UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] For the fiscal year ended December 31, 1995 or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No fee Required] For the transition period from to
Commission file number: 0-16838
JETSTREAM II, L.P.
Exact name of registrant as specified in its charter
Delaware
State or other jurisdiction 84-1068932
of incorporation or organization I.R.S. Employer Identification No.
Attn: Andre Anderson, 3 World Financial Center,
29th Floor, New York, New York 10285
Address of principal executive offices Zip Code
Registrant's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP DEPOSITARY 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 November 10, 1987, as filed pursuant to rule
424(c) of the Securities Act of 1933, as amended, is incorporated by reference
in Parts I, II, III and IV of this Annual Report on Form 10-K.
Annual Report to Unitholders for the year ended December 31, 1995 (Portions of
Parts I, II, III & IV).
PART I
Item 1. Business
General
JetStream II, L.P. (the "Partnership") is a limited partnership
organized under the laws of the State of Delaware on October 15, 1987. The
general partners of the Partnership (the "General Partners") are CIS Aircraft
Partners, Inc., the Managing General Partner ("CAP"), a Delaware corporation
that is an affiliate of Continental Information Systems Corporation, and Jet
Aircraft Leasing Inc., the Administrative General Partner, a Delaware
corporation that is an affiliate of Lehman Brothers Inc. ("Lehman") (See Item
10).
Although the Partnership was organized on October 15, 1987, the Partnership
conducted no activities and recognized no revenues, profits or losses prior to
January 14, 1988, at which time the Partnership commenced operations. During
the period between January 15, 1988 and February 25, 1988 the Partnership
acquired for cash nine used commercial aircraft (together, the "Aircraft"). As
of December 31, 1995, the Partnership had six of the nine original Aircraft
remaining in its portfolio. For a description of the investments in the
Aircraft, please refer to the "Portfolio Review" section and Note 4 to the
Financial Statements of the Partnership's Annual Report to Unitholders for the
year ended December 31, 1995, which is filed as an exhibit under Item 14 and
incorporated herein by reference.
On November 10, 1987, the Partnership commenced an offering (the "Offering") on
a "best efforts basis" of $96,750,000 of limited partnership depositary units
("Units"). The closing of the offering occurred on February 24, 1988, with a
total of 4,837,505 Units being sold at a price of $20.00 per Unit, for a total
of approximately $96,750,000. The net proceeds of the offering after payment
of offering and organization costs and acquisition fees aggregated $85,938,000.
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 February 24, 1999; 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 November 10,
1987;
(2) preserve and protect the value of the Partnership's assets.
The following table describes the Partnership's portfolio of Aircraft as of
December 31, 1995. This table provides certain operational statistics and
estimated market values for the Aircraft in the portfolio. The estimated
market values of the Aircraft are affected by, and subject to, future changes
in a variety of factors, including, but not limited to, the Aircrafts' usage,
age and lease rate, the credit worthiness of the lessee, government maintenance
and noise regulations and the supply and demand of aircraft in the market place
with similar lift capacity. Reference is made to the "Portfolio Review"
section and Note 4 to the Financial Statements of the Partnership's Annual
Report to Unitholders for the year ended December 31, 1995 for a discussion of
the lease terms for each Aircraft. Reference is also made to the Message to
Investors section of the Partnership's Annual Report to Unitholders for the
year ended December 31, 1995 for an overview of the aircraft leasing industry.
<TABLE>
<CAPTION>
<S>
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)
<C> <C> <C> <C> <C> <C> <C> <C> <C>
B-727-200 TWA $ 5,451,231 $0 $ 818,500 N/A(6) Stage 2 43,760 65,070
1969
DC-9-30 Nrthwst $ 7,230,460 $ 1,139,992 $ 2,506,000 4/21/97 Stage 2 57,670 59,275
1968
DC-9-30 Nrthwst $ 7,230,460 $ 1,139,992 $ 2,143,000 1/31/97 Stage 2 73,740 68,900
1970
DC-9-30 Nrthwst $ 7,230,461 $ 1,139,992 $ 2,534,000 1/31/97 Stage 2 61,230 56,965
1970
MD-80 Series Contntl $27,313,020 $11,018,416 $16,540,000 3/15/98 Stage 3 13,740 27,610
1986
B-737-200 ADV Delta $14,380,390 $ 3,501,104 $ 5,585,000 9/30/99 Stage 2 33,490 51,760
1979
TOTALS $68,836,022 $17,939,496 $30,126,500
<FN>
NOTES:
(1) Includes a 1.5% fee paid to the Managing General Partner at the
acquisition of the Aircraft. Totals do not include aircraft which have been
sold.
(2) As of December 31, 1995.
(3) Estimated market values for the Aircraft are based upon annual
independent appraisals. These estimates are subject to a variety of
assumptions. Additionally, there can be no assurance that the Partnership
would receive an amount equal to the market value shown above upon the sale of
any of the Aircraft.
(4) Lease expiration dates do not include renewal options.
(5) As of February 8, 1996.
(6) TWA currently leases the Partnership's remaining 727-200 non-advanced
aircraft on a month-to-month basis. The Partnership's two 727-200 non-advanced
aircraft which were returned by TWA in the fourth quarter of 1994 were
subsequently sold by the Partnership in June 1995 and September 1995 for net
proceeds of $1,533,570.
</FN>
</TABLE>
Aging Aircraft Maintenance - The Federal Aviation Administration (the "FAA"),
acting on recommendations from industry trade groups, has adopted a series of
Airworthiness Directives ("AD's") for certain Boeing and McDonnell Douglas
aircraft models. AD's are mandates requiring the airline to perform a specific
maintenance task within a specified period of time. The FAA imposes strict
requirements governing aircraft inspection and certification, maintenance,
equipment requirements, corrosion control, noise levels and general operating
and flight rules. In addition to mandating more intensive inspections of
certain structural components, including the fuselage, wing and tail sections,
certain of these AD's mandate that structural modifications to certain aircraft
be completed within specified periods, generally not less than 48 months from
the effective date of the relevant AD. Aircraft are generally subject to these
structural modification requirements based on flight cycle, flight hour and
chronological age thresholds.
The Partnership's B-727-200 non-advanced aircraft, which is currently on-lease
to TWA, is subject to AD's mandating structural modification. AD's presently
applicable to the Boeing aircraft owned by the Partnership require extensive
repetitive inspections of such aircraft. There can be no assurance that such
inspections will not lead to mandatory structural modifications similar to
those noted above.
The Partnership's existing leases require the lessees to maintain the
Partnership's Aircraft in accordance with FAA approved maintenance programs
during the lease term. At the end of the leases, each lessee is required to
return the Aircraft in airworthy condition, including compliance with all AD's
for which action is mandated by the FAA during the lease term. Thus, certain
of the modifications required by the new AD's may not be effected by the
Partnership's lessees prior to the expiration of the current leases since, in
many cases, the relevant AD will not require action before the expiration of
the lease term.
In negotiating future leases or in selling aircraft now owned by the
Partnership, the Partnership may be required to bear some or all of the costs
of compliance with future AD's or AD's that have been issued but which did not
mandate action during the previous lessee's lease term or in respect of which
the previous lessee failed to comply. The aggregate effect on the Partnership
of compliance with these standards is not determinable at this time and will
depend upon a variety of factors, including, but not limited to, the state of
the commercial aircraft market, the extent of the AD, the status of
availability of capable repair facilities and the effect, if any, that such
compliance may have on the service lives of the affected aircraft. As
described above, the cost to the Partnership of such compliance may be reduced
to the extent that current or future lessees of the Partnership's Aircraft
effect such modifications under the terms of the current or future operating
leases.
Aircraft Noise - Beginning in 1985, the FAA and various airport industry task
forces released reports suggesting various alternatives for reducing the number
of Stage 2 aircraft operating in the United States, including a proposed
requirement to bring all aircraft operating in the United States into
compliance with Stage 3 requirements in the 1990s or shortly thereafter. The
FAA has categorized aircraft types according to engine noise decibel levels.
Stage 1 aircraft, which have the highest noise level, are no longer allowed to
operate from civil airports in the United States. Stage 2 aircraft meet
current FAA requirements. Stage 3 aircraft are the most quiet and will be the
future standard of all aircraft. Only one of the Aircraft owned by the
Partnership is Stage 3, the remainder are Stage 2 aircraft.
Effective November 6, 1990, Congress passed the Airport Noise and Capacity Act
of 1990 (the "Act") which required the development of a National Noise Policy.
On September 25, 1991, final regulations (the "Regulations") were announced and
became effective immediately. The Regulations provide, among other things,
phase-out and non-addition rules under which the number of Stage 2 aircraft
operated by domestic carriers were limited to 75% of 1990 base levels by the
end of 1994, with further reductions to 50% of 1990 base levels by the end of
1996, 25% of 1990 base levels by the end of 1998 and ultimately to 0% by
December 31, 1999. The Regulations would allow the issuance of transferable
Stage 2 operating rights that expire in increments over the life of the
phase-out period. These transferable rights would allow an operator that at
any time reduced its Stage 2 fleet below that required by the phase-out
schedule to transfer the "unused" base level to another operator.
Several modification programs to hushkit or re-engine an aircraft to meet Stage
3 requirements have been announced, including programs for the B-727 series,
the B-737 and the DC-9 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. Of the
Partnership's five Stage 2 aircraft, the General Partners do not believe that
it would be economically viable to hushkit the 727-200 non-advanced aircraft
currently on-lease to TWA.
In addition to FAA activity in noise abatement, other countries have adopted or
are considering adopting noise compliance standards which would have a similar
effect of reducing the ability of an airline to operate Stage 2 aircraft in
such jurisdictions. In 1989, the European Economic Community adopted a
non-addition rule which directed each member country to pass the necessary
legislation to prohibit airlines from adding Stage 2 aircraft to their fleets
after November 1, 1990. The rule has specific exceptions for leased aircraft
and does allow the continued use of Stage 2 aircraft which are in operation
before November 1, 1990, although adoption of rules requiring eventual
phase-out of Stage 2 aircraft in the member countries is anticipated. The
Partnership does not currently have any aircraft on lease to airlines outside
the United States. The effect of these regulations limits the market for these
aircraft unless they are hushkitted to comply with Stage 3 requirements.
Competition
The aircraft leasing industry is highly competitive and the success of any
lessor is largely dependent primarily upon the nature of the aircraft within
its portfolio. The Partnership competes with aircraft manufacturers,
distributors, airlines, and other operators, equipment managers, leasing
companies, financial institutions and other parties engaged in leasing,
managing, and marketing aircraft. Such competitors may lease or sell aircraft
at lower rates or prices than the Partnership and provide benefits, such as
direct maintenance crews, and support services which the Partnership cannot
provide. Competition may include certain affiliates of the General Partners.
Since the Partnership's Aircraft are subject to operating leases, the
Partnership will be required to re-lease or sell such Aircraft after the
expiration of the current lease terms. Conditions in the market for commercial
aircraft have remained intensely competitive in recent years as the number of
Stage 2, narrow-body commercial aircraft which are being offered for sale or
re-lease has remained in excess of demand.
Within this intensely competitive environment, the General Partners' ability to
renew leases or to sell the Aircraft owned by the Partnership is dependent upon
among other factors: (a) general economic conditions and economic conditions
affecting the airline industry in particular; (b) the current operating profile
of the aircraft, encompassing the age of the aircraft and the number of hours
and cycles flown and compliance with all issued AD's as well as the general
maintenance conditions of the aircraft; (c) the current fleet plans of the
major end-users of the aircraft type; (d) any costs required to refurbish
aircraft and to reconfigure aircraft to comply with all issued AD's and to
conform with similar aircraft within a potential lessee's fleet; (e) any cost
required to conform the aircraft to future Stage 3 noise restrictions; (f) the
availability to the lessee or potential lessee of other similar aircraft from
the Partnership's competition; and (g) the ability of the Managing General
Partner to effectively market the aircraft. It is possible that any future
lease renewals might be at lower lease rates than the Partnership currently
receives, adversely impacting revenue.
Employees
The Partnership has no employees. The officers, directors and employees of the
General Partners and their affiliates perform services on behalf of the
Partnership. The General Partners are entitled to certain fees and
reimbursement of certain out-of-pocket expenses incurred in connection with the
performance of these management services. Reference is made to Note 7 to the
Financial Statements of the Partnership's Annual Report to Unitholders for the
year ended December 31, 1995, for a discussion of the fees and reimbursable
expenses paid to the General Partners and their affiliates.
Item 2. Properties
Incorporated by reference to the "Portfolio Review" section and Note 4 to the
Financial Statements of the Partnership's Annual Report to Unitholders for the
year ended December 31, 1995.
Item 3. Legal Proceedings
The Partnership has filed an administrative claim against Pan American World
Airways, Inc. ("Pan Am") in the Bankruptcy Court as a result of Pan Am's return
of the Partnership's aircraft in November 1991. The aircraft was subsequently
sold in February 1992. The Partnership is seeking to recover certain rent and
maintenance costs associated with Pan Am's failure to comply with the return
provisions of its lease. Given the status of Pan Am's estate, the General
Partners are doubtful that the Partnership will obtain a significant recovery.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the fourth quarter of 1995.
PART II
Item 5. Market for Partnership's Limited Partnership Interest and Related
Security Holder Matters
The Units represent the economic rights attributable to limited partnership
interests in the Partnership.
There is no established public trading market for the purchase and sale of
Units. As of December 31, 1995, the number of Unitholders was 6,943.
Information concerning the quarterly cash distributions paid per limited
partnership unit is incorporated herein by reference to the inside front cover,
the Message to Investors and Note 6 of the Notes to Financial Statements of the
Partnership's Annual Report to Unitholders for the year ended December 31,
1995.
Item 6. Selected Financial Data
Incorporated by reference to the "Financial Results" section of the
Partnership's Annual Report to Unitholders for the year ended December 31,
1995.
Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
Liquidity and Capital Resources
As of December 31, 1995, all six of the Partnership's aircraft were on-lease.
There were three aircraft on-lease to Northwest Airlines, Inc. ("Northwest"),
one aircraft on-lease to Trans World Airlines, Inc. ("TWA"), one aircraft
on-lease to Delta Air Lines, Inc. ("Delta"), and one aircraft on-lease to
Continental Airlines, Inc. ("Continental").
The Partnership recently reached an agreement in principle to a lease
modification with Northwest which, when executed, will extend the current
leases for a term of 10 years from the scheduled lease expiration dates in
January 1997 (two aircraft) and April 1997 (one aircraft). Northwest will
continue to pay the Partnership a monthly lease rate of $35,000 per aircraft.
In accordance with the anticipated lease extensions, each of the aircraft will
be hushkitted, which entails upgrading the current engines to comply with Stage
3 noise requirements. This will enable the aircraft to continue to fly in the
United States beyond December 31, 1999 -- the phase-out date for all Stage 2
commercial aircraft. Northwest has agreed to fund the cost of the hushkitting
and, in turn, will be entitled to 50% of the proceeds from the sale of the
aircraft at the end of the lease. The General Partners believe this is a
positive development for the Partnership since the proposed lease extensions
and hushkitting of the engines will in all likelihood increase the value of
the aircraft and will present the Partnership with more viable sales
opportunities for the aircraft in the future. In light of the fact that
Northwest will be funding costs associated with hushkitting the aircraft, the
General Partners are currently analyzing the Partnership's future cash
requirements to determine if any of the Partnership's cash currently in reserve
can be included in a future distribution to Unitholders.
TWA continues to lease the Partnership's remaining 727-200 Stage 2 non-advanced
aircraft on a month-to-month basis and remains current on its monthly lease
payments of $32,500 per aircraft. To date, TWA has not given any indication to
the Partnership as to how long it will continue to lease the aircraft. Once
the aircraft is returned to the Partnership, the General Partners believe that
it will be very difficult to re-lease it to another airline.
An agreement was reached with Delta in November 1995 to amend and extend the
current lease for the Partnership's 737-200 advanced aircraft until September
30, 1999 at a monthly lease rate of $80,000. While this rate represents a
decline from the previous rate of $95,000 per month, it is in line with
prevailing market rates. Under the terms of the amended lease, Delta does not
have the option of returning the aircraft prior to the expiration date as it
did under the previous lease agreement.
Pursuant to the terms of the lease agreement executed with Continental in
February 1994, the Partnership agreed to provide up to $600,000 of financing to
the airline to perform modification work on the Partnership's MD-80 Series
aircraft, including advanced avionics, interior furnishings and exterior paint.
On June 7, 1994, the Partnership made its first advance to Continental in the
amount of $302,525. The modification financing is repayable over the life of
the lease at an interest rate of 8% per annum for advances made before February
1, 1996, and, with respect to advances made after February 1, 1996, a rate per
annum equal to the yield to maturity of United States Treasury Notes having a
maturity closest to the remaining term of the lease, plus 4.25 percent. As of
December 31, 1995, Continental had made principal payments on the loan
totalling $114,796. Payments made on this loan are the reason for the decrease
in the Partnership's loan receivable balance, which totalled $187, 729 at
December 31, 1995 as compared to $260,975 at December 31, 1994. Continental
makes monthly lease payments to the Partnership of $180,000.
The Partnership is faced with an intensely competitive environment in the
aircraft leasing industry which has had a material impact on the business of
the Partnership. In particular, the large oversupply of aircraft available for
lease has resulted in significant reductions in market lease rates in recent
years, thereby impacting the lease rates obtained by the Partnership as leases
for the aircraft have been either renewed or extended.
At December 31, 1995, the Partnership had unrestricted cash and cash
equivalents of $4,282,580 as compared to $2,978,631 at December 31, 1994. The
$1,303,949 increase in unrestricted cash and cash equivalents is mainly
attributable to proceeds received from the sale of the two 727-200 non-advanced
aircraft in June 1995 and September 1995, formerly on-lease to TWA. The
Partnership's restricted cash balance at December 31, 1995 of $1,047,475
remained unchanged from December 31, 1994. The Partnership's restricted cash
is comprised of: (i) $750,000 which is to be used in connection with performing
various airworthiness directives mandated by the Federal Aviation
Administration, and (ii) $297,475 which represents the balance of modification
work financing committed to Continental in accordance with the 1994 lease
agreement.
During the year ended December 31, 1995, the Partnership paid distributions to
the Unitholders for the period from October 1, 1994 to December 31, 1994 and
for the first three quarters of 1995, in the amounts of $1,276,043 and
$3,538,320, respectively, which represents approximately $.26 and approximately
$.73 per Unit, respectively. At December 31, 1995, the Partnership had a
distribution payable to Unitholders of $1,001,763, or approximately $.21 per
Unit. This amount reflects the 1995 fourth quarter cash distribution to
Unitholders which was funded from cash flow from operations. This distribution
was subsequently paid on February 2, 1996. Future cash distributions will be
determined on a quarterly basis after an evaluation of the Partnership's
current and expected financial position.
On March 18, 1996, based upon, among other things, the advice of Partnership
counsel, Skadden, Arps, Slate, Meagher & Flom, the General Partners adopted a
resolution that states, among other things, if a Change of Control (as defined
below) occurs, the General Partners may distribute the Partnership's cash
balances not required for its ordinary course day-to-day operations. "Change
of Control" means any purchase or offer to purchase more than 10% of the Units
that is not approved in advance by the General Partners. In determining the
amount of the distribution, the General Partners may take into account all
material factors. In addition, the Partnership will not be obligated to make
any distribution to any partner and no partner will be entitled to receive any
distribution until the General Partners have declared the distribution and
established a record date and distribution date for the distribution. The
Partnership filed a Form 8-K disclosing this resolution on March 21, 1996.
Results of Operations
Substantially all of the Partnership's revenue during 1995 was generated from
the leasing of the Partnership's aircraft to commercial air carriers under
triple net operating leases. The majority of the balance of the Partnership's
revenue consisted of interest income.
1995 compared to 1994
For the twelve months ended December 31, 1995, the Partnership reported net
income of $608,971 as compared to a net loss of $575,105 for the corresponding
period in 1994. The increase is primarily attributable to a $1,083,016 gain on
the sale of the two 727-200 non-advanced aircraft in June and September 1995,
respectively, which were formerly on-lease to TWA. This increase was partially
offset by a decrease in rental income.
Rental income for the twelve months ended December 31, 1995 totalled $4,927,500
as compared to $5,417,086 for the corresponding period in 1994. The decrease
is primarily due to the fourth quarter 1994 lease expirations and subsequent
sale of the two 727-200 non-advanced aircraft formerly on lease to TWA and, to
a lesser extent, the reduction of the monthly lease rate paid by Delta in
accordance with the lease extension for the Partnership's 737-200 advanced
aircraft effected in November 1995.
Interest income for the twelve months ended December 31, 1995 totalled $282,782
as compared to $134,581 for the corresponding period in 1994. The increase is
attributable to an increase in the Partnership's invested cash balance, higher
interest rates and interest income earned on the loan to Continental.
Other Income totalled $3,720 for the twelve months ended December 31, 1995 as
compared to $55,380 for the year ended December 31, 1994. The higher balance
in 1994 primarily represents a reimbursement made to the Partnership as
settlement for damage done to the landing gear of the Partnership's MD-80
Series aircraft while it was in storage prior to being re-leased to Continental
in February 1994.
Depreciation expense for the twelve months ended December 31, 1995 totalled
$5,001,206 as compared to $5,451,744 for the corresponding period in 1994. The
decrease is primarily attributable to the sales of the two 727-200 non-advanced
aircraft in June 1995 and September 1995.
General and administrative expenses for the twelve months ended December 31,
1995 were $156,043 as compared to $193,698 for the corresponding period in
1994. The decrease is primarily attributable to legal expenses which were
incurred in the first quarter of 1994 in connection with the lease agreement
with Continental.
Operating expenses for the twelve months ended December 31, 1995 totalled
$73,128 as compared to $56,937 for the corresponding period in 1994. The
increase is primarily attributable to storage and maintenance costs which were
incurred as a result of the idle status of the two 727-200 non-advanced
aircraft which were returned to the Partnership by TWA subsequent to the
respective lease expirations in the fourth quarter of 1994.
1994 compared to 1993
For the twelve months ended December 31, 1994, the Partnership reported a net
loss of $575,105 as compared to a net loss of $14,797,472 for the corresponding
period in 1993. The decrease in net loss is primarily attributable to the
write-down of the net book values of the Partnership's aircraft in December
1993. Excluding the write-down, the Partnership would have recorded net income
of $753,804 for the year ended December 31, 1993.
Rental income for the twelve months ended December 31, 1994 was $5,417,086 as
compared to $5,112,882 for the corresponding period in 1993. The increase is
due to the new lease agreement with Continental effective March 15, 1994,
partially offset by a reduction in income resulting from the new lease
agreements with TWA and Northwest.
Interest income for the twelve months ended December 31, 1994 was $134,581 as
compared to $148,444 for the corresponding period in 1993. The decrease is due
to lower cash balances maintained by the Partnership during 1994 as compared to
1993. This decrease is partially offset by interest received from Continental
for the balance outstanding on their loan.
Other income for the twelve months ended December 31, 1994 was $55,380, as
compared to $2,139,699 for the corresponding period in 1993. Upon the
expiration of the previous lease with Continental in April 1993, $2,139,699
remaining in the maintenance reserve, previously established to provide funding
for maintenance on the Partnership's MD-80 Series aircraft, was retained by the
Partnership in accordance with the terms of the lease agreement and recognized
as other income.
Depreciation expense for the twelve months ended December 31, 1994 totalled
$5,451,744 as compared to $5,980,380 for the corresponding period in 1993. The
decrease is due to the write-down of the net book values of the Partnership's
aircraft in December 1993.
Management fees for the twelve months ended December 31, 1994 were $479,773 as
compared to $388,374 for the corresponding period in 1993. Management fees are
based on rental income and operating cash flow. The increase is attributable
to the higher rental income during 1994 due mainly to the new lease agreement
with Continental.
Operating expenses for the twelve months ended December 31, 1994 were $56,937,
as compared to $84,687 for the corresponding period in 1993. The Partnership
incurred substantial costs for storage, maintenance and insurance for the MD-80
Series aircraft in storage from May 1993 through March 1994. The 1993 costs
were mainly for insurance, storage and maintenance, while the 1994 costs also
include consulting and documentation to prepare the aircraft for re-leasing.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1995.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure None.
PART III
Item 10. Directors and Executive Officers of the Partnership
The Partnership has no officers or directors. The General Partners jointly
manage and control the affairs of the Partnership and have general
responsibility and authority in all matters affecting its business. Information
concerning the directors and executive officers of the General Partners are as
follows:
Jet Aircraft Leasing, Inc.
Name Office
Moshe Braver Director and President
John Stanley Vice President and Chief Financial Officer
Certain officers and directors of Jet Aircraft Leasing, Inc. are now serving
(or in the past have served) as officers or directors of entities which act as
general partners of a number of limited partnerships which have sought
protection under the provisions of the Federal Bankruptcy Code. Those
partnerships sought the protection of the bankruptcy laws to protect the
partnerships' assets from loss through foreclosure.
Moshe Braver, 42, is currently a Managing Director of Lehman Brothers and has
held such position since October 1985. During this time, he has held positions
with the Business Analysis Group, International and Capital Markets
Administration and currently, with the Diversified Asset Group. Mr. Braver
joined Shearson Lehman Brothers in August 1983 as Senior Vice President. Prior
to joining Shearson, Mr. Braver was employed by the accounting firm of Coopers
& Lybrand from January 1975 through August 1983 as an Audit Manager. He
received a Bachelor of Business Administration degree from Bernard Baruch
College in January 1975 and is a Certified Public Accountant.
John D. Stanley, 33, Vice President, has worked with the Diversified Asset
Group since October 1988. Mr. Stanley received a B.A. in Economics from the
University of Wisconsin-Madison in 1984 and a Master of Management Degree from
Northwestern University in 1988. From 1984 to 1986, Mr. Stanley worked as a
Financial Analyst for Kidder, Peabody and Co.
CIS Aircraft Partners, Inc.
Name Office
Thomas J. Prinzing Director and President
Frank J. Corcoran Director, Vice President and Treasurer
Robin A. Konicek Vice President
Susan E. Weatherwax Secretary
As reported on the Partnership's Current Report on Form 8-K, dated February 28,
1989, on Friday, January 13, 1989, Continental Information Systems Corporation,
and certain of its subsidiaries, including CIS Corporation, filed voluntary
petitions for reorganization under Chapter 11 of the Federal Bankruptcy Code.
As described below, various directors and executive officers of CAP hold
similar positions for Continental Information Systems Corporation, CIS
Corporation and such subsidiaries.
On November 29, 1994, the Bankruptcy Court for the Southern District of New
York confirmed the Trustee's Proposed Joint Plan of Reorganization. The
approved Plan became effective on December 21, 1994. As a result of the
reorganization, the Directors and Officers of CAP resigned from and took on
various directorships for Continental Information Systems Corporation, CIS
Corporation and their subsidiaries.
Thomas J. Prinzing, 50, is President of CIS Aircraft Partners, Inc. and of
Continental Information Systems Corporation. From 1991 to December 1995, Mr.
Prinzing was President of CIS Aircraft Partners, Inc. Mr. Prinzing, a
Certified Public Accountant, received a Bachelor of Commerce degree from the
University of Windsor.
Frank J. Corcoran, 45, joined CIS Corporation in November 1994 as Senior Vice
President and Chief Financial Officer. From 1992 until joining CIS
Corporation, Mr. Corcoran was Vice President and General Manager of Unisys
Finance Corporation, an equipment leasing and finance subsidiary of Unisys
Corporation. Previously, he served as Chief Financial Officer and Controller
of Unisys Finance Corporation. Prior to that, Mr. Corcoran held positions of
Corporate Tax Manager at Unisys Corporation; Controller, U.S. Operations of
Lucas Industries, Inc.; Financial Analyst with Detroit Edison Company; and a
Senior Accountant with KPMG Peat Marwick. Mr. Corcoran holds a B.S. in
Business Administration from Wayne State University, an M.S. in Taxation from
Walsh College, and is a Certified Public Accountant.
Robin A. Konicek, 39, is a Vice President of CIS Aircraft Partners, Inc. and is
responsible for domestic and international aircraft marketing. She has been
active in the financing, trading and management of aircraft since 1982. Prior
to joining CIS in 1986, Ms. Konicek was a Vice President of Crocker Bank
Airlines and Aerospace Group, with major responsibility for developing the U.S.
market. She holds an A.B. from Stanford University and an M.B.A. from the
University of California, Los Angeles.
Susan E. Weatherwax, 38, is Senior Counsel and Assistant Secretary of CIS
Corporation. She has been employed at CIS Corporation since August 1987 and
prior to that served as Corporate Counsel of United Computer Capital
Corporation. Ms. Weatherwax received a Bachelor of Arts degree from Indiana
University and her Juris Doctor from Syracuse University College of Law.
Item 11. Executive Compensation
No compensation was paid by the Partnership to the officers and directors of
the General Partners. See Item 13 below for a description of the compensation
and fees paid to the General Partners and their affiliates by the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners. As of the date hereof, no
person is known by the Partnership to be the beneficial owner of more than five
percent of the Units of the Partnership.
(b) Security ownership of management. The Partnership has no directors or
officers, and neither of the General Partners of the Partnership owns any
Units. The Assignor Limited Partners for the Partnership, CIS Assignor L.P.A.,
Inc. (an affiliate of CAP), owns 5 Units.
None of the directors or officers of the General Partners owned any Units as of
December 31, 1995.
(c) Changes in control. Other than as described herein, the Partnership knows
of no arrangements, the operation of the terms of which may at a subsequent
date result in a change in control of the Partnership.
Item 13. Certain Relationships and Related Transactions
The General Partners and their affiliates received or will receive certain
types of compensation, fees, or other distributions in connection with the
operation of the Partnership. The fees and compensation were not determined
by, and may not necessarily reflect, arm's length negotiations. None of the
officers and directors of the General Partners received any compensation from
the Partnership. First Data Investor Services Group, an unaffiliated company,
provides partnership accounting and investor relations services for the
Partnership. Prior to May 1993, these services were provided by an affiliate
of a general partner. Transfer agent services and certain tax reporting
services are provided by Service Data Corporation, an unaffiliated company. For
additional information on fees paid to the General Partners and affiliates,
reference is made to Note 7 of the Notes to the Financial Statements on page 10
of the Partnership's Annual Report to Unitholders for the year ended December
31, 1995.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements:
Page
Number
Balance Sheets - December 31, 1995 and 1994 (1)
Statements of Partners' Capital (Deficit) -
For the years ended December 31, 1995, 1994 and 1993 (1)
Statements of Operations - For the years ended
December 31, 1995, 1994 and 1993 (1)
Statements of Cash Flows - For the years ended
December 31, 1995, 1994 and 1993 (1)
Notes to Financial Statements (1)
Report of Independent Public Accountants (1)
(1) Incorporated by reference to the Partnership's
Annual Report to Unitholders for the year ended
December 31, 1995.
2. Financial Statement Schedules:
No schedules are presented because the information is not
applicable or is included in the Financial Statements or the
notes thereto.
3. Exhibits:
(3) Articles of Incorporation and bylaws (Incorporated by
reference to the Partnership's Prospectus filed with the
Commission on April 17, 1987.)
(4) Depositary Agreement (Incorporated by reference to
Exhibit 4.5 to the Partnership's Registration Statement on Form
S-1 filed with the Commission on April 17, 1987.)
(10) Escrow Agreement (Incorporated by reference to Exhibit
10.12 to the Partnership's Registration Statement on Form S-1
filed with the Commission on April 17, 1987.)
(13) Annual Report to Unitholders for the year ended
December 31, 1995.
(27) Financial Data Schedule
(b) The Partnership filed no current reports on Form 8-K during the
fourth quarter of the period covered on this Report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
JETSTREAM II, L.P.
BY: Jet Aircraft Leasing Inc.
Administrative General Partner
Date: March 22, 1996
BY: /s/ Moshe Braver
Name: Moshe Braver
Title: Director and President
BY: CIS Aircraft Partners, Inc.
Managing General Partner
Date: March 22, 1996
BY: /s/ Thomas J. Prinzing
Name: Thomas J. Prinzing
Title: Director and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
CIS AIRCRAFT PARTNERS, INC.
A General Partner
Date: March 22, 1996
BY: /s/ Thomas J. Prinzing
Thomas J. Prinzing
Director and President
Date: March 22, 1996
BY: /s/ Frank J. Corcoran
Frank J. Corcoran
Director, Vice President
and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
JET AIRCRAFT LEASING INC.
A General Partner
Date: March 22, 1996
BY:/s/ Moshe Braver
Moshe Braver
Director and President
Date: March 22, 1996
BY:/s/ John Stanley
John Stanley
Vice President and
Chief Financial Officer
JetStream II, L.P.
EXHIBIT 13
JetStream II, L.P.
1995 Annual Report
JetStream II, L.P. commenced operations in 1988, and was formed to acquire used
commercial aircraft subject to triple net operating leases with commercial
aircraft carriers. Since inception, limited partners have received cash
distributions totalling approximately $14.38 per $20.00 limited partnership
unit ("Unit"). The following table provides the quarterly cash distributions
per Unit paid by the Partnership for the years ended December 31, 1995 and
1994.
Quarter Declared 1995 1994
1st Quarter $ .228 $ .207
2nd Quarter .237 .286
3rd Quarter .267 .238
4th Quarter .207 .264
TOTAL $ .939 $ .995
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144-2596 Attn: Financial Communications
(800) 223-3464 (select option 1) (800) 223-3464 (select option 2)
Contents
1 Message to Investors
3 Portfolio Review
4 Financial Statements
7 Notes to Financial Statements
12 Report of Independent Public Accountants
Message to Investors
We are pleased to present for your review the 1995 Annual Report for JetStream
II, L.P. (the "Partnership"). This message includes a brief overview of
conditions in the airline and aircraft leasing industries, an update on the
Partnership's portfolio of aircraft and highlights of the Partnership's
financial results for the past five years. Following this letter are the
Partnership's audited financial statements for the year ended December 31,
1995.
Industry Overview
After years of massive losses, the U.S. airline industry showed signs of
recovery in the past year. U.S. airlines realized overall net profits of
approximately $2 billion in 1995, as compared to a total loss of approximately
$280 million in 1994. Primary among the factors that contributed to the
turnaround in 1995 were the ability of airlines to sustain higher air fares, an
increase in passenger traffic and cost-cutting efforts by the major airlines in
an effort to improve cash flow and compete more effectively against low-cost,
short-haul air carriers. While industry analysts are hopeful that conditions
will continue to improve through 1996, such improvement will likely be modest
and could be tempered by mounting labor issues, consumer satisfaction issues
and continued competition from low-cost air carriers.
While the improvement in the airline industry had a modest positive impact on
the level of leasing activity for certain types of aircraft, overall conditions
in the aircraft leasing industry remain competitive, particularly for lessors
of older Stage 2 aircraft, as there still remains a lingering oversupply of
this type of aircraft available for lease. Furthermore, future viable leasing
opportunities will be limited as a result of the implementation of noise
compliance regulations developed in accordance with the Airport Noise and
Capacity Act of 1990, which requires airlines to reduce the number of older
aircraft in their fleets. These regulations provide, among other things,
phase-out and non-addition rules under which the number of Stage 2 aircraft
operated by domestic carriers were limited to 75% of 1990 base levels by the
end of 1994, with further reductions to 50% of 1990 base levels by the end of
1996, 25% of 1990 base levels by the end of 1998 and ultimately to 0% by
December 31, 1999. The scheduled phase-out of Stage 2 aircraft combined with
the prolonged difficulties in the airline industry during the first half of the
1990's has had a substantial negative impact on the aircraft leasing industry
and on residual aircraft values. The level of demand for aircraft will
continue to be a function of changes in passenger demand and the ability of
operators to match demand with their seat availability.
Portfolio Update
The Partnership's investment consists of a fleet of six commercial aircraft,
all of which are currently on-lease. During the past year, the General
Partners were successful in negotiating a lease extension with Delta Air Lines
("Delta") for the Partnership's 737-200 advanced aircraft and extension of the
leases with Northwest Airlines ("Northwest") for the Partnership's three
DC-9-30 aircraft, thus averting a potentially significant decrease in the
Partnership's rental revenue and, consequently, in the level of cash
distributions to limited partners.
As previously reported, the Partnership reached an agreement with Northwest in
November 1995 to extend the leases for the Partnership's three DC-9-30 aircraft
for a term of one year to January 1997 (two aircraft) and April 1997 (one
aircraft). We are pleased to report that the Partnership reached an agreement
in principle to a lease modification with Northwest in March 1996, which, when
executed, will extend the current leases for a term of 10 years from the
previous scheduled expiration dates in 1997. Northwest will continue to pay
the Partnership a monthly lease rate of $35,000 per aircraft. In accordance
with the anticipated lease modifications, each of the aircraft will be
hushkitted, which entails upgrading the current engines to comply with Stage 3
noise requirements. This will enable the aircraft to continue to fly in the
United States beyond December 31, 1999, the phase-out date for all Stage 2
commercial aircraft. Northwest has agreed to fund the cost of the hushkitting
and, in turn, will be entitled to 50% of the proceeds from the sale of the
aircraft at the end of the lease. The General Partners believe this is a
significant positive development for the Partnership since the proposed lease
extensions and hushkitting of the engines will in all likelihood increase the
value of the aircraft and will present the Partnership with more viable sales
opportunities for the aircraft in the future. In light of the fact that
Northwest will be funding costs associated with hushkitting the aircraft, the
General Partners are currently analyzing the Partnership's future cash
requirements to determine if any of the Partnership's cash currently in reserve
can be included in a future distribution to Limited Partners. The General
Partners anticipate completing such analysis during the second quarter of 1996.
Of the Partnership's two remaining aircraft, one is on-lease to Continental
Airlines ("Continental") and one is on-lease to Trans World Airlines ("TWA"),
which emerged from Chapter 11 Bankruptcy in August 1995. TWA continues to
lease the Partnership's remaining 727-200 non-advanced aircraft on a
month-to-month basis and has not given any indication as to how long it will
continue to lease this aircraft. Once the aircraft is returned to the
Partnership, the General Partners believe that it will be very difficult to
re-lease it to another airline and the level of cash available for
distribution to limited partners will in all likelihood be reduced. Please
refer to the Portfolio Review section on page 3 of this report for additional
information on the leasing status of the Partnership's aircraft.
Financial Results
The following table summarizes the Partnership's financial results for the
years ended December 31, 1995, 1994, 1993, 1992 and 1991. For additional
information, please refer to the financial statements and notes to the
financial statements beginning on page 4 of this report.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Rental Revenues $ 4,927,500 $ 5,417,086 $ 5,112,882 $ 9,074,600 $11,324,311
Write-down of
Aircraft - - 15,551,276 - -
Total Expenses 5,688,047 6,182,152 22,198,497 6,883,907 10,967,546
Net Income (Loss) 608,971 (575,105) (14,797,472) 2,350,915 658,506(1)
Net Income (Loss)
per
Limited
Partnership
Unit(2) .12 (0.12) (3.03) .48 .13(1)
Total Assets 23,457,938 27,689,193 33,618,546 57,722,748 65,480,570(1)
Partners'
Capital 22,036,571 26,013,542 31,450,948 52,136,949 58,825,816(1)
Net Cash
Provided by
Operating
Activities 4,560,125 6,612,975 5,591,459 7,848,774 9,960,224
Cash
Distributions
per Unit(2)(3) .939 .995 1.21 1.85 2.275
<FN>
(1) Includes a provision for loss of $3,742,302 on disposition of assets
reflecting the February 13, 1992 sale of the Boeing 727-200 previously on lease
to Pan Am.
(2) 4,837,505 Units outstanding.
(3) Distribution amounts are reflected in the year for which they are
declared. The Partnership's fourth quarter cash distribution is usually paid
in late January or early February of the following year.
</FN>
</TABLE>
- - Rental revenues decreased 9% from 1994 primarily due to the fourth
quarter 1994 lease expirations and subsequent sale of the two 727-200
non-advanced aircraft formerly on lease to TWA and, to a lesser extent, the
reduction of the monthly lease rate paid by Delta in accordance with the lease
extension for the Partnership's 737-200 advanced aircraft effected in November
1995.
- - The change to net income in 1995 is primarily attributable to a
$1,083,016 gain on the sale of the two 727-200 non-advanced aircraft in June
and September 1995, respectively, which were formerly on-lease to TWA. The
increase in net income during 1995 was partially offset by the decrease in
rental revenues.
- - The highly competitive and weakened conditions in the aircraft leasing
industry have had a significant negative impact on the residual value of the
Partnership's fleet of aircraft. It is the General Partners' belief that the
total value has declined substantially. Accordingly, as of December 31, 1993,
the General Partners reduced the carrying value of the aircraft by $15,551,276.
Excluding the write-down, the Partnership would have recorded net income of
$753,804 for the year ended December 31, 1993. The write-down is also the
primary reason for the increase in total expenses during 1993.
Summary
The General Partners will continue their efforts to effectively manage the
Partnership's assets. To that end, our focus remains on keeping the
Partnership's aircraft on-lease and generating revenue. It is important to
note, however, that since the total return from your investment in the
Partnership is dependent upon the aircrafts' ultimate selling prices, declines
in residual values over the past several years have had an adverse impact on
your investment. The future performance of the Partnership will be dependent
upon the General Partners' ability to keep the remaining aircraft on-lease,
which, in turn, is dependent on the strength of the airline industry and the
stabilization of the supply and demand for used aircraft. We will continue to
update you on the status of the Partnership's operations in future
correspondence.
Very truly yours,
Jet Aircraft Leasing Inc. CIS Aircraft Partners, Inc.
A General Partner A General Partner
/s/Moshe Braver /s/Thomas J. Prinzing
Moshe Braver Thomas J. Prinzing
President President
March 22, 1996
Portfolio Review
Following is a review of lease activity during 1995 and the first quarter of
1996:
- - 737-200 Advanced Aircraft - An agreement was reached with Delta in
November 1995 to amend and extend the current lease for this aircraft until
September 30, 1999 at a monthly lease rate of $80,000. While this rate
represents a decline from the previous rate of $95,000 per month, it is in line
with prevailing market rates. Under the terms of the amended lease, Delta does
not have the option of returning the aircraft prior to the expiration date as
it did under the previous lease agreement.
- - DC-9-30 - The Partnership reached an agreement in principle to a lease
modification with Northwest in March 1996 to extend the current leases for a
term of 10 years from the scheduled lease expiration dates in January 1997 (two
aircraft) and April 1997 (one aircraft). Northwest will continue to pay the
Partnership a monthly lease rate of $35,000 per aircraft. In accordance with
the anticipated lease extensions, each of the aircraft will be hushkitted,
which entails upgrading the current engines to comply with Stage 3 noise
requirements. This will enable the aircraft to continue to fly in the United
States beyond December 31, 1999, the phase-out date for all Stage 2 commercial
aircraft. Northwest has agreed to fund the cost of the hushkitting and, in
turn, will be entitled to 50% of the proceeds from the eventual sale of the
aircraft.
The following table highlights the Partnership's portfolio of aircraft as of
December 31, 1995 and includes estimated market values as of that date.
Estimated
Aircraft Model Acquisition Market Lease Noise
Year Delivered Lessee Cost (1) Value (2) Expiration(3) Compliance
MD-80 Series Continental $27,313,020 $16,540,000 3-15-98 Stage 3
1986
DC-9-30 Northwest 7,230,460 2,506,000 4-21-97 Stage 2
1968
DC-9-30 Northwest 7,230,460 2,143,000 1-31-97 Stage 2
1970
DC-9-30 Northwest 7,230,461 2,543,000 1-31-97 Stage 2
1970
B-737-200 ADV Delta 14,380,390 5,585,000 9-30-99 Stage 2
1979
B-727-200 TWA 5,451,231 818,500 N/A(4) Stage 2
1969
(1) Includes a 1.5% fee paid to the Managing General Partner at the
acquisition of the aircraft.
(2) Estimated market values for the aircraft are based upon annual
independent appraisals. These estimates are subject to a variety of
assumptions. Additionally, there can be no assurance that the Partnership
would receive an amount equal to the market value shown above upon the sale of
any of the aircraft.
(3) Lease expiration dates do not include renewal options.
(4) TWA currently leases the Partnership's remaining 727-200 non-advanced
aircraft on a month-to-month basis.
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Aircraft, at cost $26,877,000 $28,843,000
Less-accumulated depreciation 8,937,504 5,451,744
17,939,496 23,391,256
Cash and cash equivalents 4,282,580 2,978,631
Restricted cash 1,047,475 1,047,475
Accounts receivable - 9,941
Loan receivable 187,729 260,975
Interest receivable 658 915
Total Assets $23,457,938 $27,689,193
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 256,152 $ 225,886
Distribution payable 1,011,882 1,288,932
Deferred revenue 153,333 160,833
Total Liabilities 1,421,367 1,675,651
Partners' Capital (Deficit):
General Partners (746,143) (706,374)
Limited Partners
(4,837,505 units outstanding) 22,782,714 26,719,916
Total Partners' Capital 22,036,571 26,013,542
Total Liabilities and
Partners' Capital $23,457,938 $27,689,193
Statements of Partners' Capital (Deficit)
For the years ended December 31, 1995, 1994 and 1993
General Limited
Partners Partners Total
Balance at January 1, 1993 $(445,139) $52,582,088 $52,136,949
Net Loss (147,975) (14,649,497) (14,797,472)
Cash distributions (58,886) (5,829,643) (5,888,529)
Balance at December 31, 1993 (652,000) 32,102,948 31,450,948
Net Loss (5,751) (569,354) (575,105)
Cash distributions (48,623) (4,813,678) (4,862,301)
Balance at December 31, 1994 (706,374) 26,719,916 26,013,542
Net Income 6,090 602,881 608,971
Cash distributions (45,859) 4,540,083) (4,585,942)
Balance at December 31, 1995 $(746,143) $22,782,714 $22,036,571
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Income 1995 1994 1993
Rental $4,927,500 $5,417,086 $ 5,112,882
Interest 282,782 134,581 148,444
Other (Note 4) 3,720 55,380 2,139,699
Total Income 5,214,002 5,607,047 7,401,025
Expenses
Depreciation 5,001,206 5,451,744 5,980,380
Management fees 457,670 479,773 388,374
General and administrative 156,043 193,698 193,780
Operating 73,128 56,937 84,687
Write-down of aircraft (Note 2) - - 15,551,276
Total Expenses 5,688,047 6,182,152 22,198,497
Net Loss from
Operations $ (474,045) $ (575,105) $(14,797,472)
Other Income
Gain on sale of
aircraft (Note 5) 1,083,016 - -
Net Income (Loss) $ 608,971 $ (575,105) $(14,797,472)
Net Income (Loss) Allocated:
To the General Partners $ 6,090 $ (5,751) $ (147,975)
To the Limited Partners 602,881 (569,354) (14,649,497)
$ 608,971 $ (575,105) $(14,797,472)
Per limited partnership unit
(4,837,505 units outstanding) $0.12 $(0.12) $(3.03)
Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
Cash Flows from
Operating Activities: 1995 1994 1993
Net income (loss) $ 608,971 $ (575,105) $(14,797,472)
Adjustments to reconcile
net income (loss) to net cash
provided by operating activities:
Depreciation 5,001,206 5,451,744 5,980,380
Write-down of aircraft - - 15,551,276
Gain on sale of
aircraft (1,083,016) - -
Restricted cash - 2,592,224 1,246,478
Increase (decrease) in
cash arising from changes
in operating assets
and liabilities:
Accounts receivable 9,941 (9,941) -
Interest receivable 257 8,854 (2,891)
Prepaid expenses - 22,074 (18,654)
Accounts payable
and accrued expenses 30,266 27,792 (97,761)
Maintenance payable - (750,000) (2,011,177)
Deferred revenue (7,500) (154,667) (258,720)
Net cash provided by
operating activities 4,560,125 6,612,975 5,591,459
Cash Flows from
Investing Activities:
Loan receivable 73,246 (260,975) -
Proceeds from sale
of aircraft - net 1,533,570 - -
Net cash provided by
(used for) investing activities 1,606,816 (260,975) -
Cash Flows from
Financing Activities:
Cash distributions (4,862,992) (4,477,373) (6,939,072)
Net cash used for
financing activities (4,862,992) (4,477,373) (6,939,072)
Net increase (decrease)
in cash and cash equivalents 1,303,949 1,874,627 (1,347,613)
Cash and cash equivalents
at beginning of period 2,978,631 1,104,004 2,451,617
Cash and cash equivalents
at end of period $ 4,282,580 $ 2,978,631 $ 1,104,004
Notes to Financial Statements
December 31, 1995, 1994 and 1993
1. Organization
JetStream II, L.P. ("the Partnership"), a Delaware limited partnership, was
formed on October 15, 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 4,837,500 limited partnership depositary units were then
sold at a price of $20.00 per unit. The Partnership had an interim closing on
January 14, 1988 and a final closing on February 24, 1988, and received gross
offering proceeds of $96,750,000.
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 February 24, 1999. Thereafter, the net
proceeds of any sales of aircraft will be distributed to the partners.
Title to the leased aircraft owned by the Partnership is held by nonaffiliated
trusts of which the Partnership is the beneficiary. The purpose of this method
of holding title is to satisfy certain registration requirements of the Federal
Aviation Administration.
On March 18, 1996, based upon, among other things, the advice of Partnership
counsel, Skadden, Arps, Slate, Meagher & Flom, the General Partners adopted a
resolution that states, among other things, if a Change of Control (as defined
below) occurs, the General Partners may distribute the Partnership's cash
balances not required for its ordinary course day-to-day operations. "Change
of Control" means any purchase or offer to purchase more than 10% of the Units
that is not approved in advance by the General Partners. In determining the
amount of the distribution, the General Partners may take into account all
material factors. In addition, the Partnership will not be obligated to make
any distribution to any partner and no partner will be entitled to receive any
distribution until the General Partners have declared the distribution and
established a record date and distribution date for the distribution. The
Partnership filed a Form 8-K disclosing this resolution on March 21, 1996.
2. Significant Accounting Policies
Basis of Accounting. The accompanying financial statements have been prepared
on the accrual basis of accounting in accordance with generally accepted
accounting principles. Revenues are recognized as earned and expenses are
recorded as obligations are incurred.
Aircraft and Depreciation. The aircraft were recorded at cost, which includes
acquisition costs. Through December 31, 1993, depreciation to an estimated
salvage value of 10% was computed using the straight-line method over an
estimated average economic life of twelve years for all aircraft owned by the
Partnership. Beginning in 1994, depreciation was computed using the
straight-line method over an estimated remaining economic life of two to six
years for all aircraft owned by the Partnership.
The highly competitive and weakened conditions in the aircraft leasing industry
have had a significant and negative impact on the residual value of the
Partnership's fleet of aircraft. As of December 31, 1993, it was the General
Partners' belief that the total value of the Partnership's fleet of aircraft
had declined substantially. The General Partners' estimated market values for
the aircraft, as of December 31, 1993, were based upon independent appraisals,
third-party publications, the General Partners' own experience and the unique
circumstances regarding the equipment and the Lessee. Accordingly, the General
Partners reduced the carrying value of the Partnership's fleet by $15,551,276
and, therefore, established a new cost basis of $28,843,000 at December 31,
1993.
Improvements to aircraft required to comply with regulatory requirements will
be capitalized when incurred and depreciated over the useful life of the
improvement.
Accounting for Impairment. In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("FAS 121"), which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. FAS 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. The Partnership
adopted FAS 121 in the fourth quarter of 1995. Based on current circumstances,
the adoption of FAS 121 had no impact on the financial statements.
Cash Equivalents. Cash equivalents consist of short-term highly liquid
investments with maturities of three months or less from the date of issuance.
The carrying amount approximates fair value because of the short maturity of
these instruments.
Restricted Cash. Restricted cash consists of funds the General Partner believes
will be expended by the Partnership to comply with regulatory and maintenance
requirements.
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.
Deferred Revenue. Some of the Partnership's operating leases require rental
payments to be paid in advance. Rental payments received in advance are
deferred and then recognized as income when earned.
Income Taxes. No provision for income taxes has been made in the financial
statements since such taxes are the responsibility of the individual partners
rather than that of 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 amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. Partnership Allocations
The Partnership Agreement ("Agreement") substantially provides for the
following:
Cash Distributions. Cash flow from operations, at the discretion of the General
Partners, will be distributed on a quarterly basis, 99% to the Limited Partners
and 1% to the General Partners. Cash flow is defined in the Partnership
Agreement as including cash receipts from operations and interest income
earned, less expenses incurred and paid in connection with the operation and
ownership of the aircraft. Distributable proceeds from sales of aircraft in
liquidation of the Partnership will be distributed in accordance with the
partners' capital accounts after all allocations of income and losses.
Allocation of Income and Losses. Generally, income and losses for any year are
allocated 99% to the Limited Partners and 1% to the General Partners. Gains on
sales of aircraft shall first be allocated to the General Partners until they
have been allocated an amount of gain equal to the lesser of their respective
deficit account balances or 1.01% of all capital contributions by Limited
Partners. Any additional gain recognized by the Partnership upon the sale of
aircraft shall be allocated 99% to the Limited Partners and 1% to the General
Partners.
Dissolution of Partnership. If, upon dissolution of the Partnership, the
General Partners have a negative Capital account, they shall contribute capital
equal to the lesser of their respective capital deficit account balances or
1.01% of all capital contributed by the Limited Partners.
4. Aircraft under Operating Leases
The Partnerships' aircraft leases are triple net operating leases, requiring
the lessees to pay substantially all expenses associated with the aircraft
during the term of the leases, except as described below:
Trans World Airlines, Inc. On January 15, 1988, the Partnership acquired three
Boeing 727-200 non-advanced aircraft for a total purchase price of $16,353,693.
These aircraft were subject to operating leases with Trans World Airlines, Inc.
("TWA"), the terms of which are described below. The lease provided for rent
of $55,000 per month commencing June 1, 1991 and continuing through July 31,
1993, for two aircraft and August 31, 1993 for the third aircraft. In August
1993, the General Partners and TWA agreed to amend the original leases. As a
result, TWA paid the Partnership rent of $40,000 per month per aircraft in
advance quarterly commencing September 1, 1993 and continuing through September
30, 1994, for two aircraft and October 31, 1994 for the third aircraft.
On September 30, 1994, TWA agreed to extend the lease on one of the aircraft to
April 30, 1995. Thereafter, TWA has leased the aircraft on a month-to-month
basis at $32,500 per month paid in advance. The leases for the two remaining
aircraft were extended on a short-term basis and expired on October 31, 1994
and December 19, 1994. The remaining two aircraft were returned to the
Partnership in the fourth quarter of 1994 and sold in 1995. (See Note 5)
Northwest Airlines, Inc. During 1988 the Partnership acquired three McDonnell
Douglas DC-9-30 aircraft for a total purchase price of $21,691,381. These
aircraft are subject to operating leases with Northwest Airlines, Inc.
("Northwest"). On October 28, 1992, the General Partners and Northwest agreed
to extend the lease agreements for the three aircraft from November 1, 1992
(two aircraft) and December 21, 1992 (for the third aircraft) to August and
September, 1993, and January, 1994, respectively. Under the amended lease
agreements, Northwest's monthly payments were reduced to $42,000 per plane.
Lease extensions were executed with Northwest in December 1993 for the
Partnership's three DC-9-30 aircraft. Under the lease extensions, which were
scheduled to expire in January 1995 for two aircraft and April 1995 for the
third, Northwest made monthly lease payments to the Partnership of $35,000 per
aircraft.
In October 1994, Northwest Airlines exercised its option to extend its current
lease agreements by one year. The new expiration dates were January 1996 for
two aircraft and April 1996 for the third aircraft. The monthly lease payments
remained at $35,000 per aircraft, paid in advance. In October 1995, Northwest
exercised its option to extend the current lease agreements for a term of one
year from the previous expiration dates, with the remaining terms of the lease
unchanged.
Delta Air Lines, Inc. On February 25, 1988, the Partnership acquired a Boeing
737-200 advanced aircraft for a total purchase price of $14,380,390. This
aircraft is subject to an operating lease with Delta Air Lines, Inc. ("Delta").
In September 1992, the General Partners and Delta agreed to amend the original
lease. The amendment provided for rent of $95,000 per month through the
expiration date in December 1994. In May 1994, Delta exercised its option to
extend the lease for a term of two years from the previous expiration date,
with the option to cancel the lease with seven months notice and the remaining
terms of the lease unchanged.
In November 1995 an agreement was reached with Delta to amend and extend the
current lease until September 1999 at a monthly lease rate of $80,000. While
this rate represents a decline from the prior lease rate of $95,000 per month,
it is in line with prevailing market rates.
Continental Airlines, Inc. On January 26, 1988, the Partnership acquired a
McDonnell Douglas MD-80 Series aircraft for a total purchase price of
$27,313,020. This aircraft was subject to an operating lease with Continental
Airlines, Inc. ("Continental"), the term of which expired on April 28, 1993.
The Partnership received monthly rent of $168,720 for the period January 1,
1993 through April 28, 1993. Subsequent to the expiration date of April 28,
1993 Continental returned the aircraft to the Partnership.
The original lease agreement with Continental provided that, upon the
expiration of the lease, the amounts remaining in the maintenance reserve funds
were to be retained by the Partnership. Therefore, $2,139,699 was recognized
as Other Income in the accompanying Statement of Operations during 1993, with
the balance of $750,000 distributed to Continental in accordance with the terms
of a new lease described below.
On February 9, 1994, The Partnership entered into a new lease agreement with
Continental. The agreement provides for Continental to lease the plane for a
term of four years, and pay $180,000 per month in advance effective March 15,
1994. In addition, the Partnership made a onetime payment of $750,000 from the
maintenance reserve funds in March 1994 to perform various maintenance work on
the plane. Also, the Partnership has agreed to provide up to $600,000 of
financing to Continental to perform modification work on the aircraft,
including advanced avionics, interior furnishings and exterior paint. The
modification financing is repayable over the life of the lease at an interest
rate of 8% per annum for advances made before February 1, 1996, and with
respect to advances made after February 1, 1996, a rate per annum equal to the
yield to maturity of United States Treasury Notes having a maturity closest to
the remaining term of the lease, plus 4.25 percent. On June 7, 1994, the
Partnership made its first advance to Continental in the amount of $302,525.
The fair value of the loan receivable from Continental as of December 31, 1995
is equal to the carrying value of the asset.
Revenues from each of the airlines as a percentage of the Partnership's total
rental revenues are as follows:
Percent of Rental Revenues
Airline 1995 1994 1993
TWA 7.9% 24.0% 35.2%
Northwest 25.6 23.4 29.3
Delta 22.7 21.0 22.3
Continental 43.8 31.6 13.2
The following is a schedule, by year, of future minimum rental income under the
leases as of December 31, 1995.
Year Amount
1996 $4,380,000
1997 3,319,500
1998 1,410,000
1999 720,000
Total $9,829,500
The above schedule of future minimum rental income is based on the existing
terms of the leases and does not include the rental income that may result from
the renewal of existing leases or the re-leasing of the aircraft, if any.
5. Sale of Aircraft
In June 1995, the General Partners sold aircraft N64321 formerly on lease with
TWA for net proceeds of $776,000. The aircraft had a carrying value of
$286,714 on the date of sale resulting in a gain on sale of $489,286. In
September 1995, the General Partners sold aircraft N74317 formerly on lease
with TWA for net proceeds of $757,570. The aircraft had a carrying value of
$163,840 on the date of sale resulting in a gain on sale of $593,730.
6. Distributions
Distributions paid or payable aggregated $4,585,942 (approximately $.94 per
unit), $4,862,301 (approximately $1.00 per unit) and $5,888,529 (approximately
$1.21 per unit) for the years ended December 31, 1995, 1994 and 1993,
respectively. As of December 31, 1995, the Partnership had declared a
distribution of $1,011,882, of which $1,001,763 (approximately $.21 per unit)
was paid to the Limited Partners and $10,119 was paid to the General Partners
on February 2, 1996.
7. Transactions with Affiliates
Cash and cash equivalents. Cash and cash equivalents reflected on the
Partnership's balance sheets at December 31, 1995 and 1994 were on deposit with
an affiliate of the General Partner.
Base Management Fee. The General Partners received a quarterly fee subordinated
to the Limited Partners receiving their Preferred Return (8% simple interest
per annum cumulative, but not compounded) in an amount generally 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 fee will be
reduced (but not below zero) for any resale fees or commissions payable to
third parties. During 1995, $47,430 was accrued based on 3% of the gross sale
proceeds totaling $1,581,000 from the sale of two Boeing 737-200s. 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 1994 or 1993.
The following is a summary of amounts earned by the General Partners and their
affiliates during the years ended December 31, 1995, 1994 and 1993.
Unpaid at
December 31, -------Earned----------
1995 1995 1994 1993
Base Management Fee $ 17,587 $ 71,326 $ 78,412 $ 74,999
Incentive Management
Fee 49,698 213,882 211,763 200,395
Re-lease Fee 42,525 172,462 189,598 112,980
Resale Fee 62,430 47,430 - 15,000
$172,240 $505,100 $479,773 $403,374
8. Reconciliation of Difference between Net Income (Loss) in the Financial
Statements (Accrual Basis - Generally Accepted Accounting Principles) and Net
Loss in the Partnership's Tax Return
1995 1994 1993
Net income (loss), as reported $ 608,971 $ (575,105) $(14,797,472)
Adjustments-
Write-down of Aircraft - - 15,551,276
Deferred revenue (7,500) (154,667) (258,720)
Prepaid Insurance - 22,074 (18,654)
Maintenance reserve fund - (750,000) (2,011,177)
Loss on sale of asset (1,493,144) - -
Depreciation differential
between the Modified
Accelerated Cost
Recovery System
and depreciation for
financial
reporting purposes 541,973 (1,663,457) (1,130,307)
Legal fees, net of amortization - (5,297) (5,528)
Total adjustments (958,671) (2,551,347) 12,126,890
Net loss, per the
Partnership's tax return $ (349,700) $(3,126,452) $ (2,670,582)
The net loss determined on the
income tax basis is allocated
to the partners as follows:
Limited partners
(4,837,505 units) $ (346,203) $(3,095,187) $ (2,643,876)
General partners (3,497) (31,265) (26,706)
$ (349,700) $(3,126,452) $ (2,670,582)
Taxable loss per
limited partner unit $(0.07) $(0.64) $(0.55)
As of December 31, 1995, the tax basis of total assets and total liabilities is
$19,049,775 and $1,220,604, respectively.
Report of Independent Public Accountants
To the Partners of
JetStream II, L.P.:
We have audited the accompanying balance sheets of JetStream II, L.P. (a
Delaware limited partnership) as of December 31, 1995 and 1994, and the related
statements of operations, partners' capital (deficit) and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of JetStream II, L.P. as of
December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 23, 1996
except for Note 1, as to which
the date is March 18, 1996
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 5,330,055
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<RECEIVABLES> 188,387
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<CURRENT-ASSETS> 5,518,442
<PP&E> 26,877,000
<DEPRECIATION> (8,937,504)
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<OTHER-SE> 22,036,571
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