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, 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
---------------------------------------------------------
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 18 pages.
<PAGE>
PEGASUS AIRCRAFT PARTNERS, L.P.
QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
-----------------
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets - September 30, 1999 and December 31, 1998 3
Statements of Income for the three months
ended September 30, 1999 and 1998 4
Statements of Income for the nine months
ended September 30, 1999 and 1998 5
Statements of Partners' Equity for the nine
months ended September 30, 1999 and 1998 6
Statements of Cash Flows for the nine
months ended September 30, 1999 and 1998 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
2
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
--------------------
PEGASUS AIRCRAFT PARTNERS, L.P.
-------------------------------
BALANCE SHEETS -- SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
----------------------------------------------------------
(unaudited)
1999 1998
---- ----
(in thousands except unit data)
ASSETS
------
Cash and cash equivalents $ 2,275 $ 2,129
Rent and other receivables, net 533 476
Aircraft, net (Note 2) 25,442 25,161
Other assets 7 26
-------- --------
Total Assets $ 28,257 $ 27,792
======== ========
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
LIABILITIES:
Accounts payable and accrued expenses $ 74 $ 97
Accrued interest payable 114 --
Maintenance reserves payable 723 350
Payable to affiliates (Note 3) 436 431
Deferred rental income and deposits 1,185 1,038
Distributions payable to partners 1,616 1,616
Notes payable (Note 4) 14,000 10,000
-------- --------
Total Liabilities 18,148 13,532
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 2 and 4)
PARTNERS' EQUITY:
General Partners (694) (653)
Limited Partners (4,000,005 units issued and
outstanding) 10,803 14,913
-------- --------
Total Partners' Equity 10,109 14,260
-------- --------
Total Liabilities and Partners' Equity $ 28,257 $ 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 SEPTEMBER 30, 1999 AND 1998
------------------------------------------------------
(unaudited)
1999 1998
---- ----
(in thousands, except unit
data and per unit amounts)
REVENUE:
Rentals from operating leases $ 2,015 $ 2,279
Interest and other 27 42
---------- ----------
2,042 2,321
---------- ----------
EXPENSES:
Depreciation and amortization 1,285 1,362
Write-downs -- 104
Management and re-lease fees (Note 3) 156 189
General and administrative 49 48
Interest expense 347 253
Direct lease 21 17
Engine rental expense 70 --
---------- ----------
1,928 1,973
---------- ----------
NET INCOME $ 114 $ 348
========== ==========
NET INCOME ALLOCATED:
To the General Partners $ 1 $ 3
To the Limited Partners 113 345
---------- ----------
$ 114 $ 348
========== ==========
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ 0.03 $ 0.09
========== ==========
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS ISSUED
AND 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 INCOME
--------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
-----------------------------------------------------
(unaudited)
1999 1998
---- ----
(in thousands, except unit
data and per unit amounts)
REVENUE:
Rentals from operating leases $ 6,076 $ 6,499
Interest and other 59 70
---------- ----------
6,135 6,569
---------- ----------
EXPENSES:
Depreciation and amortization 3,808 3,991
Write-downs -- 104
Management and re-lease fees (Note 3) 484 532
General and administrative 150 170
Interest expense 858 690
Direct lease 68 77
Engine rental expense 70 --
---------- ----------
5,438 5,564
---------- ----------
NET INCOME $ 697 $ 1,005
========== ==========
NET INCOME ALLOCATED:
To the General Partners $ 7 $ 10
To the Limited Partners 690 995
---------- ----------
$ 697 $ 1,005
========== ==========
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ 0.17 $ 0.25
========== ==========
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.
5
<PAGE>
PEGASUS AIRCRAFT PARTNERS, L.P.
-------------------------------
STATEMENTS OF PARTNERS' EQUITY
------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
-----------------------------------------------------
(unaudited)
General Limited
Partners Partners Total
-------- -------- -----
(in thousands)
Balance, January 1, 1999 $ (653) $ 14,913 $ 14,260
Net income 7 690 697
Distributions declared to partners (48) (4,800) (4,848)
-------- -------- --------
Balance, September 30, 1999 $ (694) $ 10,803 $ 10,109
======== ======== ========
Balance, January 1, 1998 $ (599) $ 20,274 $ 19,675
Net income 10 995 1,005
Distributions declared to partners (48) (4,800) (4,848)
-------- -------- --------
Balance, September 30, 1998 $ (637) $ 16,469 $ 15,832
======== ======== ========
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
PEGASUS AIRCRAFT PARTNERS, L.P.
-------------------------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
-----------------------------------------------------
(unaudited)
1999 1998
---- ----
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 697 $ 1,005
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sale of equipment -- (18)
Depreciation and amortization 3,808 3,991
Write-downs -- 104
Change in assets and liabilities:
Rent and other receivables (57) (182)
Other assets 19 (9)
Accounts payable and accrued expenses (23) (154)
Payable to affiliates 5 12
Accrued interest payable 114 81
Deferred rental income and deposits 147 45
Maintenance reserves payable 373 157
------- -------
Net cash provided by operating activities 5,083 5,032
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment -- 18
Capitalized aircraft improvements (4,089) (1,803)
Repayment of advances by lessees -- 128
------- -------
Net cash used in investing activities (4,089) (1,657)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (4,848) (4,864)
Proceeds from notes payable 4,000 2,729
------- -------
Net cash used in financing activities (848) (2,135)
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 146 1,240
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,129 1,356
------- -------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 2,275 $ 2,596
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 733 $ 599
======= =======
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
PEGASUS AIRCRAFT PARTNERS, L.P.
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 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 and nine month periods ended September 30, 1999
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999.
2. Aircraft
The Partnership's net investment in aircraft as of September 30, 1999
and December 31, 1998 consisted of the following (in thousands):
1999 1998
---- ----
Aircraft on operating leases, at cost $ 88,242 $ 75,902
Less: Accumulated depreciation (53,316) (43,979)
Write-downs (5,811) (4,977)
Net Lease Settlement proceeds
accounted for as cost recovery (3,673) (3,673)
-------- --------
$ 25,442 $ 23,273
-------- --------
Aircraft held for lease, at cost - $ 8,251
Less: Accumulated depreciation - (5,529)
Write-downs - (834)
-------- --------
- 1,888
-------- --------
Aircraft, net $ 25,442 $ 25,161
======== ========
Kitty Hawk Aircargo, Inc. After the completion of the cargo conversion,
the Boeing 727-200 previously leased to Continental Airlines, Inc., was
delivered to Kitty Hawk in late August 1999. The Partnership has an 84 month
lease with Kitty Hawk and has agreed to a temporary reduction in the initial
monthly rent from $117,800 to $106,020, as the aircraft did not have the
necessary FAA certification to carry the weight required by the lease. Upon
receipt of the certification, the full rent amount will be paid for subsequent
periods. It is estimated that the cost to repair the two Partnership JT8D-9A
8
<PAGE>
engines from this aircraft is $1.1 million. The first engine, with an estimated
repair cost of $466,000, is being repaired. In the interim, the Partnership is
renting two similar engines from an affiliate of the Managing General Partner at
a rate of $42,000 per month.
Trans World Airlines, Inc. (TWA) The lease on the Boeing 747-100 with
TWA expires in July, 2000. Subject to final documentation, the Partnership has
agreed to sell the aircraft to TWA in January 2000 for $4.36 million and to the
payment of a monthly rental rate from September 1999 until January 2000 of
$90,000 per month. Three hundred, sixty thousand dollars ($360,000) of the sale
price will be offset against the TWA deposit of a similar amount held by the
Partnership. TWA has agreed to a six month extension of the lease for the
Partnership's MD-82. The General Partners negotiated a sale of the aircraft
Boeing 747 as the leasing market for such an aircraft is very limited. Proceeds
of the sale will be used to pay down debt and a portion retained for working
capital purposes.
Sky Trek International Airlines, Inc. Due to arrearages in rent and
maintenance reserve payments, Sky Trek was placed on non-accrual status
beginning October 1, 1998. For the period January 1 through September 30, 1999,
Sky Trek has paid all but $119,000 in rent and $110,000 in maintenance reserve
payments. Of the total amount of arrearages, only $190,000 has been accrued and
is included in rent and other receivables on the balance sheet. Sky Trek has
provided a security deposit of $190,000 with respect to this lease.
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 a total of $30,000
and $91,000 of base management fees during the quarter and nine months ended
September 30, 1999, respectively.
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 a total of
$66,000 and $212,000 of incentive management fees during the quarter and nine
months ended September 30, 1999, respectively.
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 a total of $60,000 and $181,000 of re-lease fees during
the quarter and nine months ended September 30, 1999, respectively.
9
<PAGE>
All of the above fees are subordinated to the limited partners
receiving an 8% annual non-cumulative return based upon original contributed
capital.
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 and nine months ended September 30, 1999, payable to the Administrative
General Partner.
During the nine months ended September 30, 1999 the Partnership paid
$26,000 to a maintenance facility that is affiliated with the Managing General
Partner. Additionally, the Partnership paid $858,000 to acquire aircraft parts
from a company which is owned by the President and Director of the Managing
General Partner.
4. Notes Payable
The Partnership has borrowed $14 million at 150 basis points over the
lender's prime rate and this loan is due in April, 2000. At September 30, 1999,
the interest rate on this loan was 9.75%. The Partnership is searching for a
replacement lender and believes it will be able to find one. However, if the
Partnership were unable to renegotiate or refinance the loan before April 2000,
it may need to reduce or suspend future distributions.
10
<PAGE>
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 include 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 commercial
aircraft and makes quarterly distributions to the partners of net cash flow
generated by operations in the current and/or prior quarters. 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 September 30, 1999,
the Partnership's unrestricted cash and cash equivalents of $2,275,000 was
primarily invested in such a fund. This amount was $146,000 more than the
Partnership's unrestricted cash and cash equivalents at December 31, 1998 of
$2,129,000. This increase in unrestricted cash was attributable to the amount by
which cash generated by operating activities and proceeds from notes payable
exceeded cash distributions to partners and capitalized aircraft improvements,
during the nine months ended September 30, 1999.
Maintenance reserves payable increased by $373,000 from $350,000 to
$723,000 at December 31, 1998 and September 30, 1999, respectively, due to
increases in maintenance reserve payments received from TNT and Sky Trek.
Deferred rental income and deposits increased $147,000 from $1,038,000
at December 31, 1998 to $1,185,000 at September 30, 1999, primarily due to the
receipt in February of an additional deposit from Kitty Hawk Aircargo, Inc.
("Kitty Hawk").
Accrued interest payable increased by $114,000 from December 31, 1998
to September 30, 1999 due to interest owed on the Note Payable of $14,000,000
which increased from $10 million at December 31, 1998.
Rent and other receivables increased by $57,000 from $476,000 at
December 31, 1998 to $533,000 at September 30, 1999, due to an increase in rent
due from one lessee.
TWA announced a loss in the third quarter of 1999. While TWA has
recently ratified a major labor agreement and has improved its service and
upgraded its fleet, TWA's ongoing financial losses are of concern. A default or
deferral of lease payments on the part of TWA, Sky Trek or any other lessee, may
11
<PAGE>
affect quarterly distributions. TWA accounted for 53% of the Partnership's lease
revenue in the first nine months of 1999.
During the nine months ended September 30, 1999, the Partnership paid
cash distributions pertaining to the first and second quarters of 1999 and the
last quarter of 1998. The quarterly distributions represented an annualized rate
equal to 8% of contributed capital ($.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 distribution for the third quarter of 1999 was paid in October, 1999 at an
annualized rate of 8% of contributed capital ($.40 per Unit). With the reduction
in rent and ultimate sale of the Boeing 747 to TWA, the Partnership will be
generating less cash on an operating basis than is necessary to sustain this
distribution level.
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 93% of
the cash distributions declared for the quarter ended September 30, 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 September 30, 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.
The Partnership has borrowed $14 million at 150 basis points over the
lender's prime rate and this loan is due in April 2000. The Partnership is
searching for a replacement lender and believes it will be able to find one.
However, if the Partnership were unable to renegotiate or refinance the loan
before April 2000, it may need to reduce or suspend future distributions.
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. On April 20, 1999, the Partnership borrowed $2.5 million and on June
30, 1999, an additional $1.5 million was borrowed.
With the exception of the Boeing 747, discussed above, the
Partnership's aircraft are subject to leases with remaining terms of at least 12
months.
During the nine months ended September 30, 1999, the Partnership
invested approximately $3,995,000 with respect to the hushkit and cargo
conversion of the Boeing 727-200 advanced aircraft leased to Kitty Hawk. The
conversion was complete at September 30, 1999. An additional $94,000 was
invested with respect to other 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. 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.
12
<PAGE>
Results of Operations
- ---------------------
The Partnership's net income was $697,000 for the nine months ended
September 30, 1999 (the "1999 Period") and $114,000 for the quarter ended
September 30, 1999 (the "1999 Quarter") as compared to $1,005,000 for the nine
months ended September 30, 1998 (the "1998 Period") and $348,000 for the quarter
ended September 30, 1998 (the "1998 Quarter").
The decrease in the Partnership's net income for the 1999 Period
resulted primarily from a decrease in rental revenue and an increase in interest
expense as well as an increase in engine rental expense. The decrease in net
income was partially offset by decreases in depreciation and write-downs of
aircraft, as discussed below.
Rental revenue decreased $423,000 and $264,000, or 7% and 12%,
respectively, for the 1999 Period and 1999 Quarter, due primarily to the absence
of rental revenue from the Boeing 727-200 advanced aircraft formerly leased to
Continental Airlines, Inc., which was returned to the Partnership on October 18,
1998, and underwent a hushkit and cargo conversion. The aircraft was delivered
to Kitty Hawk in late August 1999. For both the 1999 Period and Quarter, the
rent from the Kitty Hawk lease partially offset the loss of rent from
Continental Airlines, Inc. Also contributing to the decrease was a slight
decrease in rental revenue with respect to the TWA Boeing 747 aircraft. This
aircraft had a reduction in rent as part of the purchase agreement that will
occur in January, 2000. There was also a slight 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. Partially offsetting the decrease for
the 1999 Period was an increase in revenues with respect to the TNT aircraft
(off-lease for the majority of the first half of the 1998 period).
Interest and other income for the 1999 Period decreased by $11,000 or
16%, in comparison to the 1998 Period. The decrease was primarily due to the
consignment sale of miscellaneous aircraft parts during the 1998 Period,
partially offset by an increase in interest income attributable to the higher
cash balance maintained during the 1999 period on which interest was earned.
Management and re-lease fees payable to the General Partners for the
1999 Period and 1999 Quarter decreased $48,000 and $33,000, or 9% and 17%,
respectively, in comparison to the 1998 Period and 1998 Quarter, which was
attributable to lower rental revenue in the 1999 Period and Quarter, which
serves as the basis for certain fees.
Interest expense increased by $168,000 and $94,000, or 24% and 37%,
respectively, in the 1999 Period and 1999 Quarter, as compared to the 1998
Period and 1998 Quarter, due to an increase in borrowings to fund capitalized
aircraft improvements.
Direct lease expenses decreased by $9,000 or 12% during the 1999
Period, due principally to a decrease in aircraft maintenance expense, partially
offset by an increase in insurance expense.
During the 1998 Period, the Partnership provided write-downs of
$104,000 for the value of the interior which was removed from the Boeing 727-200
aircraft leased to TNT.
Depreciation expense decreased $183,000 and $77,000 or 5% and 6% in the
1999 Period and Quarter compared to the 1998 Period and Quarter. This decrease
was primarily due to the Boeing 727-200 aircraft which was not on lease for most
13
<PAGE>
of the 1999 Period and Quarter. This aircraft, which was returned by Continental
in October 1998, was undergoing a cargo conversion for delivery to Kitty Hawk.
This decrease was tempered by an increase in the depreciation expense for the
TNT aircraft which had additions in late 1998 and in 1999 for a cargo
conversion.
Engine rental expense was $70,000 during the 1999 Period, due to the
Partnership renting two JT8D-9A engines to replace damaged engines for the
aircraft leased to Kitty Hawk, as discussed in Note 2 to the financial
statements. There was no corresponding expense during the 1998 Period.
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 the third party vendors are currently Year 2000 compliant.
The plan for addressing other third party critical dependencies
includes: identification of third party critical dependencies including lessees
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 stated plan will be nominal.
While the Partnership expects to have no interruption of its operations
as a result of internal IT and non-IT systems, uncertainties remain about the
affect of third party critical dependencies who may not be 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
such risks by inquiring of each lessee about its Year 2000 plans, including
whether they have addressed the issue with their financial institution.
14
<PAGE>
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.
While the General Partners believe it is remote, a possible scenario
would be that a number of lessees are unable to operate and generate revenues
and as a result are 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.
15
<PAGE>
PART II. OTHER INFORMATION
--------------------------
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
third quarter of the fiscal year ending December 31, 1999.
16
<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: November 10, 1999 By: /s/ CARMINE FUSCO
-----------------
Carmine Fusco
Vice President, Secretary, Treasurer and
Chief Financial and Accounting Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1999 OF PEGASUS
AIRCRAFT PARTNERS, LP, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-Q
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,275,000
<SECURITIES> 0
<RECEIVABLES> 533,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,815,000
<PP&E> 88,242,000
<DEPRECIATION> 62,800,000<F3>
<TOTAL-ASSETS> 28,257,000
<CURRENT-LIABILITIES> 4,148,000
<BONDS> 14,000,000
0
0
<COMMON> 0
<OTHER-SE> 10,109,000<F2>
<TOTAL-LIABILITY-AND-EQUITY> 28,257,000
<SALES> 0
<TOTAL-REVENUES> 6,135,000
<CGS> 0
<TOTAL-COSTS> 4,430,000
<OTHER-EXPENSES> 150,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 858,000
<INCOME-PRETAX> 697,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 697,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 697,000
<EPS-BASIC> .17<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>
