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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission file number 0-17785
AIRCRAFT INCOME PARTNERS L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3430508
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
411 West Putnam Avenue, Greenwich, CT 06830
(Address of principal executive offices)
(203) 862-7000
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check 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 [ ]
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<PAGE>
AIRCRAFT INCOME PARTNERS, L. P.
FORM 10-Q - MARCH 31, 1996
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - March 31, 1996 and December 31, 1995
STATEMENTS OF OPERATIONS - For the three months ended
March 31, 1996 and 1995
STATEMENT OF PARTNERS' EQUITY - For the three months ended
March 31, 1996
STATEMENTS OF CASH FLOWS - For the three months ended
March 31, 1996 and 1995
NOTES TO FINANCIAL STATEMENTS
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AIRCRAFT INCOME PARTNERS L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Leased aircraft, net of accumulated depreciation of
$81,081,419 and $78,518,396 and allowance for
equipment impairment of $32,225,000 .............. $ 39,305,884 $ 41,868,907
Cash and cash equivalents .......................... 7,166,701 7,448,455
Accounts receivable ................................ 1,189,571 1,388,026
Deferred rents and modifications advances receivable 548,628 641,745
Restricted cash - security deposits ................ 464,443 458,683
Deferred costs ..................................... 320,136 352,226
Prepaid expenses ................................... 78,390 90,628
Other receivables .................................. 98,841 116,952
------------ ------------
$ 49,172,594 $ 52,365,622
============ ============
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Distributions payable .............................. $ 3,000,706 $ 3,429,378
Maintenance reserves ............................... 2,081,338 1,922,478
Security deposits payable .......................... 464,443 458,683
Deferred income .................................... 179,216 179,216
Management fee payable ............................. 120,000 137,000
Deferred costs payable ............................. 77,820 121,930
Accounts payable and accrued expenses .............. 69,813 82,100
------------ ------------
Total liabilities ................................ 5,993,336 6,330,785
------------ ------------
Commitments and contingencies
Partners' equity
Limited partners' equity (385,805 units
issued and outstanding) ........................ 58,142,627 60,712,648
General partners' deficit ........................ (14,963,369) (14,677,811)
------------ ------------
Total partners' equity ........................... 43,179,258 46,034,837
------------ ------------
$ 49,172,594 $ 52,365,622
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
AIRCRAFT INCOME PARTNERS L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three months ended
March 31,
-------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenues
Rental ................................................. $ 2,879,560 $ 2,950,780
Interest ............................................... 100,822 89,332
Other (expense) income ................................. (4,447) 16,050
----------- -----------
2,975,935 3,056,162
----------- -----------
Costs and expenses
Depreciation ........................................... 2,563,023 2,788,666
Management fee ......................................... 120,000 120,000
General and administrative ............................. 69,302 89,441
Provision for bad debt ................................. 66,133 --
Operating .............................................. 11,096 168,457
Interest expense ....................................... 1,254 4,794
----------- -----------
2,830,808 3,171,358
----------- -----------
Net income (loss) ........................................ $ 145,127 $ (115,196)
----------- -----------
Net income (loss) attributable to
Limited partners ....................................... $ 130,614 $ (103,676)
General partners ....................................... 14,513 (11,520)
----------- -----------
$ 145,127 $ (115,196)
=========== ===========
Net income (loss) per unit of limited partnership interest
(385,805 units outstanding) ............................ $ 0.34 $ (0.27)
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
AIRCRAFT INCOME PARTNERS L.P.
STATEMENT OF PARTNERS' EQUITY
<TABLE>
<CAPTION>
Limited General Total
Partners' Partners' Partners'
Equity Deficit Equity
------------ ------------ ------------
<S> <C> <C> <C>
Balance, January 1, 1996 ..................... $ 60,712,648 $(14,677,811) $ 46,034,837
Net income for the three months
ended March 31, 1996 ..................... 130,614 14,513 145,127
Distributions to partners for the three months
ended March 31, 1996 ($7 per limited
partnership unit) ....................... (2,700,635) (300,071) (3,000,706)
------------ ------------ ------------
Balance, March 31, 1996 ...................... $58,142,627 $(14,963,369) $ 43,179,258
============ ============ ============
</TABLE>
See notes to financial statements.
<PAGE>
AIRCRAFT INCOME PARTNERS L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the three months ended
March 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
Cash flows from operating activities
Net income (loss) .................................... $ 145,127 $ (115,196)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation .................................. 2,563,023 2,788,666
Provision for bad debt ........................ 66,133 --
Changes in assets and liabilities
Deferred rents and modification advances receivable 93,117 408,888
Accounts receivable ............................... 132,322 63,915
Deferred costs .................................... 32,090 32,091
Restricted cash - security deposits ............... (5,760) (5,792)
Security deposits payable ......................... 5,760 5,792
Other receivables ................................. 18,111 3,084
Prepaid expenses .................................. 12,238 5,291
Maintenance reserves .............................. 158,860 219,131
Accounts payable and accrued expenses ............. (12,287) 35,705
Management fee payable ............................ (17,000) --
----------- -----------
Net cash provided by operating activities .. 3,191,734 3,441,575
----------- -----------
Cash flows from investing activities
Additions and modifications to leased aircraft, net .. (44,110) (40,570)
----------- -----------
Cash flows from financing activities
Distributions to partners ............................ (3,429,378) (3,000,706)
----------- -----------
Net (decrease) increase in cash and cash equivalents ...... (281,754) 400,299
Cash and cash equivalents, beginning of period ............ 7,448,455 6,350,177
----------- -----------
Cash and cash equivalents, end of period .................. $ 7,166,701 $ 6,750,476
=========== ===========
Supplemental disclosure of cash flow information
Interest paid ........................................ $ 1,254 $ 4,794
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
AIRCRAFT INCOME PARTNERS L. P.
NOTES TO FINANCIAL STATEMENTS
1 INTERIM FINANCIAL INFORMATION
The summary financial information contained herein is unaudited;
however, in the opinion of management, all adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation of such
financial information have been included. The accompanying financial
statements, footnotes and discussion should be read in conjunction with
the financial statements, related footnotes and discussions contained
in the Aircraft Income Partners L.P. (the "Partnership") annual report
on Form 10-K for the year ended December 31, 1995. The results of
operations for the three months ended March 31, 1996 are not
necessarily indicative of the results to be expected for the full year.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Leased aircraft
The cost of leased aircraft represents the initial cost of the aircraft
to the Partnership plus miscellaneous acquisition and closing costs and
is carried at the lower of depreciated cost or net realizable value.
Depreciation is computed using the straight-line method, over the
estimated useful lives of such aircraft (15 years for McDonnell Douglas
DC9-32 aircraft, 12 to 12.5 years for Boeing 737-200 Advanced aircraft,
Boeing 727-200 Advanced aircraft and McDonnell Douglas DC9-51
aircraft). The Partnership capitalizes major additions to its aircraft
and depreciates such capital improvements over the remaining estimated
useful life of the aircraft.
When aircraft is sold or otherwise disposed of, the cost and
accumulated depreciation (and any related allowance for equipment
impairment) are removed from the accounts and any gain or loss on such
sale or disposal is reflected in operations. Normal maintenance and
repairs are charged to operations as incurred. The Partnership provides
allowances for equipment impairment based upon a quarterly review of
all aircraft in its portfolio, when management believes that, based
upon market analysis, appraisal reports and leases currently in place
with respect to specific aircraft, the investment in such aircraft may
not be recoverable.
Maintenance reserves
Maintenance reserves represent cash received in accordance with the
terms of the leases of certain aircraft, which has been set aside for
certain required repairs or scheduled maintenance on the aircraft.
Deferred costs
Deferred costs represent amounts paid, directly or through rent
credits, based upon the terms of certain leases, for maintenance which
enhances the marketability of such aircraft. Deferred costs are
amortized over the terms of a remarketed lease.
<PAGE>
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
The general partner of the Partnership, Integrated Aircraft Fund
Management Corp. ("IAFM"), is a wholly owned subsidiary of Presidio
Capital Corp. ("Presidio"). Other limited partnerships and similar
investment programs have been formed by affiliates of IAFM to acquire
equipment and, accordingly, conflicts of interest may arise between the
Partnership and such other limited partnerships. Affiliates of IAFM
have also engaged in businesses related to the management of equipment
and the sale of various types of equipment and may transact business
with the Partnership.
Subject to the rights of the Limited Partners under the Limited
Partnership Agreement, Presidio will control the Partnership through
its indirect ownership of all of the shares of IAFM. Presidio is
managed by Presidio Management Company, LLC ("Presidio Management"), a
company controlled by a director of Presidio. Presidio Management is
responsible for the day-to-day management of Presidio and, among other
things, has authority to designate directors of IAFM. In March 1996,
Presidio Management assigned its agreement for the day-to-day
management of Presidio to Wexford Management LLC ("Wexford").
Presidio is a liquidating company. Although Presidio has no immediate
plans to do so, it will ultimately seek to dispose of the interests it
acquired from Integrated Resources, Inc. through liquidation; however,
there can be no assurance of the timing of such transaction or the
effect it may have on the Partnership.
In March 1995, Presidio elected new directors for IAFM. Wexford
Management Corp., formerly Concurrency Management Corp., provides
management and administrative services to Presidio, its direct and
indirect subsidiaries, as well as to the Partnership. Effective January
1, 1996, Wexford Management Corp. assigned its agreement to provide
management and administrative services to Presidio and its subsidiaries
to Wexford. During the three months ended March 31, 1996, reimbursable
expenses to Wexford by the Partnership amounted to $10,500.
IAFM is entitled to a 10 percent interest in the net income, loss and
distributions from operations and cash from sales. For the three months
ended March 31, 1996 and 1995, IAFM received or accrued distributions
totaling $300,071.
In June 1992, IAFM assumed responsibilities to provide certain
management services previously provided by Citicorp Aircraft Management
Inc. ("CAMI"). IAFM has also retained the aviation consulting firm of
Simat, Helliesen & Eichner, Inc. ("SH&E") to provide consulting
services with respect to the Partnership. Services to be provided by
SH&E include advice as to commercial aviation market conditions,
long-term marketing and financial strategies, as well as technical and
financial advice on the sale or re-lease of the Partnership's aircraft.
IAFM has also entered into an agreement with Aviation Capital Group
("ACG"), an entity comprised primarily of former management of IAFM,
pursuant to which ACG will perform remarketing services with respect to
the sale or re-lease of certain of the Partnership's aircraft. ACG has
previously performed certain administrative services for IAFM.
<PAGE>
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (continued)
All costs associated with the retention of SH&E and ACG (other than
normal competitive aircraft sales commissions, if any) will be paid by
IAFM.
As compensation for the foregoing services, IAFM receives the
management fee provided for in the Limited Partnership Agreement which
is equal to 4% of Distributions of Cash from Operations from Operating
Leases and 2% of Distributions of Cash from Operations from Full Payout
Leases, as such terms are defined in the Limited Partnership Agreement.
In conjunction with such services, IAFM earned management fees of
$120,000 for the three months ended March 31, 1996 and 1995.
Upon ultimate liquidation of the Partnership, IAFM may be required to
remit to the Partnership certain payments representing capital account
deficit restoration based upon a formula provided within the Limited
Partnership Agreement. Such restoration amount may be less than the
recorded IAFM's deficit, which could result in distributions to the
limited partners of less than their recorded equity.
In April 1995, IAFM and certain affiliates entered into an agreement
with Fieldstone Private Capital Group, L.P. ("Fieldstone") pursuant to
which Fieldstone performs certain management and administrative
services relating to the Partnership. Substantially all costs
associated with the retention of Fieldstone will be paid by IAFM.
4 DISTRIBUTIONS TO PARTNERS
Distributions payable to Limited Partners and the General Partner of
$2,700,635 ($7.00 per unit) and $300,071, respectively, at March 31,
1996, were paid in May 1996.
5 COMMITIMENTS AND CONTINGENCIES
a. Hawaiian Airlines, Inc.
On September 21, 1993, Hawaiian Airlines, Inc. ("Hawaiian"), the lessee
of a McDonnell Douglas Model DC9-51 aircraft (the "Hawaiian Aircraft"),
filed a voluntary petition for reorganization pursuant to the
provisions of Chapter 11 of the United States Bankruptcy Code. On
August 30, 1994 the United States Bankruptcy Court entered an order
confirming Hawaiian's plan of reorganization. On September 12, 1994
(the "Effective Date"), Hawaiian's plan of reorganization became
effective.
In September 1994, the Partnership entered into a new lease (the "New
Lease") with Hawaiian which commenced on the Effective Date. The New
Lease provided for monthly rentals of $60,000, payable on a weekly
basis, which step up to $65,000 per month effective August 1, 1995
through November 1999. To date, Hawaiian has continued to make its
scheduled weekly payments.
The Partnership and Hawaiian had entered into an agreement to settle
both the Partnership's proof of claim and its administrative claim
filed in the Hawaiian bankruptcy case with respect to the Hawaiian
Aircraft. Hawaiian has since settled such claims through the issuance
of Hawaiian Class A Common stock to the Partnership (Note 6).
<PAGE>
5 COMMITIMENTS AND CONTINGENCIES (continued)
a. Hawaiian Airlines, Inc. (continued)
The net carrying value (after providing for the allowances for
equipment impairment aggregating $2,425,000) of the Hawaiian Aircraft
was approximately $2,884,000 at March 31, 1996.
b. Continental Airlines, Inc.
The Partnership originally owned three McDonnell Douglas Model DC9-32
aircraft and three Boeing Model 727-100 aircraft (collectively, the
"Continental Aircraft") which were leased to Continental Airlines, Inc.
("Continental") for terms originally scheduled to expire in November
1993. On December 3, 1990, Continental Airlines Holdings, Inc. and its
subsidiary companies, including Continental, filed a petition for
reorganization under the United States Bankruptcy Code. In April 1993,
Continental's plan of reorganization was confirmed by the Bankruptcy
Court.
In October 1991, the Partnership and Continental restructured the
leases of the three McDonnell Douglas Model DC9-32 aircraft (the
"Continental Restructured Leases"), under which the leases were
extended to December 1, 1997. Pursuant to the restructuring, rents
accrued at a rate of $76,500 per aircraft per month effective September
1, 1990 for 13 months, with simple interest accruing at a rate of 12%
per annum (the "Continental Deferred Rents"), and were to be repaid
over a 36 month period commencing July 1, 1992. The accrual of such
interest is included in other revenue on the statements of operations
and the related receivable is included in deferred rents and
modification advances receivable on the balance sheets.
The Continental Restructured Leases provide for monthly rental payments
of $64,500 per aircraft per month to December 1, 1997. Additionally,
either Continental or the Partnership may fund certain improvements and
modifications to such Continental Aircraft, however, if such amounts
are funded by Continental, the Partnership will allow Continental a
rental credit with simple interest accruing at a rate of 12% per annum.
Continental is obligated to repay the aggregate rental credits taken,
as well as any modifications funded by the Partnership, over the
remaining term of the Continental Restructured Leases accruing interest
at a rate of 12% per annum. To date, such credits and Partnership
fundings have aggregated approximately $762,400 and the remaining
amounts to be recovered are included in deferred rents and modification
advances receivable on the balance sheets.
In October 1992, the Partnership and Continental entered into an
agreement to defer rentals due under the Continental Restructured
Leases for a three month period beginning January 1, 1993 (the "Second
Continental Rent Deferral"). Pursuant to the terms of the Second
Continental Rent Deferral, the deferred rents (aggregating $580,500),
plus interest accruing at a rate equal to 8.64% per annum, were to be
repaid over a 42 month period commencing October 1, 1993.
<PAGE>
5 COMMITIMENTS AND CONTINGENCIES (continued)
b. Continental Airlines, Inc. (continued)
In November 1991, Continental disaffirmed the leases of the three
Boeing 727-100 aircraft, which had been out of service since 1991. Due
to the condition and the related market for such aircraft, the
Partnership provided aggregate allowances for equipment impairment of
approximately $6,483,000. During 1993, the Partnership sold all three
Boeing 727-100 aircraft. The Partnership retains its rights pursuant to
a proof of claim and an administrative claim filed in the Continental
Bankruptcy case with respect to such aircraft. The amount of recovery
under such claims, if any, is impossible to predict at this time.
c. Continental Air Micronesia
On January 20, 1993, the Partnership leased a Boeing 727-200 Advanced
aircraft to Continental for a term of approximately 71 months to be
used by Continental Air Micronesia (the "Air Mike Lease"). The Air Mike
Lease provides for a monthly base rent of $76,750, subject to
adjustments for rental credits relating to initial modifications
(including Traffic Collision Avoidance Systems, windshear detection,
upgrade avionics and auxiliary fuel tank) aggregating approximately
$794,000, of which approximately $300,000 has been contributed in cash
and the balance will be contributed in the form of rental credits
provided to Continental. Continental will be allowed to take such
rental credits ($13,741 per month through May 1996) such that they will
recoup their aggregate cost of the initial modifications over a 36
month period with interest at 9.31% per annum. Further, the Partnership
has agreed to provide up to $813,500 of financing for certain new image
modifications through credits ("Lessor Financing") against base rental
payments due from Continental. Continental will then repay any Lessor
Financing credits through monthly installments which will be amortized
at the rate of 9.31% per annum over the then remaining lease term.
Through March 31, 1996, the Partnership had provided financing of
approximately $755,000. Such amounts, net of amounts repaid, are
included within deferred costs on the balance sheets.
d. Ladeco S.A.
During 1993, the Partnership consummated two leases with Ladeco S.A.
("Ladeco"), each for a Boeing 737-200 Advanced aircraft for terms of 48
and 60 months. Both leases provide for, among other things, monthly
rentals of $47,500 each, plus certain maintenance reserves for engines
and landing gear, based upon the number of hours flown. As of March 31,
1996, such maintenance reserves aggregated approximately $1,563,000. At
lease inception of both aircraft, Ladeco paid a security deposit of
$125,000 per aircraft. Pursuant to the terms of the above mentioned
leases, the Partnership removed the two aircraft from the United States
Federal Aviation Administration ("FAA") Registry and caused the
aircraft to be re-registered under Chilean Registry. The Partnership
may be obligated to contribute in the form of rental credits, to the
completion of certain airworthiness directives and FAA regulations
based on certain thresholds. The amount of such obligation, if any, is
undeterminable at this time.
<PAGE>
5 COMMITIMENTS AND CONTINGENCIES (continued)
e. Aloha Airlines, Inc.
In December 1993, Aloha Airlines, Inc. ("Aloha"), the lessee of a
Boeing 737-200 Advanced aircraft (the "Aloha Aircraft"), and the
Partnership agreed to amend the terms of its lease which was originally
scheduled to terminate on September 1, 1994. Pursuant to the lease
amendment, Aloha agreed to extend the term of the lease to February 1,
1996, providing for rentals of approximately 66% of the original lease
rate plus maintenance reserves, both payable quarterly in arrears. As
of March 31, 1996, the balance for such maintenance reserves is
approximately $400,000. The Aloha Aircraft is subject to a tax benefit
transfer lease ("TBT Lease") under which Allied Signal, the TBT Lessor,
retains the federal income tax benefits that normally accrue under
ownership of the aircraft other than lease rentals. There are
approximately five years remaining on the TBT Lease.
Prior to the expiration of the Aloha lease on February 1, 1996, the
Partnership and Aloha agreed to a three month lease extension with rent
based on $300 per flight hour. The Partnership and Aloha recently
agreed on a further short-term lease extension, to October 15, 1996, on
the same terms.
f. American Trans Air, Inc.
In October 1994, USAir, Inc. ("USAir"), the lessee of two Boeing
727-200 Advanced aircraft (the "USAir Aircraft"), notified the
Partnership of its intention to terminate the leases relating to such
aircraft effective December 31, 1994. In light of USAir's intention to
terminate its leases, the Partnership entered into lease negotiations
with American Trans Air ("ATA") in an effort to remarket the USAir
Aircraft to ATA. To meet certain ATA fleet scheduling needs, USAir
agreed, pursuant to an early termination agreement, to return one
aircraft in November 1994 and the second aircraft in December 1994. The
Partnership consummated the lease of one of the USAir Aircraft to ATA
in November 1994 and the lease of the second USAir Aircraft in December
1994 (collectively the "ATA Leases"). Each of the ATA Leases, with an
initial term of approximately 39 months ("Basic Term"), provides for
monthly rentals of $59,000. The Partnership has contributed in the form
of cash or rental credits during early 1995, $75,000 per aircraft
towards bridging "C" check inspections. In addition, if the transition
to ATA's maintenance program requires that both USAir Aircraft undergo
heavy maintenance checks during the Basic Term, an additional $150,000
per aircraft will be contributed by the Partnership towards the
completion of such work.
Additionally, during the Basic Term, ATA may request that the
Partnership retrofit the USAir Aircraft to comply with the Stage III
noise emission standards pursuant to FAR Part 36 of the Federal
Aviation Registry Act. In the event that the Partnership consents to
the retrofitting of the USAir Aircraft, ATA will perform such work (the
"Improvements") as may be required to bring such aircraft into
compliance with such standards. Upon completion of the Improvements and
the return of the USAir Aircraft to revenue service, the Partnership
will reimburse ATA for the cost of the Improvements. In consideration
for the Partnership's consenting to the Improvements, the ATA Leases
will be extended for a term of five years from the date such aircraft
are returned to service. During this five year period, the monthly
<PAGE>
5 COMMITIMENTS AND CONTINGENCIES (continued)
f. American Trans Air, Inc. (continued)
rentals shall be increased by an amount reflecting the enhanced value
of the USAir Aircraft including the Improvements. In addition, at lease
inception, ATA paid security deposits of $59,000 per aircraft.
In May 1996, ATA exercised its renewal option for the lease of a Boeing
727-200 Advanced aircraft which the Partnership has an undivided
47.92231% joint venture interest, originally scheduled to expire in
November 1996, for an additional two years at the same lease rate.
g. Southwest Airlines Co.
In July 1994, Southwest Airlines Co. ("Southwest") agreed to extend the
lease of another Boeing 737-200 Advanced aircraft, originally scheduled
to terminate in November 1994, for an additional one year period.
During the extension period, the lease provided for reduced rentals
equal to approximately 29% of the original lease rate.
In July 1995, Southwest agreed to a second lease extension on the lease
scheduled to terminate in November 1995, for an additional two year
period. During the second lease extension, the lease provides for
increased rentals of approximately 125% of the prior lease rate.
h. Complaints
In December 1993, a class action complaint was filed by Carla Wright,
Plato Kinias, Gertrude E. Boland and Hilda Duarte purportedly on behalf
of the limited partners of the Partnership (the "Plaintiffs") in the
Supreme Court of the State of New York, County of New York (the "New
York Action"). This action was substantially identical to a class
action filed by certain of the same plaintiffs in March 1993, in the
District of Columbia Superior Court, which action was dismissed in
October 1993. The New York Action also named as defendants the
Partnership, IAFM, Dean Witter Reynolds, Inc., Integrated Resources
Marketing, Inc., Integrated Resources Equity Corporation and CAMI. The
complaint alleged, among other things, that the offering material used
in connection with the Partnership's 1988 public offering of limited
partnership units contained false and misleading representations
constituting common law fraud, breach of fiduciary duty and negligence
on the part of the defendants. The complaint sought rescission of the
plaintiffs' investment in the Partnership plus rescissionary and
compensatory damages, plus interest and punitive damages.
On February 8, 1994, the Partnership filed a motion to dismiss the New
York Action. In response to such motion, the Plaintiffs filed an
Amended Complaint which, among other things, removed the Partnership
and CAMI as defendants. Subsequent to the filing of the Amended
Complaint, the defendants filed a motion to dismiss.
In October 1995, the New York Action was dismissed in its entirety
without leave to replead. Plaintiffs filed a Notice of Appeal of that
decision on or about January 26, 1996. However, the Partnership has
informed Plaintiffs that their Notice is untimely, and will be moving
to strike the Notice of Appeal on those grounds. As IAFM was named as a
defendant, subject to the provisions of the Limited Partnership
Agreement, it may seek indemnification from the Partnership for any
liability or expense incurred by it in connection with the New York
Action.
<PAGE>
6 MARKETABLE SECURITIES
In June 1995, the Partnership received approximately 227,000 shares of
Class A Common stock in the reorganized Hawaiian Airlines, Inc. in
consideration of its general unsecured claims filed against Hawaiian.
During 1995, the Partnership sold all shares for net proceeds
aggregating $1,045,941.
7 MANAGEMENT FEE PAYABLE
The amount due to IAFM of $120,000 and $137,000 at March 31, 1996 and
December 31, 1995, respectively, represents Partnership management
fees.
8 AIRCRAFT SALE
In March 1996, the Partnership reached an agreement in principle with
Southwest which provided for the sale of a Boeing 737-200 leased to
Southwest through May 1996, and early termination of such lease. The
sale was consummated on April 15, 1996, and the Partnership received
sales proceeds, exclusive of associated sales commission and other
related closing costs, of approximately $6,871,000. It is anticipated
that a substantial portion of the net proceeds from the sale will be
distributed to partners in August 1996. The Southwest aircraft was
originally purchased by the Partnership for approximately $12,804,377
inclusive of associated acquisition costs in July 1988. As of April 15,
1996 the net carrying value of the aircraft was approximately
$3,216,000 (net of allowance for equipment impairment of $2,300,000)
when sold.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership declared a cash distribution of $7.00 per unit of
limited partnership interest ("Unit") for the quarter ended March 31,
1996, which represented an annualized cash distribution rate of 5.6%
(based on initial offering price of $500 per Unit) as compared to a
cash distribution of $7.00 per Unit with respect to the quarter ended
March 31, 1995. The Partnership generated cash from operations (before
rent credits) of approximately $2,989,000 for the three months ended
March 31, 1996 (the "1996 Period") or approximately $6.97 per Unit, as
compared to $3,179,000 for the three months ended March 31, 1995 (the
"1995 Period") or approximately $7.42 per Unit.
During the 1996 Period, the Partnership increased its gross aggregate
cash reserves, inclusive of collected maintenance reserves and original
working capital (1% of original offering proceeds), by an aggregate of
approximately $102,000, from approximately $4,296,000 at December 31,
1995 to approximately $4,398,000 at March 31, 1996. The aggregate cash
reserves were comprised of approximately $388,000, which represented
undistributed cash from operations and cash from sales, as well as
original working capital of $1,929,000 (1% of original offering
proceeds) and approximately $2,081,000 of collected maintenance
reserves.
During the first quarter of 1995, the Partnership provided ATA with
$150,000 of aggregate rent credits representing the Partnerships'
obligation to contribute $75,000 per aircraft towards bridging "C"
check inspections with respect to the USAir Aircraft leased to ATA
during the 1994 Period. Further, if the transition to ATA's maintenance
program requires that the aircraft undergo heavy maintenance checks
during the lease term, the Partnership will contribute an additional
$150,000 per aircraft towards the completion of such heavy maintenance
checks. Additionally, during the Basic Terms, ATA may request that the
Partnership retrofit the aircraft to comply with the Stage III noise
emission standards pursuant to FAR Part 36. In the event that the
Partnership consents to retrofitting the aircraft, ATA will make
Improvements as may be required to bring the aircraft into compliance
with such standards. Upon completion of the Improvements, the
Partnership will reimburse ATA for the cost of the Improvements. In
consideration for the Partnership's consenting to the Improvements, the
ATA leases will be extended for a term of five years from the date the
aircraft are returned to service. During this five year period, the
lease rentals will be increased by an amount reflecting the enhanced
value of the aircraft including the Improvements.
As the Partnership's aircraft come off-lease (two of which are
scheduled to come off-lease in 1996), it may be necessary for the
Partnership to use a portion of its operating reserves and/or its
anticipated future cash flow, which would otherwise be available for
distribution, to upgrade or enhance these aircraft or related engines
if the Partnership determines that such expenditures are in its best
interests in order to maximize remarketing value. The Partnership is
currently evaluating strategies, including potential engine upgrades
for certain aircraft, to increase marketability and is reviewing its
possible future obligations to pay for bridging costs in order to
facilitate such remarketing. Furthermore, because of market conditions,
<PAGE>
Liquidity and Capital Resources (continued)
the Partnership may be required to bear some of the related costs of
compliance with recent mandatory federal regulations covering
maintenance and upgrading of aging aircraft. The Partnership's ability
to make distributions may be impacted by its obligation to pay such
costs.
The Partnership has encountered severe competition in attempting to
re-lease its aircraft as they have come off-lease due to a surplus in
the market of narrow-body aircraft similar to the types owned by the
Partnership. The substantial costs required to maintain and bring used
aircraft into compliance with FAA noise and maintenance requirements
adopted since 1990 are the primary factors which have adversely
affected the narrow body aircraft market. In addition, the Partnership
will also have to compete with newer, more fuel efficient aircraft
which comply with recently adopted FAA noise requirements. The
Partnership also believes that as a result of the factors listed above
there has been a significant decline in the re-sale value of
narrow-body aircraft similar to the types owned by the Partnership.
Although the Partnership believes that its anticipated gross cash flow
during the remainder of 1996 will be less than previous gross cash flow
generated (approximately 71% of the 1995 cash flow based upon gross
firm term leases plus the net amounts due under notes issued by
Continental Airlines, Inc. ("Continental") as repayment for deferred
rent and modification advances), the anticipated cash flow for the
remainder of 1996 and the foreseeable future should be sufficient to
pay its operating expenses and make distributions.
Of the 18 aircraft originally purchased by the Partnership, at March
31, 1996, the Partnership had an interest in 14 of the aircraft
(inclusive of an undivided 47.92231% joint venture interest in one
aircraft, as well as the Southwest Aircraft sold in April 1996) which
had an original cost of approximately $152,613,000 (net book value of
approximately $39,306,000). During the remainder of 1996, excluding
rents from renewals and sales, the Partnership anticipates receiving
approximately $6,892,000 of rentals on non-cancelable leases (inclusive
of amounts which may be set-off by lessees against basic rent as
reimbursement for certain modifications required under the applicable
leases). After deducting operating expenses, the foregoing aggregate
rentals are not sufficient to maintain previous distribution levels.
Of the remaining 14 aircraft, three aircraft which generate aggregate
gross rental revenues of approximately $4,461,000 per year are
scheduled to come off-lease or be sold during 1996. The Partnership's
remaining aircraft are leased pursuant to leases which expire in 1997
(5 aircraft), 1998 (5 aircraft) and 1999 (the Hawaiian Aircraft).
In March 1996, the Partnership reached an agreement in principle with
Southwest Airlines, Inc. ("Southwest") which provides for the sale of a
Boeing 737-200 Aircraft leased to Southwest through May 1996, and the
early termination of such lease. Pursuant to the terms of the sale, the
Partnership has received aggregate proceeds of approximately
$6,871,000, exclusive of an associated aircraft sales commission and
other related closing costs. The sale was consummated on April 15,
1996. It is anticipated the Partnership will distribute a substantial
portion of the net proceeds from the sale of the Southwest Aircraft to
partners in August 1996.
<PAGE>
Liquidity and Capital Resources (continued)
Inflation has not had any material effect on the Partnership's revenues
since its inception nor does the Partnership anticipate any material
effect on its business from this factor. The prior softness in the
aircraft industry and resulting declines in the value of the types of
aircraft owned by the Partnership have resulted in the Partnership
providing allowances for equipment impairment. Additionally, because of
the financial troubles of certain airlines which are lessees of the
Partnership's aircraft, cash flow and, therefore, distributions have
been reduced.
In April 1995, the General Partner and certain affiliates entered into
an agreement with Fieldstone pursuant to which Fieldstone performs
certain management and administrative services relating to the
Partnership. Substantially all costs associated with the retention of
Fieldstone will be paid by the General Partner.
Results of Operations
Net income increased for the three months ended March 31, 1996 as
compared to the net loss for the three months ended March 31, 1995, as
the reduction in expenses exceeded the reduction in revenues.
Revenues decreased overall for the three months ended March 31, 1996
compared to the corresponding period of the prior year. Rental income
decreased due to reduced rentals in the current period pertaining to
the lease with Aloha Airlines, Inc. which was renewed past its
originally scheduled expiration date of February 1, 1996 for an
aggregate of eight and one-half months on a utilization agreement. This
was partially offset by an increase on the renewal by Southwest
Airlines, Inc. in November 1995 for two years at 125% of the prior
lease extension.
Expenses decreased for the three months ended March 31, 1996 as
compared to the corresponding period of the prior year as follows; (i)
operating expenses decreased due to the expense of a "C" check
performed on both USAir Aircraft in the 1995 Period which were
remarketed to ATA; (ii) reduced depreciation on aircraft which have
been depreciated to its salvage value prior to the current period; and
(iii) general and administrative expenses decreased due to a reduction
of legal fees in the 1996 Period. Such reduction was partially offset
by an increase in bad debt expense in the current period used to
recognize a write off of the receivable on Midway Airlines, Inc. which
was deemed to have no value in litigation.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In December 1993, a class action complaint was filed by Carla Wright,
Plato Kinias, Getrude E. Boland and Hilda Duarte, purportedly on behalf
of the limited partners of the Partnership (the "Plaintiffs"), in the
Supreme Court of the State of New York, County of New York (the "New
York Action"). This action was substantially identical to a class
action filed by certain of the same plaintiffs in March 1993 in the
District of Columbia Superior Court, which action was dismissed in
October 1993. The New York Action named as defendants the Partnership,
Integrated Aircraft Fund Management Corp., Dean Witter Reynolds, Inc.,
Integrated Resources Marketing, Inc., Integrated Resources Equity
Corporation and Citicorp Aircraft Management, Inc. ("CAMI"). The
complaint alleged, among other things, that the offering material used
in connection with the Partnership's 1988 public offering of Units
contained false and misleading representations constituting common law
fraud, breach of fiduciary duty and negligence on the part of the
defendants. The complaint sought rescission of the plaintiffs'
investment in the Partnership including rescissionary and compensatory
damages, plus interest and punitive damages.
On February 8, 1994, the Partnership filed a motion to dismiss the New
York Action. In response to such motion, Plaintiffs filed an Amended
Complaint which, among other things, removed the Partnership and CAMI
as defendants. Subsequent to the Amended Complaint, the defendants
filed a motion to dismiss that pleading.
In October 1995, the New York Action was dismissed in its entirety
without leave to replead. Plaintiffs filed a Notice of Appeal of that
decision on or about January 26, 1996. However, the Partnership has
informed Plaintiffs that their Notice is untimely, and will be moving
to strike the Notice of Appeal on those grounds. As the General Partner
was named as defendant, subject to the provisions of the Limited
Partnership Agreement, it may seek indemnification from the Partnership
for any liability or expense incurred by it in connection with the New
York Action.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) Reports on form 8-K: None
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
AIRCRAFT INCOME PARTNERS L.P.
BY: Integrated Aircraft Fund Management Corp.,
General Partner
/s/ Douglas J. Lambert
-------------------------------------------
Douglas J. Lambert
President and Chief Financial Officer
May 15, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF THE MARCH 31, 1996 FORM 10Q OF AIRCRAFT INCOME PARTNERS L.P. AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 7,166,701
<SECURITIES> 0
<RECEIVABLES> 1,189,571
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,533,503
<PP&E> 152,612,303
<DEPRECIATION> 81,081,419
<TOTAL-ASSETS> 49,172,594
<CURRENT-LIABILITIES> 3,369,735
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 43,179,258
<TOTAL-LIABILITY-AND-EQUITY> 49,172,594
<SALES> 0
<TOTAL-REVENUES> 2,975,935
<CGS> 0
<TOTAL-COSTS> 200,398
<OTHER-EXPENSES> 2,563,023
<LOSS-PROVISION> 66,133
<INTEREST-EXPENSE> 1,254
<INCOME-PRETAX> 145,127
<INCOME-TAX> 0
<INCOME-CONTINUING> 145,127
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 145,127
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
