may not sell existing assets in
order to raise capital for the purchase of additional revenue-generating
aircraft or replace its existing aging non-noise-compliant aircraft. The General
Partners, on behalf of the Partnership, may borrow or advance funds to the
Partnership to maintain Partnership operations,
14
<PAGE>
for such activities as the future repair, reconditioning or reconfiguration of
the aircraft if the General Partners, in their discretion, deem such future
repair, reconditioning or reconfiguration necessary or desirable to enable the
Partnership to re-lease or sell such aircraft. If the General Partners or their
respective affiliates make loans to the Partnership, among other restrictions,
they are prohibited from charging interest in excess of their cost of such
borrowing. The General Partners have the ability to pledge the assets of the
Partnership in connection with any such borrowing. After the eleventh year of
operation of the Partnership, however, net proceeds from the sale or financing
of any of the Partnership's aircraft must be distributed to unitholders (less
amounts reserved in accordance with the Partnership Agreement as working capital
reserves) and may not be used to acquire additional assets for the Partnership.
If the Partnership Agreement allowed the General Partners to use debt
financing on an ongoing basis (and at competitive rates) to the Partnership, it
could be more actively involved in its industry. The Partnership, however, would
still possess additional competitive disadvantages and would also take on
heightened business risk. In light of these considerations, the General Partners
believe that Liquidation is in the best interests of the Partnership. For a
further discussion of the advantages and risks of the Liquidation, see "WHAT YOU
SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION -- Advantages of the Liquidation
and -- Risks of the Liquidation."
General Business Considerations. The aircraft leasing industry and the
Partnership are subject to risks stemming from the physical deterioration or
obsolescence of aircraft, fluctuations in the economy and the market value of
aircraft, defaults by lessees and the adoption of restrictive regulations and
legislation. A major business risk associated with the operation of an aircraft
leasing business is the inability to keep aircraft under leases yielding net
revenues which provide, together with any anticipated sale proceeds, a return
acceptable to the owner of the aircraft. Factors affecting the economic return
of leases of aircraft beyond the control of the Partnership and the lessees of
the aircraft include:
(1) defaulting or insolvent lessees or sublessees of aircraft;
(2) increases in expenses, taxes, labor, insurance costs and aircraft
management fees attributable to aircraft which are not payable by
lessees under triple net leases;
(3) general economic conditions;
(4) fluctuations in supply and demand for aircraft;
(5) regulatory changes;
(6) instability of world fuel markets;
(7) uninsured or uninsurable losses;
(8) strikes and other labor disruptions; and
(9) the imposition of sales and use taxes.
15
<PAGE>
The Aircraft Industry Outlook. In the last three years, the overall
demand for aircraft has been steadily increasing as many airlines have returned
to profitability and lease rates appear to be improving. The impact of this
demand has, however, had little beneficial effect on the aircraft in the
Partnership's portfolio since competition among airlines has mandated the
upgrading of their fleets which requires the use of newer aircraft and aircraft
that have been built in compliance with stricter noise abatement and safety
requirements. As described above, the General Partners expect that three of the
Partnership's aircraft will not comply with the FAA noise abatement regulations.
Additionally, the airline industry tends to be cyclical and a potential return
to less favorable conditions could be approaching. In such a market, the adverse
impact of competition from newer or more recent models on aircraft in the
Partnership's portfolio could be significant. The Partnership is at a
competitive disadvantage in taking advantage of this market because the average
age of the aircraft in Partnership's portfolio is 24 years and the Partnership
Agreement does not permit the Partnership to invest proceeds from the sale of
its current fleet of aircraft to purchase newer aircraft. See "-- The
Partnership."
In 1998, growth in airline passenger traffic combined with reduced fuel
costs and strict cost containment initiatives led to significant improvements in
operating profitability and net earnings for the overall airline industry. These
market 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. For a number of reasons discussed
below, however, the General Partners believe that the older aircraft in the
Partnership's portfolio may not benefit from such reduced availability to the
same extent as may be true of newer aircraft. For a list of the Partnership's
aircraft and their appraised value, see "-- Appraisal of Partnership Assets."
The continued reduction in inventory of available planes has also
favorably affected lease rates. However, future opportunities for leasing the
Stage 2 noise abatement level aircraft which are currently in the Partnership's
fleet are limited due to the FAA's noise compliance regulations. "Stage 2"
aircraft are aircraft which are in compliance with the stage 2 noise decibel
levels in part 36, title 14 of the Code of Federal Regulations, as amended, and
Annex 16, Chapter 2 of the International Civil Aviation Organization rules.
These aircraft engines are generally not as advanced as "Stage 3" aircraft with
respect to noise described levels. For information regarding the Partnership's
fleet and noise compliance, see "THE PARTNERSHIP AND THE GENERAL PARTNERS --
JetStream" and "-- Regulation -- Aircraft Noise". The scheduled phase-out of
Stage 2 aircraft combined with the older age of many of the aircraft in the
Partnership's portfolio has had a substantial adverse impact on the residual
values of the Partnership's Stage 2 aircraft during a period of increasing
economic growth and profitability for most segments of the industry. See "WHAT
YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION -- Background and Reasons for
the Liquidation" and "-- Regulation -- Aircraft Noise."
Leasing Risks. The Partnership's successful negotiation of lease
extensions, re-leases and sales is critical to its ability to achieve its
financial objectives, and involves a number of risks. Demand for lease or
purchase of the aircraft depends on the economic condition of the airline
industry. Ability to re-lease or resell aircraft at acceptable rates depends on
the demand and market values at the time of re-lease or resale. The market for
used aircraft is cyclical, and generally, but not always, reflects economic
conditions and the strength of the travel and transportation industry. The
demand for and resale value of many types of older aircraft in the
16
<PAGE>
past has been depressed by such factors as airline financial difficulties,
increased fuel costs, the number of new aircraft on order and the number of
older aircraft coming off lease.
Competition. The aircraft leasing industry has become increasingly
competitive and the success of any lessor is heavily dependent upon the nature
of the aircraft within its portfolio. Recently, major airlines have been
competing with each other based on the young age of their fleets. Because the
Partnership is not permitted to acquire new aircraft, the Partnership is at an
increasing competitive disadvantage because of the older age of the aircraft in
the Partnership's portfolio. See "-- The Partnership."
Regulation. There are a number of areas in which compliance with
federal regulation may result in increased costs to the Partnership and
decreased returns to unitholders. These include aircraft noise regulations,
safety requirements, required equipment modifications and aircraft registration.
Although the burden of complying with such requirements often falls upon lessees
of aircraft, the cost of complying with such federal regulations may fall on the
Partnership. Furthermore, future federal regulations could cause the value of
any non-compliant aircraft owned by the Partnership to substantially decline.
Aircraft Noise. 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 which are in compliance with the stage 3
noise decibel levels in part 36, title 14 of the Code of Federal
Regulations, as amended, and Annex 16 of the International Civil
Aviation Organization rules, are the most quiet and will be the future
standard of aircraft. In 1990, Congress passed the Airport Noise and
Capacity Act of 1990 (the "Airport Act"), which required the
development of a National Noise Policy. In 1991, final regulations (the
"Regulations") were announced and became effective immediately. The
Regulations provide generally, among other things, for the phase-out
and non-addition of Stage 2 aircraft in the United States by December
31, 1999, unless hushkitted or re-engined. With limited exceptions,
only Stage 3 or Stage 3 hushkitted aircraft will be allowed to fly in
the United States after December 31, 1999. 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 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 can cost up to $3.0
million per aircraft while the costs of re-engining programs are
significantly higher.
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. Moreover,
because of the year-end 1999 noise deadline, there may also be a
substantial backlog of hushkits already on order by other customers. 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
17
<PAGE>
fleets after November 1, 1990. The rule has specific expectations for
leased aircraft and does allow the continued use of Stage 2 aircraft
which are in operation in EEC countries before November 1, 1990. The
Partnership does not currently have any aircraft on lease to airlines
outside the United States. EEC regulations will prohibit hushkitted
and re-engined aircraft that comply with Stage 3 requirements from
flying over Europe after May, 2000.
These regulations have adversely affected the market value and
marketability of Stage 2 and Stage 3 hushkitted and re-engined
aircraft.
Aging Aircraft Maintenance. The Federal Administration
Aviation has adopted a series of Airworthiness Directives ("ADs"). ADs
are mandates requiring the airline to perform a specific maintenance
task within a specified period of time or over the life of an aircraft.
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.
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,
most lessees are 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 might 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. The cost of compliance with these
directives varies among aircraft type and affects the value of aircraft
approaching a threshold for implementation.
Two of the Partnership's aircraft are subject to AD's
mandating structural modification, specifically 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.
Aircraft Registration. Aircraft may not be lawfully operated
in United States airspace unless registered in full name and owned by
citizens of the United States or other permissible persons under the
Federal Aviation Act of 1958, as amended. Violations of the
registration requirements may result in fines being imposed on the
Partnership, the potential for uninsured casualties to aircraft, the
loss of the benefits of the central recording system under federal law
(thereby leaving aircraft exposed to liens or other
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interests not of record with the FAA), and a breach by the Partnership
of aircraft lease or financing agreements.
Residual Values of Aircraft. The returns of the Partnership to
unitholders depend, in part, on the residual values of the aircraft. The
residual values ultimately realized, in turn, depend upon, among other things,
the standards observed by lessees in maintaining the aircraft, the Partnership's
ability to remarket the aircraft, the cost of comparable new aircraft, rates of
inflation, market conditions, costs of materials and skilled labor, aircraft
technological advances and other factors, all of which may be beyond the control
of the Partnership.
Casualties, Insurance Coverage. The Partnership, as an owner of
transportation equipment, could be held liable for injuries or damage to
property caused by its assets. Though some protection may be provided by the
Federal Aviation Act of 1958, as amended with respect to its aircraft assets, it
is not clear to what extent such statutory protection would be available to
the Partnership. Though the Partnership may carry insurance or require a lessee
to insure against a risk, some risks of loss may not be insurable. An uninsured
loss with respect to the aircraft or an insured loss for which insurance
proceeds are inadequate, would result in a possible loss of invested capital in
and any profits anticipated from such aircraft. Currently, the Partnership, and
ultimately the unitholders (to the extent of their investment), bear the risks
associated with losses which are not covered by insurance.
REVIEW OF ALTERNATIVES CONSIDERED BY THE GENERAL PARTNERS
Before recommending the Liquidation, the General Partners considered
the benefits and risks associated with continuing the business of the
Partnership. After weighing the risks and benefits of continuation, the General
Partners believe that the Liquidation will have the greater likelihood of
providing optimal economic benefits for the unitholders. The General Partners
did not conduct an in-depth analysis of amending the Partnership Agreement in
order to allow the Partnership to compete in the industry with a revised
business plan. The General Partners do not view this possible alternative as
being consistent with the original objectives of the Partnership. In addition,
unitholders would continue to be subject to the risks associated with their
investment in the Partnership.
General. JetStream is not required to liquidate and wind up until the
year 2027, but the General Partners believe that the Partnership is at the point
in its economic life cycle where winding down the Partnership's operations or
other exit strategies were intended. If the Partnership continued until 2027,
the average age of the aircraft in the Partnership's portfolio would be over 50
years old. As of October, 1998 the Partnership is restricted from selling
existing aircraft or borrowing funds to raise capital to purchase additional
revenue generating aircraft or to replace its existing aging non-noise-compliant
aircraft. In addition, the Partnership generally has and will continue to have
fixed expenses allocated over a declining revenue base with aging assets and
will probably continue to yield a declining income stream. In addition, the
Partnership has ceased to provide depreciation deductions for unitholders.
Continuation. The General Partners believe that continuing the business
of the Partnership does not provide the best alternative for the unitholders.
Continuing the business of
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the Partnership as initially anticipated, however, provides the benefit of
providing unitholders direct investment in the aircraft leasing industry.
In the opinion of the General Partners these benefits are outweighed by
the:
(1) likelihood that the value of the Partnership's aircraft will
continue to decline rapidly;
(2) continued risks of re-leasing aircraft, including the difficulty
or inability to lease Stage 2 or obsolete aircraft;
(3) general competitive disadvantages of the current Partnership
structure; and
(4) fixed expenses that the Partnership generally has and would
continue to have allocated over a declining revenue base with
aging assets;
(5) possibility of interruptions in cash distributions due to the
costs of compliance with federal noise compliance regulations;
(6) continued risks of lease default by lessees;
(7) continued lack of liquidity of a unitholder's investment; See "THE
PARTNERSHIP AND THE GENERAL PARTNERS -- Market for the Units;"
(8) yearly expense and delay to individual unitholders' preparation of
tax returns due to their investment in a limited partnership.
If the Partnership were to continue under its current structure,
unitholders would likely retain their investment without any significant
accumulation in value or near term exit opportunities.
ADVANTAGES OF THE LIQUIDATION
Among the reasons prompting the General Partners' decision to recommend
the Liquidation are the following:
(1) Decreasing Distributions to Unitholders. The General Partners believe that
the older age of the Partnership's fleet and the cost of Stage 3 compliance
will continue to increasingly negatively impact the Partnership's revenue
and cash distributions from operations to unitholders as it will become
increasingly difficult to find lessees with acceptable credit at reasonable
lease rates;
20
<PAGE>
(2) Current Market. The General Partners believe that the current market
provides an opportunity to sell the aircraft and avoid worsening market
conditions as additional younger planes flood the market for lessees and
avoid potentially more difficult market conditions to re-lease aircraft to
acceptable lessees;
(3) Reduced Tax Benefits. The aircraft owned by the Partnership are
substantially depreciated on a tax basis and therefore unitholders will not
receive future tax benefits from depreciation deductions;
(4) Sale of Illiquid Investment. Currently, there is no established market for
the units and unitholders are only able to sell their units in an informal
and sparse secondary market, which contains a small number of participants
with infrequent transactions such as tender offers for less than 5% of the
units. Such tender offers have been made to unitholders for their interests
in the Partnership at prices which the General Partners have deemed to be
insufficient. As a result, the General Partners believe that there may be a
desire on behalf of at least some unitholders to liquidate portions of or
their entire investment in the Partnership. Liquidation of the Partnerships
allows unitholders to "cash-out" their investment; and
(5) Industry Trend. The unitholders in other partnerships involved in the
aircraft and aircraft equipment industry with aircraft at similar points in
their economic life cycles have liquidated. The General Partners, as the
General Partners of JetStream, are also currently proposing to liquidate
JetStream II.
RISKS OF THE LIQUIDATION
General. The following is a description of the risks which the General
Partners believe, as of the date of this consent solicitation statement, are
material in connection with the Liquidation.
- --------------------------------------------------------------------------------
Unitholders should consider the following factors in reaching a decision
as to whether to approve the Liquidation.
- --------------------------------------------------------------------------------
Uncertainty of Amount and Timing of Liquidating Distributions to
Unitholders. A number of factors will affect the amount and timing of
liquidating distributions in the Liquidation, including the price for which the
aircraft are sold, the condition of the aircraft market during the Liquidation,
new laws or regulations regarding aircraft, the costs of liquidation and other
matters, many of which are beyond the control of the Partnership. There is also
no assurance that the Partnership's assets can be sold within a reasonable
period of time. As a result, the General Partners cannot guaranty the timing or
amount of liquidating distributions to unitholders. See "-- Plan of Liquidation
and Dissolution" and "-- Effect of the Liquidation on the Partnership and
Unitholders."
Sales of Assets Pursuant to the Plan of Liquidation and Dissolution Not
Subject to Unitholder Approval. If the unitholders approve the Liquidation, the
General Partners will commence marketing of all of the Partnership's aircraft.
Unitholders will have no right or opportunity to vote on the sale of each
aircraft and will, therefore, have no right to approve or disapprove the terms
of any such sale. Therefore, by consenting to the Liquidation, unitholders
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<PAGE>
are
granting the General Partners authority to sell all of the Partnership's assets
upon terms and conditions which the General Partners deem appropriate. In
general, the General Partners expect to sell the aircraft for cash on an "as-is
where is" basis and the sales agreements are not expected to contain surviving
representations or warranties. See "-- Plan of Liquidation and Dissolution."
Lack of Independent Representation. The Partnership has not retained an
independent representative to act on behalf of the unitholders or the
Partnership in designing the overall structure of the Liquidation and, in
particular, in structuring and negotiating the terms and conditions (including
the consideration to be received) upon which the Partnership's assets will be
sold. If a third party broker had been retained to sell the assets of the
Partnership, the terms of the Liquidation may have been different for both the
Partnership and the unitholders. The General Partners did not believe it
necessary to retain such independent representative due to higher transaction
costs and inadequate benefits to the unitholders. The General Partners, however,
have engaged BK Associates, Inc., an independent third party appraiser, to
appraise the Partnership's aircraft in connection with the Liquidation. See
"-- Appraisal of Partnership Assets."
Indemnification Under the Partnership Agreement. The Partnership
Agreement provides that the General Partners and their respective affiliates (as
defined in the Partnership Agreement and to the extent such affiliates are
acting for or on behalf of the General Partners) are not liable to the
Partnership, unitholders or any other person having any other interest in units
for any loss which arises out of their acts or omissions, if the General
Partners acted in good faith, on behalf of the Partnership, and determined that
such course of conduct was in the best interests of the Partnership and did not
constitute negligence or misconduct of the General Partners or their respective
affiliates. As a result of these provisions, unitholders may have more
restricted rights of action than they would otherwise have if such restrictions
had not been included in the Partnership Agreement. In general, neither the
General Partners nor their respective affiliates may be indemnified under the
Partnership Agreement with regard to liabilities arising under federal or state
securities laws, rules or regulations.
If a claim were made against the General Partners or their affiliates
in connection with their actions on behalf of the Partnership with respect to
the Liquidation, the General Partners expect that they and such other persons
will seek to be indemnified by the Partnership with respect to such claim. Any
expenses (including legal fees) incurred by the General Partners and such other
persons in defending such claim may be advanced by the Partnership prior to the
final disposition of such claim, if: (1) the legal action relates to the General
Partners' (and such persons) performance on behalf of the Partnership, (2) the
legal action is initiated by a third party who is not a unitholder and (3) the
General Partners (and such other person) undertake to repay any amounts advanced
if it is determined that the indemnified person's actions constituted negligence
or misconduct. As a result of these indemnification rights, a unitholder's
remedy with respect to claims against the General Partners (and such other
person) relating to the General Partners' or such other person's involvement in
the Liquidation could be more limited than the remedies that would have been
available absent the existence of these rights in the Partnership Agreement. A
successful claim for indemnification, including the expenses of defending a
claim made, would reduce the Partnership's assets by the amount paid.
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<PAGE>
The Continued Existence of the Partnership Due to Litigation or
Unresolved Claims. The Partnership has asserted claims against some of its
lessees. The Partnership may not be terminated until all Partnership claims have
been resolved. The General Partners may elect under the Plan of Liquidation and
Dissolution to distribute all of the assets of the Partnership to unitholders
and either dissolve and terminate the Partnership or leave the Partnership in
existence as a legal entity during the pendency of any claims while maintaining
sufficient reserves to pay any costs of settling the claims or in the event the
Partnership is liable to third parties on any claims brought by third parties
against the Partnership. As of the date of this consent solicitation statement,
the General Partners are not aware of any such third party claims.
Liquidation Will Affect Operating Results. As aircraft are sold
pursuant to the Plan of Liquidation and Dissolution, the Partnership's net
income would decrease since fewer revenue-generating aircraft will remain in the
Partnership's portfolio. Because certain of the Partnership's general and
administrative expenses are fixed rather than variable, the decreased
contribution from aircraft which are sold are expected to result in a decrease
in total Partnership operating results until completion of the Liquidation.
Year 2000. The Year 2000 compliance issue concerns the ability of
computerized information systems to accurately calculate, store or use a date
after 1999. This could result in computer system failures or miscalculations
causing disruptions of operations. The Year 2000 issue affects almost all
companies and organizations. It is anticipated that the cost of vendor and
lessee compliance with Year 2000 problems will be borne primarily by vendors and
lessees, respectively. Non-compliance by the lessee could impact its ability to
operate the aircraft, and could affect its ability to meet the terms of its
lease. In addition, Year 2000 computer failures among potential purchasers for
the Partnership's aircraft could depress the market for the Partnership's
aircraft. Although it is not possible at present to give an estimate of the cost
of this work to the Partnership, the General Partners do not expect such costs
to have a material adverse impact on the Partnership's Liquidation.
AMENDMENT TO THE PARTNERSHIP AGREEMENT; JOINT MARKETING AGREEMENT
Pursuant to Section 5.9(e) of the Partnership Agreement, the Managing
General Partner is entitled to receive a Resale Fee for marketing and selling
the Partnership's assets. This fee is only payable if both (1) the Preferred
Return is paid to unitholders and (2) the Partnership has achieved the pre-tax
Internal Rate of Return. Therefore, the Resale Fee requires that the Partnership
achieve certain performance criteria. The Resale Fee is limited to the lesser of
3% of the selling price of the asset or the amount that would be charged by a
non-affiliate to market and sell the Partnership's aircraft on similar terms.
The Partnership Agreement does not require that the General Partners
market and sell the assets themselves. See "THE PARTNERSHIP AND THE GENERAL
PARTNERS -- Fees of the General Partners." Under the Partnership Agreement, the
General Partners may instead hire a third party to sell the Partnership's
assets, which third party would charge a broker's fee. The Partnership would pay
the reasonable fees and expenses of a third party broker.
The General Partners surveyed market rates for third party brokers for
recently completed transactions. The General Partners also reviewed the fees
received by general partners of other
23
<PAGE>
partnerships for marketing and selling aircraft of similar partnerships. In
addition, the General Partners received the opinions of two appraisers
concluding that 3% is a reasonable fee for the sale of the Partnership's assets.
Based on the foregoing, the General Partners concluded that, for the
Partnership's portfolio, the Partnership could expect to pay a fee in excess of
3% plus expenses for a third party broker's services in selling the
Partnership's assets.
The General Partners are proposing that the Partnership Agreement be
amended to allow both of the General Partners to find buyers for the aircraft of
the Partnership for a fee not to exceed 3% of the sales price of the aircraft
pursuant to the terms of the Joint Marketing Agreement, dated July 13, 1999,
among CIS Aircraft Partners, Inc., Jet Aircraft Leasing, Inc. and JetStream. For
performing their respective duties of identifying and negotiating with buyers of
the aircraft, as set forth in the Joint Marketing Agreement, the Partnership
will pay a fee to the Managing General Partner and the Administrative General
Partner equal to 2% and 1%, respectively, of the contract sale price for each
aircraft as and when sold. This marketing and sales fee would not be
subordinated to the Preferred Return or the Internal Rate of Return. Under the
Joint Marketing Agreement, the General Partners would pay for any fees
attributable to any third party brokers. As a result, the expense to the
Partnership is expected to be lower if the General Partners market and sell the
Partnership's assets than if the Partnership hires a third party broker because
the total fee paid by the Partnership will be limited to 3% of the selling price
of each aircraft. The General Partners believe that the 3% marketing and sales
fee is a fair and reasonable fee and is less than the fee typically charged by
third parties for such services. In addition, the General Partners are qualified
to perform these services due to their experience at marketing and selling
aircraft.
In order to allow the payment of the marketing and sales fee to the
General Partners, section 5.9(e) of the Partnership Agreement is proposed to be
restated in its entirety to read as follows:
The Managing General Partner and the Administrative General Partner
shall receive a non-subordinated aircraft marketing and sales fee in
connection with the liquidation of the Partnership as set forth in the
Joint Marketing Agreement, dated July 13, 1999, among the Managing
General Partner, the Administrative General Partner and the
Partnership.
This amendment to the Partnership Agreement is part of the Liquidation and
requires the approval of unitholders holding more than 50% of the outstanding
units on October 12, 1999. If the requisite number of unitholders do not approve
the Liquidation, the Joint Marketing Agreement will be terminated.
INTERESTS OF CERTAIN PERSONS IN THE LIQUIDATION
General. Pursuant to the Joint Marketing Agreement, the Managing
General Partner and Administrative General Partner have an interest in the
Liquidation in addition to their ownership interest in the Partnership. As
General Partners of the Partnership, however, the General Partners are required
to perform their duties under the Joint Marketing Agreement, consistent with
their fiduciary duties to the unitholders, in compliance with the terms of the
Partnership Agreement, and without regard to whether they or their affiliates
have an interest in a proposed transaction.
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<PAGE>
See "THE PARTNERSHIP AND THE GENERAL PARTNERS -- The General Partners --
Fiduciary Duties of the General Partners" for a description of the General
Partners' duties with respect to the Partnership. After consideration of the
terms and conditions of the Liquidation, the General Partners recommend that
unitholders vote in favor of the Liquidation.
In addition, certain affiliates of each of the Managing General Partner
and the Administrative General Partner currently compete with the Partnership in
the aircraft leasing business which may subject the Managing General Partner and
the Administrative General Partner to an additional conflict of interest. See
"-- Affiliates of the Managing General Partner and the Administrative General
Partner; Liquidation of JetStream II" below.
Current Compensation. Currently, each General Partner receives a 0.5%
share of the Partnership's cash flow and non-liquidating sales proceeds for its
GP Interest in the Partnership. Under the Partnership Agreement, the General
Partners are also entitled to base management fees, re-lease fees and incentive
management fees. See "THE PARTNERSHIP AND THE GENERAL PARTNERS -- Fees of the
General Partners." Through March 31, 1999, the Partnership paid an aggregate of
$14,810 to the General Partners in management fees, administrative overhead
reimbursement, and cash distributions. See "THE PARTNERSHIP AND THE GENERAL
PARTNERS -- Fees of the General Partners."
Liquidating Distribution Received by the General Partners Under the
Partnership Agreement. Pursuant to the Partnership Agreement, the General
Partners may receive a cash distribution upon Liquidation of the Partnership
equal to the General Partners' capital accounts. This cash distribution will be
made only after payment has been made to the Partnership's creditors and
unitholders in the amount of each unitholder's capital account.
Affiliates of the Managing General Partner and the Administrative
General Partner; Liquidation of JetStream II. Certain affiliates of the Managing
General Partner and the Administrative General Partner compete with the
Partnership in the aircraft leasing business. As a result, the Managing General
Partner and the Administrative General Partner may have a conflict of interest
if both the Partnership and the affiliate are concurrently selling the same type
of aircraft. A similar conflict of interest may arise for both of the General
Partners between JetStream and JetStream II if unitholders of both JetStream
and JetStream II approve their plan of liquidation and dissolution whereby the
General Partners will be engaged to market and sell the assets of both
partnerships. For example, both JetStream and JetStream II own B-737-200 and
MD-80 aircraft. In addition, since JetStream and JetStream II have the same
general partners, the General Partners may not be in a position to independently
view the Liquidation proposal solely from the perspective of a single
partnership, the effect of which may have benefitted one of the Partnerships at
the expense of the other partnership.
In addition, along with two other creditors, an affiliate of the
Managing General Partner filed an involuntary petition for bankruptcy relief
against Eastwind in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court") on September 29, 1999. The Partnership had two
aircraft on lease to Eastwind, which have been returned to the Partnership. As
of the date of this document, the bankruptcy case is still in the "involuntary
gap period" because the Bankruptcy Court has not yet entered an order for relief
adjudicating Eastwind as a debtor under Title 11 of the United States Code. See
"The Partnership and the General Partners -- JetStream."
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<PAGE>
Under the terms of the Partnership Agreement, the Partnership may not
sell aircraft to the General Partners or their respective affiliates.
APPRAISAL OF PARTNERSHIP ASSETS
General. The General Partners engaged BK Associates, Inc. (the
"Appraiser"), an independent appraisal firm, to appraise the lease-encumbered
value of the aircraft owned by the Partnership.
The projected aggregate asset value of JetStream as determined by the
Appraiser using the lease-encumbered value methodology described below was
$17.97 million (not including expenses) as of December 31, 1999. See "-- Effect
of the Liquidation on the Partnership and the Unitholders" for a description of
the assumptions on which this appraised value was based.
Selection and Role of the Appraiser. BK Associates is an aircraft
appraisal firm and is an International Society of Transport Aircraft Trading
certified senior aircraft appraiser. BK Associates' clients include domestic and
foreign airlines; aircraft, engine and aviation equipment manufacturers;
corporate aircraft operators; governmental agencies; and financial institutions.
The Appraiser was selected on the basis of its experience and expertise in
evaluating aircraft similar to those in the Partnership's portfolio, its
knowledge of market demand for the Partnership's aircraft and its ability to
provide an independent evaluation in a timely manner. In addition, the Appraiser
has prepared annual appraisals of the lease-encumbered value of the Partnerships
aircraft since inception of the Partnership. For services in connection with the
appraisal, the Partnership has agreed to pay BK Associates a fee of $11,000. The
Appraiser's compensation was not contingent upon the consummation of the
Liquidation, the outcome of the Appraiser's conclusions or the sale of the
Partnership's aircraft portfolio.
There were no limitations imposed by the General Partners upon the
methods, procedures or investigations that might be pursued or undertaken by the
Appraiser in performing the requested valuation. The Appraiser was afforded the
opportunity to (a) conduct such investigations, inquiries and due diligence as
deemed necessary or advisable in establishing its valuation, (b) select and
follow the procedures, techniques and methods deemed to be most appropriate to
establish and confirm such valuations; and (c) make such assumptions, and
identify such qualifications and limitations, as deemed necessary in its
findings.
- --------------------------------------------------------------------------------
Neither the Managing General Partner nor the Administrative General
Partner has made any contact, other than as described in this consent
solicitation statement, with any outside party regarding the preparation by the
outside party of an appraisal of the Partnership or its assets, or any other
report with respect to the Liquidation.
- --------------------------------------------------------------------------------
Lease-Encumbered Value. The lease-encumbered value is the Appraiser's
opinion of the value of a leased aircraft, given a specified lease payment
stream (rent and terms), and estimated future residual value at lease
termination after the appropriate discount rate. This approach assumes that
there is no short-term time constraint to buy or sell the asset. The
lease-encumbered
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<PAGE>
valuation can produce current market values greater or lesser
than the fair market values, depending upon the rental rate and the Appraiser's
opinion regarding future values of the appraised aircraft. Lease-encumbered
value does not reflect expenses involved in realizing such value.
- --------------------------------------------------------------------------------
In calculating lease-encumbered value, the Appraiser did not consider
transaction costs and expenses (including administrative and other related
costs) that the Partnership will incur in the Liquidation and which will
materially reduce the actual cash payment to unitholders.
- --------------------------------------------------------------------------------
The following chart sets forth, by lessee, the appraised values of the
Partnership's aircraft as determined by the Appraiser:
Lease-Encumbered
Aircraft Model Year Delivered Lessee Value (1)
------------------ ----------------- ----------------- ------------------
(In thousands)
MD-80 Series 1986 Continental $ 13,646
B-737-200 ADV 1979 Delta 3,274
B-737-200 1971 Eastwind 250
B-737-200 1971 Eastwind 350
B-727-200 1969 Parked 450
--------
TOTALS $ 17,970
========
(1) The estimated market value 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 of the
lessee, government maintenance and noise regulations, and the supply and
demand of aircraft in the market place with similar lift capacity.
OTHER CONDITIONS TO THE LIQUIDATION
Some of the aircraft leases require that the lessees consent to sale of
the aircraft unless the purchaser meets certain credit or other requirements.
The General Partners do not believe that obtaining these consents will
materially effect the timing of the Liquidation. Other than compliance with
certain aircraft registration requirements, there are currently no federal or
state regulatory approvals that must be obtained in connection with the
Liquidation. See "-- Background and Reasons for the Liquidation -- Regulation --
Aircraft Registration."
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MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
The federal income tax discussion set forth below deals with the
material federal income tax consequences of the Liquidation of a Partnership,
but does not purport to deal with all aspects of federal income taxation that
may be relevant to a particular unitholder in the light of such a unitholder's
personal circumstances. The discussion is directed solely to holders that hold
the units as capital assets within the meaning of section 1221 of the Internal
Revenue Code of 1986, as amended (the "Code"), and have acquired such units for
investment and not as a dealer or for resale. Further, this discussion may not
be applicable to certain classes of taxpayers, including insurance companies,
securities dealers, non-resident alien individuals, foreign entities, foreign
trusts and estates and beneficiaries thereof, financial institutions, real
estate investment trusts, regulated investment companies, tax exempt
organizations, trusts or persons who acquired Partnership interests as
compensation. This discussion is based upon the Code, Department of Treasury
regulations, court decisions, published rulings of the Internal Revenue Service
(the "IRS") and other applicable authorities, all as in effect on the date
hereof and all of which are subject to change or differing interpretation
(possibly on a retroactive basis).
Unitholders are urged to consult their own tax advisors as to the
specific tax consequences to them of the Liquidation of a Partnership, including
the applicability and effect of federal, state, local and other tax laws.
- --------------------------------------------------------------------------------
In General. The Partnership, as a partnership for federal income tax
purposes, is not subject to federal income tax; rather, each unitholder is
required to take into account its distributive share of the Partnership's
income, gains, losses, deductions, credits and tax preference items in computing
such unitholder's federal income tax liability for any taxable year of the
Partnership ending within or with the taxable year of such unitholder, without
regard to whether the unitholder has received or will receive any distribution
from the Partnership. Such distributive share is required to be reported by the
Partnership to each unitholder on a Schedule K-1; each unitholder is required to
report consistently with such Schedule K-1 unless it discloses any inconsistent
position to the IRS when it files its federal income tax return. A unitholder's
distributive share of the Partnership's income or loss is determined in
accordance with the allocations set forth in the Partnership Agreement.
For federal income tax purposes, the Liquidation consists of two
separate components:
(1) the sale by the partnership of its assets; and
(2) the distribution of cash to each unitholder in liquidation (a
"liquidating distribution") of such unitholder's interest in the
partnership. Each of these is separately discussed below.
Sale of the Partnership's Assets. For federal income tax purposes, each
unitholder will be required to include in its income its allocable share of the
gain or loss realized by the Partnership upon the sale of the Partnership's
assets pursuant to the Liquidation. It is expected that the amount of gain so
includable by a unitholder will be approximately $2.71 to $3.41 per unit. Such
gain will result primarily from the sale of the aircraft and aircraft related
assets ("Aircraft Gain"). It is anticipated that all Aircraft Gain will be
ordinary income in the form of "depreciation recapture" because it will be
attributable to tax depreciation of the aircraft and related assets
28
<PAGE>
while owned by the Partnership. Gain or loss realized by the Partnership on the
sale of each of its other assets will be capital or ordinary gain or loss,
depending upon the nature of the asset in the hands of the Partnership.
Distribution to the Unitholders. A unitholder will recognize gain to
the extent the amount of the liquidating distribution received by the unitholder
exceeds the unitholder's tax basis for its units. Any such gain will be capital
gain. In general, any such capital gain recognized by an individual, estate or
trust will qualify for the 20% maximum tax (10% in the case of a taxpayer in the
15% ordinary income bracket) on capital gains if the units were held by such
unitholder for more than one year. Because a unitholder's tax basis for its
units will be increased by both the unitholder's allocable share of any gain
realized on the sale of the Partnership's assets (see "-- Sale of the
Partnership's Assets"), and by the amount of the unitholder's allocable share of
income from normal Partnership operations for the year of the Liquidation, a
unitholder will not realize any gain by reason of the distribution of such gain
and operating income pursuant to the Liquidation. Nevertheless, a unitholder's
allocable share of the Partnership cash may exceed its basis for its units, and
thereby cause the unitholder to recognize gain.
A unitholder will recognize a capital loss to the extent the amount of
the liquidating distribution received by the unitholder is less than the
unitholder's tax basis for its units, as such basis is adjusted to reflect any
gain or loss realized by the Partnership on the sale of its assets .
Passive Activity Rules. Unitholders that are individuals, trusts,
estates, closely held corporations or personal service corporations are subject
to the passive activity loss limitations rules of section 469 of the Code. A
unitholder's allocable share of Partnership income or loss from the sale of the
Partnership's assets is generally treated as derived from a passive activity. As
a result, a unitholder's allocable share of such losses may be used by the
unitholder in the current taxable year only to offset passive activity income
from a unitholder's other passive activity investments, with the excess
suspended indefinitely. Similarly, a unitholder's allocable share of any
Partnership gain realized on the sale of its assets is generally characterized
as passive activity income that may be offset by passive activity losses from a
unitholder's other passive activity investments. However, because the
liquidating distribution is a fully taxable transaction, section 469 of the Code
allows any suspended passive activity losses of the unitholder with respect to
its investment in the Partnership to be used to reduce other income of the
unitholder.
Tax Treatment of Partnership; Final Partnership Year. The Partnership
will recognize no gain or loss by reason of the liquidating distribution. The
Partnership's final taxable year (the "termination year") will close on the date
on which the Certificate of Cancellation is filed with the Delaware Secretary of
State or such later time as specified in the Certificate of Cancellation see "--
Effective Time," and each unitholder's distributive share of the Partnership's
items of income, gain, loss, deduction and credit for the termination year will
be taken into account by the unitholder on the unitholder's federal income tax
return for the unitholder's taxable year in which the termination year occurs,
in accordance with the procedures that applied to previous taxable
29
<PAGE>
years. Because the Partnership has a calendar taxable year, a unitholder with a
taxable year that is other than a calendar year may be required to include such
unitholder's distributive share of Partnership income for two partnership years
in the unitholder's taxable year in which the termination year occurs.
ACCOUNTING TREATMENT
The Partnership will prepare financial statements in accordance with
generally accepted accounting principles as of and through the date of the
dissolution of the Partnership and will engage its independent auditors to audit
the financial statements.
EFFECTIVE TIME
The effective time of the Liquidation will occur upon the filing of the
Certificate of Cancellation for the Partnership with the Delaware Secretary of
State, or at such later time as may be specified in the Certificate of
Cancellation. It is anticipated that such filing will be made as promptly as
practicable after the requisite approval of the unitholders has been obtained,
the assets of the Partnership are sold and the other conditions to the
Liquidation have been satisfied or waived, if permitted under the Plan of
Liquidation and Dissolution. See, however "-- Risks of the Liquidation -- The
Continued Existence of the Partnership due to Litigation or Unresolved Claims."
AMENDMENT OF THE PLAN OF LIQUIDATION AND DISSOLUTION
Subject to applicable law, the Plan of Liquidation and Dissolution may
be amended by the Partnership at any time prior to the filing of the Certificate
of Cancellation with the Delaware Secretary of State, provided that, after
approval of the Liquidation by the affirmative vote of holders of more than 50%
of the outstanding units of the Partnership, no amendment may be made which
alters or changes the terms and conditions of the Plan of Liquidation and
Dissolution if such alteration or change would materially and adversely affect
the unitholders.
NO APPRAISAL RIGHTS
Pursuant to Delaware law, a partnership agreement may provide for
contractual appraisal rights in connection with any amendment of a partnership
agreement, any merger or the sale of all or substantially all of the limited
partnership's assets. No such appraisal rights, however, are available for
unitholders of JetStream because neither the Partnership Agreement nor the Plan
of Liquidation and Dissolution provide for appraisal rights. Accordingly, the
approval of the Liquidation by the affirmative vote of the requisite number of
unitholders will be binding on all of the Partnership's unitholders.
<PAGE>
==============================================
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
==============================================
GENERAL
As of the record date, no person was known by the Partnership to be the
beneficial owner of more than five percent of the units.
OWNERSHIP INTEREST OF THE GENERAL PARTNERS IN THE PARTNERSHIP
The General Partners each have a GP Interest. See "THE PARTNERSHIP AND
THE GENERAL PARTNERS -- The General Partners." This GP Interest does not include
voting rights. In addition, the General Partners do not own any units in the
Partnership. The Assignor Limited Partner owns five units in the Partnership.
==============================
CONSENT PROCEDURES
==============================
- --------------------------------------------------------------------------------
The consent of each unitholder is important. Each unitholder is urged to mark,
date and sign the enclosed blue consent card and return it in the enclosed
postage prepaid envelope or fax it to MacKenzie Partners at (212) 929-0308. If
you require assistance completing the blue consent card, please call MacKenzie
Partners toll free at (800) 322-2885.
- --------------------------------------------------------------------------------
TIMING OF THE CONSENT SOLICITATION
The vote of the unitholders with respect to the Liquidation will be
tabulated on an ongoing basis until 5:00 p.m., Eastern Time, on November 19,
1999, unless such date and/or time is extended by the General Partners, in their
sole discretion. The votes will be tabulated by MacKenzie Partners, which is not
affiliated with the Partnership or the General Partners.
RECORD DATE AND OUTSTANDING UNITS
The Liquidation is being submitted for approval to unitholders as of
the record date. The Partnership Agreement provides that the Assignor Limited
Partner will vote each unit as directed by the unitholder. The record date is
October 12, 1999 for the Partnership for determining the unitholders entitled to
consent to the Liquidation. Accordingly, only record date unitholders will be
entitled to consent to the Liquidation. At the record date, 4,895,005 JetStream
units were held of record by approximately 6,851 unitholders.
Each unitholder is entitled to one vote for each unit held.
Accordingly, the number of units entitled to vote with respect to the
Liquidation is equivalent to the number of units held of record at the record
date. In connection with certain offers previously made for units, the offerors
and the Partnership have entered into agreements pursuant to which such offerors
shall
30
<PAGE>
vote, for a specified period of time, the units acquired pursuant to a tender
offer in the same percentages as the votes of the other units. As of June 30,
1999, 6,550 units are subject to such agreements.
APPROVAL DATE; EXTENSIONS; AMENDMENT
This consent solicitation statement and enclosed blue consent card
constitute the Assignor Limited Partners' notice to unitholders of the
Liquidation. Each unitholder has until 5:00 p.m., Eastern Time, on November 19,
1999, unless extended by the General Partners in their sole discretion, to
inform the Assignor Limited Partner whether such unitholder wishes to vote for,
against or abstain from voting on the Liquidation. The General Partners ask that
each unitholder vote by completing and returning the enclosed blue consent card
accompanying this consent solicitation statement in the manner described below.
Notwithstanding anything to the contrary set forth in this consent
solicitation statement, the General Partners reserve the right, at any time
prior to effectiveness of the Liquidation, to extend, amend or terminate the
solicitation, or to delay accepting consent cards.
CONSENT CARD AND VOTE REQUIRED
Approval of the Liquidation by the Partnership requires the affirmative
vote of holders of more than 50% of the outstanding units of the Partnership as
of the record date. 2,447,503 units must be voted in favor of the Liquidation
for it to be approved by the Partnership.
Unitholders who wish to vote "FOR" the Liquidation should complete,
sign and return the blue consent card. A consent card has been prepared for each
unitholder and is enclosed with this consent solicitation statement. Consent
cards must be delivered in person, by mail, by facsimile or other delivery
service to the consent solicitation agent at the following address on, or prior
to, 5:00 p.m., Eastern Time, on November 19, 1999:
If in person, or by mail: If by facsimile:
MacKenzie Partners, Inc. MacKenzie Partners, Inc.
156 Fifth Avenue - PH3 (212) 929-0308
New York, New York 10010
- --------------------------------------------------------------------------------
If you require assistance completing the blue consent card,
please call MacKenzie Partners toll free at (800) 322-2885.
- --------------------------------------------------------------------------------
A consent card shall be deemed to have been "returned" to the Partnership on the
date that it is delivered in person, by facsimile or deposited in the mail or
other delivery service. Unitholders who sign and return the consent card without
indicating a vote will be deemed to have voted "FOR" the Liquidation. The
failure to return a consent card or abstaining from voting with respect to the
Liquidation will have the same effect as a vote "AGAINST" the Liquidation.
31
<PAGE>
Unitholders who wish to vote "AGAINST" the Liquidation should also
complete and return the blue consent card in the manner described above. A
unitholder who abstains from voting, fails to return the consent card, or votes
"AGAINST" will receive such unitholder's share of the distribution of the
Partnership's Liquidation if
(1) the holders of more than 50% of the outstanding units in the
Partnership approve the Liquidation; and
(2) all other conditions for the consummation of the Liquidation are
satisfied.
Unitholders who vote "AGAINST" the Liquidation will not be entitled to
appraisal rights. See "WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION --
No Appraisal Rights."
The delivery of a consent card will not affect a unitholder's right to
sell or transfer such person's units in the Partnership.
All questions as to the form of all documents and the validity
(including time of receipt) of all approvals will be determined by the General
Partners; such determinations shall be final and binding. The General Partners
reserve the absolute right to waive any of the conditions of the Liquidation or
any defects or irregularities in any approval of the Liquidation or preparation
of the form of consent card. The General Partners' interpretation of the terms
and conditions of the proposed Plan of Liquidation and Dissolution and the Joint
Marketing Agreement will be final and binding. The General Partners shall be
under no duty to give notification of any defects or irregularities in any
approval of the Liquidation or preparation of the form of consent card and shall
not incur any liability for failure to give such notification.
REVOCABILITY OF CONSENT
Unitholders may withdraw or revoke their consent at any time prior to
the earlier of 5:00 p.m., Eastern Time, on November 19, 1999 or the date on
which the Liquidation is approved by the holders of more than 50% of the
outstanding units of the Partnership. To be effective, a written or facsimile of
revocation or withdrawal of the consent card must be received by the consent
solicitation agent prior to such time and addressed as follows: MacKenzie
Partners, Inc., 156 Fifth Avenue - PH3, New York, New York 10010; or by
facsimile to (212) 929-0308. A notice of revocation or withdrawal must specify
the unitholder's name and the number of units being withdrawn.
SOLICITATION OF CONSENTS; SOLICITATION EXPENSES
Votes of unitholders may be solicited by the management of the General
Partners. Costs of solicitation will be paid by the Partnership. See "WHAT YOU
SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION -- Liquidation Expenses." The
Partnership has retained MacKenzie Partners, Inc. as the consent solicitation
agent. MacKenzie Partners will administer the delivery of information to
unitholders. MacKenzie Partners will be paid regardless of the outcome of the
vote.
32
<PAGE>
EFFECT OF A FAILURE TO APPROVE THE LIQUIDATION
If the Liquidation is not approved by the requisite number of units,
then the Partnership will continue to operate as a legal entity with its assets
and liabilities. The General Partners do not anticipate that they will take any
steps to increase liquidity to the Partnership in the near term, and consistent
with their fiduciary duties, will re-evaluate the market conditions periodically
to examine other opportunities available to the Partnership's unitholders prior
to the termination date of the Partnership set forth in the Partnership
Agreement. There will be no change in its investment objectives, policies and
restrictions, and the Partnership will continue to be operated in accordance
with the terms of the Partnership Agreement. The General Partners cannot
guaranty that continuing distributions from operations will remain at current
levels, due primarily to the decline of the Partnership's asset base and
expiration of leases in the near future.
=================================
INCORPORATION BY REFERENCE
=================================
The following documents filed with the Commission by the Partnership
(File No. 0-16836) pursuant to the Securities Exchange Act of 1934, as amended
are incorporated by reference in this consent solicitation statement and are
delivered herewith:
1. JetStream's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998;
2. JetStream's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999; and
3. JetStream's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999.
No persons have been authorized to give any information or to make any
representations other than as contained in this consent solicitation statement
in connection with the solicitations of consents for the Liquidation and, if
given or made, such information or representations must not be relied upon as
having been authorized by the Partnership. This consent solicitation statement
does not constitute the solicitation of consent by anyone in any jurisdiction in
which such solicitation is not authorized or in which the person making such
solicitation is not qualified to do so or to any person to whom it is unlawful
to make such solicitation. The delivery of this consent solicitation statement
shall not under any circumstances create an implication that there has been any
change in the affairs of the Partnership since the date hereof or that the
information herein is correct as of any time subsequent to its date.
33
<PAGE>
==============================
APPENDICES
==============================
Appendix A -- Form of Plan of Liquidation and Dissolution
Appendix B -- Joint Marketing Agreement
Appendix C -- JetStream Annual Report on Form 10-K for the Year Ended
December 31, 1998.
Appendix D -- JetStream Quarterly Report on Form 10-Q for the Period Ended
March 31, 1999.
Appendix E -- JetStream Quarterly Report on Form 10-Q for the Period Ended
June 30, 1999.
<PAGE>
APPENDIX A
PLAN OF LIQUIDATION AND DISSOLUTION
OF
JETSTREAM, L.P.
This Plan of Liquidation and Dissolution (the "Plan") dated as
of ______, 1999 of JetStream, L.P. (the "Partnership"), a limited partnership
organized and existing under the Delaware Revised Uniform Limited Partnership
Act (the "Delaware Act"), is for the purpose of effecting the complete
liquidation and dissolution of the Partnership in accordance with the laws of
the State of Delaware.
1. Intention of the General Partners. CIS Aircraft Partners,
Inc., as the Managing General Partner, and Jet Aircraft Leasing, Inc., as the
Administrative General Partner (collectively, the "General Partners"), believe
that the liquidation and dissolution (the "Liquidation") of the Partnership at
this time is in the best interest of the Partnership and the unitholders, as the
beneficial owners of the limited partnership interests of the Partnership (the
"Unitholders"). Therefore, the General Partners have submitted this Plan to the
Unitholders for their consent to liquidate and dissolve the Partnership in
accordance with Section 8.1.(a)(v) of the Limited Partnership Agreement of the
Partnership dated October 16, 1987 (the "Partnership Agreement").
2. Effectiveness. The Plan shall be effective upon the
approval hereof by the affirmative vote of Unitholders owning more than 50% of
the outstanding units of the Partnership as required by the Partnership
Agreement. Until such time as the Unitholders approve this Plan, the General
Partners shall not take and shall not cause the Partnership to take, any of the
actions, and shall not do or cause the Partnership to do, any of the things
provided herein.
3. Dissolution. Upon the execution of this Plan by CIS
Assignor L.P.A., Inc., as Assignor Limited Partner of the Partnership on behalf
of the Unitholders, the Partnership is and shall be dissolved, without any
further action by or on behalf of the Partnership, the Unitholders or the
General Partners.
4. Winding Up. Upon the dissolution of the Partnership, the
General Partners, as liquidators for the Partnership, shall sell all of the
assets of the Partnership pursuant to the Joint Marketing Agreement, dated as of
July 13, 1999, by and among each of the General Partners and the Partnership and
shall apply the funds of the Partnership (including the proceeds of the sale of
any other assets of the Partnership) to (i) the payment of the expenses of the
sale of the assets of the Partnership, and the winding up, liquidation and
termination of the Partnership; (ii) the expenses of preparation, filing and
distribution of financial statements, tax returns, reports required under the
Securities Exchange Act of 1934 (the "Exchange Act") and reports to Unitholders,
including fees and expenses of accountants and lawyers; (iii) the payment of all
income, sales, use, franchise, gross receipts, ad valorem, personal property and
other taxes, imports, duties and governmental charges payable by the Partnership
with respect to its income or operations through the time of its termination
("Taxes"), including Taxes with respect to the sale of the Partnership's assets;
and (iv) the creation of reserves for any of the foregoing.
1
<PAGE>
5. Liquidation. All assets and funds of the Partnership
remaining after the payments provided for by paragraph 4, and any amounts
reserved by the General Partners pursuant to clause (i) of paragraph 4 and
determined by the General Partners to be in excess of the amounts required
therefor, shall be distributed by the General Partners as follows: (i) to pay or
make provision to pay all creditors of the Partnership, including Limited
Partners and Unitholders in their capacity as creditors of the Partnership, if
applicable; (ii) pay or make provision to pay the General Partners for any loans
or advances made by either of them to the Partnership; (iii) pay the Unitholders
the amount of their respective capital accounts on the date of distribution (the
"Liquidating Distributions"); (iv) pay the General Partners the amounts of their
respective adjusted capital accounts; and (v) pay the General Partners any
accrued but unpaid fees, all in accordance with Section 8.2 of the Partnership
Agreement.
6. Cancellation of Interests in the Partnership. Liquidating
Distributions shall be made in complete cancellation of all of the Unitholders'
interests in the Partnership.
7. Reports and Filings. In connection with the Liquidation and
winding up of the Partnership, the General Partners shall cause to be executed
and timely filed (i) with the office of the Secretary of State of Delaware, a
Certificate of Cancellation canceling the Partnership's Certificate of Limited
Partnership; (ii) with the Internal Revenue Service, all returns, reports,
documents, certificates and other information required under the Internal
Revenue Code of 1986, as amended, or applicable Treasury Department rules or
regulations; (iii) with the appropriate authorities in any other tax
jurisdiction, all returns, reports, documents, certificates and other
information required under the laws of such jurisdictions; (iv) with the
Securities Exchange Commission, any reports required under the Exchange Act,
including a Form 15 terminating the registration of the Partnership under the
Exchange Act; and (v) all reports required to be delivered to the Unitholders in
accordance with Article IX of the Partnership Agreement.
8. Other Acts. The General Partners shall take, or cause the
Partnership to take, such other acts and deeds and shall do, or cause the
Partnership to do, such other things, as are necessary or appropriate in
connection with the dissolution, winding up and Liquidation of the Partnership,
the termination of the responsibilities and liabilities of the Partnership under
applicable law, and the termination of the existence of the Partnership.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have made and executed
this Plan as of the date first written above.
CIS AIRCRAFT PARTNERS, INC.
AS MANAGING GENERAL PARTNER
OF JETSTREAM, L.P.
--------------------------------
BY:
TITLE:
JET AIRCRAFT LEASING, INC.
AS ADMINISTRATIVE GENERAL PARTNER
OF JETSTREAM, L.P.
---------------------------------
BY:
TITLE:
CIS ASSIGNOR L.P.A., INC.
AS ASSIGNOR LIMITED PARTNER OF
JETSTREAM, L.P. ON BEHALF OF THE UNITHOLDERS
---------------------------------
BY:
TITLE:
3
<PAGE>
APPENDIX B
THIS JOINT MARKETING AGREEMENT is entered into as of the 13th day of
July, 1999 (the "Agreement") among CIS Aircraft Partners, Inc., a Delaware
corporation ("CIS"), Jet Aircraft Leasing Inc., a Delaware corporation ("JAL"),
and Jetstream L.P., a Delaware limited partnership ("Jetstream").
PRELIMINARY STATEMENT
CIS and JAL (individually, each a "General Partner" and collectively
the "General Partners") are respectively the managing general partner and the
administrative general partner of Jetstream. The General Partners have
determined that it is in the best interests of the limited partners and
unitholders of Jetstream (collectively the "Investors") to approve a plan of
liquidation and dissolution ("Plan of Liquidation and Dissolution") and wind up
the affairs of Jetstream. In order to obtain the best price for the aircraft
owned by Jetstream, a list of which is attached as Exhibit A (the "Aircraft"),
the Aircraft need to be effectively marketed and sold. Given the familiarity of
the General Partners with the Aircraft and the willingness of the General
Partners to market and sell the assets for fees that are competitive with those
that are commonly charged for such services, the General Partners have agreed to
seek the approval of the Investors to have Jetstream engage the General Partners
to market and sell the assets jointly.
The parties hereto agree as follows:
1. (a) The General Partners shall jointly market and sell the Aircraft.
(b) Set forth on Exhibit B, attached hereto, are the respective
duties to be performed by the General Partners with respect to the marketing and
sale of the Aircraft.
- 1 -
<PAGE>
(c) For performing its duties set forth on Exhibit B, Jetstream
shall pay a fee to CIS equal to 2% of the contract sale price of each Aircraft
as and when sold.
(d) For performing the duties set forth in Exhibit B, Jetstream
shall pay a fee to JAL equal to 1% of the contract sale price for each Aircraft
as and when sold.
(e) Any fees payable hereunder shall be paid in immediately
available funds at the closing of the sale of each Aircraft.
(f) Jetstream shall reimburse the General Partners for their
reasonable documented out of pocket expenses incurred in connection with the
performance of their respective duties set forth on Exhibit B attached hereto.
2. This Agreement shall be construed in accordance with the laws of the
State of New York without reference to its conflict of law provisions and the
obligations and remedies of the parties hereunder shall be determined in
accordance with such laws.
3. All notices shall be written and (i) mailed by certified mail,
postage prepaid, return receipt requested or (ii) telecopied (upon telephone
confirmation of receipt thereof) with a copy delivered by overnight courier and
shall be deemed given upon actual receipt by the intended recipient as follows:
(i) If to CIS: CIS Aircraft Partners, Inc.
45 Broadway
Suite 1105
New York, New York 10006-3007
Attention: Mr. Michael Rosen
Telephone: (212) 771-1000
Telecopier: (212) 771-1100
(ii) If to JAL: Jet Aircraft Leasing Inc.
3 World Financial Center, 29th Floor
New York, New York 10285
Attention: Mr. Michael Marron
Telephone: (212) 526-3085
Telecopier: (201) 508-4562
with a copy to:
- 2 -
<PAGE>
Melissa Nathanson, Esq.
c/o Jet Aircraft Leasing Inc.
3 World Financial Center, 11th Floor
New York, New York 10285
Telephone: (212) 526-9460
Telecopier: (212) 526-3713
(iii) If to Jetstream: Jetstream, L. P.
3 World Financial Center, 29th Floor
New York, New York 10285
Attention: Ms. Andre Anderson
Telephone: (212) 526-3183
Telecopier: (212) 526-6399
4. Each of the General Partners shall indemnify and hold Jetstream
harmless against any loss, claim, cause of action, liability and expense,
including reasonable attorney's fees, to the extent that such loss, claim, cause
of action, liability or expense arises out of or is based on a claim by any
broker, finder or other person who claims to have procured a purchaser solely or
as a result of his dealings with such General Partner. Jetstream agrees that
each General Partner's liability hereunder shall be limited to the amount of the
fees received by such General Partner.
5. The Agreement contains the entire agreement of the parties with
respect to the sale and marketing of the Aircraft and no oral statement or prior
written matter shall have any force or effect. No variation, modification or
amendment of this Agreement shall be binding on the parties hereto unless and
until set forth in a document executed by the parties hereto.
6. Except for Section 1(f) which shall be effective and binding as of
the date of the Agreement, the Agreement shall not be effective or binding until
the Plan of Liquidation and Dissolution is approved by Investors holding more
than 50% in interest of Jetstream.
- 3 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
CIS AIRCRAFT PARTNERS, INC.
By: /s/ Michael Rosen
---------------------------------
Name: Michael Rosen
Title: Vice President
JET AIRCRAFT LEASING INC.
By: /s/ Michael Marron
---------------------------------
Name: Michael Marron
Title: President
JETSTREAM, L.P.
By: CIS AIRCRAFT PARTNERS, INC.
as Managing General Partner
By: /s/ Michael Rosen
-----------------------------
Name: Michael Rosen
Title: Vice President
By: JET AIRCRAFT LEASING INC.
as Administrative General Partner
By: /s/ Michael Marron
-----------------------------
Name: Michael Marron
Title: President
- 4 -
<PAGE>
EXHIBIT A
AGE
AIRCRAFT MODEL (YEARS)
-------------- -------
MD-80 Series 13
B-737-200 ADV 20
B-737-200 28
B-737-200 28
B-727-200 30
- 5 -
<PAGE>
EXHIBIT B
DUTIES OF CIS
- -------------
1. Prepare marketing materials and due diligence information for
potential buyers.
2. Identify potential buyers.
3. Review and approve potential buyers identified by JAL.
4. Jointly with JAL, analyze and evaluate bids received.
5. Jointly with JAL, select winning bids.
6. Negotiate sale agreements with potential buyers.
7. Supervise the closing of each sale.
DUTIES OF JAL
- -------------
1. Review and approve marketing materials prepared by CIS.
2. Identify potential buyers.
3. Review and approve potential buyers identified by CIS.
4. Jointly with CIS, analyze and evaluate bids received.
5. Jointly with CIS, select winning bids.
6. Review and approve sale agreements.
7. Monitor CIS supervision of the closing of each sale.
- 6 -
<PAGE>
APPENDIX C
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, 1998
-----------------
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 I.R.S. Employer
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) 526-3183
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, 1998 (Portions of
Parts I, II, III & IV).
<PAGE>
2
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. ("CAP"),
the Managing General Partner, 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, 1998, 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, 1998, 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 November 4, 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, 1998. 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 Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations of this
Form 10-K and 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,
1998, 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, 1998, for an overview of
the aircraft leasing industry.
<PAGE>
3
<TABLE>
<CAPTION>
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)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MD-80 Series Continental $27,396,997 $ 4,392,835 $13,750,000 3/15/00 Stage 3 18,250 37,500
1986
B-737-200 ADV Delta $15,222,609 $ 1,148,960 $ 3,573,800 9/30/99 Stage 2 38,900 57,840
1979
B-737-200 Eastwind $ 7,601,999 $ 171,875 $ 500,000 11/30/99 Stage 3 73,340 64,470
1971
B-737-200 Eastwind $ 7,601,999 $ 171,875 $ 500,000 11/30/99 Stage 2 72,600 64,490
1971
B-727-200 (6) $ 5,448,499 $ 0 $ 349,450 (6) Stage 2 47,870 70,750
1969
B-727-200 (6) $ 5,448,499 $ 0 $ 349,450 (6) Stage 2 47,060 69,450
1969 ----------- ----------- -----------
TOTALS $68,720,602 $ 6,085,544 $19,022,700
=========== =========== ===========
- ----------------------------------------------------------------------------------------------------------------------------
NOTES:
<FN>
(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, 1998.
(3) 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.
(4) Lease expiration dates do not include renewal options.
(5) Data as of February 5, 1999.
(6) The Partnership's two B-727-200 aircraft were leased to TWA on a
month-to-month basis until the third quarter of 1998. In September 1998,
the General Partners negotiated new lease agreements with Sun Pacific
International Inc., which leases are scheduled to commence pending
completion of required maintenance on the aircraft. See Item 7 below for a
discussion of the Sun Pacific lease agreements.
</FN>
</TABLE>
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.
<PAGE>
4
Two of the Partnership's six Aircraft are subject to AD's mandating structural
modification, specifically 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.
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.
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.
Only two of the aircraft owned by the Partnership are Stage 3, the remainder are
Stage 2 aircraft. The General Partners are currently negotiating an extension of
the lease with Delta, which requires the hushkitting of the aircraft. Sun
Pacific, under terms of the leases, is required to hushkit its two aircraft
prior to December 31, 1999. One of the aircraft leased to Eastwind will not be
hushkitted prior to the expiration of the lease. The General Partners will
attempt to release this aircraft to an operator who will hushkit it, or they
will sell the aircraft.
<PAGE>
5
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 ("EEC") 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 in EEC
before November 1, 1990. The Partnership does not currently have any aircraft on
lease to airlines outside the United States. EEC regulations currently proposed
would require aircraft hushkitted to comply with Stage 3 requirements to
register prior to April 1999.
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, 1998, 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, 1998.
Item 3. Legal Proceedings
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 1998.
<PAGE>
6
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, 1998, the number of Unitholders was 6,847.
Per Unit cash distributions paid to the Limited Partners for the two years ended
December 31, 1998 are presented in the table below.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
1997 $ .244 $ .169 $ .275 $ .290 $ .978
1998 $ .212 $ .222 $ .144 $ .151 $ .729
</TABLE>
Future cash distributions will be determined on a quarterly basis after an
evaluation of the Partnership's current and expected financial position.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
For the years ended December 31, 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rental Revenues $ 4,813,390 $ 5,037,980 $ 5,248,593 $ 4,837,439 $ 5,067,500
Total Expenses 4,473,009 4,117,718 4,884,852 5,669,154 5,977,244
Net Income (Loss) 444,902 1,149,074 687,834 (170,290) (783,993)
Net Income (Loss) per
Limited Partnership Unit(1) .09 .23 .14 (0.03) (0.16)
Total Assets 7,989,525 11,507,572 15,107,551 18,936,402 23,457,496
Partners' Capital 6,466,304 9,625,851 13,316,748 17,492,977 21,939,577
Net Cash Provided by
Operating Activities 4,012,891 5,212,862 4,150,326 4,282,201 6,301,101
Cash Distributions per Unit(1)(2) .73 .98 .98 .87 1.00
- ------------------------------------------------------------------------------------------------------
<FN>
(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.
</FN>
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
Liquidity and Capital Resources
As of December 31, 1998, four of the Partnership's six aircraft were on-lease.
Two aircraft were on-lease to Eastwind Airlines ("Eastwind"), one aircraft was
on-lease to Delta Air Lines, Inc. ("Delta") and one aircraft was on-lease to
Continental Airlines ("Continental"). The remaining two aircraft were leased to
TWA on a month-to-month basis until the third quarter of 1998. The General
Partners have negotiated new lease agreements with Sun Pacific International,
Inc. ("Sun Pacific"), which leases are currently pending completion of required
maintenance on the aircraft, as discussed below.
<PAGE>
7
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 airframe maintenance charge based on usage. Eastwind is
delinquent on rental payments and maintenance reserves totaling $583,453 and has
contacted the General Partners to renegotiate the terms of its lease. In light
of this development, the Partnership established an allowance of $533,453 at
December 31, 1998 against this receivable. The Partnership has security deposits
in the amount of $50,000 from Eastwind. The General Partners will aggressively
pursue all remedies available to the Partnership with respect to the collection
of these receivables.
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.
Continental makes monthly lease payments to the Partnership of $180,000. The
lease with Continental was originally scheduled to expire in March 1998.
Continental extended its lease through March 1999, and in October 1998, it
exercised its second option to renew this lease through March 2000, with the
remaining terms of the lease unchanged.
The Partnership's two remaining 727-200 non-advanced aircraft were leased on a
month-to-month basis by TWA at a monthly lease rate of $32,500. TWA terminated
its leases on these aircraft and returned one plane in July 1998 and another in
September 1998. In accordance with the lease agreement, TWA was to have
performed certain required maintenance prior to returning the aircraft. In lieu
of having TWA perform this maintenance, the Partnership agreed to receive
payments of $360,656 and $360,792 for each respective aircraft from TWA, plus a
commitment from TWA for up to an additional $200,000 per aircraft, if supported
by legitimate maintenance costs.
In September 1998, the Partnership entered into two lease agreements with Sun
Pacific for the two 727-200 non-advanced aircraft which were previously leased
to TWA. Pursuant to the terms of the lease agreements, Sun Pacific is required
to pay the Partnership a monthly lease rate of $64,042 per aircraft commencing
upon the completion of certain required maintenance on the aircraft. In
addition, the airline is required to pay the Partnership a maintenance charge
based on usage. The aircraft were delivered to Sun Pacific with an assignment of
the above described maintenance payments of $360,656 and $360,792 received from
TWA. The Partnership agreed to assign these funds in order for Sun Pacific to
perform required maintenance on the aircraft. As of December 31, 1998, the
maintenance on the aircraft had not been completed, and no funds had been
collected pursuant to the terms of the leases.
At December 31, 1998, the Partnership had unrestricted cash and cash equivalents
of $1,853,981, compared to $2,131,335 at December 31, 1997. The decrease is
primarily attributed to Eastwind being delinquent on rental payments and
maintenance reserves.
At December 31, 1998, the Partnership had a rent receivable balance (net of
allowance for doubtful accounts) totaling $50,000, compared to $79,053 at
December 31, 1997. The 1998 balance represents amounts owed by Eastwind in
excess of the $533,453 allowance established by the Partnership, as discussed
above.
Accounts payable and accrued expenses totaled $635,127 at December 31, 1998 as
compared to $307,831 at December 31, 1997. The increase is primarily
attributable to deferred management fees.
During the year ended December 31, 1998, the Partnership paid distributions to
the Unitholders for the period from October 1, 1997 to December 31, 1998 and for
the first three quarters of 1998, in the amounts of $1,419,551 and $2,827,791,
respectively, which represent approximately $.29 and approximately $.58 per
Unit, respectively. At December 31, 1998, the Partnership had a distribution
payable to Unitholders of $740,613 or approximately $.15 per Unit. This amount
reflects the 1998 fourth quarter cash distribution paid on March 4, 1999, 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.
<PAGE>
8
Market Risk
Interest rate risk comprises the Partnership's principal market risk exposure.
The Partnership has no long-term debt and its aircraft are unencumbered by debt.
Accordingly, the Partnership's interest risk exposure is primarily limited to
interest earned on the Partnership's cash and cash equivalents, which are
invested at short-term rates. Such risk is not considered material to the
Partnership's operations.
Year 2000 Initiatives
The Year 2000 compliance issue concerns the ability of computerized information
systems to accurately calculate, store or use a date after 1999. This could
result in computer system failures or miscalculations causing disruptions of
operations. The Year 2000 issue affects almost all companies and organizations.
As the owner and lessor of commercial aircraft, the Partnership's most
significant Year 2000 issues relate to systems concerns with respect to the
airworthiness of the aircraft. It is the responsibility of the lessees to comply
with any Airworthiness Directives or other manufacturer recommended maintenance
necessary to meet Year 2000 requirements, and the costs of such maintenance, if
any, are to be borne by the lessee. Non-compliance by the lessee could impact
its ability to operate the aircraft, and could affect its ability to meet the
terms of its lease. The Partnership's lessees also face the potential risk of
non-compliance by the air traffic control systems in the areas in which the
aircraft operate. A disruption in any of the air traffic control systems could
cause disruption to the lessee's operations, which may adversely affect their
ability to generate revenue and meet the terms of their leases. The Partnership
is unable to assess the likelihood or the potential cost to the Partnership of
such disruption.
Other potential Year 2000 issues relate primarily to outside vendors which
provide the Partnership's administrative services including accounting, tax
preparation and transfer agent services. Such services are reliant on computer
systems, software products and equipment which may or may not be Year 2000
compliant. It is anticipated that the cost of vendor compliance with Year 2000
problems will be borne primarily by vendors. Although it is not possible at
present to give an estimate of the cost of this work to the Partnership, the
General Partner does not expect such costs to have a material adverse impact on
the Partnership's long term results of operations.
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 1998 consisted of
interest and other income.
1998 compared to 1997
- ---------------------
For the year ended December 31, 1998, the Partnership generated net income in
the amount of $444,902, compared to net income of $1,149,074 in fiscal 1997. The
decrease in net income is primarily attributable to the establishment of an
allowance for doubtful accounts on Eastwind's receivable balance, and a decrease
in rental income as a result of the Partnership's two 727-200 aircraft being off
lease for several months during 1998. Such amounts were partially offset by a
decrease in operating expenses during 1998.
Rental income for the year ended December 31, 1998 was $4,813,390, compared to
$5,037,980 in fiscal 1997. The decrease in rental income is primarily a result
of the Partnership's two 727-200 aircraft being off lease following the
expiration of the leases with TWA in July and September. This decrease was
partially offset by an increase in rental income from the two aircraft leased by
Eastwind which were not 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.
Interest income for the year ended December 31, 1998 totaled $104,393, compared
to $129,090 for the corresponding period in 1997. The decrease is primarily due
to a decrease in the Partnership's invested cash balance during the 1998 period.
Other income totaled $128 for the year ended December 31, 1998, compared to
$99,722 for the year ended December 31, 1997. The decrease primarily represents
payment received from USAirways, Inc. ("USAir") during 1997 for the settlement
and release of claims relating to the lease and maintenance of the Boeing
737-200 aircraft, previously on lease with USAir.
Management fees totaled $387,675 for the year ended December 31, 1998 compared
with $447,868 for the year ended December 31, 1997. The decrease primarily
reflects lower management fees related to the aircraft currently on-lease to
Eastwind.
<PAGE>
9
General and Administrative expenses totaled $334,335 for the year ended December
31, 1998 compared with $230,295 in fiscal 1997. The increase is primarily due to
consulting and other professional fees related to the re-leasing of the aircraft
formerly leased to TWA, and to a lesser extent, higher partnership
administrative servicing costs.
Operating expenses for the year ended December 31, 1998 totaled $5,906, compared
to $227,905 for the 1997 period. The 1997 balance is primarily attributable to
non-recurring operating expenses associated with repair and maintenance work
completed on the two aircraft on-lease to Eastwind.
Bad debt expense for the year ended December 31, 1998 totaled $533,453, which
amount was used to establish an allowance for delinquent rental payments and
maintenance reserves due under Eastwind's leases.
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 USAirways, 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.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1998.
<PAGE>
10
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
Michael T. Marron Director, President and Chief Financial Officer
William T. McDermott 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, 40, 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.
Michael T. Marron, 35, 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.
William T. McDermott, 35, is a Vice President of Lehman Brothers and has been a
member of the Diversified Asset Group since 1998. Mr. McDermott joined Lehman
Brothers in 1993 and held various positions within the firm before joining the
Diversified Asset Group. Prior to joining Lehman Brothers, Mr. McDermott was a
financial analyst with Cantor Fitzgerald Inc. from 1991 - 1993 and was
associated with Arthur Andersen & Co. serving in both its audit and bankruptcy
consulting divisions from 1985 to 1991. Mr. McDermott received his B.B.A. degree
from the University of Notre Dame and is a Certified Public Accountant.
CIS Aircraft Partners, Inc.
---------------------------
Name Office
---- ------
Thomas J. Prinzing Director and President
Robin A. Konicek Vice President
<PAGE>
11
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, 53, is President of CIS Aircraft Partners, Inc. since 1991.
Mr. Prinzing, a Certified Public Accountant, received a Bachelor of Commerce
degree from the University of Windsor.
Robin A. Konicek, 42, 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, 1998.
(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. During 1998 and 1997, 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, 1998.
<PAGE>
12
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements:
Page
Number
------
Balance Sheets - December 31, 1998 and 1997........................(1)
Statements of Partners' Capital (Deficit) -
For the years ended December 31, 1998, 1997 and 1996...............(1)
Statements of Operations -
For the years ended December 31, 1998, 1997and 1996................(1)
Statements of Cash Flows -
For the years ended December 31, 1998, 1997 and 1996...............(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, 1998.
2. Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
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, 1998.
(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.
<PAGE>
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership 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 29, 1999 BY: /s/Michael T. Marron
--------------------
Name: Michael T. Marron
Title: Director, President and
Chief Financial Officer
BY: CIS Aircraft Partners, Inc.
Managing General Partner
Date: March 29, 1999 BY: /s/Thomas J. Prinzing
---------------------
Name: Thomas J. Prinzing
Title: Director and President
<PAGE>
14
SIGNATURES
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.
BY: CIS Aircraft Partners, Inc.
A General Partner
Date: March 29, 1999 BY: /s/Thomas J. Prinzing
---------------------
Name: Thomas J. Prinzing
Title: Director and President
Date: March 29, 1999 BY: /s/Robin A. Konicek
-------------------
Name: Robin A. Konicek
Title: Vice President
<PAGE>
15
SIGNATURES
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 29, 1999 BY: /s/Rocco F. Andriola
--------------------
Name: Rocco F. Andriola
Title: Director
Date: March 29, 1999 BY: /s/Michael T. Marron
--------------------
Name: Michael T. Marron
Title: Director, President and
Chief Financial Officer
Date: March 29, 1999 BY: /s/William T. McDermott
-----------------------
Name: William T. McDermott
Title: Vice President
<PAGE>
EXHIBIT 13
JetStream, L.P.
1998 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
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 totaling approximately
$17.05 per $20.00 Unit. The following table provides the
quarterly cash distributions per Unit paid by the Partnership for
the years ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
Quarter Declared 1998 1997
--------------------------------------------
<S> <C> <C>
First Quarter $ .212 $ .244
Second Quarter .222 .169
Third Quarter .144 .275
Fourth Quarter .151 .290
------ ------
Total $ .729 $ .978
============================================
</TABLE>
Contents
1 Message to Investors
3 Financial Statements
6 Notes to the Financial Statements
11 Report of Independent Public Accountants
<PAGE>
1
- --------------------------------------------------------------------------------
MESSAGE TO INVESTORS
- --------------------------------------------------------------------------------
Presented for your review is the 1998 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, 1998.
Industry Overview
The United States airline industry continued to perform well in 1998 as the
economy continued its strong growth this past year. The number of passengers
traveling within the United States increased by approximately 5%, which in turn
led to an increase in revenues. This increase was tempered somewhat by recent
fare reductions, but overall, net income for most airlines increased in 1998.
Forecasts are for continued growth in this industry.
However, future opportunities for leasing Stage 2 aircraft, such as the
Partnership's, 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. An update on the status of hushkitting the Partnership's Stage
2 planes is discussed below.
Portfolio Update
Information on the lease status of each aircraft follows:
MD-80 Series Aircraft - The lease agreement with Continental Airlines
("Continental") for the Partnership's MD-80 Series aircraft was scheduled to
expire in March 1999. In October 1998, Continental exercised its option to renew
this lease through March 2000 with the remaining lease terms unchanged. The
lease requires Continental to make monthly payments of $180,000. This is a Stage
3 aircraft which meets the noise compliance guidelines set by the Federal
Aviation Administration (the "FAA").
737-200 Advanced Aircraft - The lease with Delta Air Lines ("Delta") for the
Partnership's 737-200 advanced aircraft expires in September 1999. Pursuant to
the lease terms, Delta makes monthly payments of $80,000. We are currently
negotiating an extension of this lease with Delta which would also require Delta
to hushkit the plane.
737-200 Non-advanced Aircraft - 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 monthly $35,000 per aircraft. In addition, the airline is required
to pay the Partnership an airframe maintenance charge based on usage. As
discussed in previous reports, Eastwind is delinquent on rental payments and
maintenance reserves totaling $583,453 and has contacted the General Partners to
renegotiate the lease terms. In light of this development, the Partnership
established a reserve in 1998 for bad debts in the amount of $533,453. The
General Partners will aggressively pursue all appropriate remedies available to
the Partnership with respect to the collection of these rental payments. One of
the Eastwind aircraft has been hushkitted and now meets the FAA's noise
compliance guidelines. The other aircraft will not be hushkitted prior to the
expiration of its lease. We will attempt to either re-lease the aircraft to an
operator who will hushkit it or sell the aircraft.
<PAGE>
2
727-200 Non-advanced Aircraft - In September 1998, the Partnership entered into
two lease agreements with Sun Pacific for the two 727-200 non-advanced aircraft
which were previously leased to TWA. Pursuant to the lease terms, Sun Pacific is
required to pay the Partnership monthly $64,042 per aircraft and a maintenance
charge based on usage commencing upon the completion of certain required
maintenance on the aircraft to be funded by TWA. The aircraft were delivered to
Sun Pacific with an assignment of the maintenance payments of $360,656 and
$360,792, respectively, received from TWA. The Partnership agreed to assign
these funds in order for Sun Pacific to perform the required maintenance on the
aircraft. As of December 31, 1998, the maintenance on the aircraft had not been
completed, and no funds had been collected pursuant to the terms of the leases.
Sun Pacific is required to hushkit the aircraft prior to December 31, 1999.
Financial Highlights
Provided below is a review of Partnership operations for the year ended
December 31,
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------
<S> <C> <C>
Rental Income $4,813,390 $5,037,980
Total Expenses 4,473,009 4,117,718
Net Income 444,902 1,149,074
Net Cash provided by Operating Activities 4,012,891 5,212,862
- ------------------------------------------------------------------------
</TABLE>
o Rental income decreased primarily as a result of the Partnership's two
727-200 aircraft being off-lease following expiration of the leases with
TWA.
o The increase in total expenses is primarily due to the establishment of a
reserve in 1998 for the amounts due from Eastwind.
o The decreases in net income and net cash provided by operating activities
are attributable primarily to the establishment of a reserve for the amounts
due from Eastwind and the decrease in rental income.
General Information
As you are probably aware, several unaffiliated third parties have commenced
tender offers to purchase Units of the Partnership at prices that are below the
Partnership's estimate of the net asset value per Unit. In response, we have
recommended that Limited Partners reject these offers since we believe that they
do not reflect the underlying value of the Partnership's assets.
Summary
We will continue our efforts to effectively manage the Partnership's aircraft.
It should 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 impacted your investment. We will update
you on the status of the Partnership's operations in future correspondence. In
the interim, questions regarding the Partnership should be directed to your
Financial Consultant or Partnership Investor Services. All requests for a change
of address should be submitted in writing to the Partnership's administrative
agent at P.O. Box 7090, Troy, MI 48007-7090. Partnership Investor Services can
be reached at 617-342-4225, and the Partnership's administrative agent can be
reached at 248-637-7900.
Very truly yours,
Jet Aircraft Leasing Inc. CIS Aircraft Partners, Inc.
A General Partner A General Partner
Michael T. Marron Thomas J. Prinzing
President President
March 29, 1999
<PAGE>
3
JETSTREAM, L.P.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
BALANCE SHEETS
At December 31, At December 31,
1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Aircraft, at cost: $ 25,987,000 $ 25,987,000
Less accumulated depreciation (19,901,456) (16,689,816)
------------------------------
6,085,544 9,297,184
Cash and cash equivalents 1,853,981 2,131,335
Rent receivable (net of allowance for doubtful
accounts of $533,453 in 1998) 50,000 79,053
- -------------------------------------------------------------------------------------
Total Assets $ 7,989,525 $ 11,507,572
=====================================================================================
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 635,127 $ 307,831
Distribution payable 748,094 1,433,890
Deferred revenue 90,000 90,000
Security deposit 50,000 50,000
------------------------------
Total Liabilities 1,523,221 1,881,721
------------------------------
Partners' Capital (Deficit):
General Partners (912,047) (880,452)
Limited Partners (4,895,005 units outstanding) 7,378,351 10,506,303
------------------------------
Total Partners' Capital 6,466,304 9,625,851
- -------------------------------------------------------------------------------------
Total Liabilities and Partners' Capital $ 7,989,525 $ 11,507,572
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
For the years ended December 31, 1998, 1997, and 1996
General Limited
Partners Partners Total
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
Net income 4,449 440,453 444,902
Distributions (36,044) (3,568,405) (3,604,449)
- -------------------------------------------------------------------------------------
Balance at December 31, 1998 $(912,047) $ 7,378,351 $ 6,466,304
=====================================================================================
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
4
JETSTREAM, L.P.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the years ended December 31,
1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Rental $4,813,390 $5,037,980 $5,248,593
Interest 104,393 129,090 150,740
Other 128 99,722 43,353
------------------------------------------
Total Income 4,917,911 5,266,792 5,442,686
- -------------------------------------------------------------------------------------
Expenses
Depreciation 3,211,640 3,211,650 4,076,214
Management fees (Note 7) 387,675 447,868 421,751
General and administrative 334,335 230,295 192,656
Operating 5,906 227,905 194,231
Bad debts 533,453 -- --
------------------------------------------
Total Expenses 4,473,009 4,117,718 4,884,852
- -------------------------------------------------------------------------------------
Income from Operations 444,902 1,149,074 557,834
- -------------------------------------------------------------------------------------
Other Income
Gain on sale of aircraft and
engine (Note 5) -- -- 130,000
- -------------------------------------------------------------------------------------
Net Income $ 444,902 $1,149,074 $ 687,834
=====================================================================================
Net Income Allocated:
To the General Partners $ 4,449 $ 11,491 $ 6,878
To the Limited Partners 440,453 1,137,583 680,956
- -------------------------------------------------------------------------------------
$ 444,902 $1,149,074 $ 687,834
=====================================================================================
Per limited partnership unit
(4,895,005 outstanding) $ 0.09 $ 0.23 $ 0.14
- -------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
5
JETSTREAM, L.P.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
For the years ended December 31,
1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Income $ 444,902 $ 1,149,074 $ 687,834
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 3,211,640 3,211,650 4,076,214
Bad debts 533,453 -- --
Gain on sale of aircraft and engine -- -- (130,000)
Increase (decrease) in cash arising
from changes in operating assets
and liabilities:
Restricted cash -- 321,797 --
Rent receivable (504,400) 524,258 (544,553)
Interest receivable -- 327 278
Prepaid expenses -- -- 3,125
Accounts payable and accrued
expenses 327,296 5,756 57,428
----------- ----------- -----------
Net cash provided by operating
activities 4,012,891 5,212,862 4,150,326
- -------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Additions to aircraft -- -- (1,700,000)
Loan receivable -- 99,688 72,948
Proceeds from sale of aircraft and
engine-net -- -- 130,000
----------- ----------- -----------
Net cash provided by (used for)
investing activities -- 99,688 (1,497,052)
- -------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Cash distributions (4,290,245) (4,754,809) (4,574,113)
----------- ----------- -----------
Net cash used for financing activities (4,290,245) (4,754,809) (4,574,113)
- -------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (277,354) 557,741 (1,920,839)
Cash and cash equivalents,
beginning of period 2,131,335 1,573,594 3,494,433
----------- ----------- -----------
Cash and cash equivalents,
end of period $ 1,853,981 $ 2,131,335 $ 1,573,594
=====================================================================================
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
6
JETSTREAM, L.P.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
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 November 4, 1998. Thereafter, net proceeds
from any sales of aircraft will be distributed to the partners, after deductions
of amounts necessary for working capital and certain reserves.
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.
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.
<PAGE>
7
JETSTREAM, L.P.
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, as described below:
Eastwind Airlines On October 30, 1987, the Partnership acquired three Boeing
737-200 non-advanced aircraft for a total purchase price of $22,805,997. One of
the aircraft was sold in February 1994. The remaining two aircraft are subject
to lease agreements ("Agreements") with Eastwind Airlines, Inc. ("Eastwind"),
which were entered into on July 12, 1995. The Agreements provide for Eastwind to
lease two Boeing 737-200 non-advanced aircraft 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, 1998, Eastwind owed the Partnership base rent and maintenance reserve
payments totaling $583,453, and has contacted the General Partners to
renegotiate the terms of its leases. In light of this development, the
Partnership established an allowance of $533,453 at December 31, 1998 against
this receivable.
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.
<PAGE>
8
JETSTREAM, L.P.
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 and extend the
original lease agreement. In November 1995, another agreement was reached to
amend and extend the lease until September 30, 1999 at a monthly lease rate of
$80,000. The remaining terms of the lease were unchanged.
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"), which leases were amended and extended to the fourth quarter of 1994.
One of the aircraft was returned to the Partnership in December 1994 and sold in
June 1995. TWA extended the leases on the remaining two aircraft to April 30,
1995. Thereafter, TWA leased the two aircraft on a month-to-month basis at
$32,500 per month per aircraft paid in advance. TWA terminated its leases on
these aircraft and returned one plane in July 1998 and another in September
1998. In accordance with the lease agreement, TWA was to have performed certain
required maintenance prior to returning the aircraft. In lieu of having TWA
perform this maintenance, the Partnership agreed to receive payments of $360,656
and $360,792 for each respective aircraft from TWA, plus a commitment from TWA
for up to an additional $200,000 per aircraft, if supported by legitimate
maintenance costs.
Sun Pacific International, Inc. In September 1998, the Partnership entered into
two lease agreements with Sun Pacific International, Inc. ("Sun Pacific") for
the two 727-200 non-advanced aircraft which were previously leased to TWA.
Pursuant to the terms of the lease agreements, Sun Pacific is required to pay
the Partnership a monthly lease rate of $64,042 per aircraft commencing upon the
completion of certain required maintenance on the aircraft. In addition, the
airline is required to pay the Partnership a maintenance charge based on usage.
The aircraft were delivered to Sun Pacific with an assignment of the above
described maintenance payments of $360,656 and $360,792 received from TWA. The
Partnership agreed to assign these funds in order for Sun Pacific to perform
required maintenance on the aircraft. As of December 31, 1998, the maintenance
on the aircraft had not been completed, and no funds had been collected pursuant
to the terms of the leases.
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 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 was repayable over the life of the lease at an
interest rate of 8% per annum for advances made before February 1, 1996. On June
7, 1994, the Partnership made its only 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 has been 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, and in October 1998, Continental exercised its second option
to renew this lease through March 2000, with the remaining terms of the lease
unchanged.
<PAGE>
9
JETSTREAM, L.P.
Revenues from each of the airlines as a percentage of the Partnership's total
rental revenues are as follows:
<TABLE>
<CAPTION>
Percent of Rental Revenues
---------------------------------------------------
Airline 1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C>
Eastwind 25.6% 15.5% 25.7%
Delta 19.9 20.8 18.3
TWA 9.6 16.9 14.9
Continental 44.9 46.8 41.1
---------------------------------------------------
</TABLE>
The following is a schedule, by year, of future minimum rental income under all
leases as of December 31, 1998.
<TABLE>
<CAPTION>
Year Amount
---------------------------------------------------
<S> <C>
1999 $5,187,008
2000 1,730,840
---------------------------------------------------
Total $6,917,848
===================================================
</TABLE>
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.
6. Distributions
Distributions declared aggregated $3,604,449 (approximately $.73 per unit),
$4,839,971 (approximately $.98 per unit) and $4,864,063 (approximately $.98 per
unit) for the years ended December 31, 1998, 1997 and 1996, 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, 1998, the
Partnership had declared a distribution of $748,094, of which $740,613
(approximately $.15 per unit) was paid to the Limited Partners and $7,481 was
paid to the General Partners on March 4, 1999.
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. The resale fee is subordinate to the Limited Partners receiving a
priority return equal to their original capital contribution plus their
preferred return. No resale fees were earned during 1998, 1997 and 1996.
<PAGE>
10
JETSTREAM, L.P.
During 1998 the Limited Partners did not receive their Preferred Returns.
Therefore these management fees have not been paid. The following is a summary
of amounts earned by the General Partners and their affiliates during the years
ended December 31, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
Unpaid at Earned
December 31, ------------------------------
1998 1998 1997 1996
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Base Management Fee $ 59,725 $ 59,725 $ 62,872 $ 67,228
Incentive Management Fee 183,534 183,534 232,684 191,968
Re-lease Fee 144,416 144,416 152,312 162,555
----------------------------------------------------------------------
$387,675 $387,675 $447,868 $421,751
=========================================
</TABLE>
8. Reconciliation of Difference between Net Income in the Financial Statements
(Accrual Basis - Generally Accepted Accounting Principles) and Net Income in
the Partnership's Tax Return
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income, as reported $ 444,902 $1,149,074 $ 687,834
Adjustments--
Prepaid insurance -- -- 3,125
Loss on sale of asset -- -- (130,000)
Allowance for doubtful accounts 533,453 (70,000) --
Depreciation differential between
the Modified Accelerated Cost
Recovery System and depreciation
for financial reporting purposes 2,635,913 1,856,804 139,871
Amortization -- (6,361) --
Legal fees, net of amortization -- -- (7,476)
------------------------------------------
Total adjustments 3,169,366 1,780,443 5,520
- -------------------------------------------------------------------------------------
Net income, per Partnership's tax return $3,614,268 $2,929,517 $693,354
------------------------------------------
The net income determined on the
income tax basis is allocated to
the partners as follows:
Limited partners (4,895,005 units) $3,578,125 $2,900,222 $686,421
General partners 36,143 29,295 6,933
------------------------------------------
$3,614,268 $2,929,517 $693,354
------------------------------------------
Taxable income per limited partner unit $ 0.73 $ 0.59 $ 0.14
- -------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1998, the tax basis of total assets and total liabilities was
$13,650,447 and $1,399,716, respectively.
Schedule II Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Period
- -------------------------------------------------------------------------------------
Allowance for doubtful accounts:
<S> <C> <C> <C>
Year ended December 31, 1998: $ -0- $533,453 $533,453
- -------------------------------------------------------------------------------------
</TABLE>
<PAGE>
11
- --------------------------------------------------------------------------------
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, 1998 and 1997, and the related
statements of operations, partners' capital (deficit) and cash flows for each of
the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 12, 1999
<PAGE>
ARTICLE 5
PERIOD-TYPE 12-mos
FISCAL-YEAR-END Dec-31-1998
PERIOD-END Dec-31-1998
CASH 1,853,981
SECURITIES 000
RECEIVABLES 50,000
ALLOWANCES 000
INVENTORY 000
CURRENT-ASSETS 1,903,981
PP&E 25,987,000
DEPRECIATION 19,901,456
TOTAL-ASSETS 7,989,525
CURRENT-LIABILITIES 1,523,221
BONDS 000
PREFERRED-MANDATORY 000
PREFERRED 000
COMMON 000
OTHER-SE 6,466,304
TOTAL-LIABILITY-AND-EQUITY 7,989,525
SALES 000
TOTAL-REVENUES 4,917,911
CGS 000
TOTAL-COSTS 000
OTHER-EXPENSES 4,473,009
LOSS-PROVISION 000
INTEREST-EXPENSE 000
INCOME-PRETAX 444,902
INCOME-TAX 000
INCOME-CONTINUING 444,902
DISCONTINUED 000
EXTRAORDINARY 000
CHANGES 000
NET-INCOME 444,902
EPS-PRIMARY .09
EPS-DILUTED .09
<PAGE>
APPENDIX D
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of
- ---------- the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1999
--------------
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 I.R.S. Employer
Incorporation or Organization Identification No.
3 World Financial Center, 29th Floor,
New York, NY Attn.: Andre Anderson 10285
- -------------------------------------- --------
Address of Principal Executive Offices Zip code
(212) 526-3183
--------------
Registrant's Telephone Number, Including Area Code
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 such 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
--- ---
<PAGE>
2
JETSTREAM, L.P.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
BALANCE SHEETS
At March 31, At December 31,
1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Assets
Aircraft, at cost $ 25,987,000 $ 25,987,000
Less accumulated depreciation (20,704,366) (19,901,456)
------------------------------
5,282,634 6,085,544
Cash and cash equivalents 1,981,019 1,853,981
Rent receivable, net of allowance for
doubtful accounts of $650,614 in 1999
and $533,453 in 1998 50,000 50,000
Prepaid expenses 300,000 --
- -------------------------------------------------------------------------------
Total Assets $ 7,613,653 $ 7,989,525
===============================================================================
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 956,199 $ 635,127
Distribution payable 1,481,019 748,094
Deferred revenue 90,000 90,000
Security deposit 50,000 50,000
------------------------------
Total Liabilities 2,577,218 1,523,221
------------------------------
Partners' Capital (Deficit):
General Partners (926,345) (912,047)
Limited Partners (4,895,005 units outstanding) 5,962,780 7,378,351
------------------------------
Total Partners' Capital 5,036,435 6,466,304
- -------------------------------------------------------------------------------
Total Liabilities and Partners' Capital $ 7,613,653 $ 7,989,525
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
For the three months ended March 31, 1999
General Limited
Partners Partners Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1998 $(912,047) $ 7,378,351 $ 6,466,304
Net income 512 50,638 51,150
Distributions (14,810) (1,466,209) (1,481,019)
- -------------------------------------------------------------------------------
Balance at March 31, 1999 $(926,345) $ 5,962,780 $ 5,036,435
===============================================================================
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
3
JETSTREAM, L.P.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the three months ended March 31,
1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Income
Rental $1,117,162 $1,314,334
Other -- 128
Interest 24,638 25,346
--------------------------
Total Income 1,141,800 1,339,808
- -------------------------------------------------------------------------------
Expenses
Depreciation 802,910 802,910
Management fees 88,856 111,176
General and administrative 81,723 42,363
Operating -- 4,746
Bad debts 117,161 --
--------------------------
Total Expenses 1,090,650 961,195
- -------------------------------------------------------------------------------
Net Income $ 51,150 $ 378,613
===============================================================================
Net Income Allocated:
To the General Partners $ 512 $ 3,786
To the Limited Partners 50,638 374,827
- -------------------------------------------------------------------------------
$ 51,150 $ 378,613
===============================================================================
Per limited partnership unit
(4,895,005 outstanding) $ .01 $ .08
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
4
JETSTREAM, L.P.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
For the three months ended March 31,
1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 51,150 $ 378,613
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 802,910 802,910
Bad debts 117,161 --
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Rent receivable (117,161) (42,756)
Prepaid expenses (300,000) --
Accounts payable and accrued expenses 321,072 28,974
--------------------------
Net cash provided by operating activities 875,132 1,167,741
- -------------------------------------------------------------------------------
Cash Flows From Financing Activities
Cash distributions (748,094) (1,433,890)
--------------------------
Net cash used for financing activities (748,094) (1,433,890)
- -------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 127,038 (266,149)
Cash and cash equivalents, beginning of period 1,853,981 2,131,335
- -------------------------------------------------------------------------------
Cash and cash equivalents, end of period $1,981,019 $ 1,865,186
===============================================================================
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
5
JETSTREAM, L.P.
NOTES TO THE FINANCIAL STATEMENTS
The unaudited financial statements should be read in conjunction with the
Partnership's annual 1998 audited financial statements within Form 10-K.
The unaudited financial statements include all normal and reoccurring
adjustments which are, in the opinion of management, necessary to present a fair
statement of financial position as of March 31, 1999 and the results of
operations for the three months ended March 31, 1999 and 1998 and cash flows for
the three months ended March 31, 1999 and 1998 and the statement of partners'
capital (deficit) for the three months ended March 31, 1999. Results of
operations for the period are not necessarily indicative of the results to be
expected for the full year.
The following significant event has occurred subsequent to fiscal year 1998,
which requires disclosure in this interim report per Regulation S-X, Rule 10-01,
Paragraph (a)(5).
On April 2, 1999, the Partnership sold one of its B-727-200 non-advanced
aircraft, which was scheduled to be leased to Sun Pacific International, Inc.,
to an unaffiliated entity, Sport Hawk Chicago, Inc. (the "Buyer"), for a selling
price of approximately $2,660,000. The selling price was determined by arm's
length negotiations between the Partnership and the Buyer.
<PAGE>
6
JETSTREAM, L.P.
Part I, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
As of March 31, 1999, four of the Partnership's six aircraft were on-lease. Two
aircraft were on-lease to Eastwind Airlines ("Eastwind"), one aircraft was
on-lease to Delta Air Lines, Inc. ("Delta") and one aircraft was on-lease to
Continental Airlines ("Continental"). The remaining two aircraft were leased to
Trans World Airlines Inc. ("TWA") on a month-to-month basis until the third
quarter of 1998. The General Partners have negotiated new lease agreements for
these two aircraft with Sun Pacific International, Inc. ("Sun Pacific").
However, as discussed below, one of the aircraft was subsequently sold to an
unaffiliated entity and Sun Pacific ceased commercial operations in mid-April
1999.
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 airframe maintenance charge based on usage. Eastwind is
delinquent on rental payments and maintenance reserves totaling $700,614 and has
contacted the General Partners to renegotiate the terms of its lease. At March
31, 1999, the Partnership had provided an allowance of $650,614 against this
receivable. For the three months ended March 31, 1999, the Partnership
recognized rental income and maintenance reserves of $337,161, and collected
$220,000 of such income. The General Partners will pursue all remedies available
to the Partnership with respect to the collection of these receivables.
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.
Continental makes monthly lease payments to the Partnership of $180,000. The
lease with Continental was originally scheduled to expire in March 1998.
Continental extended its lease through March 1999 and in October 1998 it
exercised its second option to renew this lease through March 2000, with the
remaining terms of the lease unchanged.
The Partnership's two remaining 727-200 non-advanced aircraft were leased on a
month-to-month basis by TWA at a monthly lease rate of $32,500. TWA terminated
its leases on these aircraft and returned one plane in July 1998 and another in
September 1998. In accordance with the lease agreement, TWA was to have
performed certain required maintenance prior to returning the aircraft. In lieu
of having TWA perform this maintenance, the Partnership agreed to receive
payments of $360,656 and $360,792 for each respective aircraft from TWA, plus a
commitment from TWA for up to an additional $200,000 per aircraft, if supported
by legitimate maintenance costs.
In September 1998, the Partnership entered into two lease agreements with Sun
Pacific for the two 727-200 non-advanced aircraft which were previously leased
to TWA. Upon completion of certain maintenance, Sun Pacific is required to pay
the Partnership a monthly lease rate of $64,042 per aircraft. The Partnership
agreed to assign the above described maintenance payments of $360,656 and
$360,792 received from TWA in order for Sun Pacific to perform the maintenance
on the aircraft. At March 31, 1999, the maintenance on the aircraft had not been
completed and the funds set aside to perform the maintenance have been
exhausted. Furthermore, the Partnership has not received rental payments from
Sun Pacific pursuant to the terms of the leases.
<PAGE>
7
JETSTREAM, L.P.
On April 2, 1999, the Partnership sold one of its B-727-200 non-advanced
aircraft, which was scheduled to be leased to Sun Pacific, to an unaffiliated
entity, Sport Hawk Chicago, Inc. (the "Buyer"), for a selling price of
approximately $2,660,000 and the lease with Sun Pacific was terminated. The
selling price was determined by arm's length negotiations between the
Partnership and the Buyer. Prepaid expenses at March 31, 1999 included $300,000
of maintenance costs on the aircraft sold, which will offset the gain on sale in
the 1999 second quarter statement of operations. As a result of the sale, the
General Partners intend to distribute the net proceeds therefrom (after payment
of or provision for the Partnership's liabilities and expenses, and
establishment of a reserve for contingencies, if any) during the second quarter
of 1999.
On April 16, 1999, Sun Pacific ceased commercial operations, and the General
Partners are currently attempting to lease the remaining aircraft to another
carrier.
At March 31, 1999, the Partnership had unrestricted cash and cash equivalents of
$1,981,019, compared to $1,853,981 at December 31, 1998.
At March 31, 1999 and December 31, 1999, the Partnership had a rent receivable
balance net of allowance for doubtful accounts totaling $50,000. The balance
represents amounts owed by Eastwind in excess of the $650,614 allowance
established by the Partnership, as discussed above.
Accounts payable and accrued expenses totaled $956,199 at March 31, 1999 as
compared to $635,127 at December 31, 1998. The increase is primarily
attributable to the maintenance costs on the aircraft leased to Sun Pacific, and
to deferred management fees.
On March 4, 1999, the Partnership paid a distribution to the Unitholders for the
period from October 1, 1998 to December 31, 1998, in the amount of $748,094, or
approximately $.15 per Unit. At March 31, 1999 the Partnership had a
distribution payable to Unitholders of $1,481,019, or approximately $.30 per
Unit, which will be paid on or about May 24, 1999. Future cash distributions
will be determined on a quarterly basis after an evaluation of the Partnership's
current and expected financial position.
Results of Operations
- ---------------------
Substantially all of the Partnership's revenue for the three months ended March
31, 1999 was generated from the leasing of the Partnership's aircraft to
commercial air carriers under triple net operating leases. The balance of the
Partnership's revenue consisted of interest income.
For the three months ended March 31, 1999, the Partnership generated net income
of $51,150, compared to net income of $378,613 for the corresponding period in
1998. The decrease is primarily attributable to the establishment of an
allowance for doubtful accounts on Eastwind's receivable balance and a decrease
in rental revenue as a result of the Partnership's two 727-200 aircraft being
off lease during 1999.
Rental income for the three months ended March 31, 1999 was $1,117,162, compared
to $1,314,334 for the corresponding period in 1998. The decrease in rental
income was primarily due to TWA returning two of the aircraft in 1998.
Interest income for the three months ended March 31, 1999 was $24,638, compared
to $25,346 for the corresponding period in 1998. The decrease is primarily
attributable to a decrease in the Partnership's average cash balances during the
1999 period.
General and administrative expenses totaled $81,723 for the three months ended
March 31, 1999, compared to $42,363 for the corresponding period in 1998. The
increase is primarily due to an increase in Partnership administrative servicing
costs and legal costs.
<PAGE>
8
JETSTREAM, L.P.
Operating expenses for the three months ended March 31, 1999 totaled $-0-,
compared to $4,746 for the corresponding periods in 1998. The 1998 balance is
primarily attributable to non-recurring operating expenses associated with
repair and maintenance work completed on the two aircraft on-lease to Eastwind.
Bad debt expense for the three months ended March 31, 1999 totaled $117,161,
which amount represents the increase in the allowance for delinquent rental
payments and maintenance reserves under Eastwind's lease.
Part II Other Information
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K
-------------------
On April 16, the Partnership filed a Form 8-K reporting that on
April 2, 1999 the Partnership executed a sale of one of its
B-727-200 non-advanced aircraft.
<PAGE>
9
JETSTREAM, L.P.
SIGNATURES
Pursuant to the requirements 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.
General Partner
Date: May 17, 1999 BY: /s/Michael T. Marron
-----------------------
Name: Michael T. Marron
Title: Director, President and
Chief Financial Officer
<PAGE>
ARTICLE 5
PERIOD-TYPE 3-mos
FISCAL-YEAR-END Dec-31-1999
PERIOD-END Mar-31-1999
CASH 1,981,019
SECURITIES 000
RECEIVABLES 50,000
ALLOWANCES 000
INVENTORY 000
CURRENT-ASSETS 2,331,019
PP&E 25,987,000
DEPRECIATION 20,704,366
TOTAL-ASSETS 7,613,653
CURRENT-LIABILITIES 2,577,218
BONDS 000
PREFERRED-MANDATORY 000
PREFERRED 000
COMMON 000
OTHER-SE 5,036,435
TOTAL-LIABILITY-AND-EQUITY 7,613,653
SALES 000
TOTAL-REVENUES 1,141,800
CGS 000
TOTAL-COSTS 000
OTHER-EXPENSES 973,489
LOSS-PROVISION 117,161
INTEREST-EXPENSE 000
INCOME-PRETAX 51,150
INCOME-TAX 000
INCOME-CONTINUING 51,150
DISCONTINUED 000
EXTRAORDINARY 000
CHANGES 000
NET-INCOME 51,150
EPS-PRIMARY .01
EPS-DILUTED .01
<PAGE>
APPENDIX E
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of
- ---------- the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1999
-------------
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 I.R.S. Employer
Incorporation or Organization Identification No.
3 World Financial Center, 29th Floor,
New York, NY Attn.: Andre Anderson 10285
- -------------------------------------- --------
Address of Principal Executive Offices Zip code
(212) 526-3183
--------------
Registrant's Telephone Number, Including Area Code
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 such 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
--- ---
<PAGE>
2
JETSTREAM, L.P.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
BALANCE SHEETS
At June 30, At December 31,
1999 1998
(unaudited) (audited)
- -------------------------------------------------------------------------------
<S> <C> <C>
Assets
Aircraft, at cost $ 24,972,000 $ 25,987,000
Less accumulated depreciation (20,492,276) (19,901,456)
------------------------------
4,479,724 6,085,544
Cash and cash equivalents 3,532,787 1,853,981
Rent receivable, net of allowance for doubtful
accounts of $878,144 in 1999 and $533,453
in 1998 50,000 50,000
- -------------------------------------------------------------------------------
Total Assets $ 8,062,511 $ 7,989,525
===============================================================================
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 964,143 $ 635,127
Distribution payable 2,832,787 748,094
Deferred revenue 90,000 90,000
Security deposit 50,000 50,000
------------------------------
Total Liabilities 3,936,930 1,523,221
------------------------------
Partners' Capital (Deficit):
General Partners (35,061) (912,047)
Limited Partners (4,895,005 units outstanding) 4,160,642 7,378,351
------------------------------
Total Partners' Capital 4,125,581 6,466,304
- -------------------------------------------------------------------------------
Total Liabilities and Partners' Capital $ 8,062,511 $ 7,989,525
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
For the six months ended June 30, 1999
General Limited
Partners Partners Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1998 $(912,047) $ 7,378,351 $ 6,466,304
Net income 907,490 1,065,593 1,973,083
Distributions (30,504) (4,283,302) (4,313,806)
- -------------------------------------------------------------------------------
Balance at June 30, 1999 $ (35,061) $ 4,160,642 $ 4,125,581
===============================================================================
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
3
JETSTREAM, L.P.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended June 30, Six months ended June 30,
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income
Rental $1,117,529 $1,317,281 $2,234,691 $2,631,615
Interest 46,161 27,414 70,799 52,760
Other -- -- -- 128
----------------------------------------------------
Total Income 1,163,690 1,344,695 2,305,490 2,684,503
- -----------------------------------------------------------------------------------------
Expenses
Depreciation 802,910 802,910 1,605,820 1,605,820
Management fees 79,524 107,017 168,380 218,193
General and administrative 67,458 52,485 149,181 94,848
Operating 229,552 -- 229,552 4,746
Bad debts 227,530 -- 344,691 --
----------------------------------------------------
Total Expenses 1,406,974 962,412 2,497,624 1,923,607
- -----------------------------------------------------------------------------------------
Income (loss) before gain on
sale of aircraft (243,284) 382,283 (192,134) 760,896
Gain on sale of aircraft 2,165,217 -- 2,165,217 --
----------------------------------------------------
Net Income $1,921,933 $ 382,283 $1,973,083 $ 760,896
=========================================================================================
Net Income Allocated:
To the General Partners $ 906,978 $ 3,823 $ 907,490 $ 7,609
To the Limited Partners 1,014,955 378,460 1,065,593 753,287
- -----------------------------------------------------------------------------------------
$1,921,933 $ 382,283 $1,973,083 $ 760,896
=========================================================================================
Per limited partnership unit
(4,895,005 outstanding) $ .21 $ .08 $ .22 $ .15
- -----------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
4
JETSTREAM, L.P.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the six months ended June 30,
1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 1,973,083 $ 760,896
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of aircraft (2,165,217) --
Depreciation 1,605,820 1,605,820
Bad debts 344,691 --
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Rent receivable (344,691) (152,041)
Accounts payable and accrued expenses 250,142 43,284
--------------------------
Net cash provided by operating activities 1,663,828 2,257,959
- -------------------------------------------------------------------------------
Cash Flows From Investing Activities
Net proceeds from sale of aircraft 2,244,091 --
Net cash provided by investing activities 2,244,091 --
- -------------------------------------------------------------------------------
Cash Flows From Financing Activities
Cash distributions (2,229,113) (2,483,002)
--------------------------
Net cash used for financing activities (2,229,113) (2,483,002)
- -------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,678,806 (225,043)
Cash and cash equivalents, beginning of period 1,853,981 2,131,335
- -------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 3,532,787 $ 1,906,292
===============================================================================
Supplemental Disclosure of Noncash Operating Activities
In connection with the sale of the aircraft, accrued resale fees in the amount
of $78,874 has reduced the gain on the sale of the aircraft.
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
5
JETSTREAM, L.P.
NOTES TO THE FINANCIAL STATEMENTS
The unaudited financial statements should be read in conjunction with the
Partnership's annual 1998 audited financial statements within Form 10-K.
The unaudited financial statements include all normal and recurring adjustments
which are, in the opinion of management, necessary to present a fair statement
of financial position as of June 30, 1999 and the results of operations for the
three and six months ended June 30, 1999 and 1998 and cash flows for the six
months ended June 30, 1999 and 1998 and the statement of partners' capital
(deficit) for the six months ended June 30, 1999. Results of operations for the
period are not necessarily indicative of the results to be expected for the full
year.
The following significant event has occurred subsequent to fiscal year 1998,
which requires disclosure in this interim report per Regulation S-X, Rule 10-01,
Paragraph (a)(5).
The General Partners are developing a plan to sell the Partnership's remaining
aircraft and subsequently terminate the Partnership (the "Liquidation Plan").
Such Liquidation Plan will require the approval of more than 50% of the
unitholders entitled to vote. It is anticipated that a consent solicitation
statement requesting such approval will be forwarded to investors during the
third or fourth quarter of this year.
On April 2, 1999, the Partnership sold one of its B-727-200 non-advanced
aircraft, which was scheduled to be leased to Sun Pacific International, Inc.,
to an unaffiliated entity, Sport Hawk Chicago, Inc. (the "Buyer"), for a net
selling price of approximately $2,244,091. The selling price was determined by
arm's length negotiations between the Partnership and the Buyer. As a result of
the sale, the General Partners intend to distribute the net proceeds therefrom
during the third quarter of 1999.
<PAGE>
6
JETSTREAM, L.P.
Part I, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
The General Partners are developing a plan to sell the Partnership's remaining
aircraft and subsequently terminate the Partnership (the "Liquidation Plan").
Such Liquidation Plan will require the approval of more than 50% of the
unitholders entitled to vote. It is anticipated that a consent solicitation
statement requesting such approval will be forwarded to investors during the
third or fourth quarter of this year.
As of June 30, 1999, four of the Partnership's five aircraft were on-lease. Two
aircraft were on-lease to Eastwind Airlines ("Eastwind"), one aircraft was
on-lease to Delta Air Lines, Inc. ("Delta") and one aircraft was on-lease to
Continental Airlines ("Continental"). During 1998, two aircraft were leased to
Trans World Airlines Inc. ("TWA") on a month-to-month basis until the third
quarter. The General Partners negotiated new lease agreements for these two
aircraft with Sun Pacific International, Inc. ("Sun Pacific"). However, as
discussed below, one of the aircraft was subsequently sold to an unaffiliated
entity and Sun Pacific ceased commercial operations in mid-April 1999.
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 airframe maintenance charge based on usage. Eastwind is
delinquent on rental payments and maintenance reserves totaling $878,144 and has
contacted the General Partners to renegotiate the terms of its lease. At June
30, 1999, the Partnership had provided an allowance of $878,144 against this
receivable. For the six months ended June 30, 1999, the Partnership recognized
rental income and maintenance reserves of $674,691, and collected $330,000 of
such income. The General Partners will pursue all remedies available to the
Partnership with respect to the collection of these receivables.
The lease with Delta for the Partnership's 737-200 advanced aircraft was
scheduled to expire in September 1999. In accordance with the terms of the lease
agreement, Delta pays the Partnership a monthly lease rate of $80,000 through
September 1999. During the second quarter of 1999, Delta extended its lease for
two years through September 2001. This lease extension requires Delta to pay the
Partnership a monthly lease rate of $65,000 and to hushkit the plane.
Continental makes monthly lease payments to the Partnership of $180,000. The
lease with Continental was originally scheduled to expire in March 1998.
Continental extended its lease through March 1999 and in October 1998 it
exercised its second option to renew this lease through March 2000, with the
remaining terms of the lease unchanged.
The Partnership's two remaining 727-200 non-advanced aircraft were leased on a
month-to-month basis by TWA at a monthly lease rate of $32,500. TWA terminated
its leases on these aircraft and returned one plane in July 1998 and another in
September 1998. In accordance with the lease agreement, TWA was to have
performed certain required maintenance prior to returning the aircraft. In lieu
of having TWA perform this maintenance, the Partnership agreed to receive
payments of $360,656 and $360,792 for each respective aircraft from TWA, plus a
commitment from TWA for up to an additional $200,000 per aircraft, if supported
by legitimate maintenance costs.
In September 1998, the Partnership entered into two lease agreements with Sun
Pacific for the two 727-200 non-advanced aircraft which were previously leased
to TWA. One of these aircraft was sold to an unaffiliated entity, Sport Hawk
Chicago, Inc. The Partnership agreed to assign the above described maintenance
payments of $360,656 and $360,792 received from TWA in order for Sun Pacific to
perform the maintenance on the aircraft. At June 30, 1999, the maintenance on
the aircraft had not been completed and the funds set aside to perform the
maintenance have been exhausted. Furthermore, the Partnership has not received
rental payments from Sun Pacific pursuant to the terms of the leases. The
remaining plane requires C-checks and corrosion repair, for which $200,000 has
been reserved at June 30, 1999.
<PAGE>
7
JETSTREAM, L.P.
On April 2, 1999, the Partnership sold one of its B-727-200 non-advanced
aircraft, which was scheduled to be leased to Sun Pacific, to an unaffiliated
entity, Sport Hawk Chicago, Inc. (the "Buyer"), for a selling price of
approximately $2,629,000 and the lease with Sun Pacific was terminated. The
selling price was determined by arm's length negotiations between the
Partnership and the Buyer. As a result of the sale, the General Partners intend
to distribute the net proceeds therefrom during the third quarter of 1999.
On April 16, 1999, Sun Pacific ceased commercial operations, and once the
required maintenance of the remaining aircraft is complete, the General Partners
will attempt to lease the aircraft to another carrier.
At June 30, 1999, the Partnership had unrestricted cash and cash equivalents of
$3,532,787, compared to $1,853,981 at December 31, 1998. The increase is
primarily attributable to the net proceeds of $2,244,091 received on the sale of
the aircraft.
At June 30, 1999 and December 31, 1998, the Partnership had a rent receivable
balance net of allowance for doubtful accounts totaling $50,000. The balance
represents amounts owed by Eastwind in excess of the $878,144 allowance
established by the Partnership, as discussed above.
Accounts payable and accrued expenses totaled $964,143 at June 30, 1999 as
compared to $635,127 at December 31, 1998. The increase is primarily
attributable to the maintenance costs on the aircraft leased to Sun Pacific,
resale fees accrued relating to the sale of the aircraft, and to deferred
management fees.
On May 24, 1999 the Partnership paid a distribution to Unitholders of
$1,481,019, or approximately $.30 per Unit. At June 30, 1999, the Partnership
had a distribution payable to Unitholders of $2,832,787 or approximately $.58
per unit, which will be paid in August 1999. Of this amount, $.12 per unit
represents a distribution of cash flow from operations and $.46 per unit
represents a distribution of net sale proceeds. Future cash distributions will
be determined on a quarterly basis after an evaluation of the Partnership's
current and expected financial position.
Results of Operations
- ---------------------
Substantially all of the Partnership's revenue for the six months ended June 30,
1999 was generated from the leasing of the Partnership's aircraft to commercial
air carriers under triple net operating leases. The balance of the Partnership's
revenue consisted of interest income.
For the three and six months ended June 30, 1999, the Partnership generated net
income of $1,921,933 and $1,973,083, compared to net income of $382,283 and
$760,896 for the corresponding periods in 1998. The increase is primarily
attributable to the gain of $2,165,217 recognized as a result of the sale of one
727-200 aircraft.
Rental income for the three and six months ended June 30, 1999 was $1,117,529
and $2,234,691, compared to $1,317,281 and $2,631,615 for the corresponding
periods in 1998. The decrease in rental income was primarily due to TWA
returning two of the aircraft in 1998.
Interest income for the three and six months ended June 30, 1999 was $46,161 and
$70,799, compared to $27,414 and $52,760, respectively, for the corresponding
periods in 1998. The increase is primarily attributable to an increase in the
Partnership's average cash balances during the 1999 period resulting from the
proceeds from the sale.
General and administrative expenses totaled $67,458 and $149,181 for the three
and six months ended June 30, 1999, compared to $52,485 and $94,848 for the
corresponding periods in 1998. The increase is primarily due to an increase in
Partnership administrative servicing costs and legal costs.
<PAGE>
8
JETSTREAM, L.P.
Operating expenses for the six months ended June 30, 1999 totaled $229,552,
compared to $4,746 for the corresponding periods in 1998. The increase is due to
C-checks and corrosion repair on the aircraft leased to Sun Pacific.
Bad debt expense for the three and six months ended June 30, 1999 totaled
$227,530 and $344,691, which amount represents the increase in the allowance for
delinquent rental payments and maintenance reserves under Eastwind's lease.
Part II Other Information
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K -
On April 16, the Partnership filed a Form 8-K reporting that on
April 2, 1999 the Partnership executed a sale of one of its
B-727-200 non-advanced aircraft.
<PAGE>
9
JETSTREAM, L.P.
SIGNATURES
Pursuant to the requirements 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.
General Partner
Date: August 16, 1999 BY: /s/Michael T. Marron
-----------------------------------------------
Name: Michael T. Marron
Title: Director, President and Chief Financial Officer
<PAGE>
ARTICLE 5
PERIOD-TYPE 6-mos
FISCAL-YEAR-END Dec-31-1999
PERIOD-END Jun-30-1999
CASH 3,532,787
SECURITIES 000
RECEIVABLES 50,000
ALLOWANCES 000
INVENTORY 000
CURRENT-ASSETS 3,582,787
PP&E 24,972,000
DEPRECIATION 20,492,276
TOTAL-ASSETS 8,062,511
CURRENT-LIABILITIES 3,936,930
BONDS 000
PREFERRED-MANDATORY 000
PREFERRED 000
COMMON 000
OTHER-SE 4,125,581
TOTAL-LIABILITY-AND-EQUITY 8,062,511
SALES 000
TOTAL-REVENUES 2,305,490
CGS 000
TOTAL-COSTS 000
OTHER-EXPENSES 2,152,933
LOSS-PROVISION 344,691
INTEREST-EXPENSE 000
INCOME-PRETAX (192,134)
INCOME-TAX 000
INCOME-CONTINUING (192,134)
DISCONTINUED 000
EXTRAORDINARY 2,165,217
CHANGES 000
NET-INCOME 1,973,083
EPS-PRIMARY .22
EPS-DILUTED .22
<PAGE>
JETSTREAM, L.P.
CONSENT CARD
THIS CONSENT IS SOLICITED BY THE GENERAL PARTNERS OF
JETSTREAM, L.P.
CIS Aircraft Partners, Inc. and Jet Aircraft Leasing, Inc. (together,
the "General Partners") of JetStream, L.P. (the "Partnership") are proposing the
liquidation of the Partnership (the "Liquidation") that consists of: (1) the
sale of all of the Partnership's assets and the dissolution of the Partnership
pursuant to the proposed Plan of Liquidation and Dissolution; (2) the amendment
of the Partnership Agreement to permit the engagement of the General Partners to
market and sell the assets of the Partnership for a fee pursuant to the terms of
the Joint Marketing Agreement, dated July 13, 1999, among each of the General
Partners and the Partnership; and (3) the grant of authority to the General
Partners to take any action necessary or incidental and consistent with the
Partnership Agreement, the Plan of Liquidation and Dissolution and the Joint
Marketing Agreement to complete the foregoing on the terms described in the
consent solicitation statement dated October 15, 1999.
- --------------------------------------------------------------------------------
THE GENERAL PARTNERS RECOMMEND THAT UNITHOLDERS CONSENT
TO THE LIQUIDATION BY MARKING THE BOX ENTITLED "FOR".
- --------------------------------------------------------------------------------
The undersigned hereby directs CIS Assignor L.P.A., Inc. (the "Assignor
Limited Partner"), to vote all units beneficially owned by the undersigned as
follows:
[__] FOR [__] AGAINST [__] ABSTAIN
The units represented by this blue consent card will be voted in
accordance with the election specified by the unitholder named below. ANY
PROPERLY EXECUTED CONSENT CARD ON WHICH A CHOICE IS NOT INDICATED WILL BE VOTED
"FOR" THE LIQUIDATION. FAILURE TO RETURN A CONSENT CARD OR ABSTENTION FROM
VOTING WILL HAVE THE SAME EFFECT AS A VOTE "AGAINST" THE LIQUIDATION.
The undersigned hereby acknowledges receipt of the consent solicitation
statement, dated October 15, 1999 from the General Partners and the Assignor
Limited Partner.
------------------------------
Signature
------------------------------
Signature
Title:
------------------------
Dated:
------------------------
Sign exactly as addressed to you. Joint owners should each sign. If
signing as executor, administrator, attorney, trustee, or guardian, please
include your full title. If a corporation, sign in full corporate name by
authorized officer. If a partnership, sign in the name of authorized person.
Please see reverse side for instructions on returning this card.
YOUR VOTE IS IMPORTANT. PLEASE ACT PROMPTLY.
<PAGE>
- --------------------------------------------------------------------------------
PLEASE SIGN AND DATE THIS BLUE CONSENT CARD AND RETURN IT IN THE ENCLOSED
POSTAGE PREPAID ENVELOPE OR FAX IT TO 212-929-0308 BY 5:00 P.M., EASTERN TIME,
ON NOVEMBER 19, 1999 (UNLESS SUCH DATE AND/OR TIME IS EXTENDED IN THE SOLE
DISCRETION OF THE GENERAL PARTNERS).
- --------------------------------------------------------------------------------
The Consent Solicitation Agent:
[MACKENZIE PARTNERS, INC. LOGO]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
CALL TOLL FREE (800) 322-2885
