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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) September 30, 1996
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Pegasus Aircraft Partners, L.P.
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(Exact Name of Registrant as Specified in Charter)
Delaware 0-17712 1099968
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(State or Other Jurisdiction (Commission (IRS Employer
Of Incorporation) File Number) Identification No.)
Four Embarcadero Center, Suite 3550, San Francisco, CA 94111
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (415) 434-3900
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N/A
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(Former Name or Former Address, if Changed Since Last Report)
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Item 5 Other Events
Pegasus Aircraft Partners, L.P.(the "Partnership") owns two Boeing 727-200
non-advanced aircraft, originally acquired on December 1988 for $6,308,000 per
aircraft. In February 1994 and April 1994, the Partnership entered into leases
with Kiwi International Air Lines Inc., ("Kiwi") each originally for a term of
approximately five years with rents payable monthly in advance at $55,000 per
aircraft. The leases were modified in 1995 and extended to December 31, 1999.
The leases also require Kiwi to pay maintenance reserves for airframe and
engines, which can be drawn down by Kiwi for specific maintenance procedures,
of $250 per flight hour. The aircraft were delivered in April and July 1994.
In connection with the first Kiwi lease, the Partnership also acquired an
additional aircraft engine, at a cost of $195,000, which is used as a spare by
Kiwi on a utilization basis at $105 per flight hour of use. The Partnership
invested an additional $3,108,000 for maintenance, aging aircraft modifications
and other Kiwi requested modifications prior to delivery, $580,000 of which was
funded by return condition settlement payments from the prior lessee. The
leases allow Kiwi to request that the aircraft be hushkitted by the Partnership
at a cost of approximately $1.9 million each to obtain Stage 3 noise abatement
status. If the Partnership were to hushkit an aircraft, the lease term is
reset to five years and the rent increases by approximately $40,000 per month.
If the Partnership determines that the huskitting is economically unfeasible
and elects to not do the work, Kiwi can terminate the lease. An affiliated
partnership and affiliates of the Managing General Partner also own aircraft
leased to Kiwi.
In June 1996, Kiwi agreed with the FAA to ground 25% of its fleet due to
certain pilot training handbook deficiencies. In August 1996, Kiwi and the FAA
resolved the deficiencies and Kiwi returned to full capacity. In addition to
the FAA grounding, Kiwi was also negatively impacted by the market reaction to
the ValuJet incident and as a result, did not meet its financial goals. In
July 1996, an outside institutional investor contributed $4,000,000 in return
for a convertible note due in March 1997, for up to 32% of Kiwi's common stock
and two seats on Kiwi's Board of Directors. The investor has options to invest
an additional $6,000,000 in convertible preferred stock which expires in March
1997. Existing shareholders (including directors and employees) were to be
given the opportunity to make additional investments.
Kiwi requested and was granted by the Partnership a deferral of its August 1996
rental and July 1996 maintenance payments. Kiwi was also unable to make its
September rental and August maintenance payments and was placed in default by
the Partnership
In late September, Kiwi proposed a restructuring of its obligations with
certain creditors, including the Partnership, which the Partnership was
reviewing. On September 30, 1996, Kiwi filed a voluntary petition for
reorganization under Chapter 11 of the Federal Bankruptcy Code ("Bankruptcy
Code") and has not made any subsequent payments. Generally, under Section 1110
of the Bankruptcy Code, Kiwi has sixty days from the filing to cure all
arrearages with respect to an aircraft lease or return the aircraft. The Kiwi
leases account for approximately 17% of the Partnership's rental revenue and
the aircraft
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had net book values aggregating approximately $4,200,000. The Partnership
currently holds maintenance deposits aggregating approximately $1,606,000,
which the Partnership believes will not be sufficient to complete work required
on the aircraft and the related engines to meet lease return conditions and
make the aircraft marketable. Kiwi indicated that it is going to reduce its
fleet in the short term, and it is likely that Kiwi will return one or both of
the Partnership's aircraft. Further, Kiwi told the Partnership that, absent
debtor in possession financing, it may cease operations. On Tuesday October
15,1996, Kiwi ceased scheduled flight operations while still exploring
financial alternatives. The court granted the Partnership the right to
retrieve its aircraft for safekeeping. It is likely that the Partnership will
incur significant costs to re-lease the aircraft. Further, there could be a
significant delay before the aircraft are redeployed. The long term impact of
the Kiwi bankruptcy on the Partnership's ability to realize upon the value of
its aircraft is not determinable at this time.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Pegasus Aircraft Partners, L.P.(Registrant)
By: Air Transport Leasing, Inc.
Administrative General Partner
Dated: October 16, 1996 By: /s/ Joseph P. Ciavarella
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Joseph P. Ciavarella
Vice President, Treasurer and
Chief Financial and Accounting Officer
