<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission file number 0-17712
Pegasus Aircraft Partners, L.P.
(Exact name of registrant as specified in its charter)
Delaware 84-1099968
(State of organization) (IRS Employer
Identification No.)
Four Embarcadero Center 35th Floor
San Francisco, California 94111
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (415) 434-3900
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No | | .
<PAGE> 2
Pegasus Aircraft Partners, L.P.
Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 1996
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) 2
Balance Sheets - September 30, 1996
and December 31, 1995 2
Statements of Income for the three months
ended September 30, 1996 and 1995 3
Statements of Income for the nine months
ended September 30, 1996 and 1995 4
Statements of Partners' Equity for the nine
months ended September 30, 1996 and 1995 5
Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 14
Part II OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 20
</TABLE>
1
<PAGE> 3
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
PEGASUS AIRCRAFT PARTNERS, L.P.
BALANCE SHEETS -- SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(unaudited)
ASSETS
<TABLE>
<CAPTION>
1996 1995
-------- --------
(in thousands
except unit data)
<S> <C> <C>
Cash and cash equivalents $ 2,798 $ 4,081
Restricted cash 1,606 1,135
Rent and other receivables, net (Note 7) 613 1,534
Aircraft, net (Notes 2, 6, 7 and 8) 27,437 29,814
Prepaid expenses 200 47
-------- --------
Total Assets $ 32,654 $ 36,611
======== ========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Notes payable (Note 4) $ 1,323 $ 1,625
Accounts payable and accrued expenses 73 98
Payable to affiliates (Note 3) 386 628
Deferred rental income 203 218
Distributions payable to partners 1,640 1,616
Maintenance reserve payable 1,954 1,235
Security deposit (Note 8) 360 --
Accrued interest payable 10 15
-------- --------
Total Liabilities 5,949 5,435
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 4, 5, 6 and 7)
PARTNERS' EQUITY:
General Partners (529) (485)
Limited Partners (4,000,005 units outstanding) 27,234 31,661
-------- --------
Total Partners' Equity 26,705 31,176
-------- --------
Total Liabilities and Partners' Equity $ 32,654 $ 36,611
======== ========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
2
<PAGE> 4
PEGASUS AIRCRAFT PARTNERS, L.P.
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(in thousands, except unit
data and per unit amounts)
<S> <C> <C>
REVENUE:
Rentals from operating lease $ 1,893 $ 1,443
Interest 46 70
Gain on lease settlement (Note 6) -- 233
---------- ----------
1,939 1,746
---------- ----------
EXPENSES:
Provision for bad debts (Note 7) 240 --
Depreciation and amortization 1,148 946
Management and re-lease fees (Note 3) 133 342
General and administrative (Note 3) 44 44
Interest expense 32 49
Direct lease 24 28
---------- ----------
1,621 1,409
---------- ----------
NET INCOME $ 318 $ 337
========== ==========
NET INCOME ALLOCATED:
To the General Partners $ 3 $ 3
To the Limited Partners 315 334
---------- ----------
$ 318 $ 337
========== ==========
NET INCOME PER LIMITED PARTNERSHIP UNIT $ .08 $ .08
========== ==========
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 4,000,005 4,000,005
========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
3
<PAGE> 5
PEGASUS AIRCRAFT PARTNERS, L.P.
STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(in thousands, except unit
data and per unit amounts)
<S> <C> <C>
REVENUE:
Rentals from operating leases $ 4,791 $ 4,565
Interest 184 208
Gain on lease settlement (Note 6) -- 233
---------- ----------
4,975 5,006
---------- ----------
EXPENSES:
Provision for bad debts (Note 7) 240 --
Depreciation and amortization 2,988 3,180
Management and re-lease fees (Note 3) 325 580
General and administrative (Note 3) 150 149
Interest expense 111 154
Direct lease 115 83
Aircraft maintenance (Note 8) 669 --
---------- ----------
4,598 4,146
---------- ----------
NET INCOME $ 377 $ 860
========== ==========
NET INCOME ALLOCATED:
To the General Partners $ 4 $ 9
To the Limited Partners 373 851
---------- ----------
$ 377 $ 860
========== ==========
NET INCOME PER LIMITED PARTNERSHIP UNIT $ .09 $ .21
========== ==========
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 4,000,005 4,000,005
========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
4
<PAGE> 6
PEGASUS AIRCRAFT PARTNERS, L.P.
STATEMENTS OF PARTNERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Balance, January 1, 1996 $ (485) $ 31,661 $ 31,176
Net income 4 373 377
Distributions declared to partners (48) (4,800) (4,848)
-------- -------- --------
Balance, September 30, 1996 $ (529) $ 27,234 $ 26,705
======== ======== ========
Balance, January 1, 1995 $ (420) $ 38,190 $ 37,770
Net income 9 851 860
Distributions declared to partners (59) (5,800) (5,859)
-------- -------- --------
Balance, September 30, 1995 $ (470) $ 33,241 $ 32,771
======== ======== ========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
5
<PAGE> 7
PEGASUS AIRCRAFT PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
------- -------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 377 $ 860
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,988 3,180
Provisions for bad debts 240 --
Gain on lease settlement -- (233)
Change in assets and liabilities:
Rent and other receivables 458 (114)
Prepaid expenses (153) (24)
Accounts payable and accrued expenses (25) 51
Payable to affiliates (242) 335
Accrued interest payable (5) (1)
Deferred rental income (15) --
Unrestricted maintenance reserves payable 248 --
------- -------
Net cash provided by operating activities 3,871 4,054
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized aircraft improvements (611) (31)
Repayment of advances by lessees 223 216
------- -------
Net cash (used in) provided by investing activities (388) 185
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Transfers from restricted cash, net -- 362
Security deposit 360 --
Repayment of notes payable (302) (278)
Cash distributions paid to partners (4,824) (4,041)
------- -------
Net cash used in financing activities (4,766) (3,957)
------- -------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (1,283) 282
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 4,081 1,763
------- -------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,798 $ 2,045
======= =======
Supplementary schedule of cash flow information:
Interest paid $ 116 $ 155
======= =======
</TABLE>
The accompanying notes are an integral part
of these financial statements.
6
<PAGE> 8
PEGASUS AIRCRAFT PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(unaudited)
1. GENERAL
The accompanying unaudited interim financial statements include all
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of the General Partners, necessary to fairly present the financial
position of the Partnership as of September 30, 1996 and the results of its
operations, changes in partners' equity, and cash flows for the nine months then
ended.
These financial statements should be read in conjunction with the
Significant Accounting Policies and other Notes to Financial Statements included
in the Partnership's annual audited financial statements for the year ended
December 31, 1995.
2. AIRCRAFT UNDER OPERATING LEASES
The Partnership's net investment in aircraft as of September 30, 1996 and
December 31, 1995 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Aircraft on operating leases $ 75,057 $ 56,095
Less: Accumulated depreciation (38,600) (26,995)
Reserve for decline in market
value of aircraft (5,169) (5,169)
Provision for maintenance cost (178) (178)
Net lease settlement proceeds
accounted for as cost recovery (3,673) --
-------- --------
$ 27,437 $ 23,753
-------- --------
Aircraft held for lease(A) $ -- $ 18,351
Less: Accumulated depreciation -- (8,617)
Net lease settlement proceeds
accounted for as cost recovery -- (3,673)
-------- --------
-- 6,061
-------- --------
$ 27,437 $ 29,814
======== ========
</TABLE>
(A) Represents 747 aircraft. In July 1996, the Partnership delivered the
aircraft to TWA subject to a lease for a term of approximately 48 months at a
rental rate of $180,000 per month.
7
<PAGE> 9
3. TRANSACTIONS WITH AFFILIATES
Management Fees The General Partners are entitled to receive a quarterly
subordinated base management fee in an amount generally equal to 1.5% of gross
aircraft rentals, net of re-lease fees paid. Of this amount, 1.0% is payable to
the Managing General Partner and 0.5% is payable to the Administrative General
Partner. The General Partners earned $25,000 and $68,000 of base management fees
during the quarter and nine months ended September 30, 1996, respectively.
The General Partners also are entitled to receive a quarterly subordinated
incentive management fee in an amount equal to 4.5% of quarterly cash flow and
sales proceeds (net of resale fees). Of this amount, 2.5% is payable to the
Managing General Partner and 2.0% is payable to the Administrative General
Partner. The General Partners earned $68,000 and $155,000 of incentive
management fees during the quarter and nine months ended September 30, 1996,
respectively.
Re-lease Fee The General Partners are entitled to receive a quarterly
subordinated fee 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 the Managing
General Partner and 1.0% is payable to the Administrative General Partner. The
General Partners earned $40,000 and $102,000 of re-lease fees during the quarter
and nine months ended September 30, 1996, respectively.
All of the above fees are subordinated to the limited partners receiving an
8% annual non-cumulative return based upon original contributed capital. The
Partnership did not record any fees related to the Kiwi rent for which a
provision for bad debts was provided at September 30, 1996.
Accountable General and Administrative Expenses The General Partners are
entitled to reimbursement of certain expenses paid on behalf of the Partnership
which are incurred in connection with the administration and management of the
Partnership. Such reimbursable expenses amounted to $12,000 and $37,000 during
the quarter and nine months ended September 30, 1996, respectively, all of which
were payable to the Administrative General Partner.
Other During the nine months ended September 30, 1996, the Partnership
purchased certain equipment and parts relating to the 747 aircraft from a
company owned by three directors of the Managing General Partner in the amount
of $253,000. In addition, the Partnership paid $6,000 to a licensed maintenance
provider in which affiliates of the Managing General Partner have an equity
interest.
During 1996 and 1995, the Administrative General Partner deferred the
receipt of management fees and re-lease fees earned beginning January 1, 1995.
As part of the proposed class action settlement (See Note 5, "Litigation"),
these management and re-lease fees as well as all future fees and cash
distributions earned by the Administrative General Partner have been assigned by
an affiliate to an escrow account for the benefit of class members. In September
8
<PAGE> 10
1996, the Partnership paid $273,000 to the Administrative General Partner
pursuant to such assignment.
4. NOTES PAYABLE
During April 1994, the Partnership established a loan facility with an
unaffiliated, third-party lender ("Lender"), which was collateralized by the
Partnership's one-half interest in the McDonnell Douglas MD-81 aircraft leased
to USAir, Inc. ("USAir") and the Partnership's Boeing 747-100 aircraft then
under lease to Continental. Under the terms of the loan agreement, the
Partnership was entitled to borrow up to $4,000,000, the commitment for which
expired on May 1, 1995. The loan agreement required a commitment fee on the
unborrowed funds of .5% per annum payable quarterly. There are no compensating
balance requirements. The Partnership had an option for a fixed (market interest
rate on the US Treasury bond with a similar maturity plus 2.75%) or floating
(the Lender's prime rate plus 1.5%) rate of interest.
In July 1995, the Partnership and the Lender completed an extension of the
commitment. Under the new agreement, the aggregate commitment will remain at
$4,000,000, the Partnership's ability to borrow under the facility was extended
until May 1, 1997 and the floating interest rate charged under the facility was
reduced to the Lender's prime rate plus .5%. The Lender released the Boeing
747-100 aircraft as collateral under the loan and received as substitute
collateral, a perfected security interest in the Partnership's MD-82 aircraft
leased to TWA. Through September 30, 1996, the Partnership had borrowed an
aggregate of $2,150,000 pursuant to the loan agreement, of which $1,323,000 and
$1,625,000 were outstanding at September 30, 1996 and December 31, 1995,
respectively.
5. LITIGATION
In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated sale and
sponsorship of various limited partnership investments, including those offered
by the Partnership. The lawsuits were brought against PaineWebber Incorporated
and Paine Webber Group, Inc. (together, "PaineWebber"), among others, by
allegedly dissatisfied partnership investors. In March 1995, after the actions
were consolidated under the title In re: PaineWebber Limited Partnerships
Litigation, the plaintiffs amended their complaint to assert claims against a
variety of other defendants, including Air Transport Leasing, Inc., an affiliate
of PaineWebber and the Administrative General Partner in the Partnership
("Administrative General Partner").
The amended complaint in the New York Limited Partnership Actions alleged,
among other things, that, in connection with the sale of interests in the
Partnership, PaineWebber and the Administrative General Partner (1) failed to
provide adequate disclosure of the risks involved with each partnership; (2)
made false and misleading representations about the safety of the investments
and the partnership's anticipated performance; and (3) marketed the partnership
to investors for whom such investments were not suitable. The plaintiffs also
alleged that following
9
<PAGE> 11
the sale of the partnership investments PaineWebber and the Administrative
General Partner misrepresented financial information about the partnership's
value and performance. The amended complaint alleged that PaineWebber and the
Administrative General Partner violated the Racketeer Influenced and Corrupt
Organizations Act ("RICO") and the federal securities laws. The plaintiffs
sought unspecified damages, including reimbursement for all sums invested by
them in the partnerships, as well as disgorgement of all fees and other income
derived by PaineWebber from the limited partnerships. In addition, the
plaintiffs also sought treble damages under RICO.
On May 30, 1995, the US District Court certified class action treatment of
the plaintiffs' claims in the New York Limited Partnership Actions.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the class action outlining the terms under which the parties have
agreed to settle the case. Pursuant to that memorandum of understanding,
PaineWebber irrevocably deposited $125 million into an escrow fund under the
supervision of the United States District Court for the Southern District of New
York ("District Court") to be used to resolve the litigation. On July 17, 1996,
the District Court granted preliminary approval of the proposed settlement of
the class action litigation. As part of the class action settlement, PaineWebber
agreed to pay $125 million and additional consideration to class members. A
final hearing on the proposed settlement is scheduled to continue in November
1996.
In April 1995, two investors in the Pegasus limited partnerships filed a
purported class action in the Circuit Court of the State of Illinois for Cook
County entitled Robert M. Jacobson, et al. v. PaineWebber, Inc., et al., making
allegations substantially similar to those in the New York Limited Partnership
Actions, but limited in subject matter to the sale of the Pegasus partnerships,
and without a RICO claim. The plaintiffs in the Jacobson case simultaneously
remained as participants in the New York Limited Partnership Actions, and are
challenging the proposed settlement of these cases. The Illinois case has been
dismissed.
Three actions were filed in the District Court for Brazoria County, Texas,
relating to the sale and sponsorship of interests in the Partnership and an
affiliated partnership. The complaints make state law claims, specifically,
common law fraud, conspiracy, violations of section 27.01 of the Texas Business
and Commerce Code, fraud in the inducement, negligent misrepresentation,
negligence, breach of fiduciary duty, violations of the Texas Securities Act,
and violations of the Texas Deceptive Trade Practices Act. The plaintiffs seek
unspecified damages, including attorneys' fees, reimbursement for all sums
invested by them in the partnerships, exemplary damages, and treble damages
under the Texas Deceptive Trade Practices Act. All three actions have been
removed to federal court and two have been transferred to the United States
District Court for the Southern District of New York and consolidated under the
title, Mallia vs. PaineWebber, Inc. The third action has been dismissed with the
consent of the parties on the grounds that it is duplicative of the two actions
now before the federal court in New York.
In February 1996, approximately 230 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiff's purchases of various limited partnership interests. The complaint
alleges, among other things, that PaineWebber and its related entities committed
fraud and misrepresentation and breached fiduciary duties allegedly owed to the
10
<PAGE> 12
plaintiffs by selling or promoting limited partnership investments that were
unsuitable for the plaintiffs and by overstating the benefits, understating the
risks and failing to state material facts concerning the investments. The
complaint seeks compensatory damages of $15 million plus punitive damages. In
September 1996, the California Superior Court dismissed many of the plaintiffs'
claims as barred by the applicable statutes of limitation.
In June 1996, counsel for the Abbate plaintiffs instituted two additional
actions containing allegations nearly identical to those set forth in Abbate.
Bandrowski v. PaineWebber Incorporated, et al, was filed in California Superior
Court and Barstad v. PaineWebber Incorporated, et al, was filed in Arizona
Superior Court. Collectively, the two additional actions are brought by
approximately 50 plaintiffs and seek compensatory damages of approximately $4
million plus punitive damages.
Under certain limited circumstances, pursuant to the Partnership Agreement
and other contractual obligations, PaineWebber and its affiliates, including the
Administrative General Partner could be entitled to indemnification from the
Partnership for expenses and liabilities in connection with the above
litigation. The General Partners are unable to determine the effect, if
any, of such action on the Partnership's financial statements, taken as a whole.
6. AIRCRAFT - LEASES
Continental Airlines Leases During December 1988, the Partnership acquired
a Boeing 727-200 advanced aircraft for a total purchase price of $8,025,000. The
aircraft was originally subject to an operating lease with Continental Airlines,
Inc. ("Continental"), the term of which was scheduled to expire on October 31,
1996. Rental payments are payable monthly, in advance at the rate of $81,000.
Continental and the Partnership have reached an agreement in principle to
extend the lease for a term of approximately 18 months at a lease rate of
$75,000 per month. The agreement in principle is subject to the completion of
documentation and certain terms. Continental continues to use the aircraft and
made the November 1996 rental payment.
During December 1988, the Partnership acquired a Boeing 747-100 aircraft
for a total purchase price of $17,847,000. The aircraft was originally subject
to an operating lease with Continental, the term of which was scheduled to
expire on April 30, 1996 with rental payable monthly, in advance, at the rate of
$269,000.
In January 1995, Continental announced that it was grounding its Airbus
Industrie manufactured aircraft and taking certain Boeing 747 aircraft out of
service, including the Boeing 747 Aircraft owned by the Partnership. Continental
discontinued utilizing the Aircraft, did not make any rental payments after
January 1995 and returned the Aircraft to the Partnership. During the quarter
ended September 30, 1995 the Partnership and Continental completed the
negotiation of a lease settlement agreement ("Lease Settlement"). Under the
terms of the Lease Settlement, Continental agreed to pay the Partnership the
amount otherwise due under the Lease as rent for the period February 1995 to
August 1995 plus a discounted amount representing the amount of rent that would
have been due under the Lease for the period September 1, 1995 to April 30,
1996, the scheduled expiration date of the Lease. Continental returned the
Aircraft and engines in
11
<PAGE> 13
the return condition required by the Lease. On October 16, 1995 the Partnership
received the Lease Settlement proceeds totaling $3,906,491.
A substantial portion of the proceeds were accounted for under the cost
recovery method reducing the Partnership's net carrying value of the aircraft.
The remaining gain on the lease settlement was offset by the related management
fees accrued and thus no net gain or loss was recognized on the settlement. See
Note 8, "Aircraft Remarket," for a further description of the 747-100 aircraft
which is currently leased to TWA.
Continental filed for Chapter 11 bankruptcy protection on December 3, 1990
and had stopped making lease payments. The Partnership entered into various
lease modifications and financing arrangements with Continental as a result of
the bankruptcy. At September 30, 1996, the Partnership had advances remaining to
Continental aggregating $82,000 with respect to aircraft modifications, which
were being repaid monthly with interest.
Trans World Airlines Lease During February 1989, the Partnership acquired
a McDonnell Douglas MD-82 aircraft for a total purchase price of $21,017,000.
The aircraft is subject to an operating lease with Trans World Airlines, Inc.
("TWA"). The lease which was originally scheduled to expire on April 23, 1993
was modified and under the terms of the lease amendment was extended until
October 1, 1998 with rentals payable monthly, in advance, at the rate of
$185,000 per month.
Pursuant to the lease amendment, the Partnership reimbursed TWA for
$225,000 of capital improvements and advanced $750,000 to TWA to finance certain
major maintenance procedures. TWA is repaying the $750,000 to the Partnership
over the remaining lease term, in equal monthly installments, with interest at a
fixed rate of 9.68%. At September 30, 1996, the balance of the receivable was
$322,000 ($428,000 at December 31, 1995). All 1996 payments have been made by
TWA when due.
In mid-October 1994 because of operating and financial problems, TWA
announced that it would seek a global restructuring of its capital by offering
common stock for its debt securities, preferred stock obligations and lease
deferrals negotiated with aircraft lessors such as the Partnership ("Exchange
Offer"). TWA and the Partnership agreed to a deferral of 50% of the original
rent scheduled for November 1994 and 75% of the original rent scheduled from
December 1994 to April 1995 with originally scheduled payments resuming in May
1995. Additionally, TWA and the Partnership reached an agreement to extend the
lease of the MD-82 aircraft by six years beyond the then scheduled expiration
date to October 1, 2004 at the current lease rate of $185,000 per month. All
rents deferred during the November 1994 to April 1995 period are scheduled to be
repaid with interest at 12% from the date of the deferral over an 18 month
period commencing May 1, 1995. On June 30, 1995, TWA filed its prepackaged
reorganization plan under Chapter 11 of the US Bankruptcy Code. On August 23,
1995, the reorganization plan, which included the foregoing lease modifications,
was confirmed by the Bankruptcy Court, and TWA emerged from bankruptcy. TWA has
made all rental payments, advance repayments and payments of deferred rent when
due. However, there can be no assurance that TWA will be able to meet its
obligations in the future. At September 30, 1996 and December 31, 1995, the
Partnership had $47,000 and $465,000, respectively, of deferred rent
12
<PAGE> 14
receivables relating to the TWA lease which were included in rents and other
receivables on the balance sheet.
In July, the Partnership delivered its 747-100 aircraft to TWA subject to
lease with a term of approximately four years. (See Note 8, "Aircraft
Remarket").
USAir Lease During March 1989, the Partnership acquired one-half of the
beneficial interest in a trust ("Trust") which is the owner/lessor of a
McDonnell Douglas MD-81 aircraft ("USAir Aircraft") for a total purchase price
of $9,999,000. The remaining one-half interest in the trust is owned by Pegasus
Aircraft Partners II, L.P., an affiliated partnership. The aircraft is subject
to an operating lease with USAir, Inc. ("USAir") the term of which ends on June
1, 1998. The lease may be terminated subject to the lessee's guarantee that the
partnership will receive contractually defined minimum termination values upon
remarketing of the aircraft. Rental payments are payable quarterly, in arrears,
at a rate of $304,000 (for the Partnership's one-half interest in the aircraft).
The lease provided for one three-year renewal option, at the same quarterly
rental rate. If the lease is not renewed for the first renewal period, the
lessee must make a termination payment of $1,113,000 to the Partnership. The
lessee also has three additional one-year renewal options at fair market rental
rates. The lessee may elect to purchase at it fair market value at the end of
any renewal term. The USAir Aircraft was purchased subject to a tax benefit
transfer lease ("TBT Lease") which provided for the transfer of certain tax
benefits to a tax lessor. The Trust as owner and tax lessor under the TBT Lease,
has agreed to indemnify the tax lessor for the loss of the tax benefits in
certain circumstances and posted a letter of credit to secure the obligation
under such indemnification. Under the operating lease, USAir has assumed all
obligations, liabilities and indemnities of the Trust to the tax lessor and has
indemnified the Trust for its obligations to the tax lessor except those arising
from breaches by the Trust of convenants under the operating lease.
7. KIWI BANKRUPTCY
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, of $250 per flight hour,
which can be drawn down by Kiwi for specific maintenance procedures. 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
13
<PAGE> 15
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 institutional investor has options to
invest an additional $6,000,000 in convertible preferred stock which expire in
March 1997. Existing shareholders (including directors and employees) were 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 and affiliates as described above,
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 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 announced 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. Kiwi has filed a motion to reject
both leases which will be heard on November 15, 1996. It is likely that the
Partnership will incur significant costs to re-lease the aircraft. Further,
while the Partnership has commenced remarketing activities, there could be a
significant delay before the aircraft are redeployed. The Partnership provided
an allowance for bad debts in the amount of $240,000 relating to rentals due
from Kiwi as of the bankruptcy date. 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.
8. AIRCRAFT REMARKET
In April 1996, the Partnership entered into an agreement in principle with
TWA for the lease of the 747 aircraft for a term of approximately 48 months at a
lease rate of $180,000 per month. The Partnership commenced a scheduled
maintenance check on the aircraft to prepare the aircraft for delivery. The
Partnership incurred costs of $1,280,000 in connection with the
14
<PAGE> 16
redelivery integration and maintenance of the 747 aircraft, of which $669,000
represented maintenance expense and $611,000 were capitalized expenditures. The
aircraft was delivered to TWA on July 12, 1996. The Partnership received a
security deposit of $360,000 from TWA with respect to the lease.
15
<PAGE> 17
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Partnership owns and manages a diversified portfolio of leased
commercial aircraft and makes quarterly distributions to the partners of net
cash flow generated by operations. In certain situations, the Partnership may
retain cash flow from operations to finance authorized capital expenditures.
At September 30, 1996, the Partnership's unrestricted cash and cash
equivalents (including the security deposit of $360,000) exceeded declared but
unpaid distributions to partners by $1,158,000. At December 31, 1995, the
Partnership's unrestricted cash and cash equivalents exceeded declared, but
unpaid, distributions to the partners by $2,456,000. The decrease in liquidity
was primarily attributable to the expenditure of approximately $1.3 million
relating to the remarket of the 747 aircraft to TWA.
Rent and other receivables net decreased by $921,000 from $1,534,000 at
December 31, 1995 to $613,000 at September 30, 1996. This decrease is primarily
the result of the continued repayments of advances and deferrals by Continental,
TWA and Kiwi. However, the Partnership's collections were impacted by the Kiwi
bankruptcy and the Partnership provided an allowance for bad debts totaling
$220,000 (2 months aggregate rent) with respect to the Kiwi aircraft and $20,000
with respect to the spare engine (see Note 7 "Kiwi Bankruptcy").
Prepaid expenses increased by $153,000 from $47,000 at December 31, 1995 to
$200,000 at September 30, 1996. The increase represents the deferred charge
reflecting the difference between the estimated cost required to refurbish the
spare engine and the maintenance reserves set aside.
Deferred rental income decreased $15,000 from $218,000 at December 31, 1995
to $203,000 at September 30, 1996 due to the recognition of income during 1996
of an amount received in December 1995, partially offset by the collection of
rent in advance during the quarter ended September 30, 1996.
Payable to affiliates decreased by $242,000, from $628,000 at December 31,
1995 to $386,000 at September 30, 1996. The decrease was attributable primarily
to the payment to the Administrative General Partner, during the quarter ended
September 30, 1996, of amounts previously deferred.
During the three months ended September 30, 1996 the Partnership paid cash
distributions pertaining to the second quarter. The quarterly distribution
represented an annualized rate equal to 8% of contributed capital ($.40 per
Unit).
The amount of each distribution will be determined on a quarterly basis
after an evaluation of the Partnership's operating results and its current and
expected financial position. The
16
<PAGE> 18
distribution for the third quarter of 1996 was paid on October 25, 1996 at an
annualized rate of 8% of contributed capital ($.40 per Unit).
Distributions may be characterized for tax, accounting and economic
purposes as a return of capital, a return on capital, or both. The portion of
each cash distribution by a partnership which exceeds its net income for the
fiscal period may be deemed a return of capital. Based on the amount of net
income reported by the Partnership for accounting purposes 80% of the cash
distributions declared for the quarter ended September 30, 1996 (92% for the
nine months then ended), constituted a return of capital. Also, based on the
amount of net income reported by the Partnership for accounting purposes,
approximately 70% of the cash distributions paid to the partners from inception
of the Partnership through September 30, 1996 constituted a return of capital.
However, the total actual return on capital over the Partnership's life can only
be determined at the termination of the Partnership after all cash flows,
including proceeds from the sale of the aircraft, have been realized.
In April 1994, the Partnership established a loan facility with a third
party lender which expired in May 1995. In July 1995, the Partnership and the
Lender completed an extension of the commitment. Under the new agreement, the
aggregate commitment remained at $4,000,000, the Partnership's ability to borrow
under the facility was extended until May 1, 1997 and the floating interest rate
charged under the facility was reduced to the Lender's prime rate plus .5%. The
Lender released the Boeing 747-100 aircraft as collateral under the loan and
received a perfected security interest in the Partnership's MD-82 aircraft
leased to TWA. Through December 31, 1995, the Partnership had borrowed an
aggregate of $2,150,000 pursuant to the loan agreement, of which $1,323,000 and
$1,625,000 were outstanding at September 30, 1996 and December 31, 1995,
respectively. In connection with the extension of the loan commitment the Lender
released its interest in a cash collateral account established to secure the
Partnership's obligation under the letter of credit agreement relating to the
TBT lease.
The Partnership may require additional financing to fund future maintenance
work on the aircraft, hushkitting the aircraft to comply with Stage 3 aircraft
noise regulation, or other capital improvements such as cargo conversion. The
Partnership is permitted to borrow up to 35% of the original offering proceeds
for improvements, enhancement or maintenance of aircraft. Any such borrowings
will only be made if the General Partners believe such borrowings will be in the
best interests of the Partnership and will enhance or protect portfolio value.
However, there can be no assurance that the Partnership would be able to obtain
any additional borrowings, if required.
During 1995, TWA completed its financial restructuring and has made all
1996 payments due. The Partnership settled the early termination of the
Continental 747 lease in 1995 and accepted redelivery of the aircraft. The
Partnership delivered the aircraft to TWA in July 1996 for a term of 48 months
at a lease rate of $180,000 per month. The Partnership incurred scheduled
maintenance and integration costs, which aggregated approximately $1,300,000 to
complete the remarket of the 747-100 aircraft to TWA. The Partnership financed
such costs through its cash reserves. The Partnership has reached an agreement
in principle with Continental to extend the lease of the 727 aircraft,
originally scheduled to expire in October 1996, for a term of eighteen
17
<PAGE> 19
months at 93% of its original lease rate ($75,000 per month). The agreement in
principle is subject to, amongst other things, final documentation.
Additionally, during 1996, Kiwi continued to have liquidity and capital
concerns. 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 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. The Partnership would fund any
shortfall, from operations or its borrowing facility. 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 announced 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. It is likely that the Partnership will incur
significant costs to re-lease the aircraft. Kiwi has filed a motion to request
both leases which will be heard on November 15, 1996. Further, there could be a
significant delay before the aircraft are redeployed. Without the Kiwi leases,
cash flow is less than current distribution levels. The Partnership may utilize
cash reserves generated in prior periods to subsidize cash distributions. 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. The General
Partners will determine the amount of future cash distributions after assessing
the Partnership's operating results, its obligations and other cash
requirements.
Litigation
See Footnote Item 1, "Legal Proceedings" for a complete discussion of certain
class action lawsuits and related settlement.
RESULTS OF OPERATIONS
The Partnership's net income was $318,000 and $377,000 for the quarter and
nine months ended September 30, 1996 ("1996 Quarter" and "1996 Period",
respectively) as compared to $337,000 and $860,000 for the quarter and nine
months ended September 30, 1995 (1995 Quarter and 1995 Period, respectively).
The decrease in the Partnership's net income in the 1996 Period as compared
to the 1995 Period resulted primarily from the maintenance expense incurred in
connection with the delivery of the 747-100 aircraft to TWA and the provision
for bad debts provided in the 1996 Quarter with respect to the Kiwi receivables
offset by the amount that rents generated by the 747 remarket in July 1996
exceeded the rents recognized in the 1995 Period (one month) relating to the 747
prior to Continental returning it.
18
<PAGE> 20
Rental revenue increased by $450,000, and $226,000, or 31% and 5%, for
the 1996 Quarter and 1996 Period respectively as compared to the corresponding
periods in the prior year. The increase in the 1996 Quarter is attributable to
the rental income recognized with respect to the lease of the 747 aircraft
remarketed to TWA, which was delivered in July 1996; the increase in the 1996
Period as compared to the 1995 Period was smaller due to the fact that one month
of rental income was recognized in the 1995 Period with respect to the 747
aircraft prior to its return by Continental, partially offset by the rents
generated by the spare Kiwi engine in the 1996 Period as compared to the 1995
Period.
Interest income for the 1996 Quarter and 1996 Period decreased by $24,000
and $24,000 or 34% and 12% as compared to the 1995 Quarter and 1995 Period. This
decrease was primarily attributable to the continued repayment of advances and
deferrals pursuant to various repayment schedules reducing the balances on which
interest income is earned.
Depreciation and amortization increased $202,000 but decreased by
($192,000), or 21% and (6%), for the 1996 Quarter and 1996 Period, respectively,
in comparison to the 1995 Quarter and 1995 Period. The increase in the 1996
Quarter was attributable to the depreciation associated with the 747 aircraft
which was placed in service in July 1996 and which was off lease in the 1995
Quarter. The increase for the 1996 Quarter was more than offset for the 1996
Period as the result of provisions for decline in market value of aircraft
provided at December 31, 1995 which reduced depreciable bases in 1996.
Management and re-lease fees payable to the General Partners for the 1996
Quarter decreased $209,000 and $255,000, or 58% and 44%, for the 1996 Quarter
and 1996 Period, respectively, in comparison to the 1995 Quarter and 1995
Period. The reason for the decrease wasthe recognition in the 1995 Quarter of
the management fees associated with the Continental Settlement, which
aggregated $233,000. The decrease was partially offset in the 1996 Quarter, by
the management and re-lease fees associated with 747 aircraft remarketed to TWA
in July 1996.The maintenance expense incurred in connection with remarket of
747 aircraft in the 1996 was an additional factor in the decrease in management
fees in the 1996 Period as compared to the 1995 Period.
General and administrative expenses were similar in the 1996 Quarter and
1996 Period as compared to the 1995 Quarter and 1995 Period which was consistent
with the Partnership's operations.
Interest expense decreased by $17,000 and $43,000 or 35% and 28% in the
1996 Quarter and 1996 Period, respectively, as compared to the 1995 Quarter and
1995 Period, due principally to the continued repayment of principal which
reduced the outstanding balances.
Direct lease expenses decreased by $4,000 but increased by $32,000 or (14%)
and 39% in the 1996 Quarter and 1996 Period, respectively, as compared to the
1995 Quarter and 1995 Period, due to insurance premiums as well as aircraft
storage costs relating to the 747 aircraft while the aircraft was off lease.
19
<PAGE> 21
Aircraft maintenance expense of $669,000 was incurred in the 1996 Period,
which reflected the work completed with respect to a maintenance check performed
on the 747 aircraft prior to the delivery to TWA in July 1996. No such amount
was incurred in the 1995 Quarter or 1995 Period.
20
<PAGE> 22
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated sale and
sponsorship of various limited partnership investments, including those offered
by the Partnership. The lawsuits were brought against PaineWebber Incorporated
and Paine Webber Group, Inc. (together, "PaineWebber"), among others, by
allegedly dissatisfied partnership investors. In March 1995, after the actions
were consolidated under the title In re: PaineWebber Limited Partnerships
Litigation, the plaintiffs amended their complaint to assert claims against a
variety of other defendants, including Air Transport Leasing, Inc., an affiliate
of PaineWebber and the Administrative General Partner in the Partnership
("Administrative General Partner").
The amended complaint in the New York Limited Partnership Actions alleged,
among other things, that, in connection with the sale of interests in the
Partnership, PaineWebber and the Administrative General Partner (1) failed to
provide adequate disclosure of the risks involved with each partnership; (2)
made false and misleading representations about the safety of the investments
and the partnership's anticipated performance; and (3) marketed the partnership
to investors for whom such investments were not suitable. The plaintiffs also
alleged that following the sale of the partnership investments PaineWebber and
the Administrative General Partner misrepresented financial information about
the partnership's value and performance. The amended complaint alleged that
PaineWebber and the Administrative General Partner violated the Racketeer
Influenced and Corrupt Organizations Act ("RICO") and the federal securities
laws. The plaintiffs sought unspecified damages, including reimbursement for all
sums invested by them in the partnerships, as well as disgorgement of all fees
and other income derived by PaineWebber from the limited partnerships. In
addition, the plaintiffs also sought treble damages under RICO.
On May 30, 1995, the US District Court certified class action treatment of
the plaintiffs' claims in the New York Limited Partnership Actions.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the class action outlining the terms under which the parties have
agreed to settle the case. Pursuant to that memorandum of understanding,
PaineWebber irrevocably deposited $125 million into an escrow fund under the
supervision of the United States District Court for the Southern District of New
York ("District Court") to be used to resolve the litigation. On July 17, 1996,
the District Court granted preliminary approval of the proposed settlement of
the class action litigation. As part of the class action settlement, PaineWebber
agreed to pay $125 million and additional consideration to class members. A
final hearing on the proposed settlement is scheduled to continue in November
1996.
In April 1995, two investors in the Pegasus limited partnerships filed a
purported class action in the Circuit Court of the State of Illinois for Cook
County entitled Robert M. Jacobson,
21
<PAGE> 23
et al. v. PaineWebber, Inc., et al., making allegations substantially similar to
those in the New York Limited Partnership Actions, but limited in subject matter
to the sale of the Pegasus partnerships, and without a RICO claim. The
plaintiffs in the Jacobson case simultaneously remained as participants in the
New York Limited Partnership Actions, and are challenging the proposed
settlement of these cases. The Illinois case has been dismissed.
Three actions were filed in the District Court for Brazoria County, Texas,
relating to the sale and sponsorship of interests in the Partnership and an
affiliated partnership. The complaints make state law claims, specifically,
common law fraud, conspiracy, violations of section 27.01 of the Texas Business
and Commerce Code, fraud in the inducement, negligent misrepresentation,
negligence, breach of fiduciary duty, violations of the Texas Securities Act,
and violations of the Texas Deceptive Trade Practices Act. The plaintiffs seek
unspecified damages, including attorneys' fees, reimbursement for all sums
invested by them in the partnerships, exemplary damages, and treble damages
under the Texas Deceptive Trade Practices Act. All three actions have been
removed to federal court and two have been transferred to the United States
District Court for the Southern District of New York and consolidated under the
title, Mallia vs. PaineWebber, Inc. The third action has been dismissed with the
consent of the parties on the grounds that it is duplicative of the two actions
now before the federal court in New York.
In February 1996, approximately 230 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiff's purchases of various limited partnership interests. The complaint
alleges, among other things, that PaineWebber and its related entities committed
fraud and misrepresentation and breached fiduciary duties allegedly owed to the
plaintiffs by selling or promoting limited partnership investments that were
unsuitable for the plaintiffs and by overstating the benefits, understating the
risks and failing to state material facts concerning the investments. The
complaint seeks compensatory damages of $15 million plus punitive damages. In
September 1996, the California Superior Court dismissed many of plaintiffs'
claims as barred by the applicable statutes of limitation.
In June 1996, counsel for the Abbate plaintiffs instituted two additional
actions containing allegations nearly identical to those set forth in Abbate.
Bandrowski v. PaineWebber Incorporated, et al, was filed in California Superior
Court and Barstad v. PaineWebber Incorporated, et al, was filed in Arizona
Superior Court. Collectively, the two additional actions are brought by
approximately 50 plaintiffs and seek compensatory damages of approximately $4
million plus punitive damages.
Under certain limited circumstances, pursuant to the Partnership Agreement
and other contractual obligations, PaineWebber and its affiliates, including the
Administrative General Partner could be entitled to indemnification from the
Partnership for expenses and liabilities in connection with the above
litigation. The General Partners are unable to determine the effect, if any, of
such action on the Partnership's financial statements, taken as a whole.
22
<PAGE> 24
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits and reports to be filed: none
(b) The Partnership did not file a Form 8-K during the third quarter
of the fiscal year ending December 31, 1996.
23
<PAGE> 25
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.
A General Partner
Date: November 5, 1996 By: /s/ Joseph P. Ciavarella
------------------------
Joseph P. Ciavarella
Vice President, Treasurer
and Chief Financial
and Accounting Officer
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Form 10-Q for the quarter and nine months ended September 30, 1996 for
Pegasus Aircraft Partners, L.P. and is qualified in its entirety by
reference to such Form 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,798,000
<SECURITIES> 0
<RECEIVABLES> 853,000
<ALLOWANCES> (240,000)
<INVENTORY> 0
<CURRENT-ASSETS> 5,217,000
<PP&E> 75,057,000
<DEPRECIATION> (47,620,000)<F3>
<TOTAL-ASSETS> 32,654,000
<CURRENT-LIABILITIES> 4,669,000
<BONDS> 920,000
0
0
<COMMON> 0
<OTHER-SE> 26,705,000<F2>
<TOTAL-LIABILITY-AND-EQUITY> 32,654,000
<SALES> 4,791,000
<TOTAL-REVENUES> 4,975,000
<CGS> 0
<TOTAL-COSTS> 4,097,000
<OTHER-EXPENSES> 150,000
<LOSS-PROVISION> 240,000
<INTEREST-EXPENSE> 111,000
<INCOME-PRETAX> 377,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 377,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 377,000
<EPS-PRIMARY> .09<F1>
<EPS-DILUTED> 0
<FN>
<F1> Income per Unit of limited partnership interest outstanding for the nine
months ended September 30, 1996.
<F2> Represents partners capital plus accumulated earnings and distributions to
partners.
<F3> Includes allowances for decline in market value of aircraft.
</FN>
</TABLE>
