UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 0-21480
JETFLEET AIRCRAFT II, L.P.
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3137154
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
CMA CAPITAL GROUP
1440 CHAPIN AVENUE, SUITE 310
BURLINGAME, CALIFORNIA 94010
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 696-3900
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
UNITS OF LIMITED PARTNER INTERESTS NONE
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
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 the
filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
On March 28, 1997 the aggregate market value of the Units held by non-affiliates
(computed by reference to the price at which the Units were sold) was
$34,675,250.
As of March 28, 1997 the Registrant has 693,505 Units issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:NONE
PART I
ITEM 1: BUSINESS
JetFleet(TM) Aircraft II, L.P. ("JetFleet II(TM)") is a
California limited partnership formed on June 24, 1991 for the purpose of
acquiring a portfolio of aircraft and aircraft engines, or interests therein,
which are subject to triple net leases. The general partners of JetFleet II(TM)
are CMA Capital Group (the "Corporate General Partner") and its founding
principals, Neal D. Crispin and Richard D. Koehler (the "Individual General
Partners"). CMA Capital Group, L.P. ("Group, L.P."), a California limited
partnership of which the Individual General Partners were the general partners,
which, beginning in 1992, was an additional general partner, was dissolved
during 1994. Following the dissolution of Group, L.P., and pursuant to the
JetFleet II(TM) Limited Partnership Agreement, the Corporate General Partner
elected to continue the business of JetFleet II(TM). The Corporate General
Partner is exclusively entitled to manage and control JetFleet II's(TM)
business. Under an agreement with JetFleet(TM) Management Corp. ("JMC"), a
California corporation formed in January 1994 and an affiliate of the Corporate
General Partner, the Corporate General Partner has authorized JMC to perform
remarketing duties on behalf of JetFleet II(TM).
<PAGE>
JetFleet II's(TM) principal objectives are: (i) to generate
cash from operations and to distribute all cash in excess of the amount required
for operating expenses and cash reserves; and (ii) to maximize returns from the
ultimate sale of the aircraft at the highest available price.
From October 3, 1991 to April 30, 1994, JetFleet II(TM)
offered units of limited partner interests ("Units") pursuant to a prospectus
filed under the Securities Act of 1933 (the "Prospectus"). In general, a Unit
represents an investment of $50 in JetFleet II(TM).
JetFleet II(TM) received, from monthly closings, subscriptions
of $2,923,400 from 200 subscribers in 1991, $12,789,900 from 1,317 subscribers
in 1992, $14,274,550 from 968 subscribers in 1993 and $4,687,400 from 389
subscribers in 1994, respectively. The net proceeds of these closings were used
primarily to purchase undivided interests in aircraft and aircraft engines. In
connection with each acquisition, JetFleet II(TM) paid and capitalized an
acquisition fee equal to 1.5% of the adjusted purchase price of each asset.
Aircraft
deHavilland DHC-103, serial number 72 ("S/N 72")
From November 1991 through April 1992, JetFleet II(TM)
purchased undivided interests totaling 75.53% in S/N 72 from Capital Management
Associates ("CMA"), a corporation owned by one of the Individual General
Partners of JetFleet II(TM). In November 1991, CMA purchased S/N 72 using a
combination of bank, seller and other financing. On November 15, 1991, CMA sold,
at CMA's cost, a 24.37% interest in S/N 72 to JetFleet(TM) Aircraft, L.P.
("JetFleet(TM)"), a California limited partnership formed on February 16, 1989
for the purpose of acquiring, on an all-cash basis, a portfolio of commercial
aircraft which are already in service pursuant to triple net leases with
commercial airlines. The Corporate General Partner and the Individual General
Partners are the general partners of JetFleet(TM) and have been its general
partners from inception. The remaining 0.10% undivided interest was repurchased
on April 30, 1992 by the seller in accordance with its purchase option.
JetFleet II(TM) paid an aggregate purchase price for its
interest in S/N 72 of $5,223,047, which included reimbursement of chargeable
acquisition and loan fees, and acquisition fees totaling $481,817. During 1993,
a collision-avoidance radar system ("TCAS") was installed on S/N 72 in order to
comply with FAA regulations regarding commercial airline operations. In
connection with the TCAS installation, JetFleet II(TM) paid and capitalized
$105,630 which represents its pro rata share of the cost.
deHavilland DHC-7-102, serial number 57 ("S/N 57")
During April 1992, JetFleet II(TM) also purchased a 4.00%
undivided interest in S/N 57 from Aviation Enterprises, Inc. ("AEI") for
$199,752, including an acquisition fee of $2,952. The remaining undivided
interests in S/N 57 are held 95.90% by JetFleet(TM) and 0.10% by AEI.
deHavilland DHC-7-102, serial number 44 ("S/N 44")
In monthly installments during May through October 1992,
JetFleet II(TM) purchased a 100.00% undivided interest in S/N 44 from Aviation
Enterprises 1986, Inc. and Oracle, Inc. (collectively "the Sellers"). JetFleet
II(TM) paid a total purchase price of $5,208,656. The total cost included
reimbursement of chargeable acquisition costs and acquisition fees totaling
$126,656.
deHavilland DHC-7-103, serial number 11 ("S/N 11")
From November 1992 through April 1993, JetFleet II(TM) used
net proceeds from its closings to purchase a 100.00% undivided interest in S/N
11 from CMA, which had purchased the aircraft, using bank and seller financing,
for the purpose of reselling it to JetFleet II(TM). JetFleet II(TM) paid
$6,225,556, an amount equal to CMA's purchase price plus reimbursement of
chargeable acquisition costs and acquisition fees totaling $325,556.
S/N 72, S/N 57, S/N 44 and S/N 11 (collectively, "the
Dash-7's") are each powered by four Pratt & Whitney Stage 3 PT6A-50 turboprop
engines. They are known for reliability, maneuverability and versatility,
featuring quiet, low vibration turboprop engines, which meet Stage 3 noise
requirements. These aircraft are the largest "S.T.O.L." aircraft produced.
S.T.O.L. aircraft are designed for short take-offs and landings. In addition,
S/N 72, built in 1982, and S/N 11, built in 1979, have been fitted with cargo
doors and removable cargo floors, enabling them to carry cargo as well as
passengers. S/N 57 and S/N 44, built in 1981, are passenger-only aircraft,
carrying up to 54 passengers.
deHavilland DHC-6-310, serial number 666 ("S/N 666")
JMC purchased a 100% undivided interest in S/N 666 on January
31, 1995, at a cost of $850,000, for the purpose of reselling the undivided
interest to JetFleet II(TM). In April 1995, JetFleet II(TM) purchased JMC's
undivided interest in S/N 666 at a price equal to JMC's cost plus chargeable
acquisition costs, loan fees and acquisition fees totaling $40,923.
<PAGE>
Fairchild Metro III SA-227-AC, serial number 576 ("S/N 576")
JetFleet II(TM) purchased a 100% undivided interest in S/N 576
on June 30, 1995, at a cost of $1,140,000. In connection with the purchase,
JetFleet II(TM) paid $25,750 in chargeable acquisition costs and acquisition
fees.
Fairchild Metro II SA226-TC, serial number TC-370 ("S/N 370")
On February 27, 1996, JetFleet II(TM) purchased a 50%
undivided interest in S/N 370, for $341,750. CMA Capital Management, Inc.
("CMACM"), an affiliate of JMC, purchased the remaining 50% interest at the same
time, which it subsequently sold to JetFleet III(TM), a California corporation
offering units of medium-term bonds and preferred stock for the purpose of
investing in aircraft and other income producing assets. In connection with the
purchase, JetFleet II(TM) paid $9,727 in chargeable acquisition costs and
acquisition fees.
Aircraft engines
During 1993, JetFleet II(TM) purchased undivided interests in
25 used aircraft engines (the "Airwork Engines") from Airwork Corporation
("Airwork") for a total acquisition cost of $5,498,993, which included
chargeable acquisition costs and acquisition fees of $301,493. The Airwork
Engines consist of 23 Pratt & Whitney PT6 engines and 2 Allison Corporation
A250-C30P engines. The individual engines had purchase prices ranging from
$129,250 to $290,000.
The Pratt & Whitney PT6 engines are lightweight,
turboprop/turboshaft engines, providing a power range from 475 to 1,970 shaft
horsepower. More than 60 certified versions of the engine are on 139 different
aircraft models used for a variety of applications. The Allison A250-C30P
engines are turboshaft helicopter engines with a power range of up to 650 shaft
horsepower and are used exclusively on the Bell 206L3 long range helicopter.
During January 1996, Airwork, as lessee, notified JetFleet
II(TM) of an event of loss concerning one of the Airwork Engines (the "Lost
Airwork Engine"). Rather than replace the Lost Airwork Engine, Airwork chose to
pay to JetFleet II(TM) the stipulated loss value as stated in the lease
agreement for the Airwork Engines.
During December 1993, JetFleet II(TM) purchased two Pratt &
Whitney PT6A-50 aircraft engines (the "AEI Engines") for $433,608 which included
reimbursement of acquisition costs and acquisition fees totaling $13,608. On
December 1, 1994, JetFleet II(TM) sold one of the AEI Engines to deHavilland,
Inc. for $190,000. JetFleet II(TM) recognized a loss of $6,868 in connection
with this transaction.
In December 1993 and during the first quarter of 1994,
JetFleet II(TM) purchased three Pratt & Whitney JT8D-217A aircraft engines (the
"AGES Engines") from The AGES Group, L.P., a Limited Partnership ("AGES"). The
total cost of the three engines, including reimbursement of acquisition costs
and acquisition fees totaling $173,312, was $5,871,824. During the first quarter
of 1995, JetFleet II(TM) and AGES agreed to rescind the AGES Engines purchase
transaction. JetFleet II(TM) received a total of $5,089,344 in proceeds from the
rescission during the first and second quarters of 1995.
<PAGE>
The Dash-7 leases
At the time of purchase, all four Dash-7's were subject to
triple net leases with Johnson Controls World Services ("JCWS") under an eight
year contract, which commenced in 1986, with the United States Army for use in
the Marshall Islands at the site of the Army's deep space research center where
missile guidance systems are tested.
Under the terms of the sales agreements for the aircraft, AEI
receives 4% of monthly lease revenues during the first eight years of the lease
in return for providing remarketing and certain other services in connection
with the lease, release and resale of the aircraft.
As discussed in note 3 to the accompanying financial
statements, S/N 72 was returned by JCWS on June 25, 1993. AEI was obligated for
up to six months of rental payments for the early termination of S/N 72, net of
rent payments received on S/N 72 and economic adjustments received during the
period. JCWS agreed to pay an economic adjustment totaling $242,893 to JetFleet
II(TM), JetFleet(TM) and AEI (collectively, "the Co-Owners"). This payment was
based upon the difference between the condition of certain aircraft components
at the time of S/N 72's delivery to JCWS and the time of its return to the
Co-Owners. JetFleet II(TM) received $230,517 from JCWS' payment of the economic
adjustment, as well as $29,281 of additional rent from AEI. JCWS paid the
economic adjustment during February 1994; AEI's obligation was fulfilled in
January 1994.
On August 13, 1993, S/N 72 was re-leased to Eclipse Airlines,
Inc. ("Eclipse"), an affiliate of AEI. The lease (the "Eclipse Lease") was a
triple net lease with a term of one year, except that it allowed cancellation by
any party on 30 days' notice. The rental amount, paid monthly, was equal to $400
per hour of usage during the month.
On October 19, 1993, due to an event of default by Eclipse
under the Eclipse Lease, the Co-Owners terminated the Eclipse Lease and
repossessed the aircraft. Since Eclipse had no immediate need for S/N 72,
Eclipse and the Co-Owners agreed that the Co-Owners would enter into a
short-term lease with another party, at the expiration of which the Eclipse
lease would be reinstated. At the same time, Eclipse also paid all overdue rent
and reserve charges. The Co-Owners and Eclipse mutually agreed in June 1994 not
to reinstate the Eclipse Lease.
On December 22, 1993 the Co-Owners entered into a lease (the
"AGES Lease") with AGES for a term not to exceed ninety days. AGES had subleased
S/N 72 to Alas Chiricanas S.A., a corporation conducting business in the
Republic of Panama. The lease was subsequently extended to September 1, 1994.
JetFleet II(TM) collected a total of $246,390 in rents from AGES during the term
of the lease.
S/N 72 was re-leased on March 22, 1995 to Air Niugini for a
term of six months. The lease was subsequently extended until October 31, 1995.
JetFleet II(TM) collected a total of $189,581 in rents from Air Niugini. In
addition, Air Niugini paid JetFleet II(TM) its share of maintenance costs of
$121,058. Upon its return by Air Niugini and at the direction of JetFleet II(TM)
management, S/N 72 underwent certain scheduled maintenance and other repair
work.
<PAGE>
On April 25, 1996, S/N 72 was leased to Air Tindi Limited
("Air Tindi") for a term of thirty-six months. Air Tindi has provided a letter
of credit in the amount of $142,000 which serves as a security deposit under the
lease. In addition, Air Tindi pays JetFleet II(TM) its pro-rata share of
maintenance costs of $265.00 per hour of usage, which amount is to be applied
for scheduled overhauls and inspections. Air Tindi is a regional airline
headquartered in Yellowknife, Northwest Territories, Canada and provides charter
and regularly scheduled flights throughout the Northwest Territories. JetFleet
II(TM) collected a total of $293,902 from Air Tindi during 1996.
The leases for S/N 57, S/N 44 and S/N 11 are triple net leases
(in that the lessee is required to pay for maintenance, repair and operations,
as well as insurance and taxes), except that costs of complying with FAA
airworthiness directives and manufacturer directives in excess of $500 for any
modification are to be borne by AEI, but may be recoverable by AEI from the
proceeds of the resale of the Dash-7's under certain circumstances.
During 1994 the leases for S/N 57, S/N 44 and S/N 11 were
extended, at reduced rent, through September 30, 1995. A new contract with the
United States Army commenced on February 15, 1995 for a term of two years with
three two-year renewal options. The contract was awarded to Range Systems
Engineering, a subsidiary of Raytheon Service Company ("Raytheon"). During 1995
the lease was extended through September 30, 1996. During 1996 the lease was
extended, at reduced rent, through September 30, 1998.
Raytheon has placed S/N 57, S/N 44 and S/N 11 in its
Inspection and Repair as Necessary ("IRAN") program. The program includes
corrosion evaluation, structural inspections, equalized maintenance and interior
refurbishment. Raytheon spent an estimated $1,100,000, $800,000 and $1,200,000
on IRAN checks for S/N 57, S/N 44 and S/N 11, respectively.
Raytheon has the right to purchase S/N 57, S/N 44 and S/N 11
at any time during the remaining term of the lease. The prices for 100% of each
of the three aircraft at September 30, 1998, the end of the current lease term,
are as follows:
<TABLE>
<CAPTION>
Serial
Number Purchase Price
<S> <C> <C>
57 $3,760,000
44 $3,690,000
11 $4,525,000
</TABLE>
The Corporate General Partner does not anticipate that the
purchase options will be exercised and that the leases will continue for as long
as the underlying government contracts continue, although there is no
contractual requirement to this effect.
<PAGE>
Other aircraft leases
S/N 666 is leased to Loganair Limited, a British Airways
franchisee ("Loganair"), for a term expiring on January 30, 1998 (the "Loganair
Lease"). As part of the purchase of S/N 666 from JMC, JMC assigned the Loganair
Lease to JetFleet II(TM). Loganair also pays, on a monthly basis, maintenance
costs based on usage. JetFleet II(TM) holds a security deposit from Loganair of
$45,000 in an interest-bearing account (which interest accrues for the benefit
of Loganair). Under the Loganair Lease, the lessee holds two extension options
for up to an additional 39 months.
S/N 576 is subject to a lease with Merlin Express, Inc., a
subsidiary of Fairchild Aircraft Incorporated ("Merlin"), for a term expiring on
July 18, 1999 (the "Merlin Lease"). The Merlin Lease contains a guaranty by
Fairchild Aircraft Incorporated for the equivalent of six months of rent. As
part of the purchase of S/N 576, the seller assigned the Merlin Lease to
JetFleet II(TM). Merlin also pays, on a monthly basis, maintenance costs based
on usage. JetFleet II(TM) holds a security deposit from Merlin of $45,000 in an
interest-bearing account (which interest accrues for the benefit of Merlin).
S/N 370 is subject to a lease with Sunbird Air Services, Ltd.
for a term expiring September 30, 2000 (the "Sunbird Lease"). The Sunbird Lease
contains a guaranty by the seller for basic rent in an amount not to exceed a
total aggregate amount of $29,250 (which guaranty is shared equally by JetFleet
II(TM) and JetFleet III(TM)). As part of the purchase of S/N 370 from Air Metro,
Air Metro assigned its interests and obligations under the Sunbird Lease to
JetFleet II(TM).
The aircraft engine leases
The Airwork Engines are leased back to Airwork pursuant to a
master lease (the "Airwork Lease") between Airwork and JetFleet II(TM). The
Airwork Lease is a triple net lease, has an initial seven-year term (which
expires on April 30, 2000), and Airwork has two two-year renewal options. UNC
Incorporated, the parent of Airwork, has guaranteed the obligations of Airwork
under the Airwork Lease. Upon the purchase of each engine by JetFleet II(TM),
Airwork was required to pay a security deposit equal to one month of rent.
The single remaining AEI Engine is currently off lease.
JetFleet II(TM) management is currently negotiating lease and/or sale
arrangements for the engine.
The AGES Engines were leased to GPA Group plc ("GPA") and
subleased to Aerovias de Mexico, S.A. de C.V. ("AeroMexico"). As mentioned
above, JetFleet II(TM) and AGES agreed during the first quarter of 1995 to
rescind the AGES Engines purchase by JetFleet II(TM). JetFleet II(TM) received a
total of $150,000 in rental payments during 1995 for the AGES Engines.
<PAGE>
Investments in Capital Leases
McDonnell Douglas DC-9, serial number 47236 ("First DC-9")
On December 16, 1994, JetFleet II(TM) purchased a 50%
undivided interest in the First DC-9 for $400,000 plus reimbursement of
chargeable acquisition costs and acquisition fees totaling $12,851. JetFleet(TM)
purchased the remaining 50% interest at the same time. The First DC-9 was leased
back to the seller, Interglobal, Inc. for thirty-six months at a monthly rate of
$30,000, of which JetFleet II(TM) is entitled to $15,000 (the "First DC-9
Lease"). The First DC-9 is currently sub-leased to and being operated by Aero
California S.A. de CV. As discussed in note 1 to the accompanying financial
statements, JetFleet II's(TM) investment in the First DC-9 is being accounted
for as a capital lease. The investment is essentially a financing in which
JetFleet II(TM) will recover its investment over the term of the lease.
Interglobal, Inc. has a purchase option for a nominal amount which may be
exercised upon expiration of the First DC-9 Lease. In 1996, JetFleet II(TM)
recorded $43,238 of interest income attributable to the First DC-9 Lease.
McDonnell Douglas DC-9-14, serial number 45702 ("Second DC-9")
On July 10, 1995, JetFleet II(TM) purchased a 100% undivided
interest in the Second DC-9 for $800,000 plus reimbursement of chargeable
acquisition costs and acquisition fees totaling $18,450. The Second DC-9 is
subject to similar lease terms as the First DC-9 and is accounted for in the
same manner. In 1996, JetFleet II(TM) recorded $119,157 of interest income
attributable to the lease of the Second DC-9.
McDonnell Douglas DC-9-32, serial number 47553 ("Third DC-9")
On August 31, 1995, JetFleet II(TM) purchased a 100% undivided
interest the Third DC-9 for $800,000 plus reimbursement of chargeable
acquisition costs and acquisition fees totaling $18,850. The Third DC-9 was also
subject to similar lease terms as the First DC-9 and was accounted for in the
same manner. On July 10, 1996, JetFleet II(TM) agreed to resell the Third DC-9
and reassign the sublease to the original seller, Interglobal, Inc., for a sales
price of $735,000. In 1996, JetFleet II(TM) recorded $71,950 of interest income
attributable to the lease of the Third DC-9.
Due to FAA regulations, JetFleet II's(TM) interests in the
Dash-7's, the Airwork Engines, the AEI Engines, the AGES Engines, S/N 576 and
S/N 370 were purchased in the name of a trust, the sole beneficiary of which is
JetFleet II(TM).
JetFleet II(TM) has many competitors in the aircraft leasing
industry, including aircraft leasing partnerships, leasing companies, banks and
other financial institutions. In addition, JetFleet II(TM) has significant
competition from partnerships which lease non-aircraft capital assets. The
market is highly competitive. Most of JetFleet II's(TM) competitors have
substantially greater financial and other resources than JetFleet II(TM).
<PAGE>
ITEM 2: PROPERTIES
JetFleet II(TM) does not own or lease any real property, plant
or materially important physical properties other than aircraft under operating
lease or aircraft under operating lease as set forth in Item 1.
JetFleet II(TM) maintains its principal office at 1440 Chapin
Avenue, Suite 310, Burlingame, California, 94010. All office facilities are
provided by JMC without reimbursement by JetFleet II(TM).
ITEM 3: LEGAL PROCEEDINGS
JetFleet II(TM) is not involved in any legal proceedings.
ITEM 4: SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during
the fourth quarter of 1996.
<PAGE>
PART II
ITEM 5: MARKET FOR JETFLEET II'S(TM) UNITS AND RELATED SECURITYHOLDER MATTERS
General
JetFleet II(TM) Units are not publicly traded. Currently,
there is no market for JetFleet II(TM) Units and it is unlikely that any market
will develop. There are several secondary exchanges which will purchase limited
partnership units. Secondary markets are characterized as having few buyers for
limited partnership interests and, therefore, generally are viewed as
inefficient vehicles for the sale of limited partnership units. In addition,
there are certain limitations upon the transfer of Units, as described in the
Prospectus and in JetFleet II's(TM) Partnership Agreement.
Number of Security Holders
Number of holders of Units of Limited Partner interests as
of March 28, 1997: 1,907
Distributions
JetFleet II(TM) investors may elect to receive their
distributions on either a monthly or quarterly basis. In 1995 and 1996,
distributions totaling $3,177,553 and $3,467,715, respectively, or $4.58 and
$5.00 per weighted average Limited Partnership Unit outstanding, of which $4.58
and $5.00, respectively, were a return of capital, were made to the Limited
Partners.
<PAGE>
ITEM 6: SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
December 31,
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- -----------
Summary Balance
Sheet Data:
Total assets ................. $13,045,412 $24,427,689 $25,018,544 $21,229,706 $16,410,203
Aircraft and
aircraft engines
under leases or
held for leases ............. $12,820,202 $22,703,898 $23,969,043 $17,520,291 $14,435,613
Partners' capital ............ $12,992,296 $23,890,926 $24,539,410 $20,033,855 $15,527,046
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31,
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- -----------
Summary of Operations:
Rental income ......................... $ 1,291,680 $ 3,260,910 $ 3,796,913 $ 2,601,541 $ 2,658,450
Net (loss) income ..................... $ 475,072 $ 1,243,147 $ 844,620 ($1,160,761) ($ 856,582)
Net (loss) income per Unit ............ $ 2.51 $ 2.52 $ 0.93 ($ 1.91) ($ 1.50)
Distributions to limited
partners ........................... $ 1,045,670 $ 2,616,592 $ 4,058,238 $ 3,177,553 $ 3,467,715
Distributions per Unit ................ $ 6.24 $ 5.98 $ 6.00 $ 4.58 $ 5.00
Weighted average Units
outstanding ........................ 167,592 437,312 675,964 693,505 693,505
</TABLE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Capital Resources and Liquidity
At the end of 1996, JetFleet II(TM) had cash balances of
$1,191,914. This amount was held primarily for the distribution made to the
Unitholders in January 1997 and to pay for accrued expenses.
During the year, JetFleet II's(TM) primary sources of
liquidity were cash flows from leasing operations and capital lease payments.
JetFleet II's(TM) liquidity will vary in the future, increasing to the extent
cash flows from operations exceed expenses, and decreasing as distributions are
made to the Unitholders and to the extent expenses exceed cash flows from
leases.
JetFleet II(TM) uses substantially all its operating cash flow
to make cash distributions to its Unitholders. Since JetFleet II's(TM) leases
are triple net leases (the lessee pays operating and maintenance expenses,
insurance and taxes), JetFleet II(TM) does not anticipate that it will incur
significant operating expenses in connection with its ownership interest in the
Aircraft as long they remain on lease.
JetFleet II(TM) currently has available adequate reserves to
meet is immediate cash requirements.
From January 1995 through July 1995, JetFleet II(TM) made
distributions at an annualized rate of 10%. From August 1995 through December
1995, JetFleet II(TM) made distributions at an annualized rate of 8% primarily
because of the decreased monthly rents on S/N 57, S/N 44 and S/N 11, and because
S/N 72, which had come off lease in September 1995, had not been re-leased. In
addition, although JetFleet II(TM) has reinvested the net proceeds received as a
result of the AGES Engine rescission, it did so on a staged basis which was not
completed until early 1996. The level of monthly rent received from these new
assets did not equal the rent JetFleet II(TM) had been receiving from the AGES
Engines until late 1995. Since January 1996, JetFleet II(TM) has made
distributions at an annualized rate of 10% primarily because the rent on the
assets purchased using the AGES Engine rescission proceeds is now higher than
the rent received prior to the rescission. Future distributions will depend on
the amount of lease revenue received by JetFleet(TM) for its assets.
If inflation in the general economy becomes significant, it
may affect JetFleet II(TM) inasmuch as the residual values and rates on
re-leases of its aircraft may increase as the costs of similar assets increase.
However, JetFleet II's(TM) revenues from existing leases would not increase, as
such rates are generally fixed for the terms of the leases without adjustment
for inflation. At the same time, any significant inflation in the general
economy may cause an increase in professional fees and general and
administrative expense reimbursements.
If interest rates increase significantly, the lease rates that
JetFleet II(TM) can obtain on future leases with be expected to increase as the
cost of capital is a significant factor in the pricing of lease financing.
Leases already in place, for the most part, would not be affected by changes in
interest rates.
1996 versus 1995
Cash flows from operations decreased approximately $423,000
primarily due to a decrease in unearned interest income as a result of the sale
of the Third DC-9 and a decrease in payables. These decreases were only
partially offset by an increase in lease related revenue resulting primarily
from higher monthly rents for S/N 72 during 1996.
Cash flows from investing activities decreased approximately
$439,000 in 1996 primarily due to the AGES Engines rescission during 1995. This
was partially offset by the funds received from the sale of the Third DC-9
during 1996 which had not been reinvested at December 31, 1996.
In 1996, there were no financing sources of cash. Cash
distributions to Unitholders increased approximately $305,000, or by $0.42 per
weighted average Limited Partnership Unit outstanding. The increased
distributions to Unitholders resulted from the additional rent received from the
reinvestment of the AGES rescission proceeds, as well as from the higher monthly
rent for S/N 72 during 1996. The increased rents were only partially offset by
reduced rents on S/N 57, S/N 44 and S/N 11.
<PAGE>
1995 versus 1994
Cash flows from operations decreased approximately $673,000
primarily due to a decrease of approximately $1,195,000 in cash flows from
lease-related revenues. Certain other cash expenses increased in 1995 as
discussed under "Results of Operations" below. The decreased cash flows from
leases resulted from reduced rents on S/N 57, S/N 44 and S/N 11, S/N 72's
off-lease periods during 1995 and the loss of rent during the period that the
AGES Engines rescission proceeds were being reinvested.
Cash flows from investing activities increased approximately
$5,800,000 in 1995 primarily due to the AGES Engines rescission and staged
reinvestment in assets which was not completed until early 1996 and the payments
received from the capital leases on the DC-9s.
In 1995, there were no financing sources of cash. JetFleet
II(TM) raised $4,687,400 during 1994. In connection with these sales, JetFleet
II(TM) paid organization and offering costs in the amount of $632,799 to the
Corporate General Partner and CKS Securities, Incorporated. Cash distributions
to Unitholders decreased approximately $881,000, or by $1.27 per weighted
average Limited Partnership Unit outstanding. The decreased distributions to
Unitholders resulted from reduced rents on S/N 57, S/N 44 and S/N 11 as well as
S/N 72's off-lease periods during 1995 which were only partially offset by the
cash received as a result of the reinvestment of the AGES Engines rescission
proceeds.
Results of Operations
JetFleet II(TM) recorded net income of $844,620 and a net loss
of ($1,160,761) and ($856,582) in 1994, 1995 and 1996, respectively. The
decrease from 1994 to 1995 was due to the decrease in rents received for S/N 57,
S/N 44 and S/N 11, S/N 72's off-lease periods during 1995 and the loss of rent
during the period that the AGES Engines rescission proceeds were being
reinvested. The increase from 1995 to 1996 was a result of the additional
interest income received from the reinvestment of the AGES rescission proceeds
in the DC-9 financing leases. There was no related increase in depreciation
because the DC-9 financing leases are capital leases.
1996 versus 1995
Rental income increased approximately $57,000. This was due to
the higher monthly rent for S/N 72 during 1996, which was only partially offset
by reduced rents on S/N 57, S/N 44 and S/N 11 beginning in October 1996.
Depreciation decreased approximately $112,000 primarily due to
the reinvestment of the AGES rescission proceeds in aircraft subject to
financing leases which are not subject to depreciation.
Management fees increased approximately $11,000. This was
primarily due to the increased rents discussed above. JetFleet II(TM) pays 4% to
AEI in connection with the purchases of each of the above aircraft.
General and administrative expenses and professional fees
increased approximately $92,000 due to increased costs associated with the
ongoing management of JetFleet II's(TM) and extensive negotiations with Raytheon
regarding the monthly rents for S/N 57, S/N 44 and S/N 11. As mentioned above,
the Corporate General Partner has authorized JMC to perform remarketing duties
on behalf of JetFleet II(TM). If management fees are payable within a given
year, such fees are reduced to the extent that any payments are made to JMC or
other third parties performing such remarketing duties.
1995 versus 1994
Rental income decreased approximately $1,195,000. This was due
to reduced rents on S/N 57, S/N 44 and S/N 11 beginning in October 1994, S/N
72's off-lease periods during 1995 and the loss of rent during the period that
the AGES Engines rescission proceeds were being reinvested. In addition, the
payments under the DC-9 financing leases, which were acquired in December 1994,
July 1995 and August 1995, are treated as a return of capital with an imputed
interest component, rather than rental income.
Depreciation increased approximately $1,025,000 primarily due
to the additional purchases of interests in aircraft and aircraft engines during
1994 and 1995 and a reduction in the estimate of the useful life of certain
aircraft.
Management fees decreased approximately $88,000. This was
primarily due to the reduced rents discussed above. JetFleet II(TM) pays 4% to
AEI in connection with the purchases of each of the above aircraft. Also,
JetFleet II(TM) pays a lower rate of management fees on full payout leases such
as the leases to which the DC-9s are subject.
General and administrative expenses and professional fees
increased approximately $89,000 due to increased costs associated with the
ongoing management of JetFleet II's(TM) portfolio, specifically the maintenance,
supervision and remarketing of S/N 72 and negotiation of the AGES rescission. As
mentioned above, the Corporate General Partner has authorized JMC to perform
remarketing duties on behalf of JetFleet II(TM). If management fees are payable
within a given year, such fees are reduced to the extent that any payments are
made to JMC or other third parties performing such remarketing duties.
ITEM 8: FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS
The Partners JetFleet(TM) Aircraft II, L.P.
We have audited the accompanying balance sheets of JetFleet(TM) Aircraft II,
L.P., a California Limited Partnership, as of December 31, 1996 and December 31,
1995, and the related statements of operations, partners' capital and cash flows
for the years ended December 31, 1996, December 31, 1995 and December 31, 1994.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of JetFleet(TM) Aircraft II, L.P.,
at December 31, 1996 and December 31, 1995, and the results of its operations
and its cash flows for the years ended December 31, 1996, December 31, 1995 and
December 31, 1994 in conformity with generally accepted accounting principles.
VOCKER KRISTOFFERSON AND CO.
February 6, 1997
San Mateo, California
<PAGE>
JetFleet(TM) Aircraft II, L.P.
Balance Sheets
<TABLE>
<CAPTION>
ASSETS
December 31,
1996 1995
<S> <C> <C>
Current assets
Cash ..................................................................$ 1,191,914 $ 1,364,593
Receivable from affiliates ............................................ -- 45,000
Reserves receivable from lessees ........................................ 29,781 --
Lease payments receivable ............................................... 540,000 960,000
----------- -----------
Total current assets .................................................. 1,761,695 2,369,593
Aircraft and aircraft engines under operating
leases and aircraft held for operating leases,
net of accumulated depreciation of
$10,425,030 in 1996 and $7,213,339 in 1995 .................................. 14,435,613 17,520,291
Lease payments receivable ...................................................... 180,000 1,275,000
Organization and offering costs, net of
accumulated amortization of $123,141 in 1996
and $91,214 in 1995 ......................................................... 32,895 64,822
----------- -----------
$16,410,203 $21,229,706
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable ......................................................$ 112,519 $ 119,254
Accrued maintenance costs ............................................. 501,072 410,702
Payable to affiliates ................................................. 10,933 49,075
Security deposits ..................................................... 143,101 140,415
Unearned interest income .............................................. 79,186 287,373
Prepaid rent received ................................................. 27,553 15,000
----------- -----------
Total current liabilities ............................................. 874,364 1,021,819
Unearned interest income ...................................................... 8,793 174,032
----------- -----------
Total liabilities .............................................................. 883,157 1,195,851
Partners' capital
(Limited partners 1,100,000 authorized
Units, 693,505 issued Units in 1996 and 1995) ........................ 15,527,046 20,033,855
----------- -----------
$16,410,203 $21,229,706
========== ===========
</TABLE>
See accompanying notes.
<PAGE>
JetFleet(TM) Aircraft II, L.P.
Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Revenues:
Rental income $ 2,658,450 $ 2,601,541 $ 3,796,913
Gain on sale of aircraft 94,081 - -
Gain / (Loss) on sale of
aircraft engines 34,860 (46,090) (6,868)
Interest income 265,359 236,631 33,514
----------- ----------- -----------
3,052,750 2,792,082 3,823,559
----------- ----------- -----------
Costs and expenses:
Management fees 113,657 102,440 190,137
Depreciation of aircraft
and aircraft engines 3,260,014 3,372,163 2,347,282
Amortization of organization
and offering costs 31,927 31,927 31,086
Professional fees 36,511 50,438 28,242
Maintenance costs 119,252 153,096 206,308
General and administrative 347,971 242,779 175,884
----------- ----------- -----------
3,909,332 3,952,843 2,978,939
----------- ----------- -----------
Net (loss) income $ (856,582) $(1,160,761) $ 844,620
=========== =========== ===========
Allocation of net(loss) income:
General partners $ 182,511 $ 167,240 $ 213,592
Limited partners (1,039,093) (1,328,001) 631,028
----------- ----------- -----------
$ (856,582) $(1,160,761) $ 844,620
=========== ===========
Per Limited Partner Unit $ (1.50) $ (1.91) $ 0.93
=========== =========== ===========
Weighted average Limited
Partner Units outstanding 693,505 693,505 675,964
=========== =========== =============
</TABLE>
See accompanying notes.
<PAGE>
JetFleet(TM) Aircraft II, L.P.
Statements of Partners' Capital
For the Years Ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
Limited
Partner Limited General
Units Partners Partners Total
<S> <C> <C> <C> <C>
Balance, December 31, 1993 599,757 $ 23,890,926 $ - $ 23,890,926
Capital contributions 93,748 4,687,400 - 4,687,400
Offering costs (611,706) - (611,706
Distributions ($6.00 per
weighted average Limited
Partner Unit) - (4,058,238) (213,592) (4,271,830)
Net income 631,028 213,592 844,620
---------- -------------- ------------- ---------------
Balance, December 31, 1994 693,505 24,539,410 - 24,539,410
Distributions ($4.58 per
Limited Partner Unit) - (3,177,553) (167,240) (3,344,793)
Net loss (1,328,001) 167,240 (1,160,761)
---------- -------------- ------------- ---------------
Balance, December 31, 1995 693,505 20,033,856 - 20,033,856
Distributions ($5.00 per
Limited Partner Unit) - (3,467,715) (182,511) (3,650,226)
Net loss (1,039,093) 182,511 (856,582)
---------- -------------- ------------- ---------------
Balance, December 31, 1996 693,505 $ 15,527,046 $ - $ 15,527,046
========== =============== ============= ===============
</TABLE>
See accompanying notes.
<PAGE>
JetFleet(TM) Aircraft II, L.P.
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Operating activities:
Net (loss) income $ (856,582) $(1,160,761) $ 844,620
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
(Gain) / loss on sale of aircraft engines (34,860) 46,090 6,868
Gain on sale of aircraft 94,081 - -
Depreciation of aircraft
and aircraft engines 3,260,014 3,372,163 2,347,282
Amortization of organization
and offering costs 31,927 31,927 31,086
Change in operating assets
and liabilities:
Receivable from affiliates 45,000 (32,558) (12,442)
Rent receivable - 75,000 166,678
Reserves receivable from lessees (29,781) - -
Accounts payable (6,735) 78,572 (93,726)
Accrued maintenance costs 90,370 181,575 150,923
Unearned interest income (279,345) (185,430) (3,014)
Payable to affiliates (38,142) 37,500 (99,808)
Security deposits 2,686 66,800 -
Prepaid rent received 12,553 15,000 (139,153)
----------- ----------- -----------
Net cash provided by operating activities 2,103,024 2,525,878 3,199,314
----------- ----------- -----------
Investing activities:
Proceeds from sale of aircraft engines 211,000 5,089,344 190,000
Proceeds from sale of aircraft 735,000 - -
Purchase of interests in
aircraft and aircraft engines (351,477) (3,696,146) (4,222,146)
Payments received on capital lease 780,000 420,000 45,000
Net cash provided by (used in)
investing activities 1,374,523 1,813,198 (3,987,146)
----------- ----------- -----------
Financing activities:
Capital contributions - - 4,687,400
Distributions (3,650,226) (3,344,793) (4,271,830)
Offering costs - - (611,706)
Organization costs - - (21,093)
----------- ----------- -----------
Net cash used in
financing activities (3,650,226) (3,344,793) (217,229)
------------ ------------ -----------
Net (decrease) increase in cash (172,679) 994,283 (1,005,061)
Cash, beginning of period 1,364,593 370,310 1,375,371
----------- ----------- -----------
Cash, end of period $ 1,191,914 $ 1,364,593 $ 370,310
=========== =========== ============
</TABLE>
Supplemental schedule of noncash investing and financing activities:
JetFleet II(TM) entered into capital leases for its interests in one DC-9
aircraft during 1994 and two DC-9 aircraft during 1995. In conjunction with the
leases, a liability for unearned interest income was recorded at the beginning
of the lease as follows:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Minimum lease payments receivable $ 540,000 $ 2,160,000
Cost of interest of aircraft leased (412,851) (1,637,300)
----------- -----------
Unearned interest income $ 127,149 $ 522,700
</TABLE>
=========== ===========
See accompanying notes.
<PAGE>
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
1. Summary of Significant Accounting Policies
Basis of presentation
JetFleet(TM) Aircraft II, L.P. ("JetFleet II(TM)") is a California
limited partnership formed on June 24, 1991 for the purpose of acquiring, on a
world-wide basis, a portfolio of aircraft and aircraft engines, or interests
therein, which are subject to triple net leases. The corporate general partner
of JetFleet II(TM) (the "Corporate General Partner") is CMA Capital Group
("Group"), a California corporation formed in February 1989. The individual
general partners, Neal D. Crispin and Richard D. Koehler (the "Individual
General Partners"), are the founding principals of the Corporate General
Partner. Group is exclusively entitled to manage JetFleet II's(TM) business.
Capital Management Associates ("CMA"), a subsidiary of CMA Consolidated, Inc.,
an affiliated California corporation owned by Mr. Crispin, provides certain
accounting and investor-related services for Group. JetFleet(TM) Management
Corp. ("JMC") an affiliated California corporation formed in January 1994 owned
by the individual general partners and an officer of CMA has been authorized to
perform remarketing duties on behalf of JetFleet II(TM). Crispin Koehler
Securities, an affiliated California corporation owned by Messrs. Crispin and
Koehler, provides certain administrative and investor-related services for
Group. JetFleet II(TM) owns interests in certain aircraft in which JetFleet(TM)
Aircraft, L.P. ("JetFleet(TM)"), an affiliated California limited partnership,
also owns interests. JetFleet II(TM) has had significant transactions with these
affiliates as well as Range Systems Engineering, Aviation Enterprises 1988, Inc.
("AEI"), Eclipse Airlines, Inc. ("Eclipse"), an affiliate of AEI, Airwork
Corporation ("Airwork"), The AGES Group, L.P., a Limited Partnership ("AGES"),
the National Airline Commission of Papua New Guinea (trading as Air Niugini)
("Air Niugini") and Air Tindi Limited ("Air Tindi"). The Corporate General
Partner contributed $750 to the capital of JetFleet II(TM).
Aircraft and aircraft engines under operating leases and aircraft held
for operating leases
JetFleet II's(TM) interests in aircraft and aircraft engines are
recorded at cost, which includes acquisition costs and loan fees. JetFleet
II(TM) also pays and capitalizes an acquisition fee equal to 1.5% of the
adjusted purchase price of each asset. The capitalization of each asset is
discussed in detail in Note 3. Depreciation is computed using the straight-line
method over the aircraft's estimated economic life to a zero residual value.
Beginning in 1995, JetFleet II(TM) reduced the estimated economic life of the
Dash-7 aircraft from 12 to 8 years to reflect technological change. This change
had the effect of increasing depreciation by $1,068,972 and increasing the net
loss by $1,068,972, or $1.54 per Limited Partnership Unit outstanding in 1995.
At the same time, JetFleet II(TM) began using an 8-year estimated economic life
for depreciating any newly acquired aircraft.
<PAGE>
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
1. Summary of Significant Accounting Policies (continued)
Organization and offering costs
Pursuant to the terms of the Partnership Agreement, a non-accountable
organizational and offering expense allowance, in an amount equal to 3% of
limited partner capital contributions, is paid to Group for reimbursement of
certain organizational and offering expenses incurred in connection with the
formation and offering of units in JetFleet II(TM). A portion of the allowance
is capitalized as organization and offering costs and is being amortized using
the straight-line method over 60 months. The remaining amount, along with sales
commissions, investment banking fees, and due diligence reimbursements, is
reflected as a direct reduction of partners' capital contributions.
Investments in capital leases
JetFleet II's(TM) investments in the three McDonnell Douglas DC-9
aircraft are recorded as investments in capital leases. The gross investment in
each is recorded as lease payments receivable while the difference between the
gross investment and the acquisition cost of each respective DC-9 is recorded as
unearned interest income (see Note 4).
Income taxes
Income taxes are the liability of the individual partners; accordingly,
the financial statements do not include any provision for income taxes. At
December 31, 1996, assets and liabilities on a tax basis were approximately $3
million lower than on a book basis due to accelerated depreciation used for tax
purposes.
Cash balances
As of December 31, 1996, JetFleet II(TM) maintained cash balances of
$655,039, $226,597, $188,025 and $64,413 in four large open-end money funds,
which are not federally insured. JetFleet II(TM) also maintained a cash balance
of $231,972 in a regional bank headquartered in San Francisco, $131,972 of which
is not federally insured. JetFleet II(TM) has accumulated cash in excess of the
federally insured amount as it searches for suitable investments using proceeds
from assets previously sold and in order to make quarterly distributions.
JetFleet II(TM) is also accumulating maintenance reserves collected from various
lessees which will be used to fund certain scheduled maintenance and repairs
required for certain aircraft.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
<PAGE>
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
2. Allocation of Income, Losses and Distributions
Pursuant to the Partnership Agreement, all revenues and expenses and
income and losses are generally allocated 95% to the limited partners and 5% to
the general partners. In accordance with the Partnership Agreement, during 1994,
1995 and 1996, additional revenues were specially allocated to the general
partners to bring their capital account to a zero balance. Cash distributions
from JetFleet II's(TM) operations are made 95% to the limited partners and 5% to
the general partners.
3. Aircraft and Aircraft Engines Under Operating Leases and Aircraft Held
for Operating Leases
Aircraft
deHavilland DHC-103, serial number 72 ("S/N 72")
CMA purchased a 100% undivided interest in S/N 72 on November 15, 1991,
at a cost of $6,277,006, for the purpose of reselling the undivided interests to
JetFleet II(TM) and JetFleet(TM).
JetFleet II(TM) agreed to purchase CMA's undivided interest in S/N 72
at a price equal to CMA's cost, including chargeable acquisition costs and loan
fees, in one or more installments as funds were raised in the JetFleet II(TM)
offering and became available for investment. As a result, JetFleet II(TM) held
an undivided interest of 75.53% at December 31, 1996. JetFleet(TM) and AEI own
the remaining 24.37% and 0.10% undivided interests, respectively, at December
31, 1996. The total cost of $5,223,047 paid to CMA for JetFleet II's(TM) 75.53%
undivided interest included reimbursement of chargeable acquisition and loan
fees, and acquisition fees totaling $481,817.
Upon the return of S/N 72 by Johnson Controls World Services, Inc.
("JCWS") in June 1993, discussed below, a collision-avoidance radar system
("TCAS") was installed on the aircraft in order to comply with FAA regulations
regarding commercial airline operations. In connection with the TCAS
installation, JetFleet II(TM) paid and capitalized $105,630 which represents its
pro rata share of the cost. This amount is being depreciated over the remaining
depreciable life of S/N 72.
deHavilland DHC-7-102, serial number 57 ("S/N 57")
During 1992, JetFleet II(TM) purchased a 4.00% undivided interest in
S/N 57 for $199,752, including an acquisition fee of $2,952. The remaining
undivided interests in S/N 57 are held 95.90% by JetFleet(TM) and 0.10% by AEI
at December 31, 1996.
<PAGE>
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
3. Aircraft and Aircraft Engines Under Operating Leases and Aircraft Held
for Operating Leases (continued)
Aircraft (continued)
deHavilland DHC-7-102, serial number 44 ("S/N 44")
During 1992, JetFleet II(TM) purchased undivided interests totaling
100.00% in S/N 44 for $5,208,656, in a series of monthly installments. The total
cost included reimbursement of chargeable acquisition costs and acquisition fees
totaling $126,656.
deHavilland DHC-7-103, serial number 11 ("S/N 11")
CMA purchased a 100% undivided interest in S/N 11 on October 30, 1992,
at a cost of $5,900,000, for the purpose of reselling the undivided interests to
JetFleet II(TM). JetFleet II(TM) purchased CMA's undivided interest in S/N 11 at
a price equal to CMA's cost, plus chargeable acquisition costs, loan fees and
acquisition fees totaling $325,556, in installments as funds were raised in the
JetFleet II(TM) offering and became available for investment. As a result,
JetFleet II(TM) held an undivided interest of 100.00% at December 31, 1996.
deHavilland DHC-6-310, serial number 666 ("S/N 666")
JMC purchased a 100% undivided interest in S/N 666 on January 31, 1995,
at a cost of $850,000, for the purpose of reselling the undivided interest to
JetFleet II(TM). In April 1995, JetFleet II(TM) purchased JMC's undivided
interest in S/N 666 at a price equal to JMC's cost plus chargeable acquisition
costs, loan fees and acquisition fees totaling $40,923.
Fairchild Metro III SA-227-AC, serial number AC-576 ("S/N 576")
JetFleet II(TM) purchased a 100% undivided interest in S/N 576 on June
30, 1995, at a cost of $1,140,000. In connection with the purchase, JetFleet
II(TM) paid $25,750 in chargeable acquisition costs and acquisition fees.
Fairchild Metro II SA-226-TC, serial number TC-370 ("S/N 370")
On February 27, 1996, JetFleet II(TM) purchased a 50% undivided
interest in a Fairchild SA226-TC aircraft, serial number TC-370 ("S/N TC-370")
at a cost of $341,750. CMA Capital Management, Inc., a subsidiary of CMA
Consolidated, Inc., purchased the remaining 50% interest at the same time.
During 1996, JetFleet III(TM), an affiliate of JetFleet II(TM), purchased the
50% interest from CMA Capital Management, Inc. In connection with the
acquisition, JetFleet II(TM) paid a total of $9,727 to CMA Capital Group in
chargeable acquisition costs and acquisition fees.
<PAGE>
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
3. Aircraft and Aircraft Engines Under Operating Leases and Aircraft Held
for Operating Leases (continued)
Aircraft engines (continued)
Aircraft engines
In March 1993, JetFleet II(TM) agreed to purchase, in monthly
installments twenty-five used aircraft engines (the "Airwork Engines"). At
December 31, 1996 JetFleet II(TM) held 100.00% undivided interests in all of the
Airwork engines, comprised of four Pratt & Whitney PT6A-42 aircraft engines,
nine Pratt & Whitney PT6A-41 aircraft engines, five Pratt & Whitney PT6A-41
aircraft engines, two Pratt & Whitney PT6A-28 aircraft engines, one Pratt &
Whitney PT6A-65 aircraft engine, one Pratt & Whitney PT6A-45 aircraft engine,
one Pratt & Whitney PT6A-65R aircraft engine, and two Allison A-250-C30P
aircraft engines.
The total acquisition cost of $5,498,993 included reimbursement for
chargeable acquisition costs and acquisition fees totaling $301,493. During
January 1996, Airwork notified JetFleet II(TM) of an event of loss concerning
one of the Airwork Engines (the "Lost Airwork Engine"). Rather than replace the
Lost Airwork Engine, Airwork chose to pay to JetFleet II(TM) the stipulated loss
value as stated in the lease agreement for the Airwork Engines ($211,000).
JetFleet II(TM) recognized a gain of $34,860 on the disposition of the Lost
Airwork Engine.
During December 1993, JetFleet II(TM) purchased two Pratt & Whitney
PT6A-50 aircraft engines (the "AEI Engines") for $433,608 which included
reimbursement of acquisition costs and acquisition fees totaling $13,608. On
December 1, 1994, JetFleet II(TM) sold one of the AEI Engines to deHavilland,
Inc. for $190,000. JetFleet II(TM) recognized a loss of $6,868 in connection
with this transaction.
In December 1993 and during the first quarter of 1994, JetFleet II(TM)
purchased three Pratt & Whitney JT8D-217A aircraft engines (the "AGES Engines")
from AGES. The total cost of the three engines including reimbursement of
acquisition costs and acquisition fees totaling $173,312 was $5,871,824. During
the first quarter of 1995, JetFleet II(TM) and AGES agreed to rescind the AGES
Engines purchase transaction. JetFleet II(TM) received a total of $5,089,344 in
proceeds from the rescission during the first and second quarters of 1995.
The Dash-7 leases
At the time of purchase, all four Dash-7's were subject to triple net
leases with JCWS under an eight year contract, which commenced in 1986, with the
United States Army for use in the Marshall Islands at the site of the Army's
deep space research center where missile guidance systems are tested.
Under the terms of the sales agreements for the aircraft, AEI receives
4% of monthly lease revenues during the first eight years of the lease in return
for providing remarketing and certain other services in connection with the
lease, release and resale of the aircraft.
<PAGE>
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
3. Aircraft and Aircraft Engines Under Operating Leases and Aircraft Held
for Operating Leases (continued)
The Dash-7 leases (continued)
In April 1993, JetFleet II(TM) was notified that JCWS would not renew
the lease of one of the aircraft. As a result of subsequent negotiations,
JetFleet II(TM), JetFleet(TM) and AEI (collectively, the "Co-Owners") agreed to
terminate the initial lease on S/N 72 as soon as the airplane was fully
inspected to confirm that it had been returned in the condition required under
the lease. The Co-Owners accepted the return of S/N 72 on June 25, 1993.
AEI was obligated for up to six months of rental payments for the early
termination of S/N 72, net of rent payments received on S/N 72 and economic
adjustments received during the period. JCWS agreed to pay an economic
adjustment totaling $242,893 to the Co-Owners of S/N 72. This payment is based
upon the difference between the condition of certain aircraft components at the
time of S/N 72's delivery to JCWS and the time of its return to the Co-Owners.
JetFleet II(TM) received $230,517 from JCWS' payment of the economic adjustment,
as well as $29,281 of additional rent from AEI. JCWS paid the economic
adjustment during February 1994; AEI's obligation was fulfilled in January 1994.
On August 13, 1993, S/N 72 was re-leased to Eclipse. The lease was a
triple net lease with a term of one year, except that it was cancelable by any
party on 30 days' notice. The rental amount, paid monthly, was equal to $400 per
hour of usage during the month.
On October 19, 1993, due to an event of default by Eclipse under the
Eclipse Lease, the Co-Owners terminated the Eclipse Lease and repossessed the
aircraft. Since Eclipse had no immediate need for S/N 72, Eclipse and the
Co-Owners agreed that the Co-Owners would enter into a short-term lease with
another party, at the expiration of which the Eclipse lease would be reinstated.
At the same time, Eclipse also paid all overdue rent and reserve charges. The
Co-Owners and Eclipse mutually agreed in June 1994 not to reinstate the Eclipse
Lease.
On December 22, 1993 the Co-Owners entered into a lease (the "AGES
Lease") with AGES for a term not to exceed ninety days. AGES had subleased S/N
72 to Alas Chiricanas S.A., a corporation conducting business in the Republic of
Panama. The lease was subsequently extended until September 1, 1994. JetFleet
II(TM) collected a total of $246,390 in rents from AGES during the term of the
lease.
S/N 72 was re-leased on March 22, 1995 to Air Niugini for a term of six
months. The lease was subsequently extended to October 31, 1995. JetFleet II(TM)
collected a total of $189,581 in rents from Air Niugini. In addition, Air
Niugini paid JetFleet II(TM) its share of maintenance costs of $121,058. Upon
its return from Air Niugini and at the direction of JetFleet II(TM) management,
S/N 72 underwent certain scheduled maintenance and other repair work.
<PAGE>
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
3. Aircraft and Aircraft Engines Under Operating Leases and Aircraft Held
for Operating Leases (continued)
The Dash-7 leases (continued)
On April 25, 1996, S/N 72 was leased to Air Tindi Limited ("Air Tindi")
for a term of thirty-six months. Air Tindi has provided a letter of credit in
the amount of $142,000 which serves as a security deposit under the lease. In
addition, Air Tindi pays JetFleet II(TM) its pro-rata share of maintenance costs
of $265.00 per hour of usage, which amount is to be applied for scheduled
overhauls and inspections. Air Tindi is a regional airline headquartered in
Yellowknife, Northwest Territories, Canada and provides charter and regularly
scheduled flights throughout the Northwest Territories. JetFleet II(TM)
collected a total of $322,891 from Air Tindi during 1996.
During 1994 the current leases for S/N 57, S/N 44 and S/N 11 were
extended, at reduced rent, through September 30, 1995. A new contract with the
United States Army commenced on February 15, 1995 for a term of two years with
three two-year renewal options. During 1995, the leases for all three aircraft
were extended through September 30, 1996. During 1996, the current leases for
all three aircraft were extended, at reduced rent, through September 30, 1998.
Other aircraft leases
S/N 666 is leased to Loganair Limited, a British Airways franchisee
("Loganair"), for a term expiring on January 30, 1998 (the "Loganair Lease"). As
part of the purchase of S/N 666 from JMC, JMC assigned the Loganair Lease to
JetFleet II. Loganair also pays, on a monthly basis, maintenance costs based on
usage. JetFleet II(TM) holds a security deposit from Loganair of $45,000 in an
interest-bearing account (which interest accrues for the benefit of Loganair).
Under the Loganair Lease, the lessee holds two extension options for up to an
additional 39 months.
S/N 576 is subject to a lease with Merlin Express, Inc., a subsidiary
of Fairchild Aircraft Incorporated ("Merlin"), for a term expiring on July 18,
1999 (the "Merlin Lease"). The Merlin Lease contains a guaranty by Fairchild
Aircraft Incorporated for the equivalent of six months of rent. As part of the
purchase of S/N 576, the seller assigned the Merlin Lease to JetFleet II(TM).
Merlin also pays, on a monthly basis, maintenance costs based on usage. JetFleet
II(TM) holds a security deposit from Merlin of $45,000 in an interest-bearing
account (which interest accrues for the benefit of Merlin).
<PAGE>
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
3. Aircraft and Aircraft Engines Under Operating Leases and Aircraft Held
for Operating Leases (continued)
The aircraft engine leases
S/N TC-370 is subject to a lease with Sunbird Air Services, Ltd. for a
term expiring September 30, 2000 (the "Sunbird Lease"). The Sunbird Lease
contains a guaranty by the seller for basic rent in an amount not to exceed a
total aggregate amount of $29,250 (which guaranty is shared equally by JetFleet
II(TM) and JetFleet III(TM)). As part of the purchase of S/N TC-370, the seller
assigned its interests and obligations under the Sunbird Lease to JetFleet
II(TM).
The Airwork Engines acquired by JetFleet II(TM) are leased back to
Airwork pursuant to a master lease (the "Airwork Lease") between Airwork and
JetFleet II(TM). The Airwork Lease is a triple net lease, has an initial
seven-year term (which expires on April 30, 2000), and Airwork has two two-year
renewal options. UNC Incorporated, the parent of Airwork, has guaranteed the
obligations of Airwork under the Airwork Lease. Upon the purchase of each engine
by JetFleet II(TM), Airwork was required to pay a security deposit equal to one
month of rent.
The remaining AEI Engine is currently off lease. JetFleet II(TM)
management is currently negotiating lease and/or sale arrangements for the
engine.
The AGES Engines were leased to GPA Group plc ("GPA") and subleased to
Aerovias de Mexico, S.A. de C.V. ("AeroMexico"). As mentioned above, JetFleet
II(TM) and AGES agreed during the first quarter of 1995 to rescind the AGES
Engines purchase by JetFleet II(TM). JetFleet II(TM) received a total of
$150,000 in rental payments during 1995 for the AGES Engines.
Future minimum rents
The following is a schedule of future minimum rental income by year
under the existing leases:
<TABLE>
<CAPTION>
Year Amount
<S> <C> <C>
1997 $ 2,634,081
1998 2,219,521
1999 1,050,771
2000 542,686
$ 6,447,059
</TABLE>
<PAGE>
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
3. Aircraft and Aircraft Engines Under Operating Leases and Aircraft Held
for Operating Leases (continued)
Detail of investment
The following schedule provides an analysis of JetFleet II's(TM)
investment in aircraft under operating leases and aircraft held for operating
leases as of December 31, 1995, additions and disposals during 1996, and as of
December 31, 1996:
<TABLE>
<CAPTION>
December 31 December 31,
1995 Additions Disposals 1996
---- --------- --------- ----
<S> <C> <C> <C> <C>
S/N 72 $ 5,328,677 $ - $ - $ 5,328,677
S/N 57 199,752 - - 199,752
S/N 44 5,208,656 - - 5,208,656
S/N 11 6,225,556 - - 6,225,556
Airwork Engines 5,498,993 - (224,464) 5,274,529
AEI Engine 213,150 - - 213,150
S/N 370 - 351,477 - 351,477
S/N 666 893,096 - - 893,096
S/N 576 1,165,750 - - 1,165,750
----------- ----------- --------- ------------
24,733,630 351,477 (224,464) 24,860,643
Less accumulated
depreciation (7,213,339) (3,260,014) 48,323 (10,425,030)
------------ ----------- --------- ------------
$17,520,291 $(2,908,537) $(176,141) $ 14,435,613
=========== =========== ========= ============
</TABLE>
The following schedule provides an analysis of JetFleet II's(TM)
investment in aircraft under operating leases and aircraft held for operating
leases and the related accumulated depreciation for the years ended December 31,
1994, 1995 and 1996:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation Net
<S> <C> <C> <C>
Balance,
December 31, 1993 $24,872,259 $ (2,168,361) $22,703,898
Additions 4,222,146 (2,347,282) 1,874,864
Disposals (626,001) 16,282 (609,719)
----------- ------------ -----------
Balance,
December 31, 1994 28,468,404 (4,499,361) 23,969,043
Additions 3,696,146 (3,372,163) 323,983
Disposals (7,430,920) 658,185 (6,772,735)
----------- ------------ -----------
Balance,
December 31, 1995 $24,733,630 $ (7,213,339) $17,520,291
Additions 351,477 (3,260,014) (2,908,537)
Disposals (224,464) 48,323 (176,141)
----------- ------------ -----------
Balance,
December 31, 1996 $24,860,643 $(10,425,030) $14,435,613
=========== ============ ===========
</TABLE>
<PAGE>
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
4. Investments in Capital Leases
McDonnell Douglas DC-9-32, serial number 47236 ("First DC-9")
On December 16, 1994, JetFleet II(TM) purchased a 50% undivided
interest in the First DC-9 for $400,000 plus reimbursement of chargeable
acquisition costs and acquisition fees totaling $12,851. JetFleet(TM) purchased
the remaining 50% interest at the same time. The First DC-9 was leased back to
the seller, Interglobal, Inc. for thirty-six months at a monthly rate of
$30,000, of which JetFleet II(TM) is entitled to $15,000 (the "First DC-9
Lease"). The First DC-9 is currently sub-leased to and being operated by Aero
California S.A. de CV. As discussed in Note 1 above, JetFleet II's(TM)
investment in the First DC-9 is being accounted for as a capital lease. The
investment is essentially a financing in which JetFleet II(TM) will recover its
investment over the term of the lease. Interglobal, Inc. has a purchase option
for a nominal amount which may be exercised upon expiration of the First DC-9
Lease. In 1996, JetFleet II(TM) recorded $43,238 of interest income attributable
to the First DC-9 Lease.
McDonnell Douglas DC-9-14, serial number 45702 ("Second DC-9")
On July 10, 1995, JetFleet II(TM) purchased a 100% undivided interest
in the Second DC-9 for $800,000 plus reimbursement of chargeable acquisition
costs and acquisition fees totaling $18,850. The Second DC-9 is subject to
similar lease terms as the First DC-9 and is accounted for in the same manner.
In 1996, JetFleet II(TM) recorded $119,157 of interest income attributable to
the lease of the Second DC-9.
McDonnell Douglas DC-9-32, serial number 47553 ("Third DC-9")
On August 31, 1995, JetFleet II(TM) purchased a 100% undivided interest
in the Third DC-9 for $800,000 plus reimbursement of chargeable acquisition
costs and acquisition fees totaling $18,450. The Third DC-9 was also subject to
similar lease terms as the First DC-9 and was accounted for in the same manner.
During 1996, JetFleet II(TM) agreed to resell the Third DC-9 and reassign the
sublease to the original seller, Interglobal, Inc. In 1996, JetFleet II(TM)
recorded $71,950 of interest income attributable to the lease of the Third DC-9.
Future minimum lease payments
The following is a schedule of maturities of lease payments receivable
and recognition of unearned interest income:
<TABLE>
<CAPTION>
Collection Interest
on Income
Year Receivable Recognition
---- ---------- -----------
<S> <C> <C> <C>
1997 $540,000 $79,186
1998 180,000 8,793
-------- -------
$720,000 $87,979
======== =======
</TABLE>
<PAGE>
JetFleet(TM) Aircraft II, L.P.
Notes to Financial Statements
5. Related Party Transactions
In connection with the organization and offering of units in JetFleet
II(TM), Group received a non-accountable organizational and offering expense
allowance of $140,622 in 1994, for reimbursement of certain organizational and
offering expenses, as discussed in Note 1. In addition, CKS Securities,
Incorporated, a member of the National Association of Securities Dealers, Inc.
and an affiliate of the general partners, received sales commissions, investment
banking fees, and due diligence reimbursements of $492,177 in 1994, portions of
which were paid to third parties.
As discussed in Note 3, JetFleet II's(TM) investment in aircraft and
aircraft engines includes reimbursements to CMA and Group for chargeable
acquisition costs. These amounts, which totaled $4,533, $41,097 and $61,750 in
1996, 1995 and 1994, respectively, included legal and consulting costs in
connection with the acquisition of the aircraft, as well as appraisal and title
insurance costs. JetFleet II(TM) also reimbursed JMC for loan fees incurred of
$16,251 in 1995 and paid Group acquisition fees of $5,194, $54,376 and $62,396
in 1996, 1995 and 1994, respectively.
Group receives an equipment management fee ($43,249, $48,857 and
$93,920 in 1996, 1995 and 1994, respectively) equal to 3% of gross rentals
received by JetFleet II(TM) from operating leases and 2% of gross rentals from
full payout leases.
JetFleet II(TM) did not pay a resale fee (normally 3% of the contract
sales price of each asset sold) to Group or any third-party in connection with
the sale of the AEI Engine or the rescission of the AGES Engines purchase.
JetFleet II(TM) paid a resale fee of to Group in connection with the Third DC-9
transaction in the amount of $13,700 in 1995.
JetFleet II(TM) pays for all direct, indirect, administrative and
overhead expenses incurred on its behalf by Group and its affiliates. In 1996,
1995 and 1994, $301,407, $220,361, and $151,430, respectively, was reimbursable
by JetFleet II(TM) to Group or its affiliates in connection with the
administration and management of JetFleet II(TM).
All of the above fees payable by JetFleet II(TM) to Group were paid to
Group which in turn reimbursed CMA or its affiliates which had incurred costs in
connection with the organization and offering of units in, and the
administration and management of, JetFleet II(TM).
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
FINANCIAL DISCLOSURE
JetFleet II(TM) had no change in or disagreements with
accountants during the years ended December 31, 1995 and 1996.
<PAGE>
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS
General
JetFleet II(TM) is a California limited partnership and has no
directors or executive officers. The Corporate General Partner of JetFleet
II(TM) is CMA Capital Group, a California corporation formed in February 1989
and a wholly-owned subsidiary of CMA Capital Corporation (which was formed in
January 1989). The Individual General Partners, Neal D. Crispin and Richard D.
Koehler, are the founding principals of the Corporate General Partner and the
owners of CMA Capital Corporation. On April 1, 1992, CMA Capital Group, L.P. was
formed for the sole purpose of acting as an additional General Partner. The
Individual General Partners were the general partners of CMA Capital Group, L.P.
and PSC Aircraft Leasing, Inc., a California corporation, was the sole limited
partner. During April 1994, CMA Capital Group, L.P. was dissolved. Following the
dissolution of CMA Capital Group, L.P., and pursuant to the JetFleet II(TM)
Limited Partnership Agreement, the Corporate General Partner elected to continue
the business of JetFleet II(TM).
The General Partners are responsible for the management and
operation of the business of JetFleet II(TM). The Corporate General Partner is
designated by the Partnership Agreement as JetFleet II's(TM) Managing General
Partner and, as such, is responsible for most management decisions. The
Corporate General Partner generally has responsibility for supervising JetFleet
II's(TM) day-to-day operations, including compliance with legal and regulatory
requirements, and is responsible for cash management, distributions to
Unitholders and communications between JetFleet II(TM) and the Unitholders. The
Partnership Agreement authorizes the Corporate General Partner, in its sole
discretion, to acquire, hold title to, sell, lease, re-lease or otherwise
dispose of aircraft and aircraft engines, or any interest therein, on behalf of
JetFleet II(TM) when and upon such terms as the Corporate General Partner
determines to be in the best interests of JetFleet II(TM), subject to certain
limitations set forth in the Prospectus. As mentioned above, the Corporate
General Partner has authorized JMC to perform remarketing duties on behalf of
JetFleet II(TM) (see "Business" above).
Directors and Officers
The directors, executive officers and key employees of the
Corporate General Partner, each of whom serves until his successor is elected
and qualified, are as follows:
Name Position Held
Neal D. Crispin President, Chief Executive Officer,
Chief Financial Officer and
Chairman of the Board of Directors of
the Corporate General Partner
Richard D. Koehler Executive Vice President and Director
of the Corporate General Partner
Richard D. Fitzsimmons Aircraft Portfolio Manager of the
Corporate General Partner
Neal D. Crispin, age 51, is the Chief Executive Officer and
Chairman of the Board of Directors of the Corporate General Partner and
President and Director of JMC. From 1983 to the present, he has also served as
the Chief Executive Officer and Chairman of the Board of Directors of Capital
Management Associates, a corporation involved in the development and management
of investor-funded equipment leasing programs. Before forming Capital Management
Associates in 1983, from 1981 to 1983 Mr. Crispin was Vice President - Finance
of Highlands Energy Corporation, an oil and gas company, and prior to 1981 was a
Manager with Arthur Young & Company, certified public accountants. He received a
Bachelors degree in Economics from the University of California, Santa Barbara
and a Masters degree in Business Administration from the University of
California, Berkeley. Mr. Crispin is a member of the American Institute of
Certified Public Accountants and the California Society of Certified Public
Accountants.
Richard D. Koehler, age 52, is the Executive Vice President
and a Director of the Corporate General Partner and President of CMA Capital
Corporation. From 1983 to the present, Mr. Koehler has also served as the
Executive Vice President and a Director of Capital Management Associates. From
1985 to the present, Mr. Koehler has served as the President and a registered
principal of CKS Securities, Incorporated (formerly Northwestern Capital
Management, Incorporated), a broker-dealer involved in the syndication of direct
participation programs and the managing broker-dealer with respect to this
offering. Prior to 1983, Mr. Koehler was Director of the Kansas City regional
office of the National Association of Securities Dealers, Inc. ("NASD").
Previously, Mr. Koehler was Assistant Director of the San Francisco regional
office of the NASD and served as national coordinator of all anti-fraud actions
brought by the NASD. Mr. Koehler received a Bachelors degree from Thiel College
in Greenville, Pennsylvania.
Richard G. Fitzsimmons, age 72, is Aircraft Portfolio Manager
of the Corporate General Partner and a member of the JMC Advisory Board. He has
over 38 years of experience in the aircraft industry. From 1972 until his
retirement in 1983, Mr. Fitzsimmons served McDonnell Douglas Corporation in
various capacities of increasing responsibility, including Director of Advanced
Engineering - Commercial Programs and Director of Advanced Program Engineering.
From 1970 to 1972, Mr. Fitzsimmons served as Assistant for Aeronautics, National
Aeronautics and Space Council, in the Executive Office of the President of the
United States, with principal responsibility for the content and preparation of
a comprehensive report to the President on the aerospace manufacturing and air
transport industries. Prior to 1980, Mr. Fitzsimmons spent 24 years at The
Boeing Company in various positions of increasing responsibility, including
Director - Product Research. Mr. Fitzsimmons has served as an advisor to the
Federal Aeronautics Administration. He received a Bachelor of Science degree in
Aeronautical Engineering from the University of Washington in 1946.
<PAGE>
The Individual General Partners
Messrs. Crispin and Koehler are the Individual General
Partners of JetFleet II(TM). Together with the Corporate General Partner, they
have responsibility for the overall management and operation of the business of
JetFleet II(TM). Either individual General Partner may resign from JetFleet
II(TM) under the conditions set forth in the Partnership Agreement and may be
removed by a majority vote of the Unitholders.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires
JetFleet II's(TM) general partners and persons who own more than 10% of JetFleet
II's(TM) Units, to file with the Securities and Exchange Commission ("SEC")
initial reports of ownership and reports of changes in ownership of Units and
other equity securities of JetFleet II(TM). General Partners and 10% Unitholders
are required by SEC regulation to furnish JetFleet II(TM) with copies of all
Section 16(a) forms they file.
To JetFleet II's(TM) knowledge, based solely upon a review of
Form 3 furnished to JetFleet II(TM) pursuant to Rule 16a-3(e) during 1996, no
person who, at any time during 1996, was a General Partner or beneficial owner
of more than 10% of the Units failed to file on a timely basis, as disclosed in
the above forms, reports required by Section 16(a) during 1996 or prior years.
ITEM 11: EXECUTIVE COMPENSATION
JetFleet II(TM) is a limited partnership and has no employees,
officers or directors. The following is a summary of the compensation and
reimbursements paid to the General Partners and their affiliates by JetFleet
II(TM) for the years ended December 31, 1994, 1995 and 1996.
Compensation
In connection with the organization of JetFleet II(TM) and the
offering of Units in JetFleet II(TM), the Corporate General Partner received
from JetFleet II(TM) a non-accountable organization and offering expense
allowance in an amount equal to 3% of the gross proceeds from the sale of Units
in the offering ("Gross Sales Proceeds"). The amount of the organization and
offering costs other than sales commissions, investment banking fees and
reimbursement of broker-dealer (due diligence expenses) was less than this
allowance. Therefore, the Corporate General Partner will be entitled to retain
the difference. During 1994, JetFleet II(TM) paid the Corporate General Partner
a non-accountable organization and offering expense allowance of $140,622.
In connection with the purchase of aircraft by JetFleet
II(TM), the Corporate General Partner received from JetFleet II(TM) an
acquisition fee equal to 1.5% of the adjusted purchase price of the aircraft.
During 1994, JetFleet II(TM) paid aggregate acquisition fees to the Corporate
General Partner of $62,396 in connection with aircraft acquisitions.
<PAGE>
The Corporate General Partner is entitled to receive an
equipment management fee with respect to JetFleet II's(TM) assets, including
remarketing of aircraft, monitoring lessee performance under the leases,
collecting revenues, paying operating expenses and otherwise managing the
aircraft, equal to 3% of gross rentals received by JetFleet II(TM) from
operating leases and 2% of gross rentals from full payout leases. The Corporate
General Partner earned $93,920, $48,857 and $43,249 in such fees in 1994, 1995
and 1996, respectively. As mentioned above, the Corporate General Partner has
authorized JMC to perform remarketing duties on behalf of JetFleet II(TM). The
equipment management fee will be reduced to the extent that any payments are
made to JMC or other third parties who perform such duties on behalf of the
Corporate General Partner.
In the event of a sale of JetFleet II's(TM) aircraft, the
Corporate General Partner is entitled to receive a subordinated resale fee not
to exceed 3% of the sales price. This resale fee is reduced to the extent any
resale fee is paid to independent third parties rendering services in connection
with such resale. No resale fee was paid in connection with the sale of the AEI
Engine in 1994. A resale fee of $14,700 was paid on the sale of the Third DC-9
in 1996.
Crispin Koehler Securities (formerly CKS Securities,
Incorporated), the managing broker-dealer of the offering of Units and an
affiliate of the General Partners, was entitled to receive from JetFleet II(TM)
sales commissions equal to 8% of Gross Sales Proceeds, investment banking fees
equal to 2% of Gross Sales Proceeds and reimbursement of up to 0.5% of Gross
Sales Proceeds for accountable, bona fide due diligence expenses. Crispin
Koehler Securities reallowed all or a portion of these amounts to broker-dealers
participating in the offering. During 1994, Crispin Koehler Securities received
sales commissions, investment banking fees and reimbursement for due diligence
expenses of $492,177, portions of which were paid to third parties.
The Corporate General Partner is entitled to receive 5% of
JetFleet II's(TM) distributions to its partners. The Corporate General Partner's
share of distributions made during 1994, 1995 and 1996 was $213,592, $167,240
and $182,511, respectively.
Reimbursement
JetFleet II's(TM) investment in aircraft and aircraft engines
includes reimbursements to CMA Capital Group and its affiliates for chargeable
acquisition costs. These amounts, which totaled $61,750, $41,097 and $4,533 in
1994, 1995 and 1996, respectively, included legal and consulting costs in
connection with the acquisition of the aircraft, as well as appraisal and title
insurance costs. JetFleet II(TM) reimbursed JMC for loan fees incurred of
$16,251 in 1995 and paid CMA Capital Group acquisition fees of $62,396, $54,376
and $5,194 in 1994, 1995 and 1996, respectively.
<PAGE>
Each General Partner or affiliate of a General Partner is
entitled to receive reimbursement from JetFleet II(TM) for certain general and
administrative expenses which the General Partner or affiliate incurs on
JetFleet II's(TM) behalf. No reimbursement is allowed for any rent or utilities
expenses that might be incurred by any General Partner or affiliate or for
salaries, fringe benefits, general travel expenses or similar expenses of any
officer, director or holder of 5% or more of the shares of capital stock of the
Corporate General Partner. In 1994, 1995 and 1996, $151,430, $220,361 and
$301,407, respectively, was reimbursable by JetFleet II(TM) to CMA Capital Group
or its affiliates in connection with the administration and management of
JetFleet II(TM).
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No person is known to JetFleet II(TM) to be the beneficial
owner of more than 5% of the Units. No General Partner beneficially owns any
Units, and no officer or director of the Corporate General Partner (or other
affiliate of any General Partner) beneficially owns any Units.
The Individual General Partners own 100% of the issued and
outstanding capital stock of CMA Capital Corporation which, in turn, owns 100%
of the issued and outstanding capital stock of the Corporate General Partner.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As explained in detail in Item 11, certain compensation has
been paid to the Corporate General Partner and Crispin Koehler Securities in
accordance with the Prospectus dated October 3, 1991.
Crispin Koehler Securities, the managing broker-dealer of the
offering of Units, is a wholly-owned subsidiary of Crispin Koehler Holding Corp.
Crispin Koehler Securities was formerly named CKS Securities, Incorporated, but
changed its name in connection with its sale by CMA Capital Corporation during
1996. Crispin Koehler Holding Corp., in turn, is owned 100% by the Individual
General Partners. Crispin Koehler Securities has acted as the dealer-manager
with respect to the vast majority of the prior programs sponsored by affiliates
of the General Partners.
The Corporate General Partner is a wholly-owned subsidiary of
CMA Capital Corporation, which is also wholly-owned by the Individual General
Partners.
The common stock of JMC is owned 100% by the Individual
General Partners and an officer of Capital Management Associates.
As discussed in Note 3 to JetFleet II's(TM) financial
statements for the years ended December 31, 1994, 1995 and 1996 as well as in
Item 1, S/N 72 and S/N 11 were purchased from CMA. As part of the purchase price
of the aircraft, JetFleet II(TM) reimbursed CMA for chargeable acquisition
expenses, including legal and consulting costs in connection with the
acquisition of the aircraft, as well as appraisal and title insurance costs.
JetFleet II(TM) also reimbursed CMA for loan fees incurred in connection with
the aircraft acquisition.
As described in Item 1, JetFleet(TM) and JetFleet II(TM) own
undivided interests in the same aircraft (S/N 57, S/N 72 and the DC-9). In
addition, JetFleet II(TM) and JetFleet III(TM) own undivided interests in one
aircraft (S/N 370). During the first half of 1992, JetFleet II(TM) sold
undivided interests totaling 4.00% to an affiliate of the seller for the same
price for which they were originally sold to JetFleet II(TM). JetFleet II(TM)
subsequently purchased a 4.00% undivided interest in S/N 57 from the affiliate
of the seller for an equal price.
<PAGE>
PART IV
ITEM 14: EXHIBITS AND FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
(1) Historical Financial Statements for JetFleet(TM)
Aircraft II, L.P.:
Report of Independent Auditors - Vocker Kristofferson
and Co.
Balance Sheets as of December 31, 1996 and 1995
Statements of Operations for the years ended
December 31, 1996, 1995 and 1994
Statements of Partners' Capital for the years ended
December 31, 1996, 1995 and 1994
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Financial Statements
(2) Schedules:
All schedules have been omitted since the required
information is presented in the financial statements
or is not applicable.
(b) Reports on Form 8-K for the Fourth Quarter of 1995
None
(c) Exhibits
Number Exhibit
10.100 Amendment to Aircraft Lease Agreement between Raytheon and
Registrant dated February 4, 1997
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on March 28, 1997.
JETFLEET(TM) AIRCRAFT II, L.P.
By: CMA Capital Group,
Managing General Partner
By: /s/ Neal D. Crispin
Neal D. Crispin
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934,
this report has been signed below by the following persons in the capacities
indicated on March 28, 1997.
Signature Title
/s/ Neal D. Crispin Chief Financial Officer, Chief Executive
Neal D. Crispin Officer and Chairman of the Board of
Directors of the Managing General Partner
/s/ Richard D. Koehler Executive Vice President and Director of
Richard D. Koehler the Managing General Partner
EXHIBIT 10.100
FEBRUARY 4, 1997
PAGE 1 OF 3
PURCHASE ORDER NO. 60987, CHANGE ORDER NO. 2 AMENDMENT
AIRCRAFT LEASES FOR THREE (3) DHC-7 AIRCRAFT
(MSN 11, 44 AND 57) EACH DATED SEPTEMBER 26, 1990
AS AMENDED (THE "LEASES")
The Leases shall be deemed to be amended as follows:
1. LEASE TERM: Two years from October 1, 1996, with options to extend for
two additional two year periods at the same lease rate. The Lessee may
excercise the option by giving the Lessor not less than 60 days written
notice prior to the end of each renewal period, provided that if the
Lessee has not received notice from the U.S. Army regarding the renewal
of its contract at the Kwajalein project by such date, then the Lessee
shall give prompt written notice following the receipt of its notice
from the U.S. Army.
2. LEASE RATES: Effective October 1, 1996, the monthly lease rates become:
MSN 11-$41,000.00
MSN 44-$38,500.00
MSN 57-$38,500.00
3. ECONOMIC ADJUSTMENT: The Leases are hereby amended to clarify that the
economic adjustment set out in Exhibit "G" will apply to the list of
life limited components described in Schedule "A" attached hereto (the
"Life Limited Components"), provided that the value of the hours/cycles
consumed between delivery and return shall be credited on a component
by component basis to the Lessor or the Lessee, as the case may be. The
following provisions of the Leases are amended:
11.6 Airframe and Components: Notwithstanding anything
contained herein or in any other agreement to the
contrary, all Life Limited Components (other than basic
engines and landing gear assemblies) shall be returned
with not less that 1,000 hours/and or cycles, whichever is
the more limiting factor, remaining until the next
required overhaul or replacement, based on the
manufacturer's requirements for DHC-7 or its component.
11.7 Landing Gear: Notwithstanding anything contained herein or
in any other agreement to the contrary, each landing gear
assembly including all its components shall be returned
with not less than twenty-five percent (25%) of the cycles
remaining until its next required replacement.
11.8 Engines: Notwithstanding anything contained herein or in
any other agreement to the contrary, each engine shall be
returned with at least 1,000 hours and cycles remaining
until its next required overhaul (based on a 5,500 hour
overhaul interval) and at least 500 hours and cycles
remaining until its next required hot section inspection
(based on a 1,500 hour HSI interval).
<PAGE>
Page 2 of 3
11.11 Component Value Determination on Return: Upon the return
of the Aircraft, the parties shall determine the amount
due as an economic adjustment (the "Economic Adjustment")
under Exhibit "G" calculated on a component by component
basis and on an Aircraft by Aircraft basis. The labor cost
of conducting an engine overhaul and hot section
inspection shall be included in the Exhibit "G"
calculation; however, Lessee may elect to conduct a hot
section inspection and receive a corresponding credit.
Notwithstanding anything to the contrary set out in the
Lease, including without limitation, Exhibit "G" and any
amendments to the Lease or any other agreement between the
parties, the following shall apply in determining the
Economic Adjustment:
(a) All references to half-life, 50% or one-half in
Exhibit "G" are deleted.
(b) The current cost of overhaul or replacement used
for purposes of the Exhibit "G" determination
shall be fixed at the amounts set out in
Schedule "A" for the purposes of the delivery
and the return of the Aircraft, whether at the
end of the Lease Term or any renewal term. The
parties shall, however, mutually agree upon the
then currect cost of overhaul or replacement and
so amend Schedule "A" prior to the commencement
of each renewal term.
(c) The parties acknowledge and agree that the
Lessee shall only be required to pay an Economic
Adjustment for its actual use of the Life
Limited Components between the hours/cycles at
delivery as shown in Exhibit "A" and the
hours/cycles at return. Accordingly, if the
aggregate sum of the Vi (current time value of
item) of all Life Limited Components in respect
to the aircraft upon return exceeds the
aggregate sum of the Vi (current time value of
item) upon acceptance, the Lessee shal l pay the
amount of such excess to the Lessor; and
(d) If the aggregate sum of the Vi (current time
value of item) of all Life Limited Components in
respect to the Aircraft upon acceptance exceeds
the aggregate sum of the Vi (current time value
of item) upon return, the Lessee shall not be
required to pay the Lessor any Economic
Adjustment.
In the event of any inconsistency between the provisions hereof
and the provisions of the Leases, the provisions hereof shall
prevail.
4. SAMPLE CALCULATION: Attached hereto as Schedule "B" is a sample
calculation of the Component Value Determinations on return.
<PAGE>
Page 3 of 3
5. STIPULATED LOSS VALUES: The Stipulated Loss Value for each Aircraft as
set out in the Leases shall be deemed to be replaced with the following:
MSN 11-$4,525,000.00
MSN 44-$3,690,000.00
MSN 57-$3,760,000.00
6. LIFE REMAINING: All references to one-half life remaining in the Leases
are hereby deleted.
7. GOVERNING LAW: The governing law of the Leases is hereby changed from
the State of Florida to the Commonwealth of Massachusetts.
All other terms and conditions of the Leases shall continue in full force and
effect unamended.
ATTACHMENTS:
Schedule A (SN 11) Life Limited Components - 3 pages
Schedule A (SN 44) Life Limited Components - 3 pages
Schedule A (SN 57) Life Limited Components - 3 pages
Schedule B - Sample Component Value Calculations - 1 page
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<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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<PP&E> 24,860,643
<DEPRECIATION> (10,425,030)
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0
0
<OTHER-SE> 15,527,046
<TOTAL-LIABILITY-AND-EQUITY> 16,410,203
<SALES> 0
<TOTAL-REVENUES> 3,052,750
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<OTHER-EXPENSES> 3,909,332
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (856,582)
<INCOME-TAX> 0
<INCOME-CONTINUING> (856,852)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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