2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31,1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended March 31, 1996 Commission File No. 0-19137
AIRFUND II International Limited Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-3057290
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
98 North Washington Street, Boston, MA 02114
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617)854-5800
(Former name, former address and former fiscal year, if changed since last
report.)
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court 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 No
AIRFUND II International Limited Partnership
FORM 10-Q
INDEX
Page
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Statement of Financial Position
at March 31, 1996 and December 31, 1995 3
Statement of Operations
for the three months ended March 31, 1996 and 1995 4
Statement of Cash Flows
for the three months ended March 31, 1996 and 1995 5
Notes to the Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-13
PART II. OTHER INFORMATION:
Items 1 - 6 14
AIRFUND II International Limited Partnership
STATEMENT OF FINANCIAL POSITION
March 31, 1996 and December 31, 1995
(Unaudited)
March 31, December 31,
1996 1995
ASSETS
Cash and cash equivalents $ 3,909,070 $ 3,557,968
Contractual right for equipment -- 1,317,392
Rents receivable 32,206 169,906
Accounts receivable - affiliate 178,749 316,439
Equipment at cost, net of accumulated depreciation of
$42,546,704 and $41,568,185 at March 31, 1996
and December 31, 1995, respectively 19,249,189 16,070,428
--------------- ---------------
Total assets $ 23,369,214 $ 21,432,133
=============== =============
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 3,995,098 $ 1,432,396
Accrued interest 21,233 19,197
Accrued liabilities 233,094 93,140
Accrued liabilities - affiliate 73,989 58,152
Deferred rental income 133,576 477,506
Cash distributions payable to partners 357,190 714,381
--------------- ---------------
Total liabilities 4,814,180 2,794,772
--------------- ---------------
Partners' capital (deficit):
General Partner (2,110,345) (2,106,228)
Limited Partnership Interests
(2,714,647 Units; initial purchase price of $25 each) 20,665,379 20,743,589
--------------- ---------------
Total partners' capital 18,555,034 18,637,361
--------------- ---------------
Total liabilities and partners' capital $ 23,369,214 $ 21,432,133
=============== =============
The accompanying noters are an integral part
of these financial statements.
3
AIRFUND II International Limited Partnership
STATEMENT OF OPERATIONS
for the three months ended March 31, 1996 and 1995
(Unaudited)
1996 1995
----------------- -----------
Income:
Lease revenue $ 1,483,096 $ 1,713,575
Interest income 83,727 45,073
---------------- ---------------
Total income 1,566,823 1,758,648
--------------- ---------------
Expenses:
Depreciation and amortization 978,519 1,244,055
Interest expense 30,234 --
Equipment management fees - affiliate 74,155 85,679
Operating expenses - affiliate 209,052 58,365
--------------- ----------------
Total expenses 1,291,960 1,388,099
--------------- ---------------
Net income $ 274,863 $ 370,549
=============== ===============
Net income
per limited partnership unit $ 0.10 $ 0.13
=============== ==================
Cash distribution declared
per limited partnership unit $ 0.13 $ 0.63
=============== ==================
The accompanying noters are an integral part
of these financial statements.
4
AIRFUND II International Limited Partnership
STATEMENT OF CASH FLOWS
for the three months ended March 31, 1996 and 1995
(Unaudited)
1996 1995
------------------ -----------
Cash flows from (used in) operating activities:
Net income $ 274,863 $ 370,549
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 978,519 1,244,055
Changes in assets and liabilities
Decrease (increase) in: 137,700 --
rents receivable 137,690 (59,331)
accounts receivable - affiliate
Increase (decrease) in:
accrued interest 2,036 --
accrued liabilities 139,954 (89,682)
accrued liabilities - affiliate 15,837 (24,911)
deferred rental income (343,930) 608,402
--------------- ---------------
Net cash from operating activities 1,342,669 2,049,082
--------------- ---------------
Cash flows used in investing activities:
Purchase of equipment (72,550) --
--------------- ---------------
Net cash used in investing activities (72,550) --
---------------- ---------------
Cash flows used in financing activities:
Principal payments - notes payable (204,636) --
Distributions paid (714,381) (1,785,952)
--------------- ---------------
Net cash used in financing activities (919,017) (1,785,952)
--------------- ---------------
Net increase in cash and cash equivalents 351,102 263,130
Cash and cash equivalents at beginning of period 3,557,968 3,620,148
--------------- ---------------
Cash and cash equivalents at end of period $ 3,909,070 $ 3,883,278
=============== ================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 28,198 $ --
=============== ===============
Supplemental disclosure of non-cash investing activities:
See Note 5 to the Financial Statements.
The accompanying noters are an integral part
of these financial statements.
5
AIRFUND II International Limited Partnership
Notes to the Financial Statements
March 31, 1996
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The financial statements presented herein are prepared in conformity with
generally accepted accounting principles and the instructions for preparing Form
10-Q under Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission and are unaudited. As such, these financial statements do not include
all information and footnote disclosures required under generally accepted
accounting principles for complete financial statements and, accordingly, the
accompanying financial statements should be read in conjunction with the
footnotes presented in the 1995 Annual Report. Except as disclosed herein, there
has been no material change to the information presented in the footnotes to the
1995 Annual Report.
In the opinion of management, all adjustments (consisting of normal and
recurring adjustments) considered necessary to present fairly the financial
position at March 31, 1996 and December 31, 1995 and results of operations for
the three month periods ended March 31, 1996 and 1995 have been made and are
reflected.
NOTE 2 - CASH
At March 31, 1996, the Partnership had $3,905,000 invested in reverse
repurchase agreements secured by U.S. Treasury Bills or interests in U.S.
Government securities.
NOTE 3 - REVENUE RECOGNITION
Rents are payable to the Partnership monthly and quarterly and no
significant amounts are calculated on factors other than the passage of time.
All leases are accounted for as operating leases and are noncancellable. Rents
received prior to their due dates are deferred. Future minimum rents of
$5,437,137 are due as follows:
For the year ending March 31, 1997 $ 3,087,513
1998 1,017,492
1999 1,017,492
2000 314,640
---------------
Total $ 5,437,137
===============
In September 1995, the Partnership transferred its ownership interest in a
Boeing 747-SP-21 commercial jet aircraft (the "United Aircraft") to the existing
lessee, United Air Lines, Inc., pursuant to the rules for a like-kind exchange
transaction for income tax reporting purposes (See Note 5 herein). In November
1995, the Partnership partially replaced the United Aircraft with a 13.11%
interest in three Boeing 737-2H4 aircraft leased to Southwest Airlines, Inc.(the
"Southwest Aircraft"). The Partnership will receive approximately $378,000 of
rental revenue in each of the years in the period ending March 31, 1999, and
approximately $315,000 in the year ending March 31, 2000, pursuant to the
Southwest Aircraft lease agreement.
AIRFUND II International Limited Partnership
Notes to the Financial Statements
(Continued)
Additionally, in March 1996, the Partnership completed the replacement of
the United Aircraft with a 14.58% interest in two McDonnell-Douglas MD-82
Aircraft leased by Finnair OY (the "Finnair Aircraft"). The Partnership will
receive approximately $640,000 of rental revenue in each of the years in the
period ending March 31, 1999, pursuant to the Finnair Aircraft lease agreement.
NOTE 4 - RELATED PARTY TRANSACTIONS
All operating expenses incurred by the Partnership are paid by American
Finance Group ("AFG") on behalf of the Partnership and AFG is reimbursed at its
actual cost for such expenditures. Fees and other costs incurred during each of
the three month periods ended March 31, 1996 and 1995, which were paid or
accrued by the Partnership to AFG or its Affiliates, are as follows:
1996 1995
--------------- ---------
Equipment management fees $ 74,155 $ 85,679
Administrative charges 5,250 3,000
Reimbursable operating expenses
due to third parties 203,802 55,365
-------------- --------------
Total $ 283,207 $ 144,044
============= ============
All rents are paid by the lessees directly to AFG. AFG temporarily deposits
collected funds in a separate interest-bearing escrow account prior to
remittance to the Partnership. At March 31, 1996, the Partnership was owed
$178,749 by AFG for such funds and the interest thereon. These funds were
remitted to the Partnership in April 1996.
NOTE 5 - EQUIPMENT
The following is a summary of equipment owned by the Partnership at March
31, 1996. In the opinion of AFG, the acquisition cost of the equipment did not
exceed its fair market value.
Lease
Term Equipment
Equipment Type (Months) at Cost
One Lockheed L-1001-100 (Cathay) 6 $ 15,879,518
One Boeing 727-208 ADV (ATA) 36 12,928,710
One Boeing 727-200 ADV (Northwest) 10 11,164,679
One Boeing 727-251 ADV -- 9,732,714
One Lockheed L-1011-50 (Cathay) 3 6,013,492
Two McDonnell-Douglas MD-82 (Finnair) 36 4,157,280
Three Boeing 737-2H4 (Southwest) 49 1,919,500
--------------
Total equipment cost 61,795,893
Accumulated depreciation (42,546,704)
Equipment, net of accumulated depreciation $ 19,249,189
============
The costs of the Lockheed L-1011-50 aircraft, the three Boeing 737-2H4
aircraft and the two McDonnell-Douglas MD-82 aircraft represent proportionate
ownership interests. The remaining interests are owned by other affiliated
partnerships sponsored by AFG. All Partnerships individually report, in
proportion to their respective ownership interests, their respective shares of
assets, liabilities, revenues, and expenses associated with the aircraft.
The Partnership's portfolio includes a Boeing 727-251 ADV aircraft formerly
on a renewal rental agreement with Northwest Airlines, Inc. This aircraft was
returned upon expiration of its lease term on November 30, 1995 and is currently
undergoing heavy maintenance expected to cost the Partnership approximately
$180,000, all of which was accrued during the three months ended March 31, 1996.
The Partnership entered into a new 28-month lease agreement with Transmeridian
Airlines, to release the aircraft at a base rent to the Partnership of $71,500
per month effective upon completion and acceptance of the heavy maintenance.
In September 1995, the Partnership transferred its 23.19% ownership
interest in the United Aircraft, pursuant to the rules for a like-kind exchange
for income tax reporting purposes (See Note 3 herein). In November 1995, the
Partnership partially replaced the United Aircraft with a 13.11% ownership
interest in the Southwest Aircraft, at an aggregate cost to the Partnership of
$1,919,500. To acquire the interest in the Southwest Aircraft, the Partnership
obtained financing of $1,432,396 from a third-party lender and utilized $487,104
of the cash consideration received from the transfer of the United Aircraft. The
remaining ownership interest of 86.89% in the Southwest Aircraft is held by
affiliated equipment leasing programs sponsored by AFG.
Additionally, in March 1996, the Partnership completed the replacement of
the United Aircraft with a 14.85% ownership interest in the Finnair Aircraft at
a total cost to the Partnership of $4,157,280. To acquire the ownership interest
in the Finnair Aircraft, the Partnership paid $1,389,942 in cash and obtained
financing of $2,767,338 from a third-party lender. The remaining ownership
interest of 85.15% in the Finnair Aircraft is held by affiliated equipment
leasing programs sponsored by AFG.
Effective January 1, 1996, the Partnership adopted Financial Accounting
Standards Board Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, which requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. Statement 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. Adoption of this statement did not have a material impact on the financial
statements of the Partnership.
NOTE 6 - NOTES PAYABLE
Notes payable at March 31, 1996 consisted of installment notes payable to
banks of $3,995,098. All of the installment notes are non-recourse, with
interest rates ranging between 8.65% and 8.76% and are collateralized by the
equipment and assignment of the related lease payments. All of the notes were
originated in connection with the Southwest Aircraft and the Finnair Aircraft.
The installment notes related to the Southwest Aircraft will be fully amortized
by noncancellable rents. The Partnership has a balloon payment obligation at the
expiration of the primary lease term related to the Finnair Aircraft. The
carrying amount of notes payable approximates fair value at March 31, 1996.
The annual maturities of the installment notes payable are as follows:
For the year ending March 31, 1997 $ 754,554
1998 758,704
1999 827,813
2000 1,654,027
------------
Total $ 3,995,098
============
NOTE 7 - SUBSEQUENT EVENT
Pursuant to its agreements with PLM International, Inc., referred to in
Note 8 of the Partnership's 1995 financial statements, American Finance Group
agreed to change its name and logo, except where they are used in connection
with the Partnership and other affiliated investment programs. For all other
purposes, American Finance Group will operate as Equis Financial Group effective
April 2, 1996.
AIRFUND II International Limited Partnership
FORM 10-Q
PART 1. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Three months ended March 31, 1996 compared to the three months ended March 31,
1995:
Overview
As an equipment leasing partnership, the Partnership was organized to
acquire and lease a portfolio of commercial jet aircraft subject to lease
agreements with third parties. During 1990 and 1991, the Partnership purchased
four commercial jet aircraft and a proportionate interest in two additional
aircraft which were leased by major carriers engaged in passenger
transportation. Initially, each aircraft generated rental revenue pursuant to
primary-term lease agreements. In 1995, the Partnership transferred its
proportionate ownership interest in one aircraft to the existing lessee, United
Airlines, Inc., in exchange for proportionate interests in three aircraft leased
to Southwest Airlines, Inc., pursuant to lease agreements which expire in 1999.
During the first quarter of 1996, the Partnership completed the replacement of
the United Aircraft with proportionate interests in two aircraft leased to
Finnair OY, pursuant to lease agreements which also expire in 1999. One of the
four commercial aircraft held in the Partnership's original portfolio, upon the
expiration of its lease term, was returned to the Partnership in 1995 (see
"Results in Operations"). The Partnership's remaining aircraft are being leased
pursuant to primary and renewal lease agreements which expire in 1996 and 1997.
Upon expiration of the primary and renewal lease agreements, each aircraft will
be re-leased or sold depending on prevailing market conditions and the
assessment of such conditions by AFG to obtain the most advantageous economic
benefit. Ultimately, all aircraft will be sold and the net proceeds will be
distributed to the Partners, after all liabilities and obligations of the
Partnership have been satisfied.
Results of Operations
For the three months ended March 31, 1996, the Partnership recognized lease
revenue of $1,483,096 compared to $1,713,575 for the same periods in 1995. The
decrease in lease revenue from 1995 to 1996 was due primarily to the expiration
of the lease to Northwest Airlines, Inc. ("Northwest") of a Boeing 727-251 ADV
aircraft, in December 1995 (see discussion below). The decrease also reflects
the effects of a temporary decline in lease revenues associated with the
Partnership's aircraft exchange (discussed below) which was concluded late in
the first quarter of 1996. As a result of the exchange, the Partnership replaced
its ownership interest in a Boeing 747-SP aircraft, having aggregate quarterly
lease revenues of $149,640, with interests in five other aircraft (three Boeing
737 aircraft leased by Southwest Airlines, Inc. and two McDonnell Douglas MD-82
aircraft leased by Finnair OY) having aggregate quarterly lease revenues of
$255,401. The Finnair Aircraft was exchanged into the Partnership on March 25,
1996. Accordingly, the first quarter of 1996 reflected only a portion of the
rents ultimately anticipated from the like-kind exchange.
The Partnership's Boeing 727-251 ADV aircraft, formerly on a renewal rental
agreement with Northwest, was returned upon expiration of its lease term on
November 30, 1995. This aircraft is currently undergoing heavy maintenance
expected to cost the Partnership approximately $180,000, all of which was
accrued during the three months ended March 31, 1996. The Partnership entered
into a new 28-month lease agreement with Transmeridian Airlines, to release this
aircraft at a base rent to the Partnership of $71,500 per month, effective upon
completion and approval of the heavy maintenance. The Partnership's portfolio
also includes a Boeing 727-200 ADV aircraft currently leased to Northwest
pursuant to a renewal lease agreement expiring on October 28, 1996. Rent due
under this renewal lease agreement is $143,117 per month. Upon the expiration of
this renewal agreement, the aircraft is expected to be returned to the
Partnership.
The Partnership owns a whole and a partial interest in two Lockheed L-1011
aircraft with leases to Cathay Pacific Airways Limited ("Cathay"). The
Partnership's original lease agreements with Cathay provided for semi-annual
rent adjustments based on the six month London Inter-Bank Offered Rate
("LIBOR"). Accordingly, rents generated from these leases fluctuated in relation
to the prevailing LIBOR rate on a semi-annual basis. The Partnership's renewal
lease agreements with Cathay (having adjusted semi-annual rents aggregating
$1,353,599) expired on February 14, 1996 and were extended until April 11, 1996.
Subsequent to this extension, Cathay will lease one of the aircraft until June
30, 1996 and the other until September 30, 1996, both at fixed rates. The fixed
extension agreements will generate approximately $576,000 in rental revenue for
the Partnership. Both of the aircraft on lease to Cathay are expected to be
returned upon the expiration of the extension agreements.
The Partnership's Boeing 727-208 aircraft is under a three year re-lease
agreement with American Trans Air, Inc. The re-lease agreement, scheduled to
expire in January 1997, provides revenue of $63,500 per month to the
Partnership.
The Partnership holds a proportionate ownership interest in the Cathay,
Southwest and Finnair Aircraft discussed above. The remaining interests are
owned by other affiliated partnerships sponsored by AFG. All partnerships
individually report, in proportion to their respective ownership interests,
their respective shares of assets, liabilities, revenues and expenses associated
with the aircraft. (See Notes 3 and 5 to the financial statements, herein.)
The Partnership typically earns interest income from temporary investments
of rental receipts in short-term instruments. For the three months ended March
31, 1996, the Partnership earned interest income of $83,727 compared to $45,073
for the same period in 1995. The increase in interest income in 1996 compared to
1995 is a result of interest of $39,346 earned on cash held in a special-purpose
escrow account in connection with the like-kind exchange transactions, discussed
above.
In September 1995, the Partnership transferred its 23.19% ownership
interest in the United Aircraft, pursuant to the rules for a like-kind exchange
for income tax reporting purposes (See Notes 3 and 5 to the financial
statements). In November 1995, the Partnership partially replaced the United
Aircraft with a 13.11% ownership interest in the Southwest Aircraft, at an
aggregate cost of $1,919,500. To acquire the interest in the Southwest Aircraft,
the Partnership obtained financing of $1,432,396 from a third-party lender and
utilized $487,104 of the cash consideration received from the transfer of the
United Aircraft. The remaining ownership interest of 86.89% in the Southwest
Aircraft is held by affiliated equipment leasing programs sponsored by AFG.
Additionally, in March 1996, the Partnership completed the replacement of
the United Aircraft with a 14.85% ownership interest in Finnair Aircraft at a
total cost to the Partnership of $4,157,280. To acquire the ownership interest
in the Finnair Aircraft, the Partnership paid $1,389,942 in cash and obtained
financing of $2,767,338 from a third-party lender. The remaining ownership
interest of 85.15% of the Finnair Aircraft is held by affiliated equipment
leasing programs sponsored by AFG.
During the three months ended March 31, 1996, the Partnership incurred
interest expense of $30,234. Interest expense resulted from financing obtained
from third-party lenders in connection with the Southwest Aircraft and the
Finnair Aircraft, described above. In the near-term, interest expense is
expected to increase as the financing of the Finnair Aircraft occurred on March
25, 1996 and therefore interest related to the Finnair debt was only incurred
from that date through the end of the quarter. Thereafter, interest expense will
decline as the principal balance of notes payable is reduced through the
application of rent receipts to outstanding debt.
Management fees were 5% of lease revenue during each of the periods ended
March 31, 1996 and 1995 and will not change as a percentage of lease revenue in
future periods.
Operating expenses consist principally of administrative charges,
professional service costs, such as audit and legal fees, as well as insurance,
printing, distribution and remarketing expenses The increase in operating
expenses during the three months ended March 31, 1996 compared to the same
period in 1995 is due primarily to heavy maintenance costs incurred or accrued
in connection with the Boeing 727-251 ADV aircraft, discussed above. The amount
of future operating expenses cannot be predicted with certainty; however, such
expenses are usually higher during the acquisition and liquidation phases of a
partnership. Other fluctuations will occur in relation to the volume and timing
of aircraft remarketing activities. Depreciation and amortization expense was
$978,519 for the three months ended March 31, 1996, compared to $1,244,055 for
the same period in 1995.
The ultimate realization of residual value for any aircraft will be
dependent upon many factors, including AFG's ability to sell and re-lease the
aircraft. Changes in market conditions, industry trends, technological advances,
and other events could converge to enhance or detract from asset values at any
given time. Accordingly, AFG will attempt to monitor changes in the airline
industry in order to identify opportunities which may be advantageous to the
Partnership and which will maximize total cash returns for each aircraft.
The total economic value realized upon final disposition of each aircraft
is comprised of all primary lease term revenue generated from that aircraft,
together with its residual value. The latter consists of cash proceeds realized
upon the aircraft's sale in addition to all other cash receipts obtained from
renting the aircraft under re-lease or renewal lease agreements. Consequently,
the amount of any future gain or loss reported in the financial statements may
not necessarily be indicative of the total residual value the Partnership
achieved from leasing the aircraft.
Liquidity and Capital Resources and Discussion of Cash Flows
The Partnership by its nature is a limited life entity which was
established for specific purposes described in the preceding "Overview". As an
equipment leasing program, the Partnership's principal operating activities
derive from aircraft rental transactions. Accordingly, the Partnership's
principal source of cash from operations is provided by the collection of
periodic rents. These cash inflows are used to satisfy debt service obligations
associated with leveraged leases, and to pay management fees and operating
costs. Operating activities generated net cash inflows of $1,342,669 and
$2,049,082 during the three months ended March 31, 1996 and 1995, respectively.
The expiration of the Partnership's current lease agreements will cause a
decline in the Partnership's future lease revenue and corresponding sources of
operating cash. This will be offset by rents generated in connection with the
Southwest Aircraft and the Finnair Aircraft. Overall, expenses associated with
rental activities, such as management fees, and net cash flow from operating
activities will decline as the Partnership remarkets its aircraft. Ultimately,
the Partnership will dispose of all aircraft under lease. This will occur
principally through sale transactions whereby each aircraft will be sold to the
existing lessee or to a third party. Generally, this will occur upon expiration
of each aircraft's primary or renewal/re-lease term.
Cash expended for equipment acquisitions is reported under investing
activities on the accompanying Statement of Cash Flows. The Partnership expended
$72,550 in cash in connection with the like-kind exchange transactions referred
to above. There were no equipment acquisitions during the same period in 1995.
As described in Results of Operations, the Partnership obtained long-term
financing in connection with the like-kind exchange transactions involving the
Southwest Aircraft and the Finnair Aircraft. The corresponding note agreements
are recourse only to the specific equipment financed and to the minimum rental
payments contracted to be received during the debt amortization period. As
rental payments are collected, a portion or all of the rental payment will be
used to repay principal and interest. The Partnership has balloon payment
obligations at the expiration of the primary lease term related to the Finnair
Aircraft.
Cash distributions to the General Partner and Recognized Owners are
declared and generally paid within fifteen days following the end of each
calendar quarter. The payment of such distributions is presented as a component
of financing activities. For the three months ended March 31, 1996, the
Partnership declared total cash distributions of Distributable Cash From
Operations of $357,190. In accordance with the Amended and Restated Agreement
and Certificate of Limited Partnership, the Recognized Owners were allocated 95%
of these distributions, or $339,330, and the General Partner was allocated 5%,
or $17,860. The first quarter 1996 cash distribution was paid on April 15, 1996.
Cash distributions paid to the Recognized Owners consist of both a return
of and a return on capital. To the extent that cash distributions consist of
Cash From Sales or Refinancings, substantially all of such cash distributions
should be viewed as a return of capital. Cash distributions do not represent and
are not indicative of yield on investment. Actual yield on investment cannot be
determined with any certainty until conclusion of the Partnership and will be
dependent upon the collection of all future contracted rents, the generation of
renewal and/or re-lease rents, and the residual value realized for each aircraft
at its disposal date. Future market conditions, technological changes, the
ability of AFG to manage and remarket the aircraft, and many other events and
circumstances, could enhance or detract from individual asset yields and the
collective performance of the Partnership's aircraft portfolio.
The future liquidity of the Partnership will be greatly dependent upon the
collection of contractual rents and the outcome of residual activities. The
General Partner anticipates that cash proceeds resulting from these sources will
satisfy the Partnership's future expense obligations. However, the amount of
cash available for distribution in future periods is expected to fluctuate
widely as the General Partner attempts to remarket the Partnership's aircraft
and possibly upgrade certain aircraft to meet the standards of potential
successor lessees. The like-kind exchange, involving the United, Southwest and
Finnair Aircraft, was undertaken, in part, to mitigate the Partnership's
economic risk resulting from the United Aircraft being returned to the
Partnership upon its lease expiration in April 1996 and remaining off-lease for
an extended period. The exchange enabled the Partnership to replace a
specialized aircraft with other aircraft which are used more widely in the
industry and also to significantly extend its rental stream with two
creditworthy users.
Northwest returned one aircraft to the Partnership in November 1995. In
addition, it is anticipated that the two aircraft leased to Cathay and the
second aircraft on lease to Northwest will be returned in June, September and
October of 1996, respectively. Such events will present additional demands on
the Partnership's cash position, depending upon upgrades or refurbishments which
will be necessary to remarket the aircraft. Accordingly, the General Partner has
reserved a portion of the Partnership's cash for these purposes. Over time,
aircraft disposals and other remarketing events will cause the Partnership's net
cash from operating activities to diminish. Accordingly, fluctuations in the
level of quarterly cash distributions have and will continue to occur. It is
possible that the General Partner will elect not to declare a cash distribution
in a given quarter, depending upon the overall cash requirements of the
Partnership.
AIRFUND II International Limited Partnership
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response: None
Item 2. Changes in Securities
Response: None
Item 3. Defaults upon Senior Securities
Response: None
Item 4. Submission of Matters to a Vote of Security Holders
Response: None
Item 5. Other Information
Response: None
Item 6(a). Exhibits
Response: None
Item 6(b). Reports on Form 8-K
Response: None
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on behalf of the registrant and in the capacity and
on the date indicated.
AIRFUND II International Limited Partnership
By: AFG Aircraft Management Corporation, a
Massachusetts corporation and the
General
Partner of the Registrant.
By: /s/ Michael J. Butterfield
Michael J. Butterfield
Treasurer of AFG Aircraft Management
Corporation
(Duly Authorized Officer and
Principal Accounting Officer)
Date: May 15, 1996
By: /s/ Gary Romano
Gary M. Romano
Clerk of AFG Aircraft Management
Corporation
(Duly Authorized Officer and
Principal Financial Officer)
Date: May 15, 1996