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 June 30, 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 No.)
1440 CHAPIN AVENUE, SUITE 310
BURLINGAME, CALIFORNIA
(Address of principal executive office)
94010
(Zip Code)
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 August 13, 1997, 693,505 Limited Partnership Units were outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JetFleet Aircraft II, L.P.
Balance Sheets
ASSETS
June 30, December 31,
1997 1996
-------- -------
(Unaudited)
<BTB>
Current assets
Cash $ 1,022,153 $ 1,191,914
Accounts receivable 9,264 -
Reserves receivable from lessees - 29,781
Lease payments receivable 450,000 540,000
------------ ------------
Total current assets 1,481,417 1,761,695
----------- ------------
Aircraft and aircraft engines under
operating leases and aircraft held
for operating leases, net of accumulated
depreciation of $12,058,519 in 1997
and $10,425,030 in 1996 12,802,124 14,435,613
Lease payments receivable - 180,000
Organization and offering costs, net
of accumulated amortization of
$136,248 in 1997 and $123,141 in 1996 19,788 32,895
------------ ------------
$ 14,303,329 $ 16,410,203
=========== ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable $ 23,927 $ 112,519
Accrued maintenance costs 663,731 501,072
Payable to affiliates 23,779 10,933
Security deposits 143,101 143,101
Unearned interest income 36,963 79,186
Prepaid rent received 27,553 27,553
------------ ------------
Total current liabilities 919,054 874,364
Unearned interest income - 8,793
------------ ------------
Total liabilities 919,054 883,157
Partners' capital 13,384,275 15,527,046
------------ ------------
$ 14,303,329 $ 16,410,203
============= ==============
<FN>
See accompanying notes.
JetFleet Aircraft II, L.P.
Statements of Operations
(Unaudited)
For the Six Months For the Three Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
------- ------- --------- ----------
<BTB>
Revenues:
Rental income $ 1,328,008 $1,270,241 $660,983 $672,678
Gain on sale of equipment - 34,859 - -
Interest income 62,470 173,394 28,104 81,612
-------- --------- --------- ----------
1,390,478 1,478,494 689,087 754,290
------- ------- -------- ----------
Costs and expenses:
Management fees 49,189 45,457 35,159 22,071
Depreciation of aircraft and
aircraft engines 1,633,489 1,627,125 816,744 816,444
Amortization of organization
and offering costs 13,107 15,963 6,553 7,981
Maintenance costs (64,249) 105,000 (64,249) -
General and
administrative 134,464 171,371 72,564 75,817
---------- -------- ------- -------
1,766,000 1,964,916 866,771 922,313
---------- -------- ------- --------
Net loss $ (375,522) $(486,422)$(177,684)$(168,023)
======= ======== ======= =========
Allocation of net loss:
General partners $ (18,776) $(24,321) $(8,884) $ (8,401)
Limited partners (356,746) (462,101)(168,800) (159,622)
---------- --------- -------- --------
$ (375,522) $(486,422)$(177,684) $(168,023)
======= ======== ======= =========
Per Limited
Partnership Unit $ (0.51) $ (0.67)$ (0.24) $ (0.23)
======= ======== ======= =========
Limited Partnership
Units outstanding 693,505 693,505 693,505 693,505
======= ======== ======= =========
<FN>
See accompanying notes.
JetFleet Aircraft II, L.P.
Statements of Cash Flows
(Unaudited)
For the Six Months
Ended June 30,
1997 1996
--------- ---------
<BTB>
Net cash provided by operating activities $ 1,327,488 $ 896,193
Investing activities:
Payments received on capital leases 270,000 480,000
Proceeds from sale of aircraft engines - 211,000
Purchase of interests in
aircraft and aircraft engines - (351,477)
---------- ---------
Net cash provided by
investing activities 270,000 339,523
Financing activities -
Distributions (1,767,249) (1,767,248)
------------ -------------
Net decrease in cash (169,761) (531,532)
Cash, beginning of period 1,191,914 1,364,593
----------- ------------
Cash, end of period $ 1,022,153 $ 833,061
========= =========
<FN>
See accompanying notes.
JetFleet Aircraft II, L.P.
Notes to Financial Statements
June 30, 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 ("Air Niugini") for a term of six months. The lease was
subsequently extended
JetFleet Aircraft II, L.P.
Notes to Financial Statements
June 30, 1997
(Unaudited)
2. Equipment Under Operating Leases (continued)
Dash-7 aircraft (continued)
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
JetFleet Aircraft II, L.P.
Notes to Financial Statements
June 30, 1997
(Unaudited)
2. Equipment Under Operating Leases (continued)
Engines (continued)
a 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 six months ended
June 30, 1997 JetFleet II recorded $10,941 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 six months ended June 30, 1997, JetFleet II recorded
$40,075 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 seller. JetFleet II
also agreed to terminate the lease with Interglobal, reassign the sublease with
JetFleet Aircraft II, L.P.
Notes to Financial Statements
June 30, 1997
(Unaudited)
3. Investment in Capital Leases (continued)
McDonnell Douglas DC-9 Aircraft (continued)
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. Other
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 second quarter of 1997, JetFleet II had cash balances of
$1,022,153. This amount was held for the distribution made to the Unitholders
in July 1997 and to pay for accrued expenses.
During the first six months 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. During
1997, JetFleet II recorded an adjustment for reimbursement of maintenance
costs previously expensed and paid.
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 increased $431,000. The increase from year to
year was partially due to a decrease in net loss of approximately $110,000 (see
Results of Operations, below). During the first six months of 1997, JetFleet II
had cash inflows of approximately $163,000 in maintenance reserves from
lessees and payments on accounts receivables of approximately $20,000. Such
inflows were partially offset by the relief of payables of approximately $76,000
and the realization of unearned income of approximately $51,000. During the
first six months of 1996, JetFleet II had cash inflows of $45,000 and $19,000
from payments on receivables and prepaid rent, respectively. Such inflows
were offset by payment of accrued maintenance costs of approximately $69,000
and other payables of approximately $62,000, and realization of unearned
income and a gain on sale of approximately $159,000 and $35,000, respectively.
Cash flows from investing activities were approximately $70,000 lower
during the first six months of 1997 than during the same period of 1996. This
was due a decrease in payments on its capital leases as a result of the sale of
the Third DC-9 during the second quarter of 1996. In addition, JetFleet II
purchased aircraft for approximately $140,000 during 1996.
In 1997 and 1996, there were no financing sources of cash. Cash
distributions to Unitholders were the same in both years.
Results of Operations
JetFleet II recorded net losses of ($375,522) and ($486,422) or ($0.51) and
($0.67) per Limited Partnership Unit outstanding for the six months ended
June 30, 1997 and 1996, respectively, and ($177,684) and ($168,023) or ($0.24)
and ($0.23) per Limited Partnership Unit outstanding for the three months
ended June 30, 1997 and 1996, respectively.
The decreased loss for the six month periods was primarily a result of a
decrease of approximately $105,000 in maintenance costs, the $64,000
adjustment discussed below, and a decrease in general and administrative
expenses, which were only partially offset by decrease in lease-related
revenues and the absence of any gains from equipment sales during 1997.
The increased loss for the three month periods was due to the decrease in
lease payments as a result of the sale of the Third DC-9 and higher
management fees, discussed below. These items were only partially offset by
adjustment in the amount of approximately $64,000 for reimbursement of
maintenance costs previously expensed and paid.
1997 versus 1996
Rental income decreased approximately $12,000 for the three month period
and increased approximately $58,000 for the six month period. The increase
for the six month period was primarily due to the rental income generated by
S/N 72, which was off lease during the first four months of 1996. The decrease
for the three month period was due to the decreased rent for S/N 44, S/N 57 and
S/N 11.
Depreciation was approximately the same in the three month periods of both
years. Depreciation was approximately $6,000 higher for the six month period
of 1997 due to the purchase of S/N TC-370 on February 27, 1996.
Management fees were approximately the same for the six month periods
and approximately $13,000 higher for the three month period. The increase
for the three month period was because 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 Preferred Return as defined in the prospectus. However, management now
believes that the Preferred Return will be met and, therefore, has accrued
fees for the first and second quarters of 1997. JetFleet II has 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 $37,000
during the six months ended June 30, 1997 compared to the same period in
1996. In 1996, such expenses included insurance costs associated with S/N 72
during its off-lease period. No insurance costs were incurred during the six
month period in 1997. General and administrative expenses were
approximately the same for the three month periods ended June 30, 1996 and 1997.
Maintenance costs decreased approximately $65,000 and $169,000 for the
three month and six month periods ended June 30, 1997 from the same periods
in 1996, 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. During 1997,
JetFleet II also recorded an adjustment for reimbursement of maintenance
expenses previously expensed and paid.
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 August 13, 1997.
JETFLEET AIRCRAFT II, L.P.
By: CMA Capital Group,
Managing General Partner
<BTB>
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
August 13, 1997.
<BTB>
Signature Title
/s/ Neal D. Crispin Chief Executive and Chief Financial
- ------------------------ Officer and Chairman of the Board of
Neal D. Crispin the Managing General Partner
/s/ Richard D. Koehler Executive Vice President and
- --------------------------- Director of the Managing General
Richard D. Koehler Partner
EXHIBIT INDEX
Exhibit No. Description Page No.
- ------------ ------------ ---------
EX-27 Financial Data Schedule