Back to GetFilings.com
1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-17712
Pegasus Aircraft Partners, L.P.
(Exact name of Registrant as specified in its charter)
Delaware 84-1099968
(State of organization) (IRS employer
Identification No.)
Four Embarcadero Center, 35th Floor
San Francisco, California 94111
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (415) 434-3900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Depositary Units
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
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 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. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant: Not applicable.
2
Pegasus Aircraft Partners, L.P.
Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1995
Table of Contents
Page
----
Part I
Item 1 Business................................................................................... 1
Item 2 Properties................................................................................. 12
Item 3 Legal Proceedings.......................................................................... 12
Item 4 Submission of Matters to a Vote
of Security Holders.................................................................... 14
Part II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters........................................................ 15
Item 6 Selected Financial Data.................................................................... 16
Item 7 Management's Discussion and
Analysis of Financial Condition
and Results of Operations.............................................................. 16
Item 8 Financial Statements....................................................................... F-1
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure................................................................... 23
Part III
Item 10 Directors and Executive Officers
of the Registrant...................................................................... 24
Item 11 Executive Compensation..................................................................... 28
Item 12 Security Ownership of Certain
Beneficial Owners and Management....................................................... 28
Item 13 Certain Relationships and
Related Transactions................................................................... 29
Part IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K................................................................ 31
3
PART I
Item 1. Business
General
Pegasus Aircraft Partners, L.P. (the "Partnership" or the "Registrant")
is a limited partnership organized under the laws of the State of Delaware on
June 23, 1988. The general partners of the Partnership are Pegasus Aircraft
Management Corporation, the Managing General Partner, a California corporation
that is a wholly-owned subsidiary of Pegasus Capital Corporation, and Air
Transport Leasing, Inc., the Administrative General Partner, a Delaware
corporation that is a wholly-owned subsidiary of PaineWebber Group Inc.
(collectively, the "General Partners")
On October 18, 1988, the Partnership commenced an offering of limited
partnership depositary units ("Units"). The $80,000,000 maximum offering size
was reached during the first quarter of 1989. The Partnership incurred
$8,441,000 of commissions and other expenses in connection with the sale of
these Units.
Although the Partnership was organized on June 23, 1988, the
Partnership conducted no activities and recognized no revenues, profits or
losses prior to December 21, 1988 at which time the Partnership commenced
operations. During the period between December 23, 1988 and March 22, 1989, the
Partnership acquired its portfolio of used commercial aircraft, which are
principally subject to triple net operating leases with commercial air carriers.
The Partnership is required to dissolve and distribute all of its
assets no later than December 31, 2012. The Partnership may reinvest the
proceeds of sales of aircraft occurring prior to March 22, 1997 provided that
sufficient cash is distributed to Limited Partners to pay estimated federal and
state income taxes to be incurred by Limited Partners as a result of the
aircraft sale. Thereafter, the net proceeds of any sales of aircraft will be
distributed to the partners.
Outlook for the Airline and Aircraft-Leasing Industries
The US airline industry enjoyed an excellent year in 1995 with net
earnings estimated to top $2 billion, which will be the industry's first
profitable year since 1990 and its best earnings year ever. The airlines have
benefited from increases in traffic, the effect of cost cutting programs and
relatively stable fares. New aircraft orders caused the backlog of orders to
increase for the first time since 1990. At least for the short term, the demand
for used aircraft has increased and used aircraft prices are increasing.
Continental Airlines Inc. ("Continental") and TransWorld Airlines, Inc.
("TWA") have reported significant improvements in their financial results for
1995. US AirInc. ("US Air") also showed improved operating results, but
continues to struggle with a high cost structure and strong competition from low
fare carriers. Kiwi International Air Lines Inc. ("Kiwi") has benefited
slightly from the overall industry upturn, but continues to struggle with
capital and liquidity concerns. However, some observers are
1
4
expressing caution regarding the continued growth in traffic in 1996. Aircraft
leasing continues to be a highly competitive business. The Partnership's lessees
continue to face significant competitive challenges. Air traffic has been and
continues to be correlated to overall economic activity.
Recent Partnership Developments
Immediately below is a table which shows the December 1995 appraised
value of the Partnership's aircraft (including a spare engine) to be
approximately $38.1 million, or 53% of the portfolio's original acquisition cost
(excluding acquisition fees) adjusted for capital expenditures since
acquisition. Based on these appraised values, the Partnership's net asset value
at December 31, 1995 was equal to $9.34 per Unit. It should be noted that these
are only estimates of values at that date and not necessarily representative of
the values that will ultimately be realized when these aircraft are disposed of,
nor does this represent the values that may be realized upon the disposition of
a Unit.
2
5
Aircraft Portfolio
The following table describes the Partnership's aircraft portfolio
including a spare engine:
December Current
1995 Lease Original Noise
Current Aircraft Ownership Acquisition Appraised Expiration Delivery Abatement
Lessee Type Interest Costs (1) Value (2) Date (3) Date Compliance
- ------ -------- --------- ------------ --------- ---------- -------- ----------
(in millions) (in millions)
Aircraft on
Operating Leases
Continental Boeing 727-200
Airlines, Inc. Advanced 100% $ 8.0 $ 3.2 10/96 1974 Stage 2
(8) Boeing 747-100
100 17.8 6.2 (8) 1970 Stage 2(5)
Trans World McDonnell
Airlines, Inc. Douglas MD-82 100 21.3 17.0 10/04 1983 Stage 3
USAir, Inc. McDonnell
Douglas MD-81 50(6) 10.0 6.3 06/98(9) 1982 Stage 3
Kiwi International Boeing 727-200
Air Lines, Inc. Non-Advanced 100 7.6 2.65 12/99 1969 Stage 2
Kiwi International Boeing 727-200
Air Lines, Inc. Non-Advanced 100 7.5 2.65 12/99 1969 Stage 2
Kiwi International
Air Lines, Inc. JT8D-9A engine(7) 100 0.2 .1 12/99 1969 Stage 2
----- -----
$72.4 $38.1
===== =====
Cumulative Cumulative
Current Flight Flight
Lessee Hours (4) Cycles (4)
- ------ ---------- ----------
Aircraft on
Operating Leases
Continental
Airlines, Inc. 62,650 42,033
(8)
81,704 16,146
Trans World
Airlines, Inc. 39,559 20,704
USAir, Inc.
38,405 35,312
Kiwi International
Air Lines, Inc. 60,158 48,404
Kiwi International
Air Lines, Inc. 61,530 49,513
Kiwi International
Air Lines, Inc. 40,368 36,805
Notes: (1) Acquisition costs do not include acquisition related fees of $2.0
million paid to the General Partners. The amounts shown include
additional investments in the respective aircraft which aggregate
approximately $3.0 million.
(2) The December 1995 appraised values were determined by an
independent aircraft appraisal firm. Appraised values include the
present value of rents due under leases in place plus an estimated
residual value for the aircraft at the end of the lease. It
should be noted that appraisals are only estimates of value and
should not be relied on as measures of realizable value.
(3) Lease expiration dates do not include renewal options except in
the case of USAir.
(4) The number of cumulative flight cycles and cumulative flight hours
shown are as of December 31, 1995, except for the USAir MD-81,
which is as of February 2, 1996.
(5) The Boeing 747 currently complies with Stage 3 requirements if it
is flown with certain operating restrictions.
(6) The remaining one-half beneficial interest is owned by Pegasus
Aircraft Partners II, L.P., an affiliated partnership.
(7) The engine was not appraised. Value is based upon life remaining
until overhaul and current market rental value and approximates
book value. Flight hours and cycles are as of February 1996.
(8) In 1995 the Boeing 747-100 aircraft was returned by Continental to
the Partnership and is currently off lease. The appraisal value
reflected for the 747 aircraft represents its approximate current
market value unencumbered by a lease.
(9) If USAir does not renew for an initial three-year renewal period,
the Partnership is entitled to a lease termination payment.
The following is a description of the principal financial terms of the
leases listed in the table.
Kiwi International Air Lines Leases The Partnership owns two Boeing
727-200 non-advanced aircraft, originally acquired on December 1988 for
$6,308,000 per aircraft. The aircraft were originally leased to Northwest
Aircraft, Inc. ("Northwest") subject to operating leases, one of which expired
in August 1993 and the other of which expired in April 1994, both after short
extensions. Upon the expiration of the leases, Northwest paid the Partnership
$433,000 and
3
6
$325,000 representing economic settlements in lieu of completing certain
maintenance procedures required under the respective leases. On February 1994
and April 1994, the Partnership entered into the leases with Kiwi, each for
terms of approximately five years with rents payable monthly in advance at
$55,000 per aircraft. The leases also required Kiwi to pay maintenance reserves
of $250 per flight hour, which can be drawn down by Kiwi, for specific
maintenance procedures. The aircraft were delivered in April and July 1994. In
connection with the first Kiwi lease, the Partnership also acquired an
additional aircraft engine at a cost of $195,000, which is used as a spare by
Kiwi, at $105 per flight hour of use.
In connection with the Kiwi leases, the Partnership completed certain
maintenance procedures, aircraft-aging related modifications, the purchase of
the spare engine for Kiwi's fleet discussed above and other lessee-required
modifications prior to delivery of the aircraft to Kiwi at an aggregate cost of
$3,303,000 of which $580,000 represented maintenance-related work funded by the
maintenance-related payments received from Northwest and the balance of which
was capitalized as part of the Partnership's basis in the aircraft.
During the terms of the leases Kiwi can request that the aircraft be
hushkitted to obtain Stage III noise abatement for which the lease term will be
reset to five years with lease payments increasing to amortize the cost of
hushkitting at the rate of 2% per month (increased for inflation).
Alternatively, the Partnership can deem the hushkitting economically
unfeasible at which point Kiwi can terminate the lease and return the aircraft.
As discussed in Item 1, Business, "Aircraft Noise Regulating, all operators
(i.e. commercial airlines) are required to achieve Stage 3 noise reduction with
respect to 50% of their fleet by December 31, 1996. Based upon the composition
of its fleet, management believes that Kiwi will request that the Partnership
hushkit one or both of the 727 aircraft by December 1996.
During 1995, Kiwi encountered continued liquidity and operating
problems. The Partnership and Kiwi agreed to a deferral of February 1995 and
half of March 1995 rent ($165,000 in the aggregate) plus an accommodation to
permit Kiwi to not fund the maintenance reserves in February, March and April
1995. The deferred rent is payable with interest of 12% over a 9-month period
which began July 1, 1995. All payments have been made as scheduled through
December 31, 1995 and the outstanding balance of rents receivable was
approximately $56,000 as of such date. The Partnership received or accrued
approximately $200,000 in 1995 with respect to the utilization lease of the
spare engine, approximately $100,000 of which was accounted for as reserves for
maintenance. Additionally, at December 31, 1995, the Partnership held
maintenance deposits aggregating $1,135,000 with respect to the Kiwi aircraft
which are reflected as restricted cash on the balance sheet dated December
31, 1995. Kiwi requested additional time to make February 1996 rental, deferred
rental and maintenance payments and made such payments in late February 1996
and early March 1996. Kiwi's ability to make timely lease and maintenance
reserve payments in the future is uncertain due to its continued liquidity and
capital concerns.
The Partnership recorded provisions for decline in market value of
$1,943,000 and $2,335,000 during the years ended December 31, 1994 and 1992,
respectively, with respect to these aircraft. These provisions are reflected in
the carrying value of the Partnership's investments in these two aircraft as of
December 31, 1995.
4
7
Continental Airlines Leases During December 1988, the Partnership
acquired a Boeing 727-200 advanced aircraft for a total purchase price of
$8,025,000. The aircraft was originally subject to an operating lease with
Continental Airlines, Inc. ("Continental"), the term of which ends on October
31, 1996. Rental payments are payable monthly, in advance at the rate of
$81,000.
During December 1988, the Partnership acquired a Boeing 747-100
aircraft for a total purchase price of $17,847,000. The aircraft was originally
subject to an operating lease with Continental, the term of which was scheduled
to expire on April 30, 1996 with rental payable monthly, in advance, at the rate
of $269,000.
In January 1995, Continental announced that it was grounding its Airbus
Industrie manufactured aircraft and taking certain Boeing 747 aircraft out of
service, including the Boeing 747 Aircraft owned by the Partnership. Continental
discontinued utilizing the Aircraft, did not make any rental payments after
January 1995 and returned the Aircraft to the Partnership. The Partnership sent
Continental a default notice with respect to the unpaid rent and preserved all
of its rights against Continental. During the quarter ended September 30, 1995
the Partnership and Continental completed the negotiation of a lease settlement
agreement ("Lease Settlement"). Under the terms of the Lease Settlement,
Continental agreed to pay the Partnership the amount otherwise due under the
Lease as rent for the period February 1995 to August 1995 plus a discounted
amount representing the amount of rent that would have been due under the Lease
for the period September 1, 1995 to April 30, 1996, the scheduled expiration
date of the Lease. Continental returned the Aircraft and engines in the return
condition required by the Lease. On October 16, 1995 the Partnership received
the Lease Settlement proceeds totaling $3,906,491.
A substantial portion of the proceeds were accounted for under the cost
recovery method reducing the Partnership's net carrying value of the aircraft.
At December 31, 1995, the Partnership had a carrying value of $6,061,000 in the
747-100 aircraft which approximated its estimated market value at such date. The
remaining gain on the lease settlement was offset by the related management fees
accrued and thus no net gain or loss was recognized on the settlement.
The Partnership is remarketing the aircraft and has had lease
negotiations with several potential lessees. The Partnership estimates that the
aircraft will require approximately $1.3 million of maintenance work in order to
integrate the aircraft to a new lessee. It is anticipated that the Partnership
will utilize its loan facility or cash reserves to finance such maintenance and
integration costs.
Continental did not make the monthly rental payments under the leases
on December 1, 1990 and filed for Chapter 11 Bankruptcy protection on December
3, 1990. Below is a description of the various lease modifications and other
financial agreements that the Partnership has with Continental, principally as
the result of the bankruptcy.
On July 3, 1991, the Bankruptcy Court approved an agreement amending
the Partnership's lease agreements with Continental with respect to the
Partnership's Boeing 727-200 advanced, and Boeing 747-100, aircraft. Pursuant to
the agreement, Continental paid 50% of the rentals due each month, effective
June 1, 1991. Continental resumed paying 100% of the
5
8
rentals due each month beginning October 1, 1991, issued promissory notes for
the unpaid rents for December 1990 through May 1991 and the remaining 50% of the
rentals due for the months of June 1991 through September 1991 (which totaled
$2,798,000 and which were sold to a third party) and reduced the rentals with
respect to the Boeing 727-200 advanced aircraft from $118,000 to $81,000 per
month, effective December 1, 1990. The amount of the rent payable with respect
to the Boeing 747-100 aircraft was not changed at that time.
Additionally, the Partnership also agreed to and advanced $500,000 for
certain qualifying capital expenditures incurred by Continental with respect to
the Boeing 747-100 aircraft and $250,000 for the Boeing 727-200 advanced
aircraft which are being repaid by Continental with interest at 12% per annum,
over the lesser of 36 months or the then remaining lease term. The advances for
these qualifying capital expenditures were funded from operating reserves. The
balance of the related receivables aggregated $199,000 at December 31, 1995. All
first quarter 1996 repayments of advances have been made by Continental when
due.
On December 30, 1992, the Bankruptcy Court approved an agreement to
further amend the Partnership's lease agreements with Continental with respect
to the Partnership's Boeing 727-200 Advanced and Boeing 747-100, aircraft.
Pursuant to the agreement, rentals attributable to the period from November 1,
1992 through February 15, 1993 were deferred. Continental resumed paying rentals
on a current basis beginning February 15, 1993. The deferred rentals are
payable, along with interest at the rate of 8.70% per annum, in 36 equal monthly
installments which began May 1, 1993. At December 31, 1995, the balance of the
deferred rentals was $152,000. All first quarter 1996 repayments of deferred
rentals have been made by Continental when due.
The Partnership recorded provisions for decline in market value of
$400,000 and $57,000 during the years ended December 31, 1995 and 1994,
respectively, to reflect an estimate of the recoverability of the Partnership's
investment in the Boeing 727-200 aircraft.
The lease of the Boeing 727-200 expires in October 1996, unless
renewed. The Partnership is investigating opportunities with respect to the
aircraft if it is returned by Continental, including an upgrade to Stage 3 or
cargo conversion (See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations").
Trans World Airlines Lease During February 1989, the Partnership
acquired a McDonnell Douglas MD-82 aircraft for a total purchase price of
$21,017,000. The aircraft is subject to an operating lease with TWA.
Airlines, Inc. ("TWA"). The lease which was originally scheduled to expire on
April 23, 1993 was modified and under the terms of the lease amendment was
extended until October 1, 1998 with rentals payable monthly, in advance, at the
rate of $185,000 per month.
Pursuant to the lease amendment, the Partnership reimbursed TWA for
$225,000 of capital improvements which were made to the aircraft and advanced
$750,000 to TWA to finance certain major maintenance procedures which were
performed on the aircraft. TWA is repaying the $750,000 to the Partnership over
the remaining lease term, in equal monthly installments, with interest at a
fixed rate of 9.68%. At December 31, 1995, the balance of the receivable was
6
9
$428,000 ($557,000 at December 31, 1994). All first quarter 1996 payments have
been made by TWA as scheduled.
In mid-October 1994 because of operating and financial problems, TWA
announced that it would seek a global restructuring of its capital by offering
common stock for its debt securities, preferred stock obligations and lease
deferrals negotiated with aircraft lessors such as the Partnership ("Exchange
Offer"). TWA and the Partnership agreed to a deferral of 50% of the rent
scheduled for November 1994 and 75% of the rent scheduled from December 1994 to
April 1995 with originally scheduled payments resuming in May 1995.
Additionally, TWA and the Partnership reached an agreement to extend the lease
of the MD-82 aircraft six years beyond the then scheduled expiration date to
October 1, 2004 at the current lease rate of $185,000 per month. The rents
deferred during the November 1994 to April 1995 period are being repaid with
interest at 12% from the date of the deferral over an 18 month period which
began May 1, 1995. On June 30, 1995, TWA filed a prepackaged reorganization plan
under Chapter 11 of the U.S. Bankruptcy Code. On August 23, 1995, the
reorganization plan, which included the foregoing lease modifications, was
confirmed by the Bankruptcy Court and TWA emerged from bankruptcy. TWA has made
all rental payments, advance repayments and payments of deferred rent when due.
However, there can be no assurance that TWA will be able to meet its obligations
in the future. At December 31, 1995 and 1994, the Partnership had $465,000 and
$231,000 of deferred rent receivables relating to the TWA aircraft which were
included in rents and other receivables on the balance sheets.
USAir Lease During March 1989, the Partnership acquired one-half of the
beneficial interest in a trust ("Trust") which is the owner/lessor of a
McDonnell Douglas MD-81 aircraft for a total purchase price of $9,999,000. The
remaining one-half interest in the Trust is owned by Pegasus Aircraft Partners
II, L.P., an affiliated partnership. The aircraft is subject to an operating
lease with USAir, Inc., the term of which ends on June 1, 1998. The lease may be
terminated subject to the lessee's guarantee that the Partnership will receive
contractually defined minimum termination values upon remarketing of the
aircraft. Rental payments are payable quarterly, in arrears, at a rate of
$304,000 (for the Partnership's one-half interest in the aircraft). The lease
provides for one three-year renewal option, at the same quarterly rental rate.
If the lease is not renewed for the first renewal period, the lessee must make a
termination payment of $1,113,000 to the Partnership. USAir also has three
additional one-year renewal options at fair market rental rates. USAir may elect
to purchase the aircraft at its fair market value at the end of any renewal
term.
The McDonnell Douglas MD-81 aircraft was purchased subject to a tax
benefit transfer lease ("TBT lease") which provided for the transfer of the
investment tax credits and depreciation deductions with respect to the aircraft
to a tax lessor. Under the TBT lease, the Trust, as the owner of the aircraft
and the tax lessee under the TBT lease, has agreed to indemnify the tax lessor
if certain anticipated tax benefits are lost by the tax lessor as a result of,
among other things, acts or omissions by the Trust, breach of covenants by the
Trust under the TBT lease, loss or damage to the aircraft or use of the aircraft
outside the United States. The TBT lease requires that a letter of credit be
posted to collateralize this obligation. The Partnership is obligated for its
share of the cost of the letter of credit as well as any related calls on the
letter of credit.
7
10
The letter of credit has a current face amount of approximately $2.3
million. Under the terms of the letter of credit agreement, the Partnership was
required to deposit with the Lender $35,000 per quarter as cash collateral to
collateralize the obligation. In conjunction with the extension of the
Partnership loan commitment (see Item 7, "Management Discussion and Analysis of
Financial Conditions and Results of Operations" and Item 8, "Financial
Statements," Footnote 7, Loans payable), the Lender released its interest in
substantially all of the cash in the collateral account. The balance in the cash
collateral account was $455,000 ($70,000 of which was funded in 1995) at the
time the bank released the funds. The Partnership remains obligated under the
letter of credit arrangement.
Under the operating lease, the lessee, USAir, has assumed all
liabilities, indemnities and obligations of the Trust to the tax lessor under
the TBT lease and has agreed to indemnify the Trust for any liability, indemnity
or obligation to the tax lessor under the TBT lease except for liability
resulting from breaches by the Trust of various covenants under the operating
lease. It has not posted a letter of credit to collateralize this obligation. As
a result of the foregoing, if the tax lessor draws on the letter of credit as a
result of action by the lessee, the Partnership and Pegasus Aircraft Partners
II, L.P. through the Trust will be responsible for the loss to the tax lessor
until and if the lessee performs under its indemnification. To date, there have
been no calls on the letter of credit.
The tax lessor is entitled to call on the letter of credit whether its
loss of tax benefits is caused by Pegasus Aircraft Partners II, L.P. or the
Partnership, and Pegasus Aircraft Partners II, L.P. and the Partnership have
agreed to indemnify each other for any loss occasioned by the acts of the other.
8
11
Significant Lessees
The Partnership leased its aircraft to four different airlines during
1995. Revenues from all of these airlines accounted for greater than 10% of the
total rental revenues of the Partnership during 1995 as follows:
Airline Percent of Total Rental Revenues
---------------------------------- --------------------------------
Continental Airlines, Inc.(1) 20.3%
TransWorld Airlines, Inc. 36.5%
USAir, Inc. 20.0%
Kiwi International Air Lines, Inc. 23.2%
(1) Additionally, the Partnership received a lease settlement payment of
$3,906,401 from Continental with respect to the early return and termination of
the lease of the Boeing 747-100 aircraft which is not included in the above
percentages. Substantially all of such settlement was accounted for under the
cost recovery method.
Safety Requirements and Aircraft Aging
In addition to registration, the FAA imposes strict requirements
governing aircraft inspection and certification, maintenance, equipment
requirements, general operating and flight rules (including limits on arrivals
and departures), noise levels, certification of personnel and record keeping in
connection with aircraft maintenance. FAA regulations establish standards for
repairs, periodic overhauls and alterations and require that the owner or
operator of an aircraft establish an airworthiness inspection program to be
carried out by certified mechanics. No aircraft of the Partnership may be
operated without a current airworthiness certificate.
The FAA periodically reviews Service Bulletins which are issued by the
aircraft manufacturers. These bulletins focus on safety problems that have
developed during the aircraft's operation. The FAA may incorporate these Service
Bulletins in Airworthiness Directives ("ADs"), which are mandates requiring the
airline to perform specific maintenance within a specified period of time.
Aircraft aging is a significant issue in aircraft safety regulation. In
the past, certain aviation incidents and accidents raised concerns over the
structural integrity of older aircraft. In 1989, in its "Report to Congress on
the Status of the U.S. Stage 2 Commercial Aircraft Fleet", the FAA stated that
"no correlation has been established between the chronological age of an
aircraft and its structural airworthiness. A more accurate assessment of the
physical "age" of an aircraft is the total number of flight cycles and flight
hours flown." A flight cycle is defined as one takeoff and one landing. A flight
cycle is important because of the added stress on the airframe, landing gear and
other components from repeated takeoffs, landings and pressurizations. As
different types of aircraft have different missions, and carriers fly a variety
of routes, flight cycles can vary widely among aircraft of the same
chronological age. In general, narrow-body aircraft which are used for
short-haul service will have greater cycles per year than wide-body aircraft
used for longer routes. Other factors which contribute to the aging of an
9
12
aircraft are the number of hours actually flown, the predominant environment in
which an aircraft has flown, and its actual age in years.
The FAA has adopted certain ADs for Boeing and McDonnell Douglas
aircraft models, including Boeing 727s, 737s and 747s and McDonnell Douglas
DC-9s, MD-80s and DC-10s. These ADs make mandatory the periodic replacement or
modification of structural materials, fittings and skin at certain times in the
life of an aircraft, typically when the aircraft reaches a certain number of
flight cycles or age threshold. Previously, these aircraft were subject only to
periodic inspection, and the replacement and modification of materials and parts
was done where deemed necessary. Similar ADs for Lockheed and Airbus
manufactured aircraft are expected to be proposed and adopted by the FAA. In
addition, it is widely expected that foreign civil aviation authorities,
especially in Europe and Japan, will adopt similar measures to protect the
structural integrity of older aircraft.
These aging aircraft ADs will initially impact only a limited number of
older aircraft, but additional aircraft will be covered as they accumulate
time-and-service and reach the thresholds for the required modifications.
Significantly, in the case of each aircraft type, a significant majority of
replacements or modifications are mandated when a plane reaches a certain number
of flight cycles and relatively few required replacements are triggered when a
plane reaches a certain chronological age or number of flight hours.
The following table summarizes the age, flight cycle, and flight hour
thresholds for each major aircraft type under the ADs. In general, these
thresholds are based on the "economic design goal" of an aircraft, which is
typically considered to be the period of service after which an increase in
maintenance costs is expected to take place in order to assure continued
operational safety. In addition, the table provides an estimate by the FAA of
the costs of complying with all of the mandated replacements and modifications
of the ADs. It is important to note that since most of the proposed work under
the ADs is based on flight cycle thresholds, those lower-cycle aircraft which
reach the aircraft age or flight hour thresholds should incur significantly
lower AD compliance cost than the total amounts estimated below.
Aircraft Flight Flight Estimated
Aircraft Age Cycle Hour AD
Type Threshold Threshold Threshold Costs
-------- --------- --------- --------- ----------
(Years)
Boeing 727 20 60,000 N/A $1,100,000
Boeing 737 20 75,000 N/A $ 934,000
Boeing 747 20 20,000* N/A $3,400,000
McDonnell Douglas DC-9 20 100,000 75,000 $ 79,000
McDonnell Douglas MD-80 20 75,000 75,000 $ 4,000
McDonnell Douglas DC-10 None 42,000 60,000 $ 187,000
* Substantially cycle limited
Flight cycle and flight hour information with respect to the
Partnership's aircraft are included in the aircraft portfolio table included
earlier on page 3.
10
13
The Partnership's leases generally require the lessees to bear the
costs of compliance with ADs which require action during the lease terms. The
Partnership's three 727 Boeing aircraft have had the major calendar
modifications performed as required.
Overall, the General Partners believe that the increased maintenance
costs mandated for older aircraft may have some impact on re-lease and resale
values for these aircraft, but counterbalancing this, compliance with the ADs
should also serve to prolong the revenue lives of the affected aircraft.
Aircraft Noise Regulations
On November 5, 1990, Congress enacted into law the Airport Noise and
Capacity Act of 1990 (the "Act"). On September 24, 1991, the FAA issued the
final rules of implementation for the Act. The Act provides that Stage 2
aircraft will be phased out from operation within United States airspace as of
December 31, 1999.
Implementing regulations proposed by the FAA would require each United
States operator to increase its Stage 3 airplane fleet to 25 percent by December
31, 1995; to 50 percent by December 31, 1996; to 75 percent by December 31, 1998
and to 100 percent by December 31, 1999.
However, the Act further provides, that if by July 1, 1999, at least
85% of an air carrier's fleet complies with Stage 3 noise levels, the carrier
may apply for a waiver of the operational ban for the remaining aircraft in the
operator's fleet until December 31, 2003. The application for such a waiver must
be submitted to the Secretary of the Department of Transportation no later than
January 1, 1999 and must include a plan with firm orders for making all aircraft
operated by the air carrier comply with Stage 3 noise levels by December 31,
2003.
Stage 3 hushkitting and re-engineering for the Boeing 727-200 aircraft
have been approved by the FAA. The aviation industry is in the process of
evaluating the economics of such technology. The Partnership's Boeing 747 will
comply with Stage 3 noise levels if it is flown with certain operating
restrictions. Alternatively, the engines can be upgraded with existing
technology to provide for greater performance and compliance with Stage 3
requirements.
Certain airlines have determined that it is economically feasible to
hushkit certain Stage 2 aircraft to achieve Stage 3 noise standards. The
Partnership continues to monitor the marketplace based upon the availability of
aircraft, pricing for Stage 2 and Stage 3 aircraft and the timetable for
implementation of Stage 3, to best position the Partnership's aircraft for
continued and future deployment.
11
14
Competition
The aircraft leasing industry is highly competitive. The Partnership
competes with aircraft manufacturers, distributors, airlines and other
operators, equipment managers, leasing companies, financial institutions and
other parties engaged in leasing, managing or remarketing aircraft, many of
which have significantly greater financial resources and greater experience than
the Partnership. Such competitors may lease aircraft at lower rates than the
Partnership and provide benefits, such as direct maintenance, crews, support
services and trade-in privileges, which the Partnership does not intend to
provide. Competitors may include certain affiliates of the General Partners.
Employees
The Partnership has no employees. The officers, directors and employees
of the General Partners and their affiliates perform services on behalf of the
Partnership. The General Partners are entitled to certain fees and
reimbursements of certain out-of-pocket expenses incurred in connection with the
performance of these management services. See Item 10 of this Report, "Directors
and Executive Officers of the Registrant", and Item 13 of this Report, "Certain
Relationships and Related Transactions", which are incorporated herein by
reference.
Item 2. Properties
The Partnership does not own or lease any physical properties other
than the aircraft and engine which are discussed in Item 1 of this Report,
"Business", which is incorporated herein by reference.
Item 3. Legal Proceedings
In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated sale and
sponsorship of various limited partnership investments, including those offered
by the Partnership. The lawsuits were brought against PaineWebber Incorporated
and PaineWebber Group, Inc. (together, "PaineWebber"), among others, by
allegedly dissatisfied partnership investors. In March 1995, after the actions
were consolidated under the title In re: PaineWebber Limited Partnerships
Litigation, the plaintiffs amended their complaint to assert claims against a
variety of other defendants, including Air Transport Leasing Inc., an affiliate
of PaineWebber and the Administrative General Partner in the Partnership
("Administrative General Partner").
The amended complaint in the New York Limited Partnership Actions
alleged, among other things, that, in connection with the sale of interests in
the Partnership, PaineWebber and the Administrative General Partners (1)
failed to provide adequate disclosure of the risks involved with each
partnership; (2) made false and misleading representations about the safety of
the investments and the partnership's anticipated performance; and (3)
marketed the partnership to investors for whom such investments were not
suitable. The plaintiffs also alleged that following
12
15
the sale of the partnership investments PaineWebber and the Administrative
General Partner misrepresented financial information about the partnership's
value and performance. The amended complaint alleged that PaineWebber and the
Administrative General Partner violated the Racketeer Influenced and Corrupt
Organizations Act ("RICO") and the federal securities laws. The plaintiffs
sought unspecified damages, including reimbursement for all sums invested by
them in the partnerships, as well as disgorgement of all fees and other income
derived by PaineWebber from the limited partnerships. In addition, the
plaintiffs also sought treble damages under RICO.
On May 30, 1995, the US District Court certified class action treatment
of the plaintiffs' claims in the New York Limited Partnership Actions.
In January 1996, PaineWebber signed a memorandum of understanding with
the plaintiffs in the class action outlining the terms under which the parties
have agreed to settle the case. Pursuant to that memorandum of understanding,
PaineWebber irrevocably deposited $125 million into an escrow fund under the
supervision of the United States District Court for the Southern District of New
York to be used to resolve the litigation in accordance with a definitive
settlement agreement and plan of allocation which the parties expect to submit
to the court for its consideration and approval within the next several months.
Until a definitive settlement and plan of allocation is approved by the court,
there can be no assurance what, if any, payment or non-monetary benefits will be
made available to unitholders in the Partnership.
In April 1995, two investors in the Pegasus limited partnerships filed
a purported class action in the Circuit Court of the State of Illinois for Cook
County entitled Robert M. Jacobson, et al. v. PaineWebber, Inc., et al., making
allegations substantially similar to those in the New York Limited Partnership
Actions, but limited in subject matter to the sale of the Pegasus partnerships,
and without a RICO claim. The plaintiffs in the Jacobson case simultaneously
remained as participants in the New York Limited Partnership Actions, and
subsequently sought to intervene in that action and to be named class
representatives for a separate subclass that they asked the Court to establish
consisting of investors in the Pegasus partnerships. The court in the New York
Limited Partnership Actions has not yet ruled on their request.
Three actions were filed in the District court for Brazoria county,
Texas, relating to the sale and sponsorship of interests in the Partnership and
an affiliated partnership. The complaints make state law claims, specifically,
common law fraud, consipiracy, violations of section 27.01 of the Texas
Business and Commerce Code, fraud in the inducement, negligent
misrepresentation, negligence, breach of fiduciary duty, violations of the
Texas Securities Act, and violations of the Texas Deceptive Trade Practices
Act. The plaintiffs seek unspecified damages, including attorney's fees,
reimbursement for all sums invested by them in the partnerships, exemplary
damages, and treble damages under the Texas Deceptive Trade Practices Act. All
three actions have been removed to federal court and two have been transferred
to the United States District Court for the Southern District of New York. The
third action has been dismissed with the consent of the parties on the ground
that it is duplicative of the two actions now before the federal court in New
York.
In February 1996, approximately 150 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiff's purchases of various limited partnership interests. The complaint
alleges, among other things, that PaineWebber and its related entities committed
fraud and misrepresentation and breached fiduciary duties allegedly owed to the
plaintiffs by selling or promoting limited partnership investments that were
unsuitable for the plaintiffs and by overstating the benefits, understating the
risks and failing to state material facts concerning the investments. The
complaint seeks compensatory damages of $15 million plus punitive damages.
Under certain limited circumstances, pursuant to the Partnership
Agreement and other contractual obligations, PaineWebber and its affiliates,
including the Administrative General Partner could be entitled to
indemnification from the Partnership for expenses and liabilities in
connection with this litigation. The General Partners are unable to determine
the effect, if any, of such actions on the Partnerships' financial statements,
taken as a whole.
13
16
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Limited Partners of the
Partnership, through the solicitation of proxies or otherwise, during the fourth
quarter of the fiscal year ended December 31, 1995.
14
17
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Units represent the economic rights attributable to limited
partnership interests in the Partnership. There is no organized trading market
for the purchase and sale of the Units and certain measures have been adopted
and implemented to assure that no such organized trading market will develop to
assure continued Partnership status.
As of March 1, 1996, the number of Limited Partners of record was
approximately 5,000.
The Partnership has declared the following distributions to its Limited
Partners out of cash flow received from operations during 1995 and 1994:
Amount Of
Distribution
Period Per Unit Record Date Payment Date
------ -------- ----------- ------------
1st Quarter 1995 $.25 March 31, 1995 April 29, 1995
2nd Quarter 1995 .30 June 30, 1995 July 29, 1995
3rd Quarter 1995 .90 September 30, 1995 October 29, 1995
4th Quarter 1995 .40 December 31, 1995 January 26, 1996
1st Quarter 1994 .45 March 31, 1994 April 29, 1994
2nd Quarter 1994 .45 June 30, 1994 July 29, 1994
3rd Quarter 1994 .45 September 30, 1994 October 28, 1994
4th Quarter 1994 .45 December 31, 1994 January 27, 1995
Total distributions to all partners for 1995 and 1994 were declared as
follows (in thousands):
1995 1994
---- ----
Limited Partners $7,400 $7,200
General Partners 74 72
------ ------
$7,474 $7,272
====== ======
Distributions may be characterized for tax, accounting and economic
purposes as a return of capital, a return on capital, or both. The portion of
each cash distribution by a partnership which exceeds its net income for the
fiscal period may be deemed a return of capital. Based on the amount of net
income reported by the Partnership for accounting purposes, approximately 88%,
94% and 62%, respectively, of the cash distributions declared for the years
ended December 31, 1995, 1994, and 1993 constituted a return of capital. Also,
based on the amount of net income reported by the Partnership for accounting
purposes, approximately 68% of the cash
15
18
distributions paid to the partners from inception of the Partnership through
December 31, 1995 constituted a return of capital. However, the total actual
return on capital over the Partnership's life can only be determined at the
termination of the Partnership after all cash flows, including proceeds from the
sale of the aircraft, have been realized.
Item 6. Selected Financial Data
The following selected financial data of the Partnership was derived
from the audited financial statements for the indicated periods. The
information set forth below should be read in conjunction with the
Partnership's financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in Items 8 and 7, respectively, of this Report, which are
incorporated herein by reference.
As of December 31,
or Year Ended December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(in thousands, except per unit amounts)
Rental Revenue $6,076(2) $8,527 $9,062 $10,006 $10,253
Net Income 880 426 2,881 1,740 3,927
Net Income per Limited
Partnership Unit (1) .22 .11 .71 .43 .97
Distributions per Limited
Partnership Unit (1) 1.85 1.80 1.90 2.30 2.16
Total Assets 36,611 42,619 46,727 51,875 59,926
Notes Payable 1,625 2,000 - - -
Partners' Equity 31,176 37,770 44,616 49,411 56,964
- ---------------
(1) Distribution amounts are reflected on the accrual basis.
(2) Such amount excludes lease settlement proceeds accounted for under the
cost recovery method.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
The Partnership owns and manages a diversified portfolio of leased
commercial aircraft and makes quarterly distributions to the partners of net
cash flow generated by operations. In certain situations, the Partnership may
retain cash flow from operations to finance authorized capital expenditures.
Cash distributions declared by the Partnership were approximately $7.4
million in 1995 ($1.85 per Unit), $7.3 million in 1994 ($1.80 per Unit) and $7.7
million in 1993 ($1.90 per Unit). Net cash provided by operating activities was
$6.1 million for 1995, $7.9 million for 1994 and $8.5 million for 1993. In 1995,
the Partnership received the Continental Lease Settlement proceeds of $3.9
million which was substantially accounted for under the cost recovery method and
thus, was not included in cash from operations. In the aggregate, for this three
year period net cash provided by operating activities totaled $22.5 million and
cash distributions declared by the Partnership totaled $22.4 million. Further,
during 1995, 1994 and 1993 the Partnership paid
16
19
cash distributions of $7.7 million, $7.3 million and $7.9 million, respectively,
totaling $22.9 million for the three year period.
Partnership equity declined by approximately $6.6 million for 1995,
from December 31, 1994 to December 31, 1995 as a result of the declaration of
cash distributions to the partners in excess of the Partnership's net income.
This resulted from the fact that, unlike net income, cash flow generated by
operations, which is the source of the cash utilized to make the distributions,
is not reduced by depreciation expense and provisions for decline in market
value of aircraft attributable to the Partnership's aircraft. Additionally, a
significant portion of the Lease Settlement proceeds received from Continental
were accounted for under the cost recovery method and thus did not flow through
the Statement of Income for 1995. (See Footnote 1, "Significant Accounting
Policies" and Footnote 5, "Aircraft Under Operating Leases")
Distributions may be characterized for tax, accounting and economic
purposes as a return of capital, a return on capital, or both. The portion of
each cash distribution by a partnership which exceeds its net income for the
fiscal period may be deemed a return of capital. Based on the amount of net
income reported by the Partnership for accounting purposes, approximately 88%,
94% and 62%, respectively, of the cash distributions declared for the years
ended December 31, 1995, 1994 and 1993, constituted a return of capital. Also,
based on the amount of net income reported by the Partnership for accounting
purposes, approximately 68% of the cash distributions paid to the partners from
inception of the Partnership through December 31, 1995 constituted a return of
capital. However, the total actual return on capital over the Partnership's life
can only be determined at the termination of the Partnership after all cash
flows, including proceeds from the sale of the aircraft, have been realized.
In April 1994, the Partnership established a loan facility with a third
party lender which expired in May 1995. In July 1995, the Partnership and the
Lender completed an extension of the commitment. Under the new agreement, the
aggregate commitment remained at $4,000,000, the Partnership's ability to borrow
under the facility was extended until May 1, 1997 and the floating interest rate
charged under the facility was reduced to the Lender's prime rate plus .5%. The
Lender released the Boeing 747-100 aircraft as collateral under the loan and
received a perfected security interest in the Partnership's MD-82 aircraft
leased to TWA. Through December 31, 1995, the Partnership had borrowed an
aggregate of $2,150,000 pursuant to the loan agreement, of which $1,625,000 and
$2,000,000 were outstanding at December 31, 1995 and December 31, 1994,
respectively. In connection with the extension of the loan commitment the Lender
released its interest in a cash collateral account established to secure the
Partnership's obligation under the letter of credit agreement relating to the
TBT lease.
The Partnership may require additional financing to fund future
maintenance work on aircraft, hushkitting the aircraft, or other capital
improvements such as cargo conversion. For example, because of FAA mandated
compliance with Stage 3 aircraft noise regulation, Kiwi may request the
Partnership to hushkit one or both of the 727 aircraft leased to Kiwi. If the
Partnership were to elect to hushkit these aircraft, the Partnership would need
to utilize its current loan facility or complete a new financing. The
Partnership can borrow up to 35% of the original offering proceeds. Any such
borrowings will only be made if the General Partners believe such borrowings
will be in the best interests of the Partnership and enhance portfolio value.
The
17
20
Partnership cannot utilize borrowings to purchase aircraft. However, there can
be no assurance that the Partnership would be able to obtain any additional
borrowings, if required.
At December 31, 1995, the Partnership's unrestricted cash and cash
equivalents exceeded declared but unpaid distributions to partners by
$2,465,000. At December 31, 1994, the Partnership's declared, but unpaid,
distributions to the partners exceeded unrestricted cash and cash equivalents by
$55,000. The principal reasons for the increase in cash is the retention of
approximately half of the proceeds from the Continental Lease Settlement plus
the release of the cash that was in the cash collateral account that previously
collateralized the Partnership's obligation under a letter of credit. It is
anticipated that such proceeds will be utilized for any modification needed to
enhance the leasability of the 747 (or any other aircraft as deemed necessary)
and for distribution to partners.
Rent and other receivables decreased by $419,000 from $1,953,000 at
December 31, 1994 to $1,534,000 at December 31, 1995. This decrease is primarily
the result of the continued repayments of advances and deferrals to various
lessees, net of deferrals granted to lessees in 1995.
Prepaid expenses increased by $12,000 from $35,000 at December 31, 1994
at $47,000 at December 31, 1995, due primarily to amounts associated with the
extended loan commitment (See Item 8, "Financial Statements" Note 7, "Notes
Payable")
Payable to affiliates increased by $348,000 from $280,000 at December
31, 1994 to $628,000 at December 31, 1995. The increase was attributable to
the management fees associated with the Continental Lease Settlement which were
accrued at December 31, 1995 and the voluntary deferral by the Administrative
General Partner of management fees and re-lease fees otherwise payable with
respect to the period commencing January 1, 1995.
Deferred rental income increased $81,000 from $137,000 at December 31,
1994 to $218,000 at December 31, 1995 due to the receipt in December 1995, of
certain rents due January 1, 1996 with respect to the January period.
Management and re-lease fees payable to the General Partners for the
1995 Period increased $97,000, or 16%, as compared to the 1994 Period.
Management fees (base management fees and incentive management fees) increased
by $83,000 for the 1995 Period as compared to the 1994 Period. This was
principally because of the fees recorded associated with the Continental Lease
Settlement which included a settlement of future rentals (through April 1996)
substantially all of which was accounted for under the cost recovery method,
which resulted in a greater base on which fees were recorded in 1995 as compared
to 1994. Re-lease fees incurred during the 1995 Period increased by $14,000 as
compared to the 1994 Period due principally to the fees associated with the
re-lease of the two Boeing aircraft to Kiwi during 1994 and thus was subject to
re-lease fees for only a portion of the 1994 Period.
During 1995, TWA completed its financial restructuring and made all
payments due. Additionally, during 1995, Kiwi continued to make rental and
maintenance payments subject to the leases as amended, although it continues to
have liquidity and capital concerns. Kiwi requested an extension of time to
make related rental, deferred rent and maintenance reserve
18
21
payments for February 1996 and made such payments in late February 1996.
Finally, the Partnership settled the Continental 747 lease obligations in 1995
and accepted redelivery of the aircraft. The Partnership has entered into
discussions with potential users of the aircraft. It is anticipated that
certain scheduled maintenance and integration costs, which are estimated to
aggregate $1,300,000 will be necessary to complete a remarketing. The
Partnership intends to finance such costs as necessary through its cash
reserves and loan facility. Additionally, because of the need to meet Stage 3
aircraft thresholds required by FAA mandated noise regulation, Kiwi may require
that the Partnership hushkit (upgrade to Stage 3) one or both of the 727
aircraft leased to Kiwi. If the Partnership determines to perform such work,
which is estimated to cost $1.9 million per aircraft, it will need to finance
substantially all of such cost through its loan facility or other new
borrowings which may or may not be obtainable. If the Partnership elects not to
do such work, Kiwi may terminate the lease and the Partnership may encounter
delays and costs of redeployment. The Partnership's future cashflow will be
impacted by the timing and the lease rate achieved with respect to a remarket
of the 747 aircraft, which was available for lease at December 31, 1995, as
well as any changes in the status of the Kiwi leases as the result of Kiwi's
continued liquidity concerns or because of Stage 3 implementation.
Additionally, the lease of the 727 aircraft to Continental is scheduled to
expire in October 1996, unless renewed. The Partnership is investigating
opportunities with regard to that aircraft.
Litigation
See Item 3, "Legal Proceedings" for a complete discussion of certain class
action lawsuits and related settlement.
Results of Operations
Substantially all of the Partnership's revenue was generated from the
leasing of the Partnership's aircraft to commercial air carriers under triple
net operating leases. The balance of the Partnership's revenue consisted of
interest income earned with respect to certain advances made to lessees as well
as certain deferred rental arrangements with Continental, TWA and Kiwi.
Under the terms of the triple net leases, substantially all of the
expenses related to the operation and maintenance of the aircraft during 1995,
were paid for by the lessees or in the case of Kiwi, funded to a certain extent
through hourly maintenance reserves paid by Kiwi. The direct lease expenses
incurred by the Partnership represent the costs of providing insurance coverage
for the Partnership's aircraft in excess of the amounts required to be carried
by the lessees, trustee fees related to the ownership of the aircraft and the
cost of the letter of credit required under the terms of the TBT lease on the
McDonnell Douglas MD-81 leased to USAir.
The Partnership also records depreciation expense pertaining to the
aircraft and incurs certain general and administrative expenses in connection
with operations of the Partnership. General and administrative expenses consist
primarily of investor reporting expenses, transfer agent and audit fees and the
cost of accounting services.
Impact Of Future Adoption of Recently Issued Accounting Standard
The Financial Accounting Standards Board recently issued FASB 121,
"Accounting for the Impairment of Long-lived Assets and Long-lived Assets to be
Disposed of" ("FAS 121"). FAS 121 requires companies to review their long lived
assets, such as the Partnership's aircraft, and certain identifiable
intangibles for impairment whenever events and changes in circumstances
indicate that the carrying value of a long-lived asset may not be recoverable.
The Partnership will be required to adopt the provisions of FAS 121 as of
January 1996. The Partnership believes that based upon its operations and
current methods used to evaluate declines in market value, the future adoption
of FAS 121 will not have a material impact on the Partnerships financial
position or results of operations.
1995 as compared to 1994
The Partnership's net income was $880,000 for the year ended December
31, 1995 ("1995 Period"), as compared to $426,000 for the year ended December
31, 1994 ("1994 Period").
19
22
The increase in the Partnership's net income for the 1995 Period as
compared to the 1994 Period resulted primarily from the reduced requirement for
provision for decline in market value of aircraft in the 1995 Period as compared
to the 1994 Period ($400,000 as compared to $2,000,000) offset by a decrease in
rental revenue, as a result of the return of the 747-100 aircraft leased to
Continental. (See above discussion regarding Continental and the related Lease
Settlement.) The decrease in rental revenue was partially offset by a decrease
in depreciation due primarily to the non-recognition of depreciation expense in
the 1995 Period with respect to the 747-100 aircraft which was off lease for
substantially all of 1995 as well as a reduction in depreciable base of certain
aircraft due to the provisions for declines in market value provided in 1994.
Rental revenue decreased $2,451,000 or 28% for the 1995 Period
principally due to the non-accrual of rent with respect to the 747-100 aircraft
which was returned early in 1995 by Continental (see discussion of Continental
Lease Settlement), which was partially offset by rents generated by the two
727-200 aircraft leased to Kiwi that were off-lease for a portion of the 1994
Period.
Interest income for the 1995 Period increased by $63,000, or 27% in
comparison to the 1994 Period. The increase was primarily attributable to the
interest income earned with respect to the TWA rent deferrals, the Kiwi rent
deferrals and the advance made to Continental in the fourth quarter of 1994 and
the undistributed proceeds from the Continental settlement, partially offset by
the continued repayment of advances pursuant to various repayment schedules.
The Partnership recognized other income in 1995 of $233,000 which
represented the difference between the Continental Lease Settlements proceeds
and the amount of such proceeds accounted for under the cost recovery method.
The other income was offset by related management fees.
Depreciation and amortization decreased by $1,207,000 or 23%, for the
1995 Period in comparison to the 1994 Period. This was due primarily to the fact
that the Partnership did not recognize depreciation after the first quarter 1995
with respect to the 747-100 aircraft, which was taken out of service by
Continental during the first quarter of 1995, as well as the decrease in
depreciable basis of certain aircraft due to the provision for decline in market
value of aircraft provided in the 1994 Period.
The Partnership provided an allowance for decline in market value of
$400,000 in the 1995 Period as compared to the $2,000,000 in the 1994 Period to
reflect the General Partner's estimate of recoverability of the Partnership
investment in certain aircraft based upon estimated Cash Flow, third party
appraisals and market conditions.
General and administrative expenses for the 1995 Period increased by
$30,000 or 17% in comparison to the 1994 Period, principally due to an increase
in professional fees, including transfer agent servicing expenses.
Interest expense for the 1995 Period increased by $79,000 or 64% in
comparison to the 1994 Period due to the fact that the related borrowings were
made in April and July 1994 and thus were not outstanding for the entire 1994
Period, partially offset by principal installments paid during 1995 reducing the
balance outstanding.
20
23
Direct lease expenses for the 1995 Period decreased by $8,000, or 7% as
compared to the 1994 Period due principally to a reduction in the letter of
credit fee in 1995 as compared to 1994.
1994 Compared to 1993
The Partnership's net income was $426,000 for the year ended December
31, 1994 compared to $2,881,000 for the year ended December 31, 1993.
The decrease in the Partnership's net income for 1994 resulted
primarily from (i) an increase in the provision for decline in market value of
aircraft, (ii) a decrease in rental revenue, (iii) an increase in depreciation,
and (iv) the interest expense incurred in 1994 relating to amounts borrowed in
1994.
Rental revenue decreased $535,000 or 6% for 1994 compared to 1993. This
decrease was principally because the Northwest aircraft leases which were
scheduled to expire in April 1993, were extended at lower lease rates. (The
first Northwest aircraft was extended until August 1993 and the second Northwest
aircraft was extended until April 1994.) Additionally, the lease term for the
McDonnell Douglas MD-82 leased to TWA was extended in April 1993 at a slightly
lower lease rate.
Interest income increased by $12,000 or 6% in 1994 as compared to 1993.
This increase was attributable to the interest income earned with respect to the
advances which were made to TWA during April 1993 (and, therefore, were not
outstanding for all of 1993).
Depreciation and amortization increased $218,000 or 4% for 1994 in
comparison to 1993, principally due to depreciation relating to $2,723,000 of
capitalized costs expended in connection with the two aircraft remarketed to
Kiwi. The increase was partially offset by the reduced depreciation expense
during 1994 with respect to the Boeing 727-200 advanced aircraft leased to
Continental as a result of the reserve for decline in market value of the
aircraft which the Partnership recorded at December 31, 1993.
The Partnership provided a decline in market value of aircraft in the
amount of $2,000,000 in 1994 as compared to $434,000 in 1993, to reflect the
General Partners' estimate of the recoverability of the Partnership's
investments in certain aircraft.
Aggregate subordinated management and re-lease fees paid to the General
Partners were similar for 1994 as compared to 1993. Management fees decreased
because of the decreases in the Partnership's rental revenue and net income
(without regard to depreciation) which serve as the bases with respect to which
the management fees are calculated. However, the decrease in such management
fees was substantially offset by an increase in re-lease fees during 1994. There
were no re-lease fees prior to the second quarter of 1993.
The Partnership incurred interest expense of $123,000 in 1994, with
respect to the borrowings made in April 1994 and July 1994. The Partnership had
no such borrowings outstanding in 1993. (See Item 8, Financial Statements, Note
7, "Notes Payable").
21
24
Inflation and Changing Prices
Inflation has had no material impact on the operations or financial
condition of the Partnership during 1995. However, market and worldwide economic
conditions and changes in federal regulations have in the past, and may in the
future, impact the airline industry and thus lease rates and aircraft values.
Additionally, inflation and changing prices, may affect future leasing rates and
the eventual selling price of the aircraft.
22
25
Item 8. Financial Statements
List of Financial Statements
Page
----
Report of Independent Accountants F-2
Balance Sheets -- December 31, 1995 and 1994 F-3
Statements of Income for the years ended
December 31, 1995, 1994 and 1993 F-4
Statements of Partners' Equity for the years ended
December 31, 1995, 1994 and 1993 F-5
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 F-6
Notes to Financial Statements F-8 to F-22
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted since
(1) the information required is disclosed in the financial statements and notes
thereto; (2) schedules are not required under the related instruction or; (3)
the schedules are inapplicable.
F-1
26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Limited Partners of
Pegasus Aircraft Partners, L.P.
We have audited the accompanying financial statements as listed in the
index on Page F-1 herein. 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 audit 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 Pegasus Aircraft
Partners, L.P. as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years ended December 31, 1995, 1994 and
1993, in conformity with generally accepted accounting principles.
As discussed in Note 9 to the Financial Statements, there is litigation
pending against, among others, the Administrative General Partner and
affiliates of the Administrative General Partner. The ultimate outcome of this
litigation and its effects, if any, on the Partnership cannot presently be
determined.
New York, New York
February 15, 1996 except
as to Note 9 for which the
date is March 19, 1996
F-2
27
PEGASUS AIRCRAFT PARTNERS, L.P.
BALANCE SHEETS - DECEMBER 31, 1995 AND 1994
ASSETS
1995 1994
---- ----
(in thousands, except unit data)
Cash and cash equivalents (Note 4) $ 4,081 $ 1,763
Restricted cash (Note 5) 1,135 907
Rent and other receivables (Note 5) 1,534 1,953
Aircraft, net (Note 5) 29,814 37,961
Prepaid expenses 47 35
------- -------
Total Assets $36,611 $42,619
======= =======
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Notes payable (Note 7) $ 1,625 $ 2,000
Accounts payable and accrued expenses 98 76
Payable to affiliates (Note 6) 628 280
Distributions payable to partners 1,616 1,818
Maintenance reserves payable 1,235 522
Deferred rental income 218 137
Accrued interest payable 15 16
------- -------
Total Liabilities 5,435 4,849
------- -------
CONTINGENCIES (Notes 5, 7 and 9)
PARTNERS' EQUITY:
General Partners (485) (420)
Limited Partners (4,000,005 units outstanding
in 1995 and 1994) 31,661 38,190
------- -------
Total Partners' Equity 31,176 37,770
------- -------
Total Liabilities and Partners' Equity $36,611 $42,619
======= =======
The accompanying notes are an integral
part of these financial statements.
F-3
28
PEGASUS AIRCRAFT PARTNERS, L.P.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
---- ---- ----
(in thousands, except unit data
and per unit amounts)
REVENUE:
Rentals from operating leases $ 6,076 $ 8,527 $ 9,062
Interest 293 230 218
Other income 233 - -
---------- ---------- ----------
6,602 8,757 9,280
---------- ---------- ----------
EXPENSES:
Depreciation and amortization 4,105 5,312 5,094
Provision for decline in market
value of aircraft (Note 5) 400 2,000 434
Management and re-lease fees (Note 6) 698 601 602
General and administrative (Note 6) 210 180 166
Direct lease 107 115 97
Interest expense 202 123 -
Aircraft maintenance and storage - - 6
---------- ---------- ----------
5,722 8,331 6,399
---------- ---------- ----------
NET INCOME $ 880 $ 426 $ 2,881
========== ========== ==========
NET INCOME ALLOCATED:
To the General Partners 9 4 29
To the Limited Partners $ 871 $ 422 $ 2,852
---------- ---------- ----------
$ 880 $ 426 $ 2,881
========== ========== ==========
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ .22 $ .11 $ .71
========== ========== ==========
WEIGHTED AVERAGE NUMBER
OF LIMITED PARTNERSHIP
UNITS OUTSTANDING 4,000,005 4,000,005 4,000,005
========== ========== ==========
The accompanying notes are an integral
part of these financial statements.
F-4
29
PEGASUS AIRCRAFT PARTNERS, L.P.
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
General Limited
Partners Partners Total
-------- -------- -----
(in thousands)
Balance, December 31, 1992 $(305) $49,716 $49,411
Net income 29 2,852 2,881
Distributions to partners declared (76) (7,600) (7,676)
----- ------- -------
Balance, December 31, 1993 (352) 44,968 44,616
Net income 4 422 426
Distribution to partners declared (72) (7,200) (7,272)
----- ------- -------
Balance December 31, 1994 (420) 38,190 37,770
Net income 9 871 880
Distributions to partners declared (74) (7,400) (7,474)
----- ------- -------
Balance December 31, 1995 $(485) $31,661 $31,176
===== ======= =======
The accompanying notes are an integral
part of these financial statements.
F-5
30
PEGASUS AIRCRAFT PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
---- ---- ----
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 880 $ 426 $ 2,881
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,105 5,312 5,094
Provision for decline in market value of aircraft 400 2,000 434
Unrestricted maintenance reserves received from lessee 100 325 433
Utilization of maintenance reserve provided for - (580) -
Change in assets and liabilities:
Rent and other receivables 128 231 (261)
Prepaid expenses (12) (7) 33
Accounts payable and accrued expenses 22 28 (34)
Payable to affiliates 348 217 20
Deferred rental income 81 (45) (137)
Accrued interest payable (1) 16 -
------ ------ -------
Net cash provided by operating activities 6,051 7,923 8,463
------ ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Continental settlement, net 3,673 - -
Capitalized aircraft improvements (31) (2,723) (225)
Advances to lessees - (100) (1,089)
Repayment of advances by lessees 291 332 176
------ ------ -------
Net cash provided by (used in) investing activities 3,933 (2,491) (1,138)
------ ------ -------
The accompanying notes are an integral
part of these financial statements.
F-6
31
PEGASUS AIRCRAFT PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (continued)
1995 1994 1993
---- ---- ----
(in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - 2,150 -
Repayment of notes payable (375) (150) -
Transfers from (to) restricted cash 385 (140) (140)
Cash distributions paid to partners (7,676) (7,272) (7,878)
------- ------- -------
Net cash used in financing activities (7,666) (5,412) (8,018)
------- ------- -------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2,318 20 (693)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 1,763 1,743 2,436
------- ------- -------
CASH AND CASH EQUIVALENTS
AT END OF YEAR 4,081 1,763 $ 1,743
======= ======= =======
Supplemental Schedule of Cash Flow Information:
Interest Paid $ 203 $ 107 $ -
Restricted maintenance reserves collected net of
maintenance drawdowns $ 613 $ 522 $ -
======= ======= =======
NONCASH TRANSACTIONS
Distributions to partners declared but unpaid $ 1,616 $ 1,818 $ 1,818
The accompanying notes are an integral
part of these financial statements.
F-7
32
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
Basis or Presentation Pegasus Aircraft Partners, L.P. (the
"Partnership"), a Delaware limited partnership, maintains its accounting
records and prepares financial statements on the accrual basis of accounting.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods. The
most significant assumptions and estimates relate to useful life and
recoverability of the aircraft and tax indemnity provisions described below.
Actual results could differ from these estimates.
Cash and Cash Equivalents The Partnership invests funds not immediately
required for operations or distributions in short term, highly liquid
investments until such time as the funds are required to meet its obligations.
The short term, highly liquid investments are recorded at cost which
approximates fair market value. For purposes of the balance sheets and the
statements of cash flows, the Partnership considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents.
Restricted Cash Restricted cash represents maintenance reserves (also
described below) collected from Kiwi International Air Lines, Inc. ("Kiwi") with
respect to the two aircraft leased to Kiwi. (See also Note 5 "Aircraft Under
Operating Leases") In prior years, restricted cash included cash in a collateral
account that secured the Partnership's obligation under a letter of credit
agreement (See Note 5 "Aircraft Under Operating Leases" and Note 7, "Notes
Payable", for further discussion).
Aircraft and Depreciation The aircraft are recorded at cost, which
includes acquisition costs and the acquisition fee and the financial management
advisory fee paid to the General Partners. Depreciation is computed using the
straight-line method over an estimated economic life of twelve years (five years
for the aircraft engine separately leased to Kiwi). Improvements to aircraft are
capitalized when incurred and depreciated, generally, over the remaining useful
life of the improvement. The Partnership evaluates these estimates based upon
changes in market conditions in accordance with generally accepted accounting
principles. Accordingly, the Partnership records a provision for decline in
market value of aircraft to recognize a loss in the value of an aircraft when
the General Partners believe that the recoverability of the Partnership's
investment in an aircraft has been impaired. Proceeds received in lease
settlements or terminations are accounted for under the cost recovery method
when and to the extent that, based upon third party appraisals and market
conditions, there has been a diminution to the carrying value of the aircraft.
Impact Of Future Adoption Of Recently Issued Accounting Standard
The Financial Accounting Standards Board recently issued FASB 121,
"Accounting for the Impairment of Long-lived Assets and Long-lived Assets to be
Disposed of" ("FAS 121"). FAS 121 requires companies to review their long lived
assets, such as the Partnership's aircraft, and certain identifiable
intangibles for impairment whenever events and changes in circumstances
indicate that the carrying value of a long-lived asset may not be recoverable.
The Partnership will be required to adopt the provisions of FAS 121 as of
January 1996. The Partnership believes that based upon current operations and
current methods used to evaluate declines in market value, the future adoption
of FAS 121 will not have a material impact on the Partnerships financial
position or results of operations.
F-8
33
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Tax Benefit Transfer Lease The McDonnell Douglas MD-81 aircraft under
lease to USAir, Inc. ("USAir")was purchased subject to a tax benefit transfer
lease which provided for the transfer of the investment tax credits and
depreciation deductions with respect to the aircraft to a tax lessor. The
transfer was accomplished by the sale, for income tax purposes only, of the
aircraft to the tax lessor for cash and a note and a leaseback of the aircraft
for rental payments which match the payments on the note. Under the terms of
the tax benefit transfer lease, the Partnership's required rental payments are
contingent upon and may, by agreement, be offset by the tax lessor's required
note payments. Accordingly, no asset or liability for the tax benefit transfer
lease has been recorded.
Maintenance Reserve Funds Two of the Partnership's leases require the
lessee to make monthly payments to maintenance reserve funds administered by the
Partnership. The Partnership is obligated to reimburse the lessee for specified
maintenance costs out of the reserve funds, upon submission of appropriate
evidence documenting the maintenance costs incurred by the lessee. Interest
earned on the reserve funds is deposited into the funds and utilized in the same
manner as other payments to the funds. These reserve funds are included in
restricted cash on the balance sheets.
Operating Leases The aircraft leases which are structured principally
as triple net leases are accounted for as operating leases. Lease revenues are
recognized ratably over the terms of the related leases.
Deferred Rental Income Deferred rental income represents rental
payments received in advance which have not been earned.
Income Taxes No provision for income taxes has been made in the
financial statements since such taxes are the responsibility of the individual
partners rather than the Partnership.
Net Income Per Limited Partnership Unit The net income per limited
partnership unit is computed by dividing the net income allocated to the Limited
Partners by the weighted average number of Units outstanding for the period.
2. ORGANIZATION OF THE PARTNERSHIP
The Partnership was formed on June 23, 1988 for the purpose of
acquiring, leasing, and ultimately selling used commercial aircraft principally
to US airlines. The Managing General Partner of the Partnership is Pegasus
Aircraft Management Corporation, a wholly-owned subsidiary of Pegasus Capital
Corporation, and the Administrative General Partner is Air Transport Leasing,
Inc., a wholly-owned subsidiary of PaineWebber Group Inc. (collectively, the
"General Partners").
The Partnership is required to dissolve and distribute all of its
assets no later than December 31, 2012. The Partnership may reinvest the
proceeds from sales of aircraft occurring prior to March 22, 1997, provided that
prior to any such reinvestment the Partnership distributes to the Limited
Partners cash in an amount sufficient to pay any federal and state income taxes
to
F-9
34
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
be incurred by the Limited Partners as a result of the aircraft sale.
Thereafter, the net proceeds of any sales of aircraft will be distributed to the
partners.
Upon formation of the Partnership, the General Partners each
contributed $500 to the capital of the Partnership, and the initial Limited
Partner contributed $100 for five limited partnership depositary units
("Units"). An additional 4,000,000 Units were then sold at a price of $20.00 per
Unit, with the Partnership receiving gross offering proceeds of $80,000,000.
Title to the aircraft owned by the Partnership is held by
non-affiliated trustees of trusts of which the Partnership is the beneficiary or
one of two beneficiaries. The purpose of this method of holding title is to
satisfy certain registration requirements of the Federal Aviation
Administration.
3. PARTNERSHIP ALLOCATIONS
The Partnership Agreement provides that cash flow from operations be
distributed on a quarterly basis at the General Partners' discretion, 99% to the
Limited Partners and 1% to the General Partners. Cash flow is defined in the
Partnership Agreement as including cash receipts from operations and interest
income earned, less expenses incurred and paid in connection with the ownership
and lease of the aircraft. Depreciation and amortization expenses are not
deducted from cash receipts in determining cash flow. Distributable proceeds
from sales of aircraft upon liquidation of the Partnership will be distributed
in accordance with the partners' capital accounts after all allocations of
income and losses.
Income and losses generally will be allocated 99% to the Limited
Partners and 1% to the General Partners. Upon the sale of aircraft, gain
generally will be allocated, first, to the General Partners in an amount equal
to the difference between their capital contributions and 1.01% of the aggregate
capital contributions of the Limited Partners, and, then, 99% to the Limited
Partners, and 1% to the General Partners.
4. CASH EQUIVALENTS
The Partnership invests funds not immediately required for operations
or distributions in short-term highly liquid investments. These investments are
primarily short-term commercial paper issued by large domestic corporations. At
December 31, 1995, the Partnership held short-term commercial paper issued by
Ford Motor Credit Company (with various maturities) with par values aggregating
$3,826,000, which were acquired at cost aggregating $3,806,985 and short term
commercial paper issued by John Deere, Inc. with a par value of $150,000 which
was purchased for a cost of $148,974.
F-10
35
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
5. AIRCRAFT UNDER OPERATING LEASES
Net Investment in Aircraft
The Partnership's net investment in aircraft as of December 31, 1995
and 1994 consisted of the following (in thousands):
1995 1994
---- ----
Aircraft on operating leases $56,095 $ 74,415
Less: Accumulated depreciation (26,995) (31,507)
Reserve for decline in market value of aircraft (5,169) (4,769)
Provision for maintenance cost (178) (178)
------- --------
23,753 37,961
Aircraft held for lease $18,351 $ -
Less: Accumulated depreciation (8,617) -
Net lease settlement proceeds accounted for as cost (3,673) -
recovery
------- --------
6,061 -
------- --------
$29,814 $ 37,961
======= ========
Net investment in aircraft includes depreciated cost of approximately
$127,000 for a spare engine leased to Kiwi at December 31, 1995.
F-11
36
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Financial Terms of Leases
Kiwi International Air Lines Leases The Partnership owns two Boeing
727-200 non-advanced aircraft, originally acquired on December 1988 for
$6,308,000 per aircraft. The aircraft were originally leased to Northwest
Aircraft, Inc. ("Northwest") subject to operating leases, one of which expired
in August 1993 and the other of which expired in April 1994, both after short
extensions at lower lease rates. Upon the expiration of the leases, Northwest
paid the Partnership $433,000 and $325,000 representing economic settlements in
lieu of completing certain maintenance procedures required for the respective
leases. On February 1994 and April 1994, the Partnership entered into the leases
with Kiwi, each for terms of approximately five years with rents payable monthly
in advance $55,000 per aircraft. The leases also required Kiwi to pay
maintenance reserves, which can be drawn down by Kiwi for specific maintenance
procedures, of $250 per flight hour. The aircraft were delivered in April and
July 1994. In connection with the first Kiwi lease, the Partnership also
acquired an additional aircraft engine, at a cost of $195,000, which is used as
a spare by Kiwi on a utilization basis at $105 per flight hour of use.
In connection with the Kiwi leases, the Partnership completed certain
maintenance procedures, aircraft-aging related modifications, the purchase of
the spare engine for Kiwi's fleet discussed above and other lessee-required
modifications prior to delivery of the aircraft to Kiwi at an aggregate cost of
$3,303,000 of which $580,000 represented maintenance-related work funded by the
maintenance-related payments received from Northwest and the balance of which
was capitalized as part of the Partnership's basis in the aircraft.
During the terms of the leases Kiwi can request that the aircraft be
hushkitted to obtain Stage III noise abatement for which the lease term will be
reset to five years with lease payments increasing to amortize the cost of
hushkitting at the rate of 2% per month. Alternatively, the Partnership can deem
the hushkitting economically unfeasible at which point Kiwi can terminate the
lease and return the aircraft. Based upon the composition of its fleet and the
FAA mandated deadlines for compliance with Stage 3 Noise Regulation, management
believes that Kiwi will request that the Partnership hushkit one or both of
the 727 aircraft by December 1996. Such upgrade is estimated to cost $1.9
million per aircraft and the Partnership would need to acquire additional
financing to complete such work.
During 1995, Kiwi encountered continued liquidity and operating
problems. The Partnership and Kiwi agreed to a deferral of February 1995 and
half of March 1995 rent ($165,000 in the aggregate) plus an accommodation to
permit Kiwi to not fund the maintenance reserves in February, March and April
1995. The deferred rent is payable with interest of 12% over a 9-month period
which began July 1, 1995. All 1995 payments have been made as scheduled and
the outstanding balance was approximately $56,000 at December 31, 1995.
Additionally, at December 31, 1995, the Partnership held maintenance deposits
aggregating $1,135,000 with respect to the Kiwi aircraft. Kiwi requested
additional time to make February rental, deferred rental and maintenance
payments and made such payments in late February 1996 and early March 1996.
Kiwi's ability to make future payments on a timely basis is uncertain due to
continued liquidity and capital concerns.
F-12
37
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
The Partnership recorded provisions for decline in market value of
$1,943,000 and $2,335,000 during the years ended December 31, 1994 and 1992,
respectively, with respect to these aircraft. These provisions are reflected in
the carrying value of the Partnership's investments in these two aircraft as of
December 31, 1995.
Continental Airlines Leases During December 1988, the Partnership
acquired a Boeing 727-200 advanced aircraft for a total purchase price of
$8,025,000. The aircraft was originally subject to an operating lease with
Continental Airlines, Inc. ("Continental"), the term of which ends on October
31, 1996. Rental payments are payable monthly, in advance at the rate of
$81,000.
During December 1988, the Partnership acquired a Boeing 747-100
aircraft for a total purchase price of $17,847,000. The aircraft was originally
subject to an operating lease with Continental, the term of which was scheduled
to expire on April 30, 1996 with rental payable monthly, in advance, at the rate
of $269,000.
In January 1995, Continental announced that it was grounding its Airbus
Industrie manufactured aircraft and taking certain Boeing 747 aircraft out of
service, including the Boeing 747 Aircraft owned by the Partnership. Continental
discontinued utilizing the Aircraft, did not make any rental payments after
January 1995 and returned the Aircraft to the Partnership. During the quarter
ended September 30, 1995 the Partnership and Continental completed the
negotiation of a lease settlement agreement ("Lease Settlement"). Under the
terms of the Lease Settlement, Continental agreed to pay the Partnership the
amount otherwise due under the Lease as rent for the period February 1995 to
August 1995 plus a discounted amount representing the amount of rent that would
have been due under the Lease for the period September 1, 1995 to April 30,
1996, the scheduled expiration date of the Lease. Continental returned the
Aircraft and engines in the return condition required by the Lease. On October
16, 1995 the Partnership received the Lease Settlement proceeds totaling
$3,906,491.
A substantial portion of the proceeds were accounted for under the cost
recovery method reducing the Partnership's net carrying value of the aircraft.
At December 31, 1995, the Partnership had a carrying value of $6,061,000 in the
747-100 aircraft which approximated its estimated market value at such date. The
remaining gain on the lease settlement was offset by the related management fees
accrued and thus no net gain or loss was recognized on the settlement.
The Partnership has entered into various lease modifications and
financing arrangements with Continental as a result of the bankruptcy which are
summarized below. Continental filed for Chapter 11 bankruptcy protection on
December 3, 1990 and stopped making lease payments.
F-13
38
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
On July 3, 1991, the Bankruptcy Court approved an agreement amending
the Partnership's lease agreements with Continental with respect to the
Partnership's Boeing 727-200 advanced, and Boeing 747-100, aircraft. Pursuant to
the agreement, Continental paid 50% of the rentals due each month, effective
June 1, 1991. Continental resumed paying 100% of the rentals due each month
beginning October 1, 1991, issued promissory notes for the unpaid rents for
December 1990 through May 1991 and the remaining 50% of the rentals due for the
months of June 1991 through September 1991 (which totaled $2,798,000 and which
were sold to an unaffiliated third party) and reduced the rentals with respect
to the Boeing 727-200 advanced aircraft from $118,000 to $81,000 per month,
effective December 1, 1990. The amount of the rent payable with respect to the
Boeing 747-100 aircraft was not changed.
Additionally, the Partnership also agreed to and advanced $500,000 for
certain qualifying capital expenditures incurred by Continental with respect to
the Boeing 747-100 aircraft and $250,000 for the Boeing 727-200 advanced
aircraft. Continental agreed to repay the amounts advanced by the Partnership
pursuant to this financing arrangement, with interest at 12% per annum, over the
lesser of 36 months or the then remaining lease term. The advances for these
qualifying capital expenditures, were funded from operating reserves. The
balance of the related receivables aggregated $199,000 at December 31, 1995. All
first quarter 1996 repayments of advances have been made by Continental when
due.
On December 30, 1992, the Bankruptcy Court approved an agreement to
further amend the Partnership's lease agreements with Continental with respect
to the Partnership's Boeing 727-200 advanced, and Boeing 747-100, aircraft.
Pursuant to the agreement, rentals attributable to the period from November 1,
1992 through February 15, 1993 were deferred. Continental resumed paying rentals
on a current basis beginning February 15, 1993. The deferred rentals are
payable, along with interest at the rate of 8.70% per annum, in 36 equal monthly
installments which began May 1, 1993. At December 31, 1995, the balance of the
deferred rentals was $152,000. All first quarter 1996 repayments of deferred
rentals have been made by Continental when due.
The Partnership recorded a provision for decline in market value of
$400,000 and $57,000 during the years ended December 31, 1995 and 1994,
respectively, to reflect an estimate of recoverability of the Partnership's
investment in the Boeing 727-200 aircraft.
Trans World Airlines Lease During February 1989, the Partnership
acquired a McDonnell Douglas MD-82 aircraft for a total purchase price of
$21,017,000. The aircraft is subject to an operating lease with Trans World
Airlines, Inc. ("TWA"). The lease which was originally scheduled to expire on
April 23, 1993 was modified and under the terms of the lease amendment was
extended until October 1, 1998 with rentals payable monthly, in advance, at the
rate of $185,000 per month.
F-14
39
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Pursuant to the lease amendment, the Partnership reimbursed TWA for
$225,000 of capital improvements and advanced $750,000 to TWA to finance certain
major maintenance procedures. TWA is repaying the $750,000 to the Partnership
over the remaining lease term, in equal monthly installments, with interest at a
fixed rate of 9.68%. At December 31, 1995, the balance of the receivable was
$428,000 ($557,000 at December 31, 1994). All first quarter 1996 payments have
been made by TWA.
In mid-October 1994 because of operating and financial problems, TWA
announced that it would seek a global restructuring of its capital by offering
common stock for its debt securities preferred stock obligation and lease
deferrals negotiated with aircraft lessors such as the Partnership ("Exchange
Offer"). TWA and the Partnership agreed to a deferral of 50% of the original
rent scheduled for November 1994 and 75% of the original schedule from December
1994 to April 1995 with originally scheduled payments resuming in May 1995.
Additionally, TWA and the Partnership reached an agreement to extend the lease
of the MD-82 aircraft by six years beyond the then scheduled expiration date to
October 1, 2004 at the current lease rate at $185,000 per month. All rents
deferred during the November 1994 to April 1995 period are scheduled to be
repaid with interest at 12% from the date of the deferral over an 18 month
period commencing May 1, 1995. On June 30, 1995, TWA filed its prepackaged
reorganization plan under Chapter 11 of the U.S. Bankruptcy Code. On August 23,
1995, the reorganization plan, which included the foregoing lease
modifications, was confirmed by the Bankruptcy Court, and TWA emerged from
bankruptcy. TWA has made all rental payments, advance repayments and payments
of deferred rent when due. However, there can be no assurance that TWA will be
able to meet its obligations in the future. At December 31, 1995 and 1994, the
Partnership had $465,000 and $231,000 of deferred rent receivables relating to
the TWA aircraft which were included in rents and other receivables on the
balance sheets.
USAir Lease During March 1989, the Partnership acquired one-half of the
beneficial interest in a trust ("Trust") which is the owner/lessor of a
McDonnell Douglas MD-81 aircraft for a total purchase price of $9,999,000. The
remaining one-half interest in the Trust is owned by Pegasus Aircraft Partners
II, L.P., an affiliated partnership. The aircraft is subject to an operating
lease with USAir, the term of which ends on June 1, 1998. The lease may be
terminated subject to the lessee's guarantee that the Partnership will receive
contractually defined minimum termination values upon remarketing of the
aircraft. Rental payments are payable quarterly, in arrears, at a rate of
$304,000 (for the Partnership's one-half interest in the aircraft). The lease
provides for one three-year renewal option, at the same quarterly rental rate.
If the lease is not renewed for the first renewal period, the lessee must make a
termination payment of $1,113,000 to the Partnership. The lessee also has three
additional one-year renewal options at fair market rental rates. The lessee may
elect to purchase the aircraft at its fair market value at the end of any
renewal term.
F-15
40
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
The McDonnell Douglas MD-81 aircraft was purchased subject to a tax
benefit transfer lease ("TBT lease") which provided for the transfer of the
investment tax credits and depreciation deductions with respect to the aircraft
to a tax lessor. Under the TBT lease, the Trust, as the owner of the aircraft
and the tax lessee under the TBT lease, has agreed to indemnify the tax lessor
if certain anticipated tax benefits are lost by the tax lessor as a result of,
among other things, acts or omissions by the Trust, breach of covenants by the
Trust under the TBT lease, loss or damage to the aircraft or use of the aircraft
outside the United States. The TBT lease requires that a letter of credit be
posted to secure this obligation. The Partnership shares in the annual cost of
the letter of credit and is obligated for one-half of any calls on the letter of
credit.
The letter of credit has a current face amount of approximately $2.3
million. Through June 1995 the letter of credit agreement obligated the
Partnership to deposit $35,000 per quarter (beginning on June 1, 1992 and
originally scheduled to terminate on June 1, 1997) into a restricted account at
the bank ("Lender") which issued the current letter of credit. The funds in this
restricted account, which totaled $385,000 at December 31, 1994, served as cash
collateral to collateralize the Partnership's obligations under the letter of
credit agreement. In July 1995, the Partnership restructured its borrowing
arrangement with the Lender, extending the $4,000,000 commitment to May 1997.
The Lender, which also separately held the cash collateral account, released
its Security interest in the cash collateral account and eliminated the
requirement for future deposits to such account.
Under the operating lease, the lessee, USAir, Inc., has assumed all
liabilities, indemnities and obligations of the Trust to the tax lessor under
the TBT lease and has agreed to indemnify the Trust for any liability, indemnity
or obligation to the tax lessor under the TBT lease except for liability
resulting from breaches by the Trust of covenants under the operating lease. It
has not posted a letter of credit to secure this obligation. As a result of the
foregoing, if the tax lessor draws on the letter of credit as a result of action
by the lessee, the Partnership and Pegasus Aircraft Partners II, L.P., through
the Trust, will be responsible for the loss to the tax lessor until they can
obtain indemnification from the lessee.
The tax lessor is entitled to call on the letter of credit whether its
loss of tax benefits is caused by Pegasus Aircraft Partners II, L.P. or the
Partnership, and Pegasus Aircraft Partners II, L.P. and the Partnership have
agreed to indemnify each other for any loss occasioned by the acts of the other.
To date, there have been no calls against the letter of credit.
General The aircraft leases are principally triple net leases. As such,
during the terms of leases, the lessees are required to pay substantially all
expenses associated with the aircraft and in the case of Kiwi, also fund certain
maintenance expenses through hourly maintenance reserves paid monthly.
F-16
41
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Significant Lessees
The Partnership leased its aircraft to four different airlines during
1995. Revenues from airlines which accounted for greater than 10% of the
Partnership's total rental revenues during 1995, 1994 and 1993 are as follows:
Percentage of Rental Revenues
-----------------------------
Airlines 1995 1994 1993
-------- ---- ---- ----
Trans World Airlines, Inc. 36.5% 26.0% 25.1%
Kiwi International Air Lines, Inc. 23.2 - -
Continental Airlines, Inc. 20.3 49.2 45.8
USAir, Inc. 20.0 14.2 13.4
Northwest Aircraft, Inc. - - 15.7
Such percentages excluded the lease settlement payment received from Continental
in 1995 with respect to the 747-100 previously leased to them. Such proceeds
were substantially accounted for under the cost recovery method.
Future Minimum Rental Income
The following is a schedule by year of future minimum rental income
under the leases as of December 31, 1995 (in thousands):
Year Amount
---- ------
1996 $ 5,561
1997 4,754
1998 4,754
1999 4,754
2000 3,434
Thereafter 8,802
-------
Total $32,059
=======
The above schedule of future minimum rental income does not include the
rental income which would result from the renewal of existing leases or the
re-leasing of aircraft, except for the initial three-year renewal period (June
1998 to June 2001) for the McDonnell Douglas MD-81 aircraft under lease to
USAir, Inc. This renewal is included since USAir must make a termination
payment of $1,113,000 if the renewal is not exercised.
The Partnership operates in one industry, the leasing of used
aircraft to commercial airlines.
F-17
42
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
6. TRANSACTIONS WITH AFFILIATES
Management Fees The General Partners receive a quarterly subordinated
base management fee in an amount generally equal to 1.5% of gross aircraft
rentals, net of re-lease fees paid. Of this amount, 1.0% is payable to the
Managing General Partner and 0.5% is payable to the Administrative General
Partner. During the years ended December 31, 1995, 1994 and 1993, the General
Partners earned base management fees of $148,000, $126,000 and $135,000,
respectively.
The General Partners also receive a quarterly subordinated incentive
management fee in an amount equal to 4.5% of quarterly cash flow and sales
proceeds (net of resale fees), of which 2.5% is payable to the Managing General
Partner and 2.0% is payable to the Administrative General Partner. During the
years ended December 31, 1995, 1994 and 1993, the General Partners earned
incentive management fees of $426,000, $365,000 and $396,000, respectively.
Re-lease Fee The General Partners receive a quarterly subordinated fee
for re-leasing aircraft or renewing a lease in an amount equal to 3.5% of the
gross rentals from such re-lease or renewal for each quarter for which such
payment is received. Of this amount, 2.5% is payable to the Managing General
Partner and 1.0% is payable to the Administrative General Partner. During the
years ended December 31, 1995, 1994 and 1993, the General Partners earned
$124,000, $110,000 and $71,000, respectively of re-lease fees.
Accountable Expenses The General Partners are entitled to reimbursement
of certain expenses paid on behalf of the Partnership which are incurred in
connection with the administration and management of the Partnership. Such
reimbursable expenses amounted to $50,000, $50,000 and $51,000 during 1995, 1994
and 1993, respectively, all of which were paid or accrued to the Administrative
General Partner.
Other In 1994, the Partnership acquired an aircraft engine from Pacific
Aviation Holding Company, an affiliate of the Managing General Partner, at a
purchase price of $195,000. The purchase price paid by the Partnership was equal
to Pacific Aviation Holding Company's actual cost of the engine. The depreciated
cost of the engine is included in Aircraft, net on the balance sheet on December
31, 1995.
During 1995, the Administrative General Partner voluntarily deferred
the receipt of management fees and release fees earned beginning January 1,
1995. Such amount aggregated $273,000.
F-18
43
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
7. NOTES PAYABLE
During April 1994, the Partnership established a loan facility with an
unaffiliated, third-party lender ("Lender"), which was collateralized by the
Partnership's one-half interest in the McDonnell Douglas MD-81 aircraft leased
to USAir, Inc. ("USAir") and the Partnership's Boeing 747-100 aircraft leased to
Continental. Under the terms of the loan agreement, the Partnership was entitled
to borrow up to $4,000,000, the commitment for which expired on May 1, 1995. The
loan agreement required a commitment fee on the unborrowed funds of .5% per
annum payable quarterly. There are no compensating balance requirements. The
Partnership had an option for a fixed (market interest rate on the U.S. Treasury
bond with a similar maturity plus 2.75%) or floating (the Lender's prime rate
plus 1.5%) rate of interest.
In July 1995, the Partnership and the Lender completed an extension of
the commitment. Under the new agreement, the aggregate commitment will remain at
$4,000,000, the Partnership's ability to borrow under the facility will be
extended until May 1, 1997 and the floating interest rate charged under the
facility will be reduced to the Lender's prime rate plus .5%. The Lender
released the Boeing 747-100 aircraft as collateral under the loan and received
as substitute collateral a perfected security interest in the Partnership's
MD-82 aircraft leased to TWA. Through December 31, 1995, the Partnership had
borrowed an aggregate of $2,150,000 pursuant to the loan agreement, of which
$1,625,000 and $2,000,000 were outstanding at December 31, 1995 and December 31,
1994, respectively.
Based upon the outstanding borrowings at December 31, 1995, the
required repayment schedule is as follows: (in thousands)
Year Amount
---- ------
1996 $ 407
1997 442
1998 481
1999 295
------
$1,625
======
F-19
44
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
8. RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING
The following is a reconciliation of the net income as shown in the
accompanying financial statements to the taxable income (loss) reported for
federal income tax purposes (in thousands):
1995 1994 1993
---- ---- ----
Net income per financial statements $ 880 $ 426 $2,881
Increase (decrease) resulting from:
Depreciation (2,037) (613) (428)
Reserves for maintenance costs and
decline in market value of aircraft 500 1,745 867
Continental lease settlement proceeds accounted
for as cost recovery 3,673 - -
TBT interest income less
TBT rental expense (591) (470) (375)
Deferred rental income 218 (182) (136)
Other 43 53 56
Maintenance reserves collected and related interest
net of expense 613 522 -
------- ------ ------
Taxable income per federal income tax return $ 3,299 $1,481 $2,865
======= ====== ======
The following is a reconciliation of the amount of the Partnership's
total Partnership equity as shown in the accompanying financial statements to
the tax bases of the Partnership's net assets (in thousands):
1995 1994 1993
---- ---- ----
Total Partnership equity per financial statements $ 31,176 $ 37,770 $ 44,616
Increase (decrease) resulting from:
Commissions and expenses paid
in connection with the sale
of limited partnership units 8,441 8,441 8,441
Reserves for maintenance costs and
decline in market value of aircraft including Continental lease
settlement, accounted for as cost recovery 9,020 4,947 3,202
Distributions payable to partners 1,616 1,818 1,818
Deferred rental income 218 - 182
Accumulated depreciation (21,067) (19,030) (18,417)
TBT interest income less TBT
rental expense (2,281) (1,690) (1,220)
Maintenance reserves payable 1,255 522 -
Other (8) (31) (83)
-------- -------- --------
Tax bases of net assets $ 28,370 $ 32,747 $ 38,539
======== ======== ========
F-20
45
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
9. LITIGATION
In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated sale and
sponsorship of various limited partnership investments, including those offered
by the Partnership. The lawsuits were brought against PaineWebber Incorporated
and PaineWebber Group, Inc. (together, "PaineWebber"), among others, by
allegedly dissatisfied partnership investors. In March 1995, after the actions
were consolidated under the title In re: PaineWebber Limited Partnerships
Litigation, the plaintiffs amended their complaint to assert claims against a
variety of other defendants, including Air Transport Leasing Inc., an affiliate
of PaineWebber and the Administrative General Partner in the Partnership
("Administrative General Partner").
The amended complaint in the New York Limited Partnership Actions
alleged among other things, that, in connection with the sale of interests in
The Partnership, PaineWebber and the Administrative General Partners (1) failed
to provide adequate disclosure of the risks involved with each partnership; (2)
made false and misleading representations about the safety of the investments
and the partnership's anticipated performance; and (3) marketed the partnership
to investors for whom such investments were not suitable. The plaintiffs also
alleged that following the sale of the partnership investments PaineWebber and
the Administrative General Partner misrepresented financial information about
the partnership's value and performance. The amended complaint alleged that
PaineWebber and the Administrative General Partner violated the Racketeer
Influenced and Corrupt Organizations Act ("RICO") and the federal securities
laws. The plaintiffs sought unspecified damages, including reimbursement for
all sums invested by them in the partnerships, as well as disgorgement of all
fees and other income derived by PaineWebber from the limited partnerships. In
addition, the plaintiffs also sought treble damages under RICO.
On May 30, 1995, the US District Court certified class action treatment
of the plaintiffs' claims in the New York Limited Partnerships Actions.
In January 1996, PaineWebber signed a memorandum of understanding with
the plaintiffs in the class action outlining the terms under which the parties
have agreed to settle the case. Pursuant to that memorandum of understanding,
PaineWebber irrevocably deposited $125
F-21
46
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
million into an escrow fund under the supervision of the United States District
Court for the Southern District of New York to be used to resolve the litigation
in accordance with a definitive settlement agreement and plan allocation which
the parties expect to submit to the court for its consideration and approval
within the next several months. Until a definitive settlement and plan of
allocation is approved by the court, there can be no assurance what, if any,
payment or non-monetary benefits will be made available to unitholders in the
Partnership.
In April 1995, two investors in the Pegasus limited partnerships filed
a purported class action in the Circuit Court of the State of Illinois for Cook
County entitled Robert M. Jacobson, et al. v. PaineWebber, Inc., et al., making
allegations substantially similar to those in the New York Limited Partnership
Actions, but limited in subject matter to the sale of the Pegasus partnerships,
and without a RICO claim. The plaintiffs in the Jacobson case simultaneously
remained as participants in the New York Limited Partnership Actions, and
subsequently sought to intervene in that action and to be named class
representatives for a separate subclass that they asked the Court to establish
consisting of investors in the Pegasus partnerships. The court in the New York
Limited Partnership Actions has not yet ruled on their request.
Three actions were filed in the District court for Brazoria county,
Texas, relating to the sale and sponsorship of interests in the Partnership and
an affiliated partnership. The complaints make state law claims, specifically,
common law fraud, consipiracy, violations of section 27.01 of the Texas
Business and Commerce Code, fraud in the inducement, negligent
misrepresentation, negligence, breach of fiduciary duty, violations of the
Texas Securities Act, and violations of the Texas Deceptive Trade Practices
Act. The plaintiffs seek unspecified damages, including attorney's fees,
reimbursement for all sums invested by them in the partnerships, exemplary
damages, and treble damages under the Texas Deceptive Trade Practices Act. All
three actions have been removed to federal court and two have been transferred
to the United States District Court for the Southern District of New York. The
third action has been dismissed with the consent of the parties on the ground
that it is duplicative of the two actions now before the federal court in New
York.
In February 1996, approximately 150 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiff's purchases of various limited partnership interests. The complaint
alleges, among other things, that PaineWebber and its related entities committed
fraud and misrepresentation and breached fiduciary duties allegedly owed to the
plaintiffs by selling or promoting limited partnership investments that were
unsuitable for the plaintiffs and by overstating the benefits, understating the
risks and failing to state material facts concerning the investments. The
complaint seeks compensatory damages of $15 million plus punitive damages.
Under certain limited circumstances, pursuant to the Partnership
Agreement and other contractual obligations, Paine Webber and its affiliates
including, the Administrative General Partner could be entitled to
indemnification from the Partnership for expenses and liabilities in connection
with this litigation. The General Partners are unable to determine the effect,
if any, of such action on the Partnership's financial statements, taken as a
whole.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value of certain financial instruments, whether
or not reported on the balance sheet. Where quoted market prices are available
the values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions used
including the discount rate and estimates of future cash flows. In addition,
SFAS No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements including leased aircraft owned by
the Partnership. Therefore, the aggregate fair value amounts presented do not
purport to represent and should not be considered representative of the
underlying market value of the Partnership.
The methods and assumptions used to estimate the fair value of each
class of the financial instruments are described below.
Cash equivalents. For cash equivalents, carrying value approximates
fair value.
F-22
47
PEGASUS AIRCRAFT PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Restricted cash. For Restricted cash, carrying value approximates fair
value.
Rents and other receivables. For rents and other receivables, carrying
value approximates fair value.
Prepaid expenses. For prepaid expenses, carrying value approximates
fair value.
Notes payable. For notes payable, carrying value approximates fair
value.
Distribution to partners. For distribution to partners, carrying value
approximates fair value.
Accounts payable and accrued expenses payable to affiliates, and
accrued interest payable. For accounts payable and accrued expenses payable to
affiliates, and accrued interest payable, carrying value approximates fair
value.
Maintenance reserves payable. For maintenance reserves payable,
carrying value approximates fair value.
Deferred rental income. For deferred rental income, carrying value
approximates fair value.
F-23
48
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no changes in accountants or disagreements with accountants
with respect to accounting or financial disclosure issues during 1995 or 1994.
23
49
PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no officers and directors. The General Partners
jointly manage and control the affairs of the Partnership and have general
responsibility and authority in all matters affecting its business. Information
concerning the directors and executive officers of the General Partners is as
follows:
Pegasus Aircraft Management Corporation
Name Positions Held
---- --------------
Richard S. Wiley President and Chairman of the Board
Richard W. Doust Executive Vice President, Assistant Secretary and
Director
Gregory Harding-Brown Executive Vice President, Assistant Secretary,
Treasurer and Director
Carol L. Chase Senior Vice President, General Counsel and Secretary
Richard S. Wiley, age 42, is President and Chairman of the Board of the
Managing General Partner and Pegasus Capital Corporation, which was formed in
1988. Prior to forming Pegasus Capital Corporation, Mr. Wiley was a Vice
President of CIS Corporation ("CIS"), a wholly-owned subsidiary of Continental
Information Systems Corporation ("Continental") for the period 1986 to 1988. Mr.
Wiley originated aircraft transactions throughout the world and sold aircraft to
third-party investors. From 1985 to 1986, Mr. Wiley worked as Treasurer of
Caterpillar Capital Company in San Diego, California. From 1983 to 1985, he
served as Managing General Partner and President of RAM Financial Corporation in
Houston, Texas, an equipment leasing venture capital company. Prior to joining
RAM, he worked for GATX Leasing Corporation as a District Manager from 1980 to
1983. Mr. Wiley received a B.S. degree from the Indiana University School of
Business and an M.B.A. from the University of California, Los Angeles.
Richard W. Doust, age 52, is an Executive Vice President, Assistant
Secretary and Director of the Managing General Partner and Pegasus Capital
Corporation. He is also a co-founder of Cirrus Capital Corporation of Florida
("CCCF") and Cirrus Capital Corporation ("Cirrus"), both of which were formed in
October 1989 to engage in aircraft and other financing activities. Under dual
capacity as President of Cirrus and Vice President of CCCF, Mr. Doust, along
with Mr. Harding-Brown (see below), was responsible for the day-to-day
operations for these companies including origination, finance and aircraft sales
transactions totaling $225,000,000 involving DC-10s, MD-80s, 737-300s, 727s and
other aircraft. Mr. Doust has 28 years of varied experience within the aviation
and finance industries dating back to 1966. Prior to forming Cirrus, Mr. Doust
was with Security Pacific Leasing Corporation from 1983 to 1989 as head of the
Aviation Division. In that position, he purchased and sold all aircraft types.
From December 1978 to 1982, Mr. Doust was director of aircraft marketing and air
agreements for
24
50
World Airways. Mr. Doust holds an MBA from Golden Gate University (1982) in
International Business (finance) and a BA from the University of San Francisco
(1966). He has a Commercial Pilots License, and has been awarded the Air Medal
with Bronze Star and Distinguished Flying Cross by the U.S. Government. He also
holds both Series 7 and Series 24 licenses as a registered principal with
Pegasus Securities Corporation, an NASD member firm.
Gregory Harding-Brown, age 40, is an Executive Vice President,
Assistant Secretary, Treasurer and Director of the Managing General Partner and
Pegasus Capital Corporation. He is a co-founder of Cirrus Capital Corporation of
Florida ("CCCF") and Cirrus Capital Corporation ("Cirrus"), both of which were
formed in October 1989 to engage in aircraft and other financing activities.
Under dual capacity as Executive Vice President of Cirrus and Vice President of
CCCF, Mr. Harding-Brown, along with Mr. Doust (see above), was responsible for
the day-to-day operations for these companies including origination, finance,
equity sales and lease analysis transactions totaling $225,000,000. Prior to
forming Cirrus, Mr. Harding-Brown was with Security Pacific Leasing Corporation
from 1983 to 1989. He was responsible for more than $450 million in financing on
all types of aircraft and transportation equipment. From 1980 to 1983, he held
various positions with financial service companies. Mr. Harding-Brown holds a BA
from the University of California at Berkeley in Political Economy of Industrial
Societies (International Economics). He also holds both Series 7 and Series 24
licenses as a registered principal with Pegasus Securities Corporation, an NASD
member firm.
Carol L. Chase, Esq., age 43, is a Senior Vice President, General
Counsel and Secretary of the Managing General Partner and Pegasus Capital
Corporation. She is responsible for providing legal counsel for all aspects of
capital equipment leasing, financing and placement. Prior to joining Pegasus,
from 1987 to 1988, Ms. Chase was Senior Corporate Counsel at CIS where she
provided legal counsel for transactions involving aircraft and related
equipment. From 1981 to 1987, Ms. Chase was legal counsel at Transamerica
Airlines where she was responsible for the legal negotiation and documentation
for the purchase, sale, lease and finance of aircraft and aircraft-related
equipment. Ms. Chase received a B.A. degree from California State University,
Hayward and a J.D. degree from the University of California, Davis. She is a
member of the State Bar of California, the American Bar Association, and the
American Corporate Counsel Association.
Air Transport Leasing, Inc.
Name Positions Held
---- --------------
Gerald F. Goertz, Jr. Chairman of the Board
Clifford B. Wattley President and Director
Stephen R. Dyer Vice President, Assistant Secretary and Director
Joseph P. Ciavarella Vice President, Secretary, Treasurer and
Chief Financial and Accounting Officer
Gerald F. Goertz, Jr., age 38, is Chairman of the Board of Directors of
the Administrative General Partner. Mr. Goertz joined PaineWebber Incorporated
in December 1990 and holds the position of Corporate Vice President and Director
of Private Investments. Prior to joining PaineWebber Incorporated, Mr. Goertz
was associated with CG Realty Advisors and The
25
51
Freeman Company. He received his Bachelor of Arts degree in Business
Administration in 1979 from Vanderbilt University and his Juris Doctorate and
Masters of Business Administration from Memphis State University in 1982.
Clifford B. Wattley, age 46, is President and a Director of the
Administrative General Partner. Mr. Wattley is a Corporate Vice President with
PaineWebber Incorporated, having joined the firm in 1986. He also was employed
previously by Paine, Webber, Jackson & Curtis from 1979 to 1980. From 1986 to
1992, Mr. Wattley participated in PaineWebber's Principal Transactions Group.
Since 1992, Mr. Wattley has been a member of the Private Investment Department.
He holds a Bachelor of Science degree in engineering from Columbia University
and a Masters in Business Administration from Harvard University.
Stephen R. Dyer, age 36, is a Vice President, Assistant Secretary and a
Director of the Administrative General Partner. He joined PaineWebber
Incorporated in June 1988 as a Divisional Vice President and is currently a
Corporate Vice President. Prior to joining PaineWebber Incorporated, Mr. Dyer
had been employed, since June 1987, as an Assistant Vice President in the Retail
National Products Group of L.F. Rothschild & Co. Incorporated. Prior to joining
L.F. Rothschild he was employed, beginning in January 1985, as an Associate in
the Real Estate Department of Thomson McKinnon Securities Inc. From July 1981 to
August 1983, Mr. Dyer was on the audit staff of the accounting firm of Arthur
Young & Company. He received his Bachelor of Science degree in Accounting in
1981 from Boston College and a Masters of Business Administration from Indiana
University in December 1984. Mr. Dyer is a Certified Public Accountant.
Joseph P. Ciavarella, age 40, is a Vice President, Secretary, Treasurer
and Chief Financial and Accounting Officer of the Administrative General
Partner. He joined PaineWebber Incorporated in May 1994 as a Corporate Vice
President. Prior to joining PaineWebber Incorporated, he was affiliated with
Aviation Capital Group in the area of aircraft finance. He was associated with
Integrated Resources, Inc. from 1983 to 1993 as a corporate officer as well as a
senior officer in various subsidiaries in the equipment leasing, aircraft
finance and venture capital areas. He has a Bachelor of Business Administration
degree in Accounting from Hofstra University and is a Certified Public
Accountant.
26
52
Item 11. Executive Compensation No compensation was paid by the Partnership to
the officers and directors of the General Partners. See Item 13 of this Report,
"Certain Relationships and Related Transactions", which is incorporated herein
by reference, for a description of the compensation and fees paid to the General
Partners and their affiliates by the Partnership during 1995.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) As of the date hereof, no person is known by the Partnership
to be the beneficial owner of more than 5% of the Units of the
Partnership. The Partnership has no directors or officers, and
neither of the General Partners of the Partnership owns any
Units. The Assignor Limited Partner for the Partnership,
Pegasus Assignor L.P.A., Inc. (an affiliate of the Managing
General Partner), owns 5 Units. Additionally, as of December
31, 1995 ATL Inc., an affiliate of the Administrative
General Partner owns approximately 31,716 Units as the
result of legal settlements with various limited partners.
The names and addresses of the General Partners are as
follows:
Managing General Partner:
Pegasus Aircraft Management Corporation
Four Embarcadero Center, 35th Floor
San Francisco, CA 94111
Administrative General Partner:
Air Transport Leasing, Inc.
1200 Harbor Boulevard, 5th Floor
Weehawken, NJ 07087
The General Partners, collectively, have a 1% interest in each
item of the Partnership's income, gains, losses, deductions,
credits and distributions.
(b) The following table sets forth the number of Units
beneficially owned as of March 1, 1996, by directors of the
Managing General Partner and the Administrative General
Partner and by all directors and officers of such corporations
as a group:
Number
of Units
Beneficially Percent
Name Owned of Class
---- ------------ --------
Managing General Partner
Richard S. Wiley 3,216 *
Richard W. Doust 5,234 *
Gregory Harding-Brown 3,396 *
27
53
Administrative General Partner
None
All directors and officers
as a group (3 persons) 11,846 *
* Less than 1% of class.
(c) The Partnership knows of no arrangements, the operation of the
terms of which may at a subsequent date result in a change in
control of the Partnership.
Item 13. Certain Relationships and Related Transactions
The General Partners and their affiliates have received, or will
receive, certain types of compensation, fees or other distributions in
connection with the operations of the Partnership. The fees and compensation
were determined in accordance with the applicable provisions of the Partnership
Agreement.
Following is a summary of the amounts paid, or payable, to the General
Partners and their affiliates during 1995.
Base Management Fee The General Partners receive a quarterly
subordinated fee in an amount generally equal to 1.5% of gross aircraft rentals,
net of re-lease fees paid. Of this amount, 1.0% is payable to the Managing
General Partner and 0.5% is payable to the Administrative General Partner.
During 1995, the General Partners earned base management fees of $148,000.
Incentive Management Fee The General Partners also receive a quarterly
subordinated fee, in an amount equal to 4.5% of quarterly cash flow and sales
proceeds (net of resale fees), of which 2.5% is payable to the Managing General
Partner and 2.0% is payable to the Administrative General Partner. During 1995,
the General Partners earned incentive management fees of $426,000.
Re-lease Fee The General Partners receive a quarterly subordinated fee
for re-leasing aircraft or renewing a lease in an amount equal to 3.5% of the
gross rentals from such re-lease or renewal for each quarter for which such
payment is received. Of this amount, 2.5% is payable to the Managing General
Partner and 1.0% is payable to the Administrative General Partner. During 1995
the General Partners earned re-lease fees of $124,000.
Commencing January 1, 1995 the Administrative General Partner voluntary
deferred the receipt of the base management fees, incentive management fees and
release fees otherwise payable. Such amount aggregated $273,000 for 1995.
Accountable Expenses The General Partners are entitled to reimbursement
of certain expenses paid on behalf of the Partnership which are incurred in
connection with the
28
54
administration and management of the Partnership. Such reimbursable expenses
amounted to $50,000 during 1995, all of which was paid or is payable to the
Administrative General Partner.
Partnership Interest In the aggregate, the General Partners received
cash distributions of $74,000 as their allocable share of distributable cash
flow for 1995. In addition, $33,000 of the Partnership's net taxable income for
1995 was allocated to the General Partners.
29
55
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements: (Incorporated by reference to
Item 8 of this Report, "Financial Statements and
Supplementary Data").
(b) The Partnership did not file any reports on Form 8-K during
the fourth quarter of the fiscal year ended December 31, 1995.
(c) Exhibits required to be filed.
Exhibit No. Description
----------- -----------
3.1(a) First Amended and Restated Limited
Partnership Agreement dated September 30,
1988. Filed as Exhibit 3.1 to Pre-Effective
Amendment No. 2 to Form S-1 Registration
Statement dated September 16, 1988
(Commission File No. 33-22986).*
(b) Amendment, dated as of December 26, 1990, to
the First Amended and Restated Limited
Partnership Agreement dated September 30,
1988. Filed as Exhibit 1 to the Registrant's
Current Report on Form 8-K dated December
26, 1990.*
(c) Amendment, dated as of March 31, 1992, to
the First Amended and Restated Limited
Partnership Agreement dated September 30,
1988. Filed as Exhibit 4 to Registrant's
Current Report on Form 8-K dated April 16,
1992.*
4.1 Depositary Agreement dated December 20,
1988, by and among Pegasus Aircraft
Partners, L.P. ("Registrant"), Pegasus
Aircraft Management Corporation, a
California corporation, PaineWebber Aircraft
Leasing, Inc., a Delaware corporation,
Pegasus Assignor L.P.A., Inc., a California
corporation, dated April 27, 1989. Filed as
Exhibit 4.1 to the Registrant's Form 8-A on
May 1, 1989 (Commission File No. 33-22986).*
10.1(a) Lease Agreement dated as of September 26,
1988 by and between Pegasus Capital
Corporation, a California corporation
("Seller") and Northwest Aircraft, Inc.
("Lessee") (Boeing Model 727-251 airframe,
SN 20289). Filed as Exhibit 10.2(c) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1988.*
* Filed previously
30
56
(b) Lease Agreement dated as of September 26,
1988 by and between the Seller and Northwest
Aircraft, Inc. ("Lessee") (Boeing Model
727-251 airframe, SN 19977). Filed as
Exhibit 10.2(d) to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1988.*
(c) Sublease Agreement dated as of September 26,
1988 by and between Lessee and Northwest
Airlines, Inc. ("Sublessee") (Boeing Model
727-251 airframe, SN 20289). Filed as
Exhibit 10.2(e) to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1988.*
(d) Sublease Agreement dated as of September 26,
1988 by and between Lessee and Northwest
Airlines, Inc. ("Sublessee") (Boeing Model
727-251 airframe, SN 19977). Filed as
Exhibit 10.2(f) to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1988.*
(e) Trust Agreement 258 dated as of December 23,
1988 by and between First Security Bank of
Utah, National Association in its capacity
as Owner Trustee ("Owner Trustee") and
Registrant. Filed as Exhibit 10.2(i) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1988.*
(f) Trust Agreement 267 dated as of December 23,
1988 by and between the Owner Trustee and
Registrant. Filed as Exhibit 10.2(j) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1988.*
(g) Amendment 1 to Lease Agreement, dated May
27, 1993, between First Security Bank of
Utah, National Association as Owner Trustee
and Northwest Aircraft Inc. to amend a Lease
Agreement, dated September 26, 1988, for one
Boeing 727-200 aircraft, U.S. Registration
No. N258US. Filed as Exhibit 10.1(a) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993.*
(h) Amendment 1 to Lease Agreement, dated May
27, 1993, between First Security Bank of
Utah, National Association as Owner Trustee
and Northwest Aircraft Inc. to amend a Lease
Agreement, dated September 26, 1988, for one
Boeing 727-200 aircraft, U.S. Registration
No. N267US. Filed as Exhibit 10.1(b) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993.*
(i) Lease Agreement dated April 15, 1994 between
First Security Bank of Utah, National
Association, as Trustee, (Lessor) and Kiwi
* Filed previously
31
57
International Airlines, Inc., (Lessee) with
respect to one used Boeing 727-251 Aircraft
US Registration number N258US.*
(j) Lease Agreement dated February 15, 1994,
between First Security Bank of Utah,
National Association, as Trustee, (Lessor)
and Kiwi International Airlines, Inc.,
(Lessee) with respect to one used Boeing
727-251 Aircraft US Registration number
N267US.*
(k) Lease Amendment No. 1 dated March 15, 1995
with respect to lease between First
Security Bank of Utah, National
Association, as Trustee, (Lessor) and Kiwi
International Airlines, Inc., (Lessee) in
reference 10 (1) (i) dated April 15, 1994.*
(l) Lease Amendment No. 1 dated March 15, 1995
with respect to the lease between
First Security Bank of Utah, National
Association, as Trustee, (Lessor) and Kiwi
International Airlines, Inc., (Lessee) in
reference 10 (1) (j) dated February 15,
1994.*
10.2(a) Trust Agreement 603, dated as of October 10,
1988 by and between the Seller and Owner
Trustee providing for, among other things,
the acquisition of one Boeing Model 747-143
Aircraft (the "Aircraft"), and concurrently
therewith leasing the Aircraft to
Continental Airlines, Inc. ("Lessee"). Filed
as Exhibit 10.3(b) to the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1988.*
(b) Lease Agreement 603, dated as of October 14,
1988 by and between the Owner Trustee and
Lessee. Filed as Exhibit 10.3(e) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1988.*
(c) Stipulation and Order, dated June 19, 1991,
among Continental Airlines, Inc., New York
Airlines, Inc., Bay Air Lease I, Cirrus
Capital Corporation of Florida, Bay Air
Lease III, Meridian Trust Company, as Owner
Trustee, IAL Aircraft Acquisitions, Inc.,
Pegasus Aircraft Partners II, L.P., Pegasus
Capital Corporation, IAL Aviation Resources,
Inc., Aircraft Leasing, Inc., Pegasus
Aircraft Partners, L.P., Gilman Financial
Services, Inc. and First Security Bank of
Utah, as Owner Trustee concerning various
aircraft and aircraft engines. Filed as
Exhibit 19.1(a) to the Registrant's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991.*
(d) Agreed Order, dated July 3, 1991, in
connection with approval of Stipulation and
Order, dated June 19, 1991, among
Continental
* Filed previously
32
58
Airlines, Inc., New York Airlines, Inc., Bay
Air Lease I, Cirrus Capital Corporation of
Florida, Bay Air Lease III, Meridian Trust
Company, as Owner Trustee, IAL Aircraft
Acquisitions, Inc., Pegasus Aircraft
Partners II, L.P., Pegasus Capital
Corporation, IAL Aviation Resources, Inc.,
Aircraft Leasing, Inc., Pegasus Aircraft
Partners, L.P., Gilman Financial Services,
Inc. and First Security Bank of Utah, as
Owner Trustee concerning various aircraft
and aircraft engines. Filed as Exhibit
19.1(b) to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30,
1991.*
(e) Supplemental Stipulation and Order, dated
December 30, 1992, among Continental
Airlines, Inc., Bay Air Lease I, Cirrus
Capital Corporation of Florida, Bay Air
Lease III, Aviation Assets I, Aviation
Assets II, Aviation Assets III, Aviation
Assets IV, IAL Aircraft Acquisitions, Inc.,
Pegasus Aircraft Partners II, L.P., Pegasus
Capital Corporation, IAL Aviation Resources,
Inc., Pegasus Aircraft Partners, L.P.,
Gilman Financial Services, and First
Security Bank of Utah, as Owner Trustee
concerning various aircraft and aircraft
engines. Filed as Exhibit 10.2(e) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992.*
(f) Lease termination agreement, dated
October 16, 1995 between Continental
Airlines, Inc. and First Securitiy Bank
of Utah, N.A. as trustee of a trust in
which Pegasus Aircraft Partners LP is
the sole beneficiary regarding the lease of
the 747-143 aircraft.
10.3(a) Trust Agreement 735, dated as of September
26, 1988 by and between Seller and Owner
Trustee providing for, among other things,
the acquisition of one Boeing Model 727-224
aircraft (the "Aircraft"), and concurrently
therewith leasing the Aircraft to
Continental Airlines, Inc. ("Lessee"). Filed
as Exhibit 10.4(b) to the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1988.*
(b) Lease Agreement 735, dated as of September
26, 1988 by and between Owner Trustee and
Lessee. Filed as Exhibit 10.4(d) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1988.*
(c) Stipulation and Order, dated June 19, 1991,
among Continental Airlines, Inc., New York
Airlines, Inc., Bay Air Lease I, Cirrus
Capital Corporation of Florida, Bay Air
Lease III, Meridian Trust Company, as Owner
Trustee, IAL Aircraft Acquisitions, Inc.,
Pegasus Aircraft Partners II, L.P., Pegasus
Capital Corporation, IAL Aviation Resources,
Inc., Aircraft Leasing, Inc., Pegasus
Aircraft Partners, L.P., Gilman Financial
Services, Inc. and First Security Bank of
Utah, as Owner Trustee concerning various
aircraft and aircraft engines. Filed as
Exhibit 19.1(a) to the
* Filed previously
33
59
Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1991.*
(d) Agreed Order, dated July 3, 1991, in
connection with approval of Stipulation and
Order, dated June 19, 1991, among
Continental Airlines, Inc., New York
Airlines, Inc., Bay Air Lease I, Cirrus
Capital Corporation of Florida, Bay Air
Lease III, Meridian Trust Company, as Owner
Trustee, IAL Aircraft Acquisitions, Inc.,
Pegasus Aircraft Partners II, L.P., Pegasus
Capital Corporation, IAL Aviation Resources,
Inc., Aircraft Leasing, Inc., Pegasus
Aircraft Partners, L.P., Gilman Financial
Services, Inc. and First Security Bank of
Utah, as Owner Trustee concerning various
aircraft and aircraft engines. Filed as
Exhibit 19.1(b) to the Registrant's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991.*
(e) Supplemental Stipulation and Order, dated
December 30, 1992, among Continental
Airlines, Inc., Bay Air Lease I, Cirrus
Capital Corporation of Florida, Bay Air
Lease III, Aviation Assets I, Aviation
Assets II, Aviation Assets III, Aviation
Assets IV, IAL Aircraft Acquisitions, Inc.,
Pegasus Aircraft Partners II, L.P., Pegasus
Capital Corporation, IAL Aviation Resources,
Inc., Pegasus Aircraft Partners, L.P.,
Gilman Financial Services, and First
Security Bank of Utah, as Owner Trustee
concerning various aircraft and aircraft
engines. Filed as Exhibit 10.3(e) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992.*
10.4(a) Trust Certificate dated February 16, 1989,
for the benefit of the Registrant from New
DC-9T-I, Inc., a New York Corporation and
Meridian Trust Company ("Trustee"). Filed as
Exhibit 19.2(c) to the Registrant's
Quarterly Report on Form 10-Q for the
quarter ended March 31, 1989.*
(b) Lease, dated as of May 20, 1983, as
supplemented by Lease Supplement No. 1 dated
May 24, 1983, between DC-9T-I, Inc., as
Lessor, and Trans World Airlines, Inc., as
Lessee, pertaining to one McDonnell Douglas
DC-9-82 aircraft, U.S. Registration No.
904TW. Filed as Exhibit 10.4 (b) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991. *
(c) Amendment Agreement, dated as of December
15, 1986, between Trans World Airlines,
Inc., as Lessee, and DC-9T-I, Inc., as
Lessor. Filed as Exhibit 10.4 (c) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991. *
* Filed previously
34
60
(d) Amendment No. 1, dated as of May 1, 1991, to
Lease dated as of May 20, 1983, each between
Meridian Trust Company, as Owner Trustee and
Lessor, and Trans World Airlines, Inc., as
Lessee. Filed as Exhibit 19.1(a) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1991.*
(e) Amendment No. 2, dated as of April 15, 1993,
between Meridian Trust Company, as Owner
Trustee, and Trans World Airlines, Inc. as
Lessee.*
(f) Agreed Order, dated April 14, 1993,
approving lease amendments among Trans World
Airlines, Inc., Registrant, Pegasus Aircraft
Partners II, L.P. and Pegasus Capital
Corporation relating to leases of certain
aircraft.*
(g) Amendment No. 3 dated as of January 16, 1995
between Meridian Trust Company Owner Trustee
as Lessor and TWA as lessee with respect to
the lease of one McDonnell Douglas MD-82,
U.S. Registration No. N904TW.*
10.5(a) Amended and Restated Lease No. 1, dated
October 14, 1988, between PS Group, Inc. and
USAir, Inc. Filed as Exhibit 10.2.9 to Form
S-1 Registration Statement, dated July 3,
1989 for Pegasus Aircraft Partners II, L.P.
(Commission File No. 33-28359).*
(b) Agreement pursuant to Section 168(f)(8) of
the Internal Revenue Code of 1954, as
Amended between Pacific Southwest Airlines
and General Mills, Inc. Filed as Exhibit
19.3(c) to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31,
1989.*
(c) Assumption Agreement, dated March 22, 1989,
among Pegasus Capital Corporation, a
California corporation ("PCC"), the
Purchaser, Concord Asset Management, Inc., a
Delaware corporation ("CAMI") and the
Registrant. Filed as Exhibit 19.3(e) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1989.*
(d) Participation Agreement, dated September 21,
1989, among Registrant, First Security Bank
of Utah, a national association (the "Owner
Trustee"), CAMI and Pegasus Aircraft
Partners II, L.P., a Delaware limited
partnership. Filed as Exhibit 19.2(e) to the
Quarterly Report on Form 10-Q for the
quarter ended September 30, 1989 for Pegasus
Aircraft Partners II, L.P. (Commission File
No. 33-28359).*
* Filed previously
35
61
(e) Amended and Restated Reimbursement
Agreement, dated September 21, 1989, between
the Registrant and CAMI. Filed as Exhibit
19.2(f) to the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1989 for
Pegasus Aircraft Partners II, L.P.
(Commission File No. 33-28359).*
(f) Amended and Restated Security Agreement,
dated September 21, 1989, between the
Registrant and CAMI. Filed as Exhibit
19.2(h) to the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1989 for
Pegasus Aircraft Partners II, L.P.
(Commission File No. 33-28359).*
(g) Security Agreement, dated September 21,
1989, between the Registrant and Pegasus
Aircraft Partners II, L.P. Filed as Exhibit
19.2(j) to the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1989 for
Pegasus Aircraft Partners II, L.P.
(Commission File No. 33-28359).*
(h) Security Agreement, dated September 21,
1989, between Pegasus Aircraft Partners II,
L.P. and the Registrant. Filed as Exhibit
19.2(k) to the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1989 for
Pegasus Aircraft Partners II, L.P.
(Commission File No. 33-28359).*
(i) Trust Agreement 814, dated as of March 10,
1989, among PCC, as Beneficiary, the
Registrant, as Beneficiary, and the Owner
Trustee. Filed as Exhibit 19.3(i) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1989.*
(j) First Amendment to Trust Agreement 814,
dated September 21, 1989, among Pegasus
Aircraft Partners II, L.P., as Beneficiary,
the Registrant, as Beneficiary and the Owner
Trustee. Filed as Exhibit 19.2(m) to the
Quarterly Report on Form 10-Q for the
quarter ended September 30, 1989 for Pegasus
Aircraft Partners II, L.P. (Commission File
No. 33-28359).*
(k) Letter of Credit Agreement, dated as of
April 30, 1992, between First Security Bank
of Utah as Owner Trustee and Philadelphia
National Bank, Incorporated, as CoreStates
Bank, N.A. Filed as Exhibit 10.1(a) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1992.*
(l) Assumption Agreement, dated April 30, 1992,
among Pegasus Aircraft Partners, L.P. and
Pegasus Aircraft Partners II, L.P. as
Obligors and Philadelphia National Bank,
Incorporated, as CoreStates Bank, N.A. Filed
as Exhibit 10.1(b) to the Registrant's
* Filed previously
36
62
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992.*
(m) Security Agreement and Assignment of lease,
dated as of April 30, 1992, between First
Security Bank of Utah, National Association
as Owner Trustee and Philadelphia National
Bank, Incorporated, as CoreStates Bank, N.A.
Filed as Exhibit 10.1 (c) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1992. *
(n) Assignment of Collateral, dated as of April
30, 1992, between Pegasus Aircraft Partners,
L.P. and Philadelphia National Bank,
Incorporated, as CoreStates Bank, N.A. Filed
as Exhibit 10.1(d) to the Registrant's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992. *
10.6(a) Loan Agreement, dated April 22, 1994,
between Pegasus Aircraft Partners, L.P. and
Philadelphia National Bank, Incorporated as
CoreStates Bank, N.A.*
(b) Promissory Note, dated April 22, 1994, made
by Pegasus Aircraft Partners, L.P. in favor
of Philadelphia National Bank Incorporated
as CoreStates Bank, N.A.*
(c) Security Agreement and Assignment of lease
between First Security Bank of Utah,
National Association as owner trustee and
Philadelphia National Bank Incorporated as
CoreStates Bank, N.A. with respect to
aircraft N17010.*
(d) Assignment of beneficial interest for
Pegasus Aircraft Partnership to Philadelphia
National Bank Incorporated as CoreStates
Bank, N.A. with respect to the Pegasus
interest in the USAir Trust Agreement and
the Continental Trust Agreement.*
(e) Amended and restated loan agreement between
Pegasus Aircraft Partners LP and
CoreStates Bank, N.A. dated as of July 20,
1995.
19.1 Prospectus of Registrant, dated as of
September 30, 1988. Filed as Exhibit 19.1 to
the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1988.*
* Filed previously
37
63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 27, 1996
Pegasus Aircraft Partners, L.P. (Registrant)
By: Air Transport Leasing, Inc.
Administrative General Partner
By: /s/ Clifford B. Wattley
-----------------------
Clifford B. Wattley
President and Director
By: /s/ Joseph P. Ciavarella
------------------------
Joseph P. Ciavarella
Vice President, Treasurer,
Secretary and Chief Financial
and Accounting Officer
By: Pegasus Aircraft Management Corporation
Managing General Partner
By: /s/ Richard S. Wiley
--------------------
Richard S. Wiley
President and Chairman
of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 27, 1996.
Signature Title
- --------- -----
/s/ Richard S. Wiley President and Chairman of
- -------------------- the Board of Pegasus Aircraft
Richard S. Wiley Management Corporation
38
64
/s/ Richard W. Doust Executive Vice President,
- -------------------- Assistant Secretary and
Richard W. Doust Director of Pegasus Aircraft
Management Corporation
/s/ Gregory Harding-Brown Executive Vice President,
- ------------------------- Assistant Secretary, Treasurer
Gregory Harding-Brown and Director of Pegasus Aircraft
Management Corporation
/s/ Gerald F. Goertz, Jr. Chairman of the Board of
- ------------------------- Air Transport Leasing, Inc.
Gerald F. Goertz, Jr.
/s/ Clifford B. Wattley President and Director of
- ----------------------- Air Transport Leasing, Inc.
Clifford B. Wattley
/s/ Stephen R. Dyer Vice President, Assistant
- ------------------- Secretary and Director of
Stephen R. Dyer Air Transport Leasing, Inc.
39
65
EXHIBIT INDEX
-------------
Exhibit No. Description
----------- -----------
3.1(a) First Amended and Restated Limited
Partnership Agreement dated September 30,
1988. Filed as Exhibit 3.1 to Pre-Effective
Amendment No. 2 to Form S-1 Registration
Statement dated September 16, 1988
(Commission File No. 33-22986).*
(b) Amendment, dated as of December 26, 1990, to
the First Amended and Restated Limited
Partnership Agreement dated September 30,
1988. Filed as Exhibit 1 to the Registrant's
Current Report on Form 8-K dated December
26, 1990.*
(c) Amendment, dated as of March 31, 1992, to
the First Amended and Restated Limited
Partnership Agreement dated September 30,
1988. Filed as Exhibit 4 to Registrant's
Current Report on Form 8-K dated April 16,
1992.*
4.1 Depositary Agreement dated December 20,
1988, by and among Pegasus Aircraft
Partners, L.P. ("Registrant"), Pegasus
Aircraft Management Corporation, a
California corporation, PaineWebber Aircraft
Leasing, Inc., a Delaware corporation,
Pegasus Assignor L.P.A., Inc., a California
corporation, dated April 27, 1989. Filed as
Exhibit 4.1 to the Registrant's Form 8-A on
May 1, 1989 (Commission File No. 33-22986).*
10.1(a) Lease Agreement dated as of September 26,
1988 by and between Pegasus Capital
Corporation, a California corporation
("Seller") and Northwest Aircraft, Inc.
("Lessee") (Boeing Model 727-251 airframe,
SN 20289). Filed as Exhibit 10.2(c) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1988.*
* Filed previously
66
(b) Lease Agreement dated as of September 26,
1988 by and between the Seller and Northwest
Aircraft, Inc. ("Lessee") (Boeing Model
727-251 airframe, SN 19977). Filed as
Exhibit 10.2(d) to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1988.*
(c) Sublease Agreement dated as of September 26,
1988 by and between Lessee and Northwest
Airlines, Inc. ("Sublessee") (Boeing Model
727-251 airframe, SN 20289). Filed as
Exhibit 10.2(e) to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1988.*
(d) Sublease Agreement dated as of September 26,
1988 by and between Lessee and Northwest
Airlines, Inc. ("Sublessee") (Boeing Model
727-251 airframe, SN 19977). Filed as
Exhibit 10.2(f) to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1988.*
(e) Trust Agreement 258 dated as of December 23,
1988 by and between First Security Bank of
Utah, National Association in its capacity
as Owner Trustee ("Owner Trustee") and
Registrant. Filed as Exhibit 10.2(i) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1988.*
(f) Trust Agreement 267 dated as of December 23,
1988 by and between the Owner Trustee and
Registrant. Filed as Exhibit 10.2(j) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1988.*
(g) Amendment 1 to Lease Agreement, dated May
27, 1993, between First Security Bank of
Utah, National Association as Owner Trustee
and Northwest Aircraft Inc. to amend a Lease
Agreement, dated September 26, 1988, for one
Boeing 727-200 aircraft, U.S. Registration
No. N258US. Filed as Exhibit 10.1(a) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993.*
(h) Amendment 1 to Lease Agreement, dated May
27, 1993, between First Security Bank of
Utah, National Association as Owner Trustee
and Northwest Aircraft Inc. to amend a Lease
Agreement, dated September 26, 1988, for one
Boeing 727-200 aircraft, U.S. Registration
No. N267US. Filed as Exhibit 10.1(b) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993.*
(i) Lease Agreement dated April 15, 1994 between
First Security Bank of Utah, National
Association, as Trustee, (Lessor) and Kiwi
* Filed previously
67
International Airlines, Inc., (Lessee) with
respect to one used Boeing 727-251 Aircraft
US Registration number N258US.*
(j) Lease Agreement dated February 15, 1994,
between First Security Bank of Utah,
National Association, as Trustee, (Lessor)
and Kiwi International Airlines, Inc.,
(Lessee) with respect to one used Boeing
727-251 Aircraft US Registration number
N267US.*
(k) Lease Amendment No. 1 dated March 15, 1995
with respect to lease agreement in principle
to Amendment No. 1 of the lease between
First Security Bank of Utah, National
Association, as Trustee, (Lessor) and Kiwi
International Airlines, Inc., (Lessee) in
reference 10 (1) (i) dated April 15, 1994.*
(l) Lease Amendment No. 1 dated March 15, 1995
with respect to lease agreement in principle
to Amendment No. 1 of the lease between
First Security Bank of Utah, National
Association, as Trustee, (Lessor) and Kiwi
International Airlines, Inc., (Lessee) in
reference 10 (1) (j) dated February 15,
1994.*
10.2(a) Trust Agreement 603, dated as of October 10,
1988 by and between the Seller and Owner
Trustee providing for, among other things,
the acquisition of one Boeing Model 747-143
Aircraft (the "Aircraft"), and concurrently
therewith leasing the Aircraft to
Continental Airlines, Inc. ("Lessee"). Filed
as Exhibit 10.3(b) to the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1988.*
(b) Lease Agreement 603, dated as of October 14,
1988 by and between the Owner Trustee and
Lessee. Filed as Exhibit 10.3(e) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1988.*
(c) Stipulation and Order, dated June 19, 1991,
among Continental Airlines, Inc., New York
Airlines, Inc., Bay Air Lease I, Cirrus
Capital Corporation of Florida, Bay Air
Lease III, Meridian Trust Company, as Owner
Trustee, IAL Aircraft Acquisitions, Inc.,
Pegasus Aircraft Partners II, L.P., Pegasus
Capital Corporation, IAL Aviation Resources,
Inc., Aircraft Leasing, Inc., Pegasus
Aircraft Partners, L.P., Gilman Financial
Services, Inc. and First Security Bank of
Utah, as Owner Trustee concerning various
aircraft and aircraft engines. Filed as
Exhibit 19.1(a) to the Registrant's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991.*
(d) Agreed Order, dated July 3, 1991, in
connection with approval of Stipulation and
Order, dated June 19, 1991, among
Continental
* Filed previously
68
Airlines, Inc., New York Airlines, Inc., Bay
Air Lease I, Cirrus Capital Corporation of
Florida, Bay Air Lease III, Meridian Trust
Company, as Owner Trustee, IAL Aircraft
Acquisitions, Inc., Pegasus Aircraft
Partners II, L.P., Pegasus Capital
Corporation, IAL Aviation Resources, Inc.,
Aircraft Leasing, Inc., Pegasus Aircraft
Partners, L.P., Gilman Financial Services,
Inc. and First Security Bank of Utah, as
Owner Trustee concerning various aircraft
and aircraft engines. Filed as Exhibit
19.1(b) to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30,
1991.*
(e) Supplemental Stipulation and Order, dated
December 30, 1992, among Continental
Airlines, Inc., Bay Air Lease I, Cirrus
Capital Corporation of Florida, Bay Air
Lease III, Aviation Assets I, Aviation
Assets II, Aviation Assets III, Aviation
Assets IV, IAL Aircraft Acquisitions, Inc.,
Pegasus Aircraft Partners II, L.P., Pegasus
Capital Corporation, IAL Aviation Resources,
Inc., Pegasus Aircraft Partners, L.P.,
Gilman Financial Services, and First
Security Bank of Utah, as Owner Trustee
concerning various aircraft and aircraft
engines. Filed as Exhibit 10.2(e) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992.*
(f) Lease termination agreement, dated
September 15, 1995 between Continental
Airlines, Inc. and First Securitiy Bank
of Utah, N.A. as trustee of a trust in
which Pegasus Aircraft Partners LP is
the sole beneficiary regarding the lease of
the 747-143 aircraft.
10.3(a) Trust Agreement 735, dated as of September
26, 1988 by and between Seller and Owner
Trustee providing for, among other things,
the acquisition of one Boeing Model 727-224
aircraft (the "Aircraft"), and concurrently
therewith leasing the Aircraft to
Continental Airlines, Inc. ("Lessee"). Filed
as Exhibit 10.4(b) to the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1988.*
(b) Lease Agreement 735, dated as of September
26, 1988 by and between Owner Trustee and
Lessee. Filed as Exhibit 10.4(d) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1988.*
(c) Stipulation and Order, dated June 19, 1991,
among Continental Airlines, Inc., New York
Airlines, Inc., Bay Air Lease I, Cirrus
Capital Corporation of Florida, Bay Air
Lease III, Meridian Trust Company, as Owner
Trustee, IAL Aircraft Acquisitions, Inc.,
Pegasus Aircraft Partners II, L.P., Pegasus
Capital Corporation, IAL Aviation Resources,
Inc., Aircraft Leasing, Inc., Pegasus
Aircraft Partners, L.P., Gilman Financial
Services, Inc. and First Security Bank of
Utah, as Owner Trustee concerning various
aircraft and aircraft engines. Filed as
Exhibit 19.1(a) to the
* Filed previously
69
Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1991.*
(d) Agreed Order, dated July 3, 1991, in
connection with approval of Stipulation and
Order, dated June 19, 1991, among
Continental Airlines, Inc., New York
Airlines, Inc., Bay Air Lease I, Cirrus
Capital Corporation of Florida, Bay Air
Lease III, Meridian Trust Company, as Owner
Trustee, IAL Aircraft Acquisitions, Inc.,
Pegasus Aircraft Partners II, L.P., Pegasus
Capital Corporation, IAL Aviation Resources,
Inc., Aircraft Leasing, Inc., Pegasus
Aircraft Partners, L.P., Gilman Financial
Services, Inc. and First Security Bank of
Utah, as Owner Trustee concerning various
aircraft and aircraft engines. Filed as
Exhibit 19.1(b) to the Registrant's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991.*
(e) Supplemental Stipulation and Order, dated
December 30, 1992, among Continental
Airlines, Inc., Bay Air Lease I, Cirrus
Capital Corporation of Florida, Bay Air
Lease III, Aviation Assets I, Aviation
Assets II, Aviation Assets III, Aviation
Assets IV, IAL Aircraft Acquisitions, Inc.,
Pegasus Aircraft Partners II, L.P., Pegasus
Capital Corporation, IAL Aviation Resources,
Inc., Pegasus Aircraft Partners, L.P.,
Gilman Financial Services, and First
Security Bank of Utah, as Owner Trustee
concerning various aircraft and aircraft
engines. Filed as Exhibit 10.3(e) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992.*
10.4(a) Trust Certificate dated February 16, 1989,
for the benefit of the Registrant from New
DC-9T-I, Inc., a New York Corporation and
Meridian Trust Company ("Trustee"). Filed as
Exhibit 19.2(c) to the Registrant's
Quarterly Report on Form 10-Q for the
quarter ended March 31, 1989.*
(b) Lease, dated as of May 20, 1983, as
supplemented by Lease Supplement No. 1 dated
May 24, 1983, between DC-9T-I, Inc., as
Lessor, and Trans World Airlines, Inc., as
Lessee, pertaining to one McDonnell Douglas
DC-9-82 aircraft, U.S. Registration No.
904TW. Filed as Exhibit 10.4 (b) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991. *
(c) Amendment Agreement, dated as of December
15, 1986, between Trans World Airlines,
Inc., as Lessee, and DC-9T-I, Inc., as
Lessor. Filed as Exhibit 10.4 (c) to the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991. *
* Filed previously
70
(d) Amendment No. 1, dated as of May 1, 1991, to
Lease dated as of May 20, 1983, each between
Meridian Trust Company, as Owner Trustee and
Lessor, and Trans World Airlines, Inc., as
Lessee. Filed as Exhibit 19.1(a) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1991.*
(e) Amendment No. 2, dated as of April 15, 1993,
between Meridian Trust Company, as Owner
Trustee, and Trans World Airlines, Inc. as
Lessee.*
(f) Agreed Order, dated April 14, 1993,
approving lease amendments among Trans World
Airlines, Inc., Registrant, Pegasus Aircraft
Partners II, L.P. and Pegasus Capital
Corporation relating to leases of certain
aircraft.*
(g) Amendment No. 3 dated as of January 16, 1995
between Meridian Trust Company Owner Trustee
as Lessor and TWA as lessee with respect to
the lease of one McDonnell Douglas MD-82,
U.S. Registration No. N904TW.*
10.5(a) Amended and Restated Lease No. 1, dated
October 14, 1988, between PS Group, Inc. and
USAir, Inc. Filed as Exhibit 10.2.9 to Form
S-1 Registration Statement, dated July 3,
1989 for Pegasus Aircraft Partners II, L.P.
(Commission File No. 33-28359).*
(b) Agreement pursuant to Section 168(f)(8) of
the Internal Revenue Code of 1954, as
Amended between Pacific Southwest Airlines
and General Mills, Inc. Filed as Exhibit
19.3(c) to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31,
1989.*
(c) Assumption Agreement, dated March 22, 1989,
among Pegasus Capital Corporation, a
California corporation ("PCC"), the
Purchaser, Concord Asset Management, Inc., a
Delaware corporation ("CAMI") and the
Registrant. Filed as Exhibit 19.3(e) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1989.*
(d) Participation Agreement, dated September 21,
1989, among Registrant, First Security Bank
of Utah, a national association (the "Owner
Trustee"), CAMI and Pegasus Aircraft
Partners II, L.P., a Delaware limited
partnership. Filed as Exhibit 19.2(e) to the
Quarterly Report on Form 10-Q for the
quarter ended September 30, 1989 for Pegasus
Aircraft Partners II, L.P. (Commission File
No. 33-28359).*
* Filed previously
71
(e) Amended and Restated Reimbursement
Agreement, dated September 21, 1989, between
the Registrant and CAMI. Filed as Exhibit
19.2(f) to the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1989 for
Pegasus Aircraft Partners II, L.P.
(Commission File No. 33-28359).*
(f) Amended and Restated Security Agreement,
dated September 21, 1989, between the
Registrant and CAMI. Filed as Exhibit
19.2(h) to the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1989 for
Pegasus Aircraft Partners II, L.P.
(Commission File No. 33-28359).*
(g) Security Agreement, dated September 21,
1989, between the Registrant and Pegasus
Aircraft Partners II, L.P. Filed as Exhibit
19.2(j) to the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1989 for
Pegasus Aircraft Partners II, L.P.
(Commission File No. 33-28359).*
(h) Security Agreement, dated September 21,
1989, between Pegasus Aircraft Partners II,
L.P. and the Registrant. Filed as Exhibit
19.2(k) to the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1989 for
Pegasus Aircraft Partners II, L.P.
(Commission File No. 33-28359).*
(i) Trust Agreement 814, dated as of March 10,
1989, among PCC, as Beneficiary, the
Registrant, as Beneficiary, and the Owner
Trustee. Filed as Exhibit 19.3(i) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1989.*
(j) First Amendment to Trust Agreement 814,
dated September 21, 1989, among Pegasus
Aircraft Partners II, L.P., as Beneficiary,
the Registrant, as Beneficiary and the Owner
Trustee. Filed as Exhibit 19.2(m) to the
Quarterly Report on Form 10-Q for the
quarter ended September 30, 1989 for Pegasus
Aircraft Partners II, L.P. (Commission File
No. 33-28359).*
(k) Letter of Credit Agreement, dated as of
April 30, 1992, between First Security Bank
of Utah as Owner Trustee and Philadelphia
National Bank, Incorporated, as CoreStates
Bank, N.A. Filed as Exhibit 10.1(a) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1992.*
(l) Assumption Agreement, dated April 30, 1992,
among Pegasus Aircraft Partners, L.P. and
Pegasus Aircraft Partners II, L.P. as
Obligors and Philadelphia National Bank,
Incorporated, as CoreStates Bank, N.A. Filed
as Exhibit 10.1(b) to the Registrant's
* Filed previously
72
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992.*
(m) Security Agreement and Assignment of lease,
dated as of April 30, 1992, between First
Security Bank of Utah, National Association
as Owner Trustee and Philadelphia National
Bank, Incorporated, as CoreStates Bank, N.A.
Filed as Exhibit 10.1 (c) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1992. *
(n) Assignment of Collateral, dated as of April
30, 1992, between Pegasus Aircraft Partners,
L.P. and Philadelphia National Bank,
Incorporated, as CoreStates Bank, N.A. Filed
as Exhibit 10.1(d) to the Registrant's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992. *
10.6(a) Loan Agreement, dated April 22, 1994,
between Pegasus Aircraft Partners, L.P. and
Philadelphia National Bank, Incorporated as
CoreStates Bank, N.A.*
(b) Promissory Note, dated April 22, 1994, made
by Pegasus Aircraft Partners, L.P. in favor
of Philadelphia National Bank Incorporated
as CoreStates Bank, N.A.*
(c) Security Agreement and Assignment of lease
between First Security Bank of Utah,
National Association as owner trustee and
Philadelphia National Bank Incorporated as
CoreStates Bank, N.A. with respect to
aircraft N17010.*
(d) Assignment of beneficial interest for
Pegasus Aircraft Partnership to Philadelphia
National Bank Incorporated as CoreStates
Bank, N.A. with respect to the Pegasus
interest in the USAir Trust Agreement and
the Continental Trust Agreement.*
(e) Amended and restated loan agreement between
Pegasus Aircraft Partners LP and
CoreStates Bank, N.A. dated as of July 20,
1995.
19.1 Prospectus of Registrant, dated as of
September 30, 1988. Filed as Exhibit 19.1 to
the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1988.*
27 Financial Data Schedule
* Filed previously