1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER: 0-21480
JETFLEET AIRCRAFT II, L.P.
(Exact name of registrant as specified in its charter)
CALIFORNIA
(State or other jurisdiction
of incorporation or organization)
94-3137154
(I.R.S. Employer Identification Number)
1440 CHAPIN AVENUE, SUITE 310 94010
BURLINGAME, CALIFORNIA (Zip Code)
(Address of principal executive office)
Registrant's telephone number, including area code: (415) 696-3900
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. X Yes No
On May 14, 1997, 693,505 Limited Partnership Units were outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JetFleet Aircraft II, L.P.
Balance Sheets
ASSETS
March 31, December 31,
1997 1996
(Unaudited)
----------- ----------
Current assets
Cash $ 1,136,624 $ 1,191,914
Accounts receivable 9,500 -
Reserves receivable from lessees - 29,781
Lease payments receivable 600,000 540,000
----------- -------------
Total current assets 1,746,124 1,761,695
Aircraft and aircraft engines under operating
leases and aircraft held for operating leases,
net of accumulated depreciation of
$11,241,774 in 1997
and $10,425,030 in 1996 13,618,869 14,435,613
Lease payments receivable - 180,000
Organization and offering costs, net
of accumulated amortization of
$129,694 in 1997 and $123,141 in 1996 26,342 32,895
----------- -----------
$15,391,335 $ 16,410,203
=========== ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable $ 108,273 $ 112,519
Accrued maintenance costs 575,783 501,072
Payable to affiliates 2,409 10,933
Security deposits 143,101 143,101
Unearned interest income 59,743 79,186
Prepaid rent received 27,553 27,553
----------- ------------
Total current liabilities 916,862 874,364
Unearned interest income - 8,793
----------- ------------
Total liabilities 916,862 883,157
Partners' capital 14,474,473 15,527,046
----------- ------------
$15,391,335 $ 16,410,203
=========== ============
<FN>
See accompanying notes.
JetFleet Aircraft II, L.P.
Statements of Operations
(Unaudited)
For the Three Months
Ended March 31,
1997 1996
Revenues:
Rental income $ 667,025 $ 597,563
Gain on sale of equipment - 34,859
Interest income 34,367 91,782
---------- ---------
701,392 724,204
Costs and expenses:
Management fees 14,030 23,386
Depreciation of aircraft and
aircraft engines 816,744 810,681
Amortization of organization
and offering costs 6,553 7,982
Maintenance costs - 105,000
General and administrative 61,903 95,554
---------- ---------
899,230 1,042,603
---------- ---------
Net loss $ (197,838) $(318,399)
========== =========
Allocation of net loss:
General partners $ (9,892) $ (15,920)
Limited partners (187,946) (302,479)
---------- ---------
$ (197,838) $(318,399)
========== =========
Per Limited Partnership Unit $ (0.27) $ (0.44)
========== =========
Limited Partnership Units outstanding 693,505 693,505
========== =========
<FN>
See accompanying notes.
JetFleet Aircraft II, L.P.
Statements of Cash Flows
(Unaudited)
For the Three Months
Ended March 31,
1997 1996
Net cash provided by operating activities $ 679,445 $ 421,760
Investing activities:
Payments received on capital lease 120,000 255,000
Purchase of interests in aircraft
and aircraft engines - (140,477)
----------- ----------
Net cash provided by
investing activities 120,000 114,523
Financing activities -
Distributions (854,735) (852,103)
----------- ----------
Net decrease in cash (55,290) (315,820)
---------- ----------
Cash, beginning of period 1,191,914 1,364,593
Cash, end of period $ 1,136,624 $ 1,048,773
=========== ============
<FN>
See accompanying notes.
JetFleet Aircraft II, L.P.
Notes to Financial Statements
March 31, 1997
(Unaudited)
1. Basis of Presentation
JetFleet Aircraft II, L.P. ("JetFleet II") is a California limited
partnership formed on June 24, 1991 for the purpose of acquiring a portfolio
of aircraft and aircraft engines, or interests therein, which are subject to
triple net leases. The accompanying unaudited financial statements reflect
all adjustments (consisting of only normal recurring accruals) which are, in
the opinion of CMA Capital Group, the Corporate General Partner ("Group"),
necessary for a fair presentation of the financial results. The results of
operations of such period are not necessarily indicative of results of
operations for a full year. The statements should be read in conjunction with
the Summary of Significant Accounting Policies and other notes to financial
statements included in JetFleet II's Annual Report on Form 10-K for the period
ended December 31, 1996.
2. Equipment Under Operating Leases
Dash-7 aircraft
JetFleet II holds 75.53% and 100.00% undivided interests in two
deHavilland DHC-7-103 aircraft, serial number 72 ("S/N 72") and serial number
11 ("S/N 11"), respectively, and JetFleet II also holds 4.00% and 100.00%
undivided interests in two deHavilland DHC-7-102 aircraft, serial number 57
("S/N 57") and serial number 44 ("S/N 44"), respectively (collectively, the
"Dash-7's"). The remaining undivided interests in S/N 72 and S/N 57 are held
by the seller and JetFleet Aircraft, L.P. ("JetFleet"), a California limited
partnership and an affiliate of JetFleet II (collectively, the "Co-Owners").
At the time of purchase, the Dash-7's were subject to triple net leases
with Johnson Controls World Services, Inc. ("JCWS") for two year terms,
renewable in one year increments for an aggregate period of eight years. JCWS
operated the aircraft under an eight year contract, which commenced in 1986,
with the United States Army for use in the Marshall Islands at the site of the
Army's deep space research center where missile guidance systems are tested.
During 1994, the leases with JCWS for S/N 57, S/N 11 and S/N 44 were
extended through September 30, 1995, at reduced rent (S/N 72, as discussed
below, was returned by JCWS during 1993). A new contract with the United
States Army commenced on February 15, 1995 for a term of two years with three
two-year renewal options. The contract was awarded to Range Systems
Engineering, a subsidiary of Raytheon Service Company ("Raytheon"). JetFleet
II's management anticipates that the leases will continue for as long as the
underlying government contract continues, although there is no contractual
requirement to this effect. During 1995 the lease was extended through
September 30, 1996 and, during 1996, an agreement was reached to extend the
lease through September 30, 1998 at a reduced rental rate, with an option to
extend the term for two additional years.
S/N 72, which, at the time of purchase, was subject to the same contract
with JCWS as S/N 57, S/N 44 and S/N 11, was returned by JCWS during June 1993.
In August 1993, S/N 72 was leased to Eclipse Airlines. Upon its return from
Eclipse, S/N 72 was leased to The AGES Group, L.P. ("AGES") for the period
December 22, 1993 through September 1, 1994. Upon its return by AGES, S/N 72
underwent scheduled maintenance and other repair work.
On March 31, 1995, S/N 72 was leased to the National Airline Commission
of Papua New Guinea (trading as Air Niugini) ("Air Niugini") for a term of six
months. The lease was
JetFleet Aircraft II, L.P.
Notes to Financial Statements
March 31, 1997
(Unaudited)
2. Equipment Under Operating Leases (continued)
Dash-7 aircraft (continued)
subsequently extended until October 31, 1995. JetFleet collected a total of
$189,581 in monthly lease payments from Air Niugini during the term of the
lease. In addition, Air Niugini paid JetFleet its pro-rata share of
maintenance costs of $121,058. Upon its return by Air Niugini, S/N 72
underwent certain scheduled maintenance and other repair work.
On April 25, 1996, S/N 72 was leased to Air Tindi Limited ("Air Tindi")
for a term of thirty-six months. Air Tindi has provided a letter of credit
which serves as a security deposit under the lease. In addition, Air Tindi
pays JetFleet II its pro-rata share of maintenance costs per hour of usage,
which amount is to be applied for scheduled overhauls and inspections. Air
Tindi is a regional airline headquartered in Yellowknife, Northwest
Territories, Canada and provides charter and regularly scheduled flights
throughout the Northwest Territories.
Other aircraft
JetFleet II owns a 100.00% undivided interest in a deHavilland DHC-6-310,
serial number 666 ("S/N 666"), a 100.00% undivided interest in a Fairchild
Metro III SA-227-AC aircraft, serial number AC-576 ("S/N 576"), and a 50%
undivided interest in a Fairchild SA226-TC aircraft, serial number TC-370
("S/N TC-370"). The remaining undivided interest in S/N TC-370 is owned by
JetFleet III, an affiliate of JetFleet II.
S/N 666 is leased to Loganair Limited, a British Airways franchisee
("Loganair"), for a term expiring on January 30, 1998.
S/N 576 is subject to a lease with Merlin Express, Inc., a subsidiary of
Fairchild Aircraft Incorporated ("Merlin"), for a term expiring on July 18,
1999. The lease contains a guaranty by Fairchild Aircraft Incorporated for
basic rent in an amount not to exceed a total aggregate amount of $90,000.
Merlin also pays, on a monthly basis, maintenance costs per hour of usage.
JetFleet II holds a security deposit from Merlin of $45,000.
S/N TC-370 is subject to a lease with Sunbird Air Services, Ltd. for a
term expiring September 30, 2000. The Sunbird Lease contains a guaranty by
Air Metro for basic rent in an amount not to exceed a total aggregate amount
of $29,250 (which guaranty is shared equally by JetFleet II and JetFleet III).
Sunbird also pays, on a monthly basis, maintenance costs per hour of usage.
Engines
JetFleet II holds 100.00% undivided interests in twenty five used
aircraft engines consisting of twenty three Pratt & Whitney PT6 engines and
two Allison A-250-C30P engines (collectively, the "Airwork Engines").
The Airwork Engines acquired by JetFleet II are leased back to the seller
("Airwork") pursuant to a master lease (the "Airwork Lease") between Airwork
and JetFleet II. The Airwork Lease is a triple net lease and has an initial
seven-year term, and Airwork has two two-year renewal options. Upon the
purchase of each engine by JetFleet II, Airwork was required to pay a
JetFleet Aircraft II, L.P.
Notes to Financial Statements
March 31, 1997
(Unaudited)
2. Equipment Under Operating Leases (continued)
Engines (continued)
security deposit equal to one month of rent. JetFleet II receives monthly
rent in the amount of $73,615 from the Airwork Lease.
During January 1996, Airwork notified JetFleet II of the loss of one of
the Airwork Engines (the "First Lost Airwork Engine"). Rather than replace
the First Lost Airwork Engine, Airwork chose to pay $211,000 to JetFleet II
(the stipulated loss value as stated in the Airwork Lease).
During June 1996, Airwork notified JetFleet II of the loss of another one
of the Airwork Engines (the "Second Lost Airwork Engine"). Airwork replaced
the Second Lost Airwork Engine with an engine of equal value, utility and
operating condition.
JetFleet II also holds a 100.00% undivided interest in a Pratt & Whitney
PT6A-50 aircraft engine (the "AEI Engine"). The AEI Engine is one of two
engines purchased from AEI in December 1993. During 1994, both engines were
returned to JetFleet II by AEI. During December 1994, JetFleet II sold one of
the engines to deHavilland, Inc. The remaining AEI Engine is currently being
held in inventory as a spare, and JetFleet II management is negotiating lease
and/or sale arrangements for it.
3. Investment in Capital Leases
McDonnell Douglas DC-9 Aircraft
JetFleet II owns a 50.00% interest in a McDonnell Douglas DC-9-32, serial
number 47236 (the "Initial DC-9"). JetFleet owns the remaining 50.00%
interest in the Initial DC-9. The Initial DC-9 is leased back to the seller,
Interglobal, Inc. ("Interglobal") for thirty-six months. It is currently sub-
leased to and being operated by Aero California S.A. de CV. Interglobal
assigned its rights under the sublease to the Co-Owners. JetFleet II's
investment in the Initial DC-9 is being accounted for as a capital lease.
Interglobal has a purchase option for a nominal amount which may be exercised
upon expiration of the Initial DC-9 Lease. During the three months ended
March 31, 1997 JetFleet II recorded $6,434 of interest income attributable to
the Initial DC-9 Lease.
On July 10, 1995, JetFleet II purchased a 100.00% interest in a McDonnell
Douglas DC-9-14 aircraft, serial number 45702 (the Second DC-9"). The Second
DC-9 is subject to a lease and sub-lease with terms identical to those of the
Initial DC-9. During the three months ended March 31, 1997, JetFleet II
recorded $21,802 of interest income attributable to the Second DC-9 Lease.
On August 31, 1995, JetFleet II purchased a 100.00% interest in a
McDonnell Douglas DC-9-32 aircraft, serial number 47553 (the Third DC-9").
The Third DC-9 was also subject to a lease and sub-lease with terms identical
to those of the Initial DC-9. During the second quarter of 1996, JetFleet II
agreed to sell its interest in the Third DC-9 to Interglobal, the party from
which it was purchased. JetFleet II also agreed to terminate the lease with
Interglobal, reassign the
JetFleet Aircraft II, L.P.
Notes to Financial Statements
March 31, 1997
(Unaudited)
3. Investment in Capital Leases (continued)
McDonnell Douglas DC-9 Aircraft (continued)
sublease with Aero California S.A. de CV back to Interglobal and issue a Bill
of Sale to Interglobal. JetFleet II management is currently negotiating
investment opportunities for the sale proceeds.
4. Subsequent Events
On April 8, 1997 a Registration Statement on Form S-4 was filed with the
Securities and Exchange Commission disclosing a proposed consolidation of
JetFleet and JetFleet II into a newly incorporated Delaware corporation,
AeroCentury Corp. Upon effectiveness of the Registration Statement, the
proposed consolidation will be submitted to the limited partners of JetFleet
and JetFleet II for their approval. If the consolidation is approved,
JetFleet and JetFleet II will cease to exist as independent entities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital Resources and Liquidity
At the end of the first quarter of 1997, JetFleet II had cash balances of
$1,191,914. This amount was held for the distribution made to the Unitholders
in April 1997 and to pay for accrued expenses.
During the first quarter of 1997, JetFleet II's primary sources of
liquidity were cash flows from leasing operations and capital lease payments.
JetFleet II's liquidity will vary in the future, increasing to the extent cash
flows from operations exceed expenses, and decreasing as distributions are
made to the Unitholders and to the extent expenses exceed cash flows from
leases.
JetFleet II uses substantially all its operating cash flow to make cash
distributions to its Unitholders. Since JetFleet II's leases are triple net
leases (the lessee pays operating and maintenance expenses, insurance and
taxes), JetFleet II does not anticipate that it will incur significant
operating expenses in connection with its ownership interest in the Aircraft
as long they remain on lease. However, JetFleet II incurred repair costs in
1996 for S/N 72 which were $105,000 in excess of the amounts collected from
lessees.
JetFleet II currently has available adequate reserves to meet its
immediate cash requirements.
Since January 1996, JetFleet II has made distributions at an annualized
rate of 10%.
1997 versus 1996
Cash flows from operations were approximately $679,000 and $422,000
during the first quarters of 1997 and 1996, respectively. The increase from
year to year was partially due to a decrease in net loss of approximately
$120,000 (see Results of Operations, below). In addition, during the first
quarter of 1997, JetFleet II received approximately $75,000 in maintenance
reserves from lessees and realized unearned income of approximately $28,000.
During the first quarter of 1996, JetFleet II received approximately $48,000
in security deposits from lessees, but paid for accrued maintenance costs of
approximately $12,000 and realized unearned income of approximately $83,000
and a gain on sale of approximately $35,000. The net change in accounts
receivable and payable was approximately the same from year to year.
Cash flows from investing activities were approximately the same in the
first quarters of 1997 and 1996. During 1997 and 1996, JetFleet II received
payments on its capital leases totaling approximately $120,000 and $255,000,
respectively. In 1996, however, JetFleet II also purchased aircraft for
approximately $140,000.
In 1997 and 1996, there were no financing sources of cash. Cash
distributions to Unitholders were approximately the same in both quarters.
Results of Operations
JetFleet II recorded net losses of <$197,838> and <$318,399> or <$0.27>
and <$0.44> per Limited Partnership Unit outstanding for the three months
ended March 31, 1997 and 1996, respectively. The decreased loss was primarily
a result of $105,000 of maintenance costs incurred by JetFleet II during the
first quarter of 1996. JetFleet II had no such costs during the first quarter
of 1997.
1997 versus 1996
Rental income increased approximately $70,000. This was because of the
rental income generated by S/N 72, which was off lease during the first
quarter of 1996. The increase was only partially offset by the decreased rent
for S/N 44, S/N 57 and S/N 11.
Depreciation was approximately the same in both years.
Management fees decreased approximately $9,000. There was no accrual or
payment of the equipment management fee for the first quarter of 1997 because
the annualized rate of distributions for 1997 is not expected to meet the
Prefered Return as defined in the prospectus. However, JetFleet II continued
to pay management fees to AEI in connection with the purchases of S/N 57, S/N
44, S/N 11 and S/N 72.
General and administrative expenses decreased approximately $34,000 from
1996 to 1997, due to a decrease in insurance expense associated with S/N 72.
Maintenance costs decreased approximately $105,000 from 1996 to 1997
because JetFleet II did not incur any repair costs in 1997 for S/N 72, as a
result of it being on lease subject to a triple net lease.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on May 14, 1997.
JETFLEET AIRCRAFT II, L.P.
By: CMA Capital Group,
Managing General Partner
By: /s/ Neal D. Crispin
Neal D. Crispin
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons in the capacities indicated on
May 14, 1997.
Signature Title
/s/ Neal D. Crispin Chief Executive and Chief Financial
- -------------------
Neal D. Crispin Officer and Chairman of the Board of
the Managing General Partner
/s/ Richard D. Koehler Executive Vice President and
- ---------------------
Richard D. Koehler Director of the Managing General
Partner
EXHIBIT INDEX
Exhibit No. Description Page No.
- ------------ ------------ ---------
EX-27 Financial Data Schedule