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 March 31, 1999
--------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to _______________________
Commission file number 0-17712
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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 .
--- ---
This document consists of 17 pages.
<PAGE>
PEGASUS AIRCRAFT PARTNERS, L.P.
QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS
Page
----
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets-March 31, 1999 and December 31, 1998 3
Statements of Income for the three months ended
March 31, 1999 and 1998 4
Statements of Partners' Equity for the three months
ended March 31, 1999 and 1998 5
Statements of Cash Flows for the three months ended
March 31, 1999 and 1998 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
2
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. Financial Statements
--------------------
PEGASUS AIRCRAFT PARTNERS, L.P.
-------------------------------
BALANCE SHEETS -- MARCH 31, 1999 AND DECEMBER 31, 1998
------------------------------------------------------
(unaudited)
1999 1998
---- ----
(in thousands, except unit data)
ASSETS
------
Cash and cash equivalents $ 923 $ 2,129
Rent and other receivables, net 476 476
Aircraft, net (Note 2) 25,491 25,161
Other assets 16 26
-------- --------
Total Assets $ 26,906 $ 27,792
======== ========
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
LIABILITIES:
Notes payable (Note 4) $ 10,000 $ 10,000
Accounts payable and accrued expenses 68 97
Payable to affiliates (Note 3) 594 431
Deferred rental income and deposits 1,218 1,038
Distributions payable to partners 1,616 1,616
Maintenance reserve payable 476 350
-------- --------
Total Liabilities 13,972 13,532
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 2, 4 and 5)
PARTNERS' EQUITY:
General Partners (666) (653)
Limited Partners (4,000,005 units outstanding) 13,600 14,913
-------- --------
Total Partners' Equity 12,934 14,260
-------- --------
Total Liabilities and Partners' Equity $ 26,906 $ 27,792
======== ========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
PEGASUS AIRCRAFT PARTNERS, L.P.
-------------------------------
STATEMENTS OF INCOME
--------------------
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
--------------------------------------------------
(unaudited)
1999 1998
---- ----
(in thousands, except unit
data and per unit amounts)
REVENUE:
Rentals from operating leases $ 2,006 $ 1,940
Interest 17 12
---------- ----------
2,023 1,952
---------- ----------
EXPENSES:
Depreciation and amortization 1,262 1,260
Interest expense 228 208
Management and re-lease fees (Note 3) 163 155
General and administrative (Note 3) 55 45
Direct lease 25 43
---------- ----------
1,733 1,711
---------- ----------
NET INCOME $ 290 $ 241
========== ==========
NET INCOME ALLOCATED:
To the General Partners $ 3 $ 2
To the Limited Partners 287 239
---------- ----------
$ 290 $ 241
========== ==========
NET INCOME PER LIMITED PARTNERSHIP UNIT $ .07 $ .06
========== ==========
WEIGHTED AVERAGE NUMBER OF LIMITED PARTNERSHIP
UNITS OUTSTANDING 4,000,005 4,000,005
========== ==========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
PEGASUS AIRCRAFT PARTNERS, L.P.
-------------------------------
STATEMENTS OF PARTNERS' EQUITY
------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
--------------------------------------------------
(unaudited)
General Limited
Partners Partners Total
-------- -------- -----
(in thousands)
Balance, January 1, 1999 $ (653) $ 14,913 $ 14,260
Net income 3 287 290
Distributions declared to partners (16) (1,600) (1,616)
-------- -------- --------
Balance, March 31, 1999 $ (666) $ 13,600 $ 12,934
======== ======== ========
Balance, January 1, 1998 $ (599) $ 20,274 $ 19,675
Net income 2 239 241
Distributions declared to partners (16) (1,600) (1,616)
-------- -------- --------
Balance, March 31, 1998 $ (613) $ 18,913 $ 18,300
======== ======== ========
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
PEGASUS AIRCRAFT PARTNERS, L.P.
-------------------------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
--------------------------------------------------
(unaudited)
1999 1998
---- ----
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 290 $ 241
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,262 1,260
Change in assets and liabilities:
Rent and other receivables -- (94)
Other assets 10 (3)
Accounts payable and accrued expenses (29) (155)
Payable to affiliates 163 (88)
Deferred rental income and deposits 180 124
Maintenance reserves 126 35
Accrued interest payable -- 74
------- -------
Net cash provided by operating activities 2,002 1,394
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized aircraft improvement (1,592) (1,567)
Repayment of advances by lessees -- 42
------- -------
Net cash used in investing activities (1,592) (1,525)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable -- 1,500
Cash distributions paid to partners (1,616) (1,632)
------- -------
Net cash used in financing activities (1,616) (132)
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,206) (263)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,129 1,356
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 923 $ 1,093
======= =======
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Interest paid $ 225 $ 134
======= =======
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
PEGASUS AIRCRAFT PARTNERS, L.P.
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
MARCH 31, 1999
--------------
(unaudited)
1. General
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in accordance with instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the General Partners, all adjustments
necessary for a fair presentation have been included. For further information,
refer to the financial statements and footnotes thereto included in the
Partnership's annual report on Form 10-K for the year ended December 31, 1998.
(Operating results for the three month period ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999.)
New Accounting Pronouncement: In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities (FAS 133). FAS
133 is effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999 (January 1, 2000 for the Partnership). FAS 133 relates to the
reporting of all derivative instruments, and as the Partnership has not and does
not anticipate dealing in derivatives or in hedging activities, this
pronouncement is not expected to impact the Partnership's earnings or Statement
of financial position.
7
<PAGE>
2. Aircraft
The Partnership's net investment in aircraft as of March 31, 1999 and
December 31, 1998 consisted of the following (in thousands):
1999 1998
---- ----
Aircraft on operating leases, at cost $ 75,952 $ 75,902
Less: Accumulated depreciation (45,241) (43,979)
Write-downs (4,799) (4,799)
Net lease settlement proceeds accounted for as
cost recovery (3,673) (3,673)
Provision for maintenance cost (178) (178)
-------- --------
$ 22,061 $ 23,273
-------- --------
Aircraft held for lease, at cost 9,793 8,251
Less: Accumulated depreciation (5,529) (5,529)
Write-downs (834) (834)
-------- --------
3,430 1,888
-------- --------
Aircraft, net $ 25,491 $ 25,161
======== ========
Kitty Hawk Aircargo, Inc. The Partnership has a lease agreement with
Kitty Hawk Aircargo, Inc. ("Kitty Hawk") for the lease of the Boeing 727-200
Advanced aircraft formerly leased to Continental that was returned in October
1998. Kitty Hawk is a Dallas, Texas based operator of more than 100 freighter
aircraft. The lease requires the Partnership to hushkit and convert the aircraft
to a freighter at an estimated cost of $4.3 million. The lease agreement
provides for 84 months rent at $117,800 per month. Kitty Hawk provided an
initial security deposit of $56,000 during 1998, and increased the deposit to
$236,000 in February 1999. The conversion work is being performed and the
delivery of the aircraft is anticipated in June, 1999.
Sky Trek International Airlines, Inc. In 1997, the Partnership entered
into an agreement to lease a Boeing 727 aircraft to a start up charter airline,
Sky Trek International Airlines Inc. ("Sky Trek"). The aircraft was delivered in
late June 1997. The Sky Trek lease provides for rent of $95,000 per month for a
term of approximately 60 months. Sky Trek provided a security deposit of
$190,000 and is obligated to fund maintenance reserves, in the aggregate, at a
rate of $325 per flight hour.
Due to arrearages in rent and maintenance reserve payments, Sky Trek
was placed on non-accrual status beginning October 1, 1998. Sky Trek continues
to struggle with liquidity and continues to search for a capital infusion. In
December 1998, at the request of the General Partners, Sky Trek began paying its
lease and maintenance reserve obligations on a weekly basis, although three
weekly rent payments were missed during the first quarter of 1999. Arrearages of
$475,000 with respect to rent and $247,000 with respect to maintenance reserves,
at March 31, 1999, will need to be addressed in an overall recapitalization plan
of Sky Trek. If Sky Trek is unsuccessful in raising additional capital, the
Partnership will likely need to repossess the aircraft and search for a new
lessee. There can be no assurance as to the timeliness or success of such a
remarketing effort and the cost of preparing the aircraft for a new lessee.
8
<PAGE>
3. Transactions With Affiliates
Base 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 $30,000 of base
management fees during the three months ended March 31, 1999.
Incentive Management Fees: 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 $73,000 of
incentive management fees during the three months ended March 31, 1999.
Re-lease Fees: 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 $60,000 of re-lease fees during the three months ended
March 31, 1999.
All of the above fees are subordinated to the limited partners
receiving an 8% annual non-cumulative return based upon original contributed
capital (as adjusted per the Partnership agreement).
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. There were no reimbursable expenses, during the
three months ended March 31, 1999, payable to the Administrative General
Partner.
During the quarter ended March 31, 1999, the Partnership paid $37,000
for aircraft parts to a company which is owned by the President and Director of
the Managing General Partner and two of its former officers and directors.
4. Notes Payable
During 1999, the Partnership reached an agreement with the lender to
increase the committed amount of the loan facility from $10 million to $14.5
million and increase the interest rate from 1.25 % to 1.5% over prime. On April
20, 1999, the Partnership received $2.5 million of the increased commitment
amount. The Partnership will be entitled to borrow the remaining $2 million on
the loan following the discharge of liens which exist against one engine on the
Boeing 747 aircraft. The Partnership has provided a mortgage to the bank
relative to certain aircraft and has guaranteed the repayment of the
indebtedness. The Partnership will utilize the additional borrowings to fund the
hushkit and cargo conversions of the Boeing 727-200 advanced aircraft scheduled
for delivery to Kitty Hawk. At March 31, 1999, the interest rate was 9.00%. This
loan is due in April 2000. If the Partnership is unable to renegotiate or
refinance the loan before April 2000, it will be forced to reduce or suspend
distributions.
9
<PAGE>
5. Litigation
On March 10, 1999, the Trustee appointed in Kiwi's bankruptcy
proceedings made a demand for the return of certain payments approximating
$1,276,000 to an affiliate of the Managing General Partner, the Partnership and
an affiliated Partnership on the basis that these payments were made by Kiwi in
the ninety days prior to Kiwi's filing of its voluntary bankruptcy petition and
were therefore preferential. The payments relate to seven aircraft, only two of
which are owned by the Partnership. Management notified the Trustee of the
existence of a Stipulation and Consent Order, dated April 22, 1997, which
provides for, amongst other items, a waiver and relinquishment by Kiwi of any
potential preference claims it might have against the Partnership. On April 8,
1999, the claim was withdrawn.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
This report may contain, in addition to historical information,
forward-looking statements that involve risks and other uncertainties. The
Partnership's actual results may differ materially from those anticipated in
these forward-looking statements. Factors that might cause such a difference
include those discussed below, as well as general economic and business
conditions, competition and other factors discussed elsewhere in this report.
The Partnership undertakes no obligation to release publicly any revisions to
these forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of anticipated or unanticipated events.
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.
The Partnership invests working capital and cash flow from operations
prior to its distribution to the partners in short-term, highly liquid
investments or a fund that invests in such instruments. At March 31, 1999, the
Partnership's unrestricted cash and cash equivalents of $923,000 was primarily
invested in such a fund. This amount was $1,206,000 less than the Partnership's
unrestricted cash and cash equivalents at December 31, 1998 of $2,129,000. This
decrease in unrestricted cash was attributable to the amount by which cash
distributions to partners and capitalized aircraft improvements exceeded cash
generated by operating activities during the three months ended March 31, 1999.
TWA reported another annual loss for the year ending December 31, 1998.
Although TWA had a cash position of $252 million at December 31, 1998 and
announced that its loss in the first quarter of 1999 was its smallest in ten
years, given TWA's historical financial difficulties, the continuing loss is of
concern. A default or deferral of lease payments on the part of TWA, (or by Sky
Trek, discussed below) or any other lessee, may affect quarterly distributions.
TWA accounted for 55% of the Partnership's lease revenue in the first quarter of
1999.
Sky Trek continues to struggle with liquidity and continues to search
for a capital infusion. In December 1998, at the request of the General
Partners, Sky Trek began paying its lease and maintenance reserve obligations on
10
<PAGE>
a weekly basis. Prior arrearages will need to be addressed in an overall
recapitalization plan of Sky Trek. If Sky Trek is unsuccessful in raising
additional capital, the Partnership will likely need to repossess the aircraft
and search for a new lessee. There can be no assurance as to the timeliness or
success of such a remarketing effort.
Other assets decreased by $10,000 from $26,000 at December 31, 1998 to
$16,000 at March 31, 1999, due to a decrease in prepaid expenses.
Deferred rental income and deposits increased $180,000 from $1,038,000
at December 31, 1998 to $1,218,000 at March 31, 1999, due to the receipt in
February, of an additional deposit from Kitty Hawk Aircargo, Inc. ("Kitty
Hawk"), as discussed in Note 2.
Payable to affiliates increased by $163,000, from $431,000 at December
31, 1998 to $594,000 at March 31, 1999, due to the additional management fees
that have been accrued but not yet paid.
During the three months ended March 31, 1999 the Partnership paid cash
distributions pertaining to the fourth quarter of 1998. The quarterly
distribution represented an annualized rate equal to 8% of contributed capital
($.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. A similar distribution for the
first quarter of 1999 was paid on April 27, 1999.
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, approximately 82% of
the cash distributions declared for the quarter ended March 31, 1999,
constituted a return of capital. Also, based on the amount of net income
reported by the Partnership for accounting purposes, approximately 73% of the
cash distributions paid to the partners from inception of the Partnership
through March 31, 1999 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.
During 1999, the Partnership reached an agreement with the lender to
increase the committed amount of the loan facility from $10 million to $14.5
million and increase in the interest rate from 1.25% to 1.5% over prime. On
April 20, 1999, the Partnership received $2.5 million of the increased
commitment amount. The Partnership will be entitled to borrow the remaining $2
million of the loan following the discharge of liens which exist against one
engine on the Boeing 747 aircraft. The Partnership has provided a mortgage to
the bank relative to certain aircraft and has guaranteed the repayment of the
indebtedness. The Partnership will utilize the additional borrowings to fund the
hushkit and cargo conversion of the Boeing 727-200 advanced aircraft scheduled
for delivery to Kitty Hawk. At March 31, 1999, the interest rate was 9.00%. This
loan is due in April 2000. If the Partnership is unable to renegotiate or
refinance the loan before April 2000, it will be forced to reduce or suspend
distributions.
With the exception of the Boeing 727-200 advanced aircraft being
prepared for lease to Kitty Hawk, all of the Partnership's assets are subject to
leases with remaining terms of at least 15 months. Kitty Hawk is a Dallas, Texas
based operator of more than 100 freighter aircraft. The Kitty Hawk lease
requires the Partnership to hushkit and convert the aircraft to a freighter at
11
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an estimated cost of $4.3 million. The lease agreement provides for 84 months
rent at $117,800 per month. Kitty Hawk has provided a security deposit of
$236,000.
During the quarter ended March 31, 1999, the Partnership invested
approximately $1.5 million with respect to the hushkit and cargo conversion of
the Boeing 727-200 advanced aircraft.
The Limited Partnership Agreement permits the Partnership to borrow up
to 35% (or $28,000,000) of the original offering proceeds for improvements,
enhancement or maintenance of aircraft. The Partnership has drawn $10 million
under its borrowing facility and the principal balance at March 31, 1999 is $10
million. An additional $2.5 million was drawn in April, 1999. The Partnership
will be entitled to receive the remaining $2 million on the loan following the
discharge of liens which exist against one engine on the Boeing 747 aircraft, as
discussed above. Any additional borrowings will only be made if the General
Partners believe such borrowings will be in the best interests of the
Partnership and may enhance or protect portfolio value.
Litigation
- ----------
See Note 5 "Litigation" for an update on certain legal proceedings.
Results of Operations
- ---------------------
The Partnership's net income was $290,000 for the three months ended
March 31, 1999 ("1999 Quarter") as compared to $241,000 for the quarter ended
March 31, 1998 ("1998 Quarter"). Net income per limited partnership unit also
increased to $.07 for the 1999 Quarter from $.06 per Unit for the 1998 Quarter.
The increase in the Partnership's net income for the 1999 Quarter
resulted primarily from an increase in rental revenue, and a decrease in
operating expenses, partially offset by increases in interest and general and
administrative expenses, as discussed below.
Rental revenue increased $66,000, or 3%, for the 1999 Quarter, due
primarily to the rents recognized with respect to the TNT aircraft (off-lease
for the majority of the 1998 Quarter). The increase was partially offset by the
absence of rental revenue from the Boeing 727-200 advanced aircraft formerly
leased to Continental, which was returned to the Partnership on October 18,
1998, and is undergoing a hushkit and cargo conversion for ultimate delivery to
Kitty Hawk, as discussed in Note 2 to the financial statements. Also offsetting
the increase in TNT revenues, was a decrease in rental revenue with respect to
the Sky Trek aircraft, which was placed on non-accrual status beginning in the
third quarter of 1998.
Interest income for the 1999 Quarter increased by $5,000, or 42%, in
comparison to the 1998 Quarter. The increase was primarily attributable to the
higher cash balance maintained during the first quarter of 1999 on which
interest was earned.
Management and re-lease fees payable to the General Partners for the
1999 Quarter increased $8,000, or 5%, in comparison to the 1998 Quarter, which
was attributable to higher rental revenue in the 1999 Quarter, which serves as
the basis for certain fees.
12
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General and administrative expense increased by $10,000, or 22%, in the
1999 Quarter, as compared to the 1998 Quarter, primarily due to an increase in
outside audit and consulting fees, partially offset by a decrease in transfer
agent fees, as well as a decrease in accountable expenses as a result of the
subcontracting of certain accounting services.
Interest expense increased by $20,000, or 10%, in the 1999 Quarter as
compared to the 1998 Quarter, due to an increase in borrowings to fund
capitalized aircraft improvements.
Direct lease expenses decreased by $18,000, or 42%, due principally to
a decrease in aircraft maintenance expense.
IMPACT OF YEAR 2000 ISSUE
- -------------------------
The Year 2000 issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year. This
could result in a failure of the information technology systems (IT systems) and
other equipment containing imbedded technology (non-IT systems) in the Year
2000, causing disruption of operation of the Partnership, its lessees or
vendors.
The Partnership does not own its own software, but is reliant upon
software owned by the General Partners or third party vendors. The General
Partners and third party vendors are either currently Year 2000 compliant or
have instituted plans to be so.
The plan for addressing third party critical dependencies includes:
identification of third party critical dependencies including lessees, vendors
and financial institutions; circulation to all applicable third parties of a
written request for their plans and progress in addressing the Year 2000 issue;
evaluation of responses; and development of contingency plans to address risks
of non-compliance by third parties. The Partnership has completed the
identification of critical dependencies and the circulation for requests for
Year 2000 compliance status.
The costs associated with addressing the Year 2000 issue, including
developing and implementing the above stated plan will be nominal and will be
expensed as incurred.
While the Partnership expects to have no interruption of operations as
a result of internal IT and non-IT systems, uncertainties remain about the
affect of third party critical dependencies who are not Year 2000 compliant.
The Partnership is not aware of any significant Year 2000 systems
issues with respect to the airworthiness of aircraft, however, should such an
issue result in Airworthiness Directives or other manufacturer recommended
maintenance, the implementation and the majority of the cost of such
implementation would be the responsibility of the aircraft lessee. Any resulting
costs to the Partnership cannot be estimated at this time.
Non-compliance on the part of a lessee could result in lost revenue for
the lessee and an inability to make lease payments to the Partnership.
Non-compliance by the lessee's financial institution could also affect the
ability to process lease payments. The Partnership has attempted to mitigate
13
<PAGE>
such risks by inquiring of each lessee about its Year 2000 plans, including
whether they have addressed the issue with their financial institution.
The Partnership's lessees face the potential risk of non-compliance by
the air traffic control systems throughout the world. A disruption in the
operations of some or all of the air traffic control systems may cause
disruption to the operations of the Partnership's lessees, which may adversely
affect their ability to generate revenue.
A possible scenario would be that a number of lessees are unable to
operate and generate revenues and as a result unable to make lease payments. The
Partnership is unable to estimate the likelihood or the magnitude of the
resulting lost revenue at this time. Should this occur, the Partnership would
attempt to repossess aircraft from non-compliant lessees and place the aircraft
with compliant lessees. No assurances can be given that the Partnership would be
able to re-lease such aircraft at favorable terms or at all. If a significant
number of aircraft could not be re-leased at favorable terms or at all, or their
re-lease is delayed, the Partnership's business, financial condition and results
of operations would be adversely affected.
14
<PAGE>
PART II. OTHER INFORMATION
--------------------------
ITEM 1. Legal Proceedings
-----------------
On March 10, 1999, the Trustee appointed in Kiwi's bankruptcy
proceedings made a demand for the return of certain payments approximating
$1,276,000 to an affiliate of the Managing General Partner, the Partnership and
an affiliated Partnership on the basis that these payments were made by Kiwi in
the ninety days prior to Kiwi's filing of its voluntary bankruptcy petition and
were therefore preferential. The payments relate to seven aircraft, only two of
which are owned by the Partnership. Management notified the Trustee of the
existence of a Stipulation and Consent Order, dated April 22, 1997, which
provides for, amongst other items, a waiver and relinquishment by Kiwi of any
potential preference claims it might have against the Partnership. On April 8,
1999, the claim was withdrawn.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits and reports to be filed: none
27. Financial Data Schedule (in electronic format only).
(b) The Partnership did not file any reports on Form 8-K during the
first quarter of the fiscal year ending December 31, 1999.
15
<PAGE>
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
Date: May 12, 1999 By: /s/ CARMINE FUSCO
-----------------
Carmine Fusco
Vice President, Secretary, Treasurer and
Chief Financial and Accounting Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 1999 OF PEGASUS AIRCRAFT PARTNERS, LP, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 923,000
<SECURITIES> 0
<RECEIVABLES> 476,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,415,000
<PP&E> 85,745,000
<DEPRECIATION> 60,254,000 <F3>
<TOTAL-ASSETS> 26,906,000
<CURRENT-LIABILITIES> 3,972,000
<BONDS> 10,000,000
0
0
<COMMON> 0
<OTHER-SE> 12,934,000 <F2>
<TOTAL-LIABILITY-AND-EQUITY> 26,906,000
<SALES> 0
<TOTAL-REVENUES> 2,023,000
<CGS> 0
<TOTAL-COSTS> 1,450,000
<OTHER-EXPENSES> 55,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 228,000
<INCOME-PRETAX> 290,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 290,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 290,000
<EPS-PRIMARY> 0.07 <F1>
<EPS-DILUTED> 0
<FN>
<F1>REPRESENTS NET INCOME PER LIMITED PARTNERSHIP UNIT OUTSTANDING.
<F2>REPRESENTS AGGREGATE PARTNERSHIP CAPITAL.
<F3>INCLUDES PROVISIONS FOR WRITEDOWNS AND CERTAIN OTHER RESERVES.
</FN>
</TABLE>
