SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))

[X] Definitive Proxy Statement

[ ] Definitive Additional Materials

[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

Banner Aerospace, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.

(1) Title of each class of securities to which transaction applies:

- --------------------------------------------------------------------------------

(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.

(1) Amount previously paid:

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(2) Form, schedule or registration statement no.:

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(4) Date filed:

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2

BANNER AEROSPACE, INC.
45025 AVIATION DRIVE
SUITE 300
DULLES, VA 20166-7556

------------------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 18, 1998

------------------------

To the Stockholders of Banner Aerospace, Inc.:

The Annual Meeting of Stockholders of Banner Aerospace, Inc., a Delaware
corporation (the "Company"), will be held at The Hilton Dulles Airport, 13869
Park Center Road, Herndon, Virginia 20171 on Friday, September 18, 1998, at
10:00 a.m., for the following purposes:

1. To elect nine directors of the Company for the ensuing year;

2. To approve the material terms of the performance goals for the fiscal
1999 incentive compensation award for the Company's Chief Executive
Officer;

3. To approve the Board of Directors' selection of independent auditors
of the Company; and

4. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.

By Order of the Board of Directors

Bradley T. Lough
Secretary

August 14, 1998

KINDLY DATE AND SIGN THE ENCLOSED PROXY CARD AND PROMPTLY
RETURN IT IN THE ENCLOSED STAMPED, ADDRESSED ENVELOPE.
3

BANNER AEROSPACE, INC.
45025 AVIATION DRIVE
SUITE 300
DULLES, VA 20166-7556

AUGUST 14, 1998

------------------------

PROXY STATEMENT
------------------------

This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors (the "Board") of Banner Aerospace,
Inc. (the "Company") for use at the Annual Meeting of Stockholders (the "Annual
Meeting") to be held at 10:00 a.m. on Friday, September 18, 1998, and at any
adjournments or postponements thereof, at The Hilton Dulles Airport, 13869 Park
Center Road, Herndon, Virginia 20171. Only holders of record of the Company's
common stock, $1.00 par value ("Common Stock"), at the close of business on July
22, 1998 will be entitled to vote at the Annual Meeting. On July 22, 1998, there
were 21,446,502 shares of Common Stock outstanding and eligible to vote. Each
share of Common Stock entitles the holder thereof to one vote on each matter
scheduled to come before the Annual Meeting.

This Proxy Statement and enclosed proxy form are first being mailed to the
Company's shareholders on or about August 14, 1998.

Any proxy given pursuant to this solicitation and received in time for the
Annual Meeting will be voted as specified in such proxy. If no instructions are
given, proxies will be voted "FOR" the election of the nominees named below
under the caption "Election of Directors -- Information as to Nominees," and
"FOR" each of the other proposals set forth in the Notice of Annual Meeting and
this Proxy Statement.

Quorum and Voting Requirements

The holders of record of a majority of the outstanding shares of Common
Stock will constitute a quorum for the transaction of business at the Annual
Meeting.

Each outstanding share is entitled to one vote on all matters, except as
noted below.

Abstentions: For purposes of the quorum and the discussion below regarding
the vote necessary to take shareholder action, shareholders of record who are
present at the meeting in person or by proxy and who abstain, including brokers
holding customers' shares of record who cause abstentions to be recorded at the
meeting, are considered shareholders who are present and entitled to vote and
they count toward the quorum.

Uninstructed Shares and Broker Non-Votes: Brokers holding shares of record
for customers generally are not entitled to vote on certain matters unless they
receive voting instructions from their customers. As used herein, "uninstructed
shares" means shares held by a broker who has not received instructions from its
customers on such matters and the broker has so notified the Company on a proxy
form in accordance with industry practice or has otherwise advised the Company
that it lacks voting authority. As used herein, "broker non-votes" means the
votes that could have been cast on the matter in question by brokers with
respect to uninstructed shares if the brokers had received their customers'
instructions.

Election of Directors: Directors are elected by a plurality and the nine
nominees who receive the most votes will be elected. Abstentions and broker
non-votes will not be taken into account in determining the outcome of the
election.
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Approval of Auditors: To be approved, this matter must receive the
affirmative vote of the majority of the shares present in person or by proxy at
the meeting and entitled to vote on such matter. Uninstructed shares are
entitled to vote on this matter. Therefore, abstentions and broker-non votes
have the effect of negative votes.

CEO Performance Goals: To be approved, this matter must receive the
affirmative vote of the majority of the shares present in person or by proxy at
the meeting and entitled to vote on such matter. Uninstructed shares are not
entitled to vote on this matter, and therefore broker non-votes do not affect
the outcome. Abstentions have the effect of negative votes. In addition, under
New York Stock Exchange rules, all votes cast for or against such proposal must
(in the aggregate) represent at least 50% of the outstanding shares of the
Company entitled to vote on such matter (the "50% voted shares requirement").
Abstentions and broker-non votes are deemed not to have been voted (either for
or against) such matter, and are counted as non-voted shares in determining
whether the 50% voted shares requirement has been satisfied.

The Board does not know of any matter, other than those specified herein,
which will be presented for action at the Annual Meeting. In the event that any
other matters should properly come before the Annual Meeting, it is the
intention of the persons named in the enclosed proxy to vote the proxy in
accordance with their best judgment on such matters.

Any proxy may be revoked at any time prior to its exercise by notifying the
Company's Secretary in writing at the above address, by delivering a duly
executed proxy bearing a later date or by attending the Annual Meeting and
voting in person.

ITEM 1 -- ELECTION OF DIRECTORS

Nine directors are to be elected for the ensuing year to hold office until
the next annual meeting of stockholders and until their successors are elected
and qualified. All nominees were elected to the Board at the 1997 annual meeting
of stockholders, other than Mr. Michael D. Herdman (who was elected to the Board
on October 28, 1997). Mr. John Wertz (elected to the Board at the 1997 annual
meeting of stockholders) resigned from the Board on January 16, 1998,
simultaneously with his retirement as COO of the Company.

INFORMATION AS TO NOMINEES

Set forth below is information about each nominee for election as a
director, based on information supplied by him, including his name, age and
principal occupations during the past five years, and certain directorships held
by him.

MICHAEL T. ALCOX, 50, has served as a Director of the Company since 1990.
From 1987 through September 1996 he served as Senior Vice President and Chief
Financial Officer of The Fairchild Corporation ("Fairchild"), a worldwide
aerospace fasteners manufacturer and semiconductor process equipment company. He
presently serves as a Vice President of Fairchild, not employed on a full time
basis. Fairchild is a substantial shareholder of the Company. Mr. Alcox also
owns and operates travel and real estate businesses. Mr. Alcox is a director of
Fairchild. (2) (4)

STEVEN L. GERARD, 53, has served as a Director of the Company since 1992.
From September 1992 to August 1997, Mr. Gerard served as the Chairman and the
Chief Executive Officer of Triangle Wire and Cable, Inc., a manufacturer of
insulated wire and cable, and its successor, Ocean View Capital, Inc. Mr. Gerard
previously served as the Chief Executive Officer and a director of Mountleigh
Group, plc, a London-based company engaged in property management, from April
1992 until July 1992. Mr. Gerard was hired in connection with a restructuring of
Mountleigh. In connection with the restructuring, Mountleigh was placed in U.K.
receivership on May 23, 1992. From July 1990 to April 1992, Mr. Gerard served as
a Senior Managing Director of Citibank, N.A. ("Citibank") and was responsible
for credit, portfolio and
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risk management for Citibank's corporate and investment banking activities in
the United States, Japan, Europe and Australia. Mr. Gerard is also a director of
Deeptech International, Inc. and U.S. Home Corp. (2) (3) (5) (6)

CHARLES M. HAAR, 77, has served as a Director of the Company since 1992. He
has been a professor of law at Harvard University since 1956. He has served as a
consultant to Skadden, Arps, Slate, Meagher & Flom for more than the past five
years. Professor Haar is a director of American Health Properties. (3) (5)

PHILIPPE HERCOT, 31, has served as a Director of the Company since 1995. He
has served as a managing partner for Capital Industrie & Associes (a Paris,
France based investment and consulting firm) since May 1997. Prior thereto, he
was employed by Apax Partners (an investment company) as an associate from
September 1996 to April 1997 and by Donaldson, Lufkin & Jenrette (an investment
banking firm) as an associate from August 1993 to August 1996. Mr. Hercot
received his M.B.A. in June 1993 from Harvard Business School. He is a director
of Medicis S.A., Decibel France S.A. and Sofilma S.A. Mr. Hercot is the
son-in-law of Mr. Jeffrey J. Steiner. (4)

MICHAEL D. HERDMAN, 48, has served as a Director of the Company since
October 1997. He has served as Senior Vice President of American National Can
for Beverage Cans Europe/ Asia Pacific ("ANC") since January 1997. Prior
thereto, he was responsible for the European beverage can activities since its
formation in 1991. Mr. Herdman has held various other positions with ANC and its
predecessor, National Can, since 1972. Please see information regarding late
filing of stock ownership forms, as described below under the heading "Section
16(a) Beneficial Ownership Reporting Compliance."

WARREN D. PERSAVICH, 45, has served as Senior Vice President and Chief
Operating Officer of the Company since May 1998 and as a Director of the Company
since 1990. Prior thereto, he served as Senior Vice President and Chief
Financial Officer of the Company from June 1990 to May 1998, and Vice President
of the Company from March 1990 to June 1990. (1)

DR. ERIC I. STEINER, 36, has served as Senior Vice President of the Company
since May 1997 and as a Director of the Company since 1992. He has served as
Executive Vice President and Chief Operating Officer of Fairchild since November
1996, Senior Vice President -- Operations of Fairchild since May 1992 and
President of Fairchild Fasteners (a division of a Fairchild subsidiary), since
February 1995. Prior thereto, he served as President of Camloc/RAM Products
Division, a division of Fairchild Fasteners, from September 1993 to February
1995. Dr. Steiner is a director of Fairchild. Dr. Eric I. Steiner is the son of
Mr. Jeffrey J. Steiner. (1)

JEFFREY J. STEINER, 61, has served as Chairman of the Board, Chief
Executive Officer and President of the Company since September 1993. He served
as Vice Chairman of the Board of the Company from August 1990 to September 1993.
He has served as Chairman of the Board, Chief Executive Officer and President of
Fairchild for more than the past five years. Mr. Steiner is, and for the past
five years has served as, the President of Cedco Holdings, Ltd., a Bermuda
Corporation (an investment company). He is a director of The Franklin
Corporation, and The Copley Fund. Mr. Jeffrey J. Steiner is the father of Dr.
Eric I. Steiner and the father-in-law of Mr. Philippe Hercot. (1)

Articles have appeared in the French press reporting an inquiry by a French
magistrate into certain allegedly improper business transactions involving Elf
Acquitaine, a French petroleum company, its former chairman and various third
parties, including Maurice Bidermann. In connection with this inquiry, the
magistrate has made inquiry into allegedly improper transactions between Mr.
Steiner and that petroleum company. In response to the magistrate's request that
Mr. Steiner appear in France as a witness, Mr. Steiner submitted written
statements concerning the transactions and appeared in person before the
magistrate and others.

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Mr. Steiner, who has been put under examination (mis en examen), by the
magistrate, with respect to this matter, has not been charged.

Mr. Steiner has been cited by a French prosecutor to appear on November 22,
1998, before the Tribunal de Grande Instance de Paris, to answer a charge of
knowingly benefiting in 1990, from a misuse by Mr. Bidermann of corporate assets
of Societe Generale Mobiliere et Immobiliere, a French corporation in which Mr.
Bidermann is believed to have been the sole shareholder.

Certain related party transactions between the Company and Mr. Steiner and
or his affiliates are set forth below under the heading "Certain Transactions."

LEONARD TOBOROFF, 65, has served as a Director of the Company since 1992.
He has served as Executive Vice President and a director of Riddell Sports,
Inc., a manufacturer and licenser of sports equipment, since April 1988. He has
also served as a Vice President and the Vice Chairman of the Board of
Allis-Chalmers Corporation, a holding company, since May 1988. For more than the
past five years, Mr. Toboroff has been a private investor. Mr. Toboroff is a
director of Engex Corp. and Saratoga Beverages, Inc. (2) (3) (4) (5) (6)
- ------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation and Stock Option Committee.
(4) Member of the Nominating Committee.
(5) Member of the Ethics Committee.
(6) Member of the Special Committee.

BOARD OF DIRECTORS AND CERTAIN COMMITTEE MATTERS

During fiscal 1998, the Board held four meetings and acted four times by
written consent. Except for Mr. Herdman, no incumbent director attended less
than 75% of the total number of meetings of the Board during his term and all
meetings of each committee of the Board on which he served.

The Board has (1) an Executive Committee which has the authority to
exercise all the power of the Board when the latter is not in session; (2) an
Audit Committee whose primary functions are to assist the Board with respect to
internal control, accounting and reporting practices of the Company and to
maintain communication with the independent auditors of the Company; (3) a
Compensation and Stock Option Committee whose functions are to review and
approve the compensation and benefits of the corporate officers, to review and
advise management regarding the benefits, including bonuses, and other terms and
conditions of employment of other employees of the Company, to review and
recommend for the approval of the full Board the compensation of directors, to
administer the Company's stock option plans and to award employee stock options;
(4) a Nominating Committee whose primary functions are to review possible
candidates for members of the Board of Directors and recommend a slate of
nominees for election as directors at the Company's Annual Meeting of
Stockholders; and (5) an Ethics Committee whose primary function is to oversee
and review the ethical standards of the Company. During fiscal 1998, the
Compensation and Stock Option Committee held three meetings, the Audit Committee
held two meetings and the Executive Committee held one meeting. The Nominating
and Ethics Committees did not hold any meetings during the fiscal year.

The Board also appointed a special committee (the "Special Committee")
which is presently comprised of two Directors of the Company who are neither
officers nor employees of the Company or otherwise affiliated with Fairchild.
The purpose of the Special Committee is to look into allegations raised in
articles that have appeared in the French press reporting an inquiry by a French
magistrate. This matter is discussed above under the biographical information
for

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Mr. Jeffrey Steiner. The Special Committee did not hold any meetings with its
legal advisors during fiscal 1998.

The Nominating Committee will consider written recommendations for nominees
for next year's annual meeting submitted prior to April 16, 1999 by stockholders
to the Secretary of the Company. Biographical information and the written
consent of the potential nominee must accompany the recommendation.

INFORMATION AS TO EXECUTIVE OFFICERS

Set forth below is certain information about each executive officer of the
Company who is not a director of the Company or a nominee, based on information
supplied by him, including his name, age and principal occupations during the
past five years. All of the executive officers of the Company are elected by the
Board to serve until the next annual meeting of the Board and until their
successors are elected and qualified.

EUGENE W. JURIS, 40, has served as Vice President and Chief Financial
Officer since May 1998. Prior thereto, he served as Vice President -- Finance
and Secretary of the Company from September 1993 to May 1998, Treasurer of the
Company from June 1990 to September 1993, Vice President of the Company from
March 1990 to September 1993 and the Controller of the Company from June 1990 to
December 1990.

BRADLEY T. LOUGH, 32, has served as Secretary of the Company since May 1998
and as Treasurer of the Company since August 1993.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and officers to file reports (on Forms 3, 4 and 5) with the
Securities and Exchange Commission, disclosing their ownership, and changes in
their ownership, of stock in the Company. Copies of these reports must also be
furnished to the Company. Based solely on a review of these copies, the Company
believes that during fiscal year 1998 all reports were filed on a timely basis,
except that Mr. Michael Herdman filed an initial Form 3 with the SEC on July 8,
1998 (reporting his receipt of 5,000 options) that was due to be filed on
November 10, 1997.

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EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following Summary Compensation Table sets forth the aggregate cash and
non-cash compensation paid or accrued for each of the last three fiscal years,
to the chief executive officer and each of the other four most highly
compensated executive officers whose salary and bonus exceeded $100,000 for
fiscal 1998 (the "named executive officers"):

LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------------- ------------
OTHER ANNUAL SECURITIES ALL OTHER
FISCAL BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) ($)(1) ($)(2) OPTIONS(#) ($)(3)
- --------------------------- ------ ---------- ------- ------------ ------------ ------------

Jeffrey J. Steiner, 1998 400,000 180,000 -- 130,000 1,792
Chairman, President and 1997 300,000 273,375 -- 80,000 720
Chief Executive Officer 1996 262,500 157,500 -- 150,000 --

Warren D. Persavich, 1998 189,000 570,875 -- 40,000 5,804
Senior Vice President and 1997 180,000 110,344 -- 25,000 5,311
Chief Operating Officer 1996 162,750 81,375 -- 46,000 5,841

Eugene W. Juris, 1998 156,500 408,688 -- 30,000 7,626
Vice President and 1997 130,000 80,094 -- 15,000 4,457
Chief Financial Officer 1996 120,750 60,375 1,398 24,000 4,032

Eric I. Steiner, 1998 45,667 200,000 -- 30,000 200
Senior Vice President (4) 1997 16,000 -- -- 5,000 --
1996 16,000 -- -- -- --

Bradley T. Lough, 1998 80,000 109,000 -- 10,000 6,080
Treasurer and Secretary 1997 68,400 11,888 -- 5,000 2,296
1996 65,100 6,510 -- 5,000 2,046

- ---------------
(1) Annual bonuses are shown for the year earned, but generally are paid in the
following year. Bonuses for 1998 include shares of AlliedSignal, Inc. common
stock issued (in kind) as bonuses to certain executive officers in
connection with the disposition of the Company's Hardware Group. Such shares
of stock are valued at the closing price of such stock ($36.25 per share) on
January 13, 1998, which is the date of the disposition of the Company's
Hardware Group and PacAero. Pursuant to Banner's 1998 Deferred Bonus Plan,
such bonus recipients have elected to defer receipt of such shares. In
addition to receiving such shares, each recipient will receive compounded
interest (based on a value of $36.25 per share) at the rate of 8% per annum
until such time as the deferred compensation is received. Payment of such
deferred compensation (shares of stock plus compounded interest) is an
unsecured, general obligation of the Company. The amount of shares received
by the named executive officers as bonuses for the disposition of the
Hardware Group, the receipt of which has been deferred by such officers, is
as follows: W. Persavich -- 13,793 shares; E. Juris -- 7,724 shares; and E.
Steiner -- 5,517 shares.

(2) Includes tax gross-up payments related to reimbursement of relocation costs
and temporary living expenses.

(3) Includes the following for fiscal 1998:
a. Company matching contributions under 401(k) savings plan, as follows: W.
Persavich, $4,957; E. Juris, $6,925; B. Lough, $5,722.
b. Premiums paid by the Company for group term life insurance policies, as
follows: J. Steiner, $1,792; W. Persavich, $847; E. Juris, $701; E.
Steiner, $200; B. Lough, $358.

(4) Eric Steiner became an officer of the Company in May 1997. Amount shown as
salary includes fees paid to Dr. E. Steiner as a board member prior to his
becoming an officer, as follows: $4,000 for 1998; $16,000 for 1997; and
$16,000 for 1996.

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OPTIONS GRANTED IN FISCAL YEAR 1998

The following table sets forth information concerning individual grants of
stock options made during the last fiscal year to each named executive officer.

% OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION PRESENT
NAME GRANTED FISCAL 1998 ($/Sh) DATE VALUE (3)
- ---- ---------- ------------ -------------- ---------- ----------

Jeffrey J. Steiner 130,000(1) 36.3% $7.625 5/21/04 $912,080
Warren D. Persavich 40,000(1) 11.2% 7.625 5/21/04 280,640
Eugene W. Juris 30,000(1) 8.4% 7.625 5/21/04 210,480
Eric I. Steiner 30,000(2) 8.4% 7.625 5/21/04 210,480
Bradley T. Lough 10,000(2) 2.8% 7.625 5/21/04 70,160

- ------------
(1) Options granted vest ratably over three years.
(2) Options granted vest 0% in year 1, 25% in year 2, 25% in year 3 and 50% in
year 4.
(3) Value of Options using the Black-Scholes model.

OPTION YEAR END VALUES

The following table sets forth information concerning the fiscal year end
value of unexercised stock options of each of the named executive officers.

NUMBER OF SECURITIES VALUE OF IN-THE-MONEY
UNDERLYING UNEXERCISED UNEXERCISED OPTIONS AT
OPTIONS AT 3/31/98 3/31/98
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------

Jeffrey J. Steiner 201,667 233,333 $1,432,308 $1,621,197
Warren D. Persavich 94,000 72,000 650,209 500,055
Eugene W. Juris 63,500 48,000 435,992 333,142
Eric I. Steiner 15,000 30,000 96,785 210,480
Bradley T. Lough 14,667 18,333 99,555 126,498

No stock options were exercised by the named executive officers during
fiscal 1998.

EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS

Mr. Jeffrey J. Steiner has a three year employment agreement with the
Company which became effective September 9, 1992; however, each year the
remainder of the term of Mr. Steiner's employment is extended for an additional
one year period unless either party gives timely notice of its or his intention
not to extend further the term of the employment agreement. The employment
agreement provides for a base salary of $250,000 per annum, or such greater
amount as shall be approved by the Board of Directors of the Company in its sole
discretion, and also provides for participation in the Company's bonus plan,
retirement plan, and other executive benefits. If Mr. Steiner dies during the
term or any extended term of the agreement, his legal representatives will
receive monthly or semi-monthly installments of his base salary up to and
including the first anniversary of the last day of the month in which Mr.
Steiner's death occurs. In addition, his legal representatives will receive
benefits to which Mr. Steiner would have been entitled, through the end of the
fiscal year in which his death occurs, under any additional compensation plan.
For any fiscal year during which the agreement is terminated due to Mr.
Steiner's disability for more than nine consecutive months, or shorter periods
aggregating nine months during any twelve month period, he will receive fifty
percent of his base salary for two years, plus all benefits to which he would
have been entitled for the fiscal year during which termination of his
employment has occurred. The agreement also has certain change in control
provisions. Upon the occurrence of a change in control or trigger event, Mr.
Steiner is entitled to

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a cash payment equal to 2.99 times the total of his then base salary plus bonus
in the immediately preceding fiscal year, less the portion of payments, under
stock options vested solely due to a change in control or trigger event, which
is considered a parachute payment under Section 280G of the Internal Revenue
Code of 1986 ("Code"). A change in control occurs if an event requires a
response to Item 5(f) of Schedule 14A of Regulation 14A under the Securities
Exchange Act of 1934 as in effect January 1, 1986. There is a trigger event (i)
if any person other than Jeffrey J. Steiner or an affiliate of Jeffrey J.
Steiner is or becomes the beneficial owner of securities of the Company
representing 20% of the then outstanding voting power for the election of
directors ("Voting Power"); (ii) if during a period of two consecutive fiscal
years individuals who at the beginning of such period constitute the Board of
Directors cease to be a majority of the Board unless the election or nomination
of each director was approved by a two-thirds vote of the directors then still
in office who were directors at the beginning of the period; (iii) if the
Company shall become a subsidiary of another corporation or shall be
reorganized, merged or consolidated into another corporation (unless it is a
reorganization under Section 368(a)(1)(f) of the Code) unless, in each case, the
holders of more than 80% of the Voting Power will retain similar voting power of
such other corporation's voting securities; (iv) if substantially all the assets
of the Company are sold to another company; (v) if the Company is liquidated; or
(vi) if the Company issues Common Stock representing a majority of the Voting
Power of the Company.

Mr. Persavich has an employment agreement which was amended on September 1,
1993 to provide for a salary of $155,000 per annum, or such greater amount as
shall be approved by the Board of Directors of the Company in its sole
discretion, plus a bonus arrangement of 50% of base compensation if certain
performance targets are met. Mr. Persavich's current base salary under such
employment agreement is $207,900. The amended agreement was initially for a
period of three years. Commencing on the first anniversary of the amended
agreement, the term will be extended each day by one day so that the remaining
term is always two years, until terminated by either party. Termination without
cause by the Company will result in a two year severance payment to Mr.
Persavich, plus bonuses and certain other fringe benefits.

Mr. Juris has an employment agreement which was amended on September 1,
1993 to provide for a salary of $115,000 per annum, or such greater amount as
shall be approved by the Board of Directors of the Company in its sole
discretion, plus a bonus arrangement of 50% of base compensation if certain
performance targets are met. Mr. Juris' current base salary under such
employment agreement is $172,150. The amended agreement was initially for a
period of three years. Commencing on the first anniversary of the amended
agreement, the term will be extended each day by one day so that the remaining
term is always two years, until terminated by either party. Termination without
cause by the Company will result in a two year severance payment to Mr. Juris,
plus bonuses and certain other fringe benefits.

RETIREMENT BENEFITS

The Company has a Supplemental Executive Retirement Plan for certain key
executives which provides a retirement benefit based on final average earnings
and years of service. Benefits which may be payable under this plan are not
included in the Summary Compensation Table. This plan provides a maximum
retirement benefit equal to the difference between sixty percent of the
participant's average base salary for the last five years of employment and the
participant's primary Social Security benefit. This plan is unfunded,
unqualified and is not subject to the Employee Retirement Income Security Act of
1974, as amended. The plan was adopted in September 1994 to provide for lump sum
pre-retirement advances on an actuarially reduced basis at the election of
participants age sixty-five or over, contingent upon approval of the
Compensation and Stock Option Committee. Messrs. Steiner, Persavich and Juris
are eligible for participation in this plan. The estimated annual benefit
payable upon retirement at normal

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retirement age for each of the named executive officers is as follows: Jeffrey
Steiner, $244,000; Warren Persavich, $175,000; and Eugene Juris, $199,000.

DIRECTORS COMPENSATION

Fees. Outside directors are currently paid an annual retainer of $12,000,
payable in cash in equal quarterly payments of $3,000. In addition, each outside
director receives $1,000 for each Board meeting attended. If a committee meeting
is attended on a day other than a Board meeting, each outside director receives
$500. Travel expenses are reimbursed for all meetings. Total outside directors
fees paid for normal meetings during fiscal 1998 were $89,000 in the aggregate.

Stock Options. Pursuant to the 1996 Non-Employee Director Stock Option
Plan ("1996 NED Plan"), commencing with the 1996 Annual Meeting, outside
directors receive stock options for 5,000 shares of Common Stock at the time
they are first elected to serve on the Board and, thereafter, they receive stock
options for 1,000 shares of Common Stock for each additional year in which they
are elected to serve on the Board. Of the nominees for election at the 1998
Annual Meeting, Messrs. Alcox, Gerard, Haar, Hercot, Herdman and Toboroff
qualify as outside directors under the 1996 NED Plan. Pursuant to the 1996 NED
Plan: (i) on the date of 1997 Annual Meeting, the Company granted options for
5,000 shares of Common Stock in the aggregate to outside directors; (ii) on
October 28, 1997, the Company granted options for 5,000 shares to Mr. Herdman
upon becoming a director; and (iii) on the date of the 1998 Annual Meeting, the
Company will grant options for 6,000 shares of Common Stock in the aggregate to
outside directors.

Consulting Services. In fiscal 1998, Messers. Alcox and Gerard provided
certain consulting services to the Company, for which they were compensated an
aggregate of $21,000 and $3,000, respectively, plus expenses.

Management Directors. Management directors receive no fees or stock
options for their services as directors.

COMPENSATION AND STOCK OPTION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION

The Compensation and Stock Option Committee of the Board of Directors
("Committee") has furnished this report on executive compensation. The Committee
is comprised of the individuals listed below, all of whom are outside directors.
The Committee has responsibility for the compensation matters relating to
Company executive officers. The Committee makes recommendations for executive
compensation and submits the recommendations to the Board for approval. No
member of the Committee has served as an officer of the Company nor is eligible
to participate in any of the compensation plans or programs it administers other
than the 1996 Non-Employee Director Stock Option Plan.

COMPENSATION PHILOSOPHY

Since its initial public offering ("IPO") in August 1990, the Company's
compensation philosophy has been i) to provide a base compensation sufficient to
attract and retain key executives; ii) to provide an annual incentive program
related to specific pre-determined performance goals designed to motivate key
executives to enhance stockholder value and to encourage the retention of a
sound management team; and iii) to provide a longer term incentive program
where, through the grant of stock options, rewards are related to the market
performance of the Company's Common Stock. The Committee believes its approach
to compensation should be consistent over time and be fair to the Company, its
officers and stockholders.

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EMPLOYMENT AGREEMENT -- CEO

Mr. Steiner has had an employment agreement with the Company since
September 1992. He became the Chief Executive Officer ("CEO") of the Company
upon the retirement of Samuel J. Krasney in September 1993. He provides
direction and motivation to the management of the Company's subsidiaries and is
responsible for acquisitions and divestitures. The CEO formulates the goals and
objectives of the Company and is responsible for implementing strategies to
accomplish them. The employment agreement initially established Mr. Steiner's
annual base salary at $250,000 which was his initial salary when the IPO
occurred in 1990. In April 1996, the Committee increased Mr. Steiner's salary to
$300,000. In April 1997, the Committee increased Mr. Steiner's annual salary
from $300,000 to $400,000. This increase was based on the Committee's
determination to continue providing Mr. Steiner with a competitive salary as
compared to other companies of similar size in similar industries. In addition,
the Committee took into account the fact that Mr. Steiner's salary had only
increased $50,000 or a compounded annual increase of three percent from 1990
(IPO) to fiscal 1997, while the Company's sales had grown at a rate compounded
annually of eleven percent. Mr. Steiner is entitled to an annual bonus award if
certain performance targets, established by the Committee and approved by the
Board and shareholders, are achieved.

EMPLOYMENT AGREEMENTS -- OTHER EXECUTIVE OFFICERS

Messrs. Persavich and Juris also have employment agreements with the
Company. These agreements were amended in fiscal 1994 to reflect the relocation
of the corporate office from Cleveland, Ohio to Dulles, Virginia. In conjunction
with the relocation, the base compensation for each of Messrs. Persavich and
Juris, which was established at the IPO in August 1990, was increased to reflect
the current market conditions for the positions held. In April 1997, the
Committee increased the base compensation of Mr. Persavich by approximately five
percent and Mr. Juris by approximately twenty percent. These salary increases
were awarded based on the Committee's philosophy that the executive officers
should receive a base salary which is competitive with other executives of
companies of similar size in similar positions. The employment agreements for
Messrs. Persavich and Juris provide for annual bonus awards of 50% of base
compensation if certain performance targets, established by the Committee and
approved by the Board, are achieved. Messrs. Persavich and Juris may also
receive additional bonus awards if the performance targets are exceeded.

BONUS PLAN

The Committee believes that a substantial portion of the annual income of
executive officers should be based on the financial and operating performance of
the Company for that year through a goal-based incentive compensation program
("Bonus Plan"). The objective of the program is to provide total annual income
to officers that is competitive with compensation at other companies facing
similar challenges, while linking the payment of compensation to the Company's
achievement of certain financial and operating goals. In fiscal 1998, bonuses
awarded to the CEO and other executive officers were based on two components.
The first component was based on a goal for the Company to achieve certain
levels of earnings before interest and taxes. The second component was based on
qualitative and quantitative factors, including the achievement of a number of
key corporate objectives, including: i) the completion of strategic acquisitions
and divestitures designed to enhanced shareholder value; ii) market penetration
and development; and iii) continued development of cost efficiencies. The
executive officers were also provided incentives to successfully transition
Burbank Aircraft Supply, Inc. to a new management information system by a
certain targeted date. In the opinion of the Committee, Mr. Steiner and the
other executive officers achieved certain of these objectives and Mr. Steiner
was awarded a bonus of $180,000 (representing a bonus of 45.0% of base
compensation), and Messrs. Persavich, Juris and Lough were awarded a bonus of
$138,563, in the aggregate

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(representing a bonus of 32.6% of base compensation). Dr. Eric Steiner did not
participate in the Bonus Plan. In addition, the named executive officers are
eligible for other bonuses which may be related to the success of particular
transactions which are of exceptional importance to the Company.

DEFERRED BONUS PLAN

On January 21, 1998, the Board of Directors approved the Deferred Bonus
Plan which permits recipients to elect to defer the payment of bonus in
connection with fiscal 1998 or fiscal 1999 extraordinary transactions. Each
participant in the Deferred Bonus Plan must make a valid bonus deferral election
which designates the payment date the participant elects to receive payment. The
bonus eligible to be deferred represents a fixed number of shares of common
stock of AlliedSignal Inc. owned by the Corporation. Interest at eight percent
per annum is payable on the undistributed balance of any deferred bonus.

On February 2, 1998 and February 5, 1998, certain individuals who
participated in the successful disposition of the Company's Hardware Group and
PacAero Unit to AlliedSignal Inc. on January 13, 1998 ("Hardware Disposition")
elected under the Deferred Bonus Plan to defer receipt of certain bonuses they
may be awarded as a result of the Hardware Disposition. On February 6, 1998, the
Committee met and approved the award of bonuses to named executive officers,
other than Mr. Jeffrey Steiner. Such bonuses were payable primarily in shares of
AlliedSignal Inc. common stock, with a market value of $36.25 per share at the
time of the Hardware Disposition. Bonus awards aggregated 27,034 shares of
AlliedSignal Inc. common stock ($979,983 market value), plus $170,000 cash. No
award was made to Mr. Jeffrey Steiner in fiscal 1998. The Hardware Disposition
resulted in a non-recurring pre-tax gain in the amount of $124.0 million.

STOCK OPTIONS

The Committee also administers and grants stock options under the Company's
1990 Non-Qualified and Incentive Stock Option Plan. The Committee believes that
stock option grants provide a desirable long-term method of compensation because
they align management's long-range interests with those of the Company and its
stockholders by providing management with an opportunity to build a meaningful
stake in the Company. In fiscal 1998, the Committee granted options to Mr.
Steiner of 130,000 shares and the other executive officers of 120,000 shares in
the aggregate, in connection with the long-term goals established by the
Company. The stock options awarded in fiscal 1998 were awarded using a vesting
schedule of three to four years based on employment tenure with the Company.
This vesting schedule better aligns the Company's desire to retain and provide
long term compensation to executives.

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

The Company has a Supplemental Executive Retirement Plan for the benefit of
certain executive officers which provides a retirement benefit based on final
average earnings and years of service. The Plan provides a maximum retirement
benefit equal to the difference between sixty percent of the participant's
average base salary for the last five years of employment and the participant's
primary Social Security benefit. Messrs. Jeffrey Steiner, Persavich and Juris
are participants in this plan.

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INTERNAL REVENUE CODE SECTION 162(m)

The Committee has considered the impact of the recently enacted provision
of the Internal Revenue Code of 1986, as amended (the "Code"), which provision
in certain circumstances disallows income tax deductions for compensation in
excess of $1,000,000. The Committee intends to structure the Company's incentive
compensation awards in a manner that complies with the Code's requirements to
ensure full deductibility.

Leonard Toboroff, Chairman
Steven L. Gerard
Charles M. Haar

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PERFORMANCE GRAPH

The following performance graph compares the total stockholder return on
the Company's Common Stock compared with the cumulative return on the S&P 500
Stock Index and a Peer Group. The graph assumes that the value of the investment
in the Company's Common Stock and each Index was $100 on March 31, 1993.

The Peer Group is weighted according to the respective issuer's stock
market capitalization on March 31, 1993, with all returns (capital gains and
dividends) reinvested. The Peer Group includes one aircraft parts distributor,
one airline, and the rest are companies which manufacture products for the
aircraft industry. Some of the companies in the Peer Group are suppliers to
and/or customers of the Company. The Peer Group consists of AAR Corp., Alaska
Air Group, Inc., Curtiss-Wright Corp., Fansteel, Inc., Hexcel Corp., Hi-Shear
Industries, Inc., Moog, Inc., Rohr, Inc., Trimble Navigation Ltd. and UNC
Incorporated.

[GRAPHIC]

Measurement Period Banner S&P 500
(Fiscal Year Covered) Aerospace Peer Group Index

1993 $100.00 $100.00 $100.00
1994 120.51 107.40 98.69
1995 82.05 116.91 110.86
1996 120.51 176.11 142.91
1997 153.85 189.75 167.63
1998 239.74 294.73 243.93

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SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT

The table below sets forth as of June 30, 1998 the number of shares and
percent of Common Stock beneficially owned by (i) each person known by the
Company to own beneficially more than 5% of any class of Common Stock together
with his or its address; (ii) each director and nominee; (iii) each executive
officer named in the summary compensation table; and (iv) the directors and
officers of the Company as a group. Except as otherwise indicated in the
footnotes to the table, the persons named possess sole voting power and
investment power with respect to all shares shown as beneficially owned by them.
As of June 30, 1998, there were 21,445,002 shares of Common Stock outstanding.

NUMBER OF SHARES PERCENT OF
NAME OF COMMON STOCK CLASS
- -------------------------------------------------------- ---------------- ----------

Michael T. Alcox 16,000(1) *
The Fairchild Corporation 21,129,719(2) 85.43%
Washington Dulles International Airport
45025 Aviation Drive, Suite 400
Dulles, Virginia 20166
Steven L. Gerard 16,000(1) *
Charles M. Haar 16,000(1) *
Philippe Hercot 16,000(1) *
Michael D. Herdman 5,000(1) *
Eugene W. Juris 95,459(1) *
Bradley T. Lough 17,583(1) *
Warren D. Persavich 138,732(1) *
Dr. Eric I. Steiner 0 *
Jeffrey J. Steiner 21,528,619(1) 86.03%
The Fairchild Corporation (3)
Washington Dulles International Airport
45025 Aviation Drive, Suite 400
Dulles, Virginia 20166
Leonard Toboroff 16,000(1) *
All directors and officers of the 21,865,393(1) 86.35%
Company as a group (11 persons)

- ------------
* Represents less than one percent (1%).

(1) Includes exercisable stock options for Common Stock, as follows: M. Alcox,
13,000 shares; S. Gerard, 16,000 shares; C. Haar, 16,000 shares; P. Hercot,
16,000 shares; M. Herdman, 5,000 shares; E. Juris, 78,500 shares; B. Lough,
17,583 shares; W. Persavich, 115,667 shares; J. Steiner, 271,667 shares; L.
Toboroff, 16,000 shares; All directors and officers as a group, 565,417
shares.

Also includes shares of Preferred Stock (convertible to Common Stock), as
follows: E. Juris, 2,959 shares; W. Persavich, 1,065 shares; J. Steiner,
18,999 shares; All directors and officers as a group, 3,312,768 shares.

(2) Includes shares of Common Stock and Preferred Stock owned of record by
Fairchild and its subsidiaries as of June 30, 1998, as follows: The
Fairchild Corporation, 17,264,440 shares of Common Stock and 3,181,000
shares of Preferred Stock; Fairchild Holding Corp., 269,595 shares of Common
Stock; RHI Holdings, Inc., 294,133 shares of Common Stock and 105,948 shares
of Preferred Stock; Banner Aerospace Holding Company II, Inc., 11,806 shares
of Common Stock and 2,797 shares of Preferred Stock. 17,394,768 of such
shares of Common Stock and 3,286,948 of such shares of Preferred Stock have
been pledged by Fairchild or its subsidiaries as collateral for a loan
facility with Citicorp N.A., and 433,400 shares of Common Stock have been
pledged by Fairchild or its subsidiaries as

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collateral under an escrow agreement with BTR Dunlop Holdings, Inc., a
wholly-owned subsidiary of BTR plc.

Pursuant to an Exchange Offer commenced on May 11, 1998 and expired on June
9, 1998, Fairchild exchanged, for each properly tendered share of Common
Stock of Banner, a number of shares of Fairchild's Class A Common Stock
equal to the quotient of $12.50 divided by $20.675. A total of 3,659,364
shares of Banner Common Stock were tendered to Fairchild in exchange for
2,212,361 shares of Fairchild Class A Common Stock. As a result of the
Exchange Offer, Fairchild's beneficial ownership of Banner increased from
approximately 71% to approximately 85% of the Common Stock.

(3) Includes 3,234 shares owned by Mr. Steiner through the Company's Profit
Sharing/401(k) Plan. Also includes 17,839,974 shares of Common Stock and
3,289,745 shares of Preferred Stock owned directly or indirectly by
Fairchild; Mr. Steiner disclaims beneficial ownership of such shares except
to the extent of his pecuniary interest therein.

As a result of their beneficial ownership of Common Stock, Fairchild and
Mr. Jeffrey J. Steiner will have a significant influence on the election of
directors and any other business that may come before the meeting.

CERTAIN TRANSACTIONS

RELATIONSHIPS BETWEEN THE COMPANY AND FAIRCHILD

General Statement. In certain instances, the Company and Fairchild may
have competing or conflicting interests, such as in the purchase and sale of
products in the ordinary course of business, the transfer of a business by one
company to the other or the pursuit of business opportunities of interest to
both companies. The resolution of such competing or conflicting interests has
been accomplished on a case by case basis; and management recognizes its
obligation to deal fairly and in good faith with the Company, and accordingly
will exercise reasonable judgment and take such steps as they may then, under
all the circumstances, deem necessary in resolving specific instances where the
interests of the companies may compete or conflict. To this end, the Company has
from time to time retained independent advisors, independent counsel or
established special committees composed solely of outside directors, where it
has determined that such action is necessary or appropriate under the
circumstances. Fairchild is currently the beneficial owner of approximately 85%
of the outstanding common stock of the Company. Messrs. Jeffrey Steiner (CEO and
Director of the Company), Michael Alcox (Director of the Company) and Eric
Steiner (Senior Vice President and Director of the Company) are officers,
directors and shareholders of Fairchild.

Exchange Offer. Pursuant to an Exchange Offer which commenced on May 11,
1998 and expired on June 9, 1998, Fairchild exchanged, for each properly
tendered share of Common Stock of the Company, a number of shares of Fairchild's
Class A Common Stock equal to the quotient of $12.50 divided by $20.675. A total
of 3,650,364 shares of the Company Common Stock were tendered to Fairchild in
exchange for 2,212,361 shares of Fairchild Class A Common Stock. As a result of
the Exchange Offer, Fairchild's beneficial ownership of the Company increased
from approximately 71% to approximately 85%.

Banner Acquisition of Fairchild Stock. On July 7, 1998, the Company's
Board of Directors announced its approval of the purchase by the Company of up
to 2.5 million shares of class A common stock of Fairchild through open market
purchases. The purchases by the Company will be made from time to time depending
on the market price of Fairchild stock, and may be subject to the requirement of
obtaining the consent of the Company's senior lenders. Shares of Fairchild stock
purchased by the Company may not be sold unless they are registered on a
registration statement (or are sold pursuant to any applicable exemption under
securities laws). Fairchild

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has issued a demand registration rights agreement in favor of the Company for
the registration and sale of such shares.

Fasteners. The Fastener Group of Fairchild, particularly Screwcorp,
Voi-Shan, Tridair and Camloc, has historically been a supplier of fasteners to
the Company, and the Company has also competed with them, in the sale to some
end users. All transactions between the Company and Fairchild have been on terms
that are no less favorable to the Company than those that might be obtained in
arms-length transactions with unaffiliated third parties. Sales to Fairchild
amounted to approximately $220,000 and purchases from Fairchild amounted to
approximately $13,200,000 for the fiscal year ended March 31, 1998. Due to the
disposition of the Company's hardware business in January 1998 to AlliedSignal
Inc., future sales to and purchases from Fairchild are expected to decrease
significantly.

Building Lease and Services. The Company entered into a lease with
Fairchild on April 1, 1996 to lease approximately 10,000 square feet of office
space in the Fairchild building for a term of ten years with the option to
terminate the lease after five years. The annual lease rate is approximately
$170,000 subject to escalation. The Company has a letter agreement with
Fairchild in which Fairchild provides tax preparation and consulting services to
the Company. The current annual fee for such services is approximately $103,000.
The Company has a letter agreement with Fairchild pursuant to which Fairchild's
in-house attorneys provide legal services to the Company. This agreement is on a
month-to-month basis and the Company currently pays Fairchild $12,500 per month.
As a result, Fairchild's General Counsel (Donald E. Miller) also serves as
General Counsel for the Company. The Company has a letter agreement with
Fairchild in which the Company provides accounting and financial reporting
services to Fairchild. This agreement is on a month-to-month basis and Fairchild
currently pays the Company $15,500 per month. As part of the accounting
services, Mr. Juris provided on-site accounting services for a Fairchild
subsidiary for approximately three months. Fairchild will reimburse the Company
for Mr. Juris' salary and expenses during that period. All services are provided
in the normal course of business and are on terms that are no less favorable to
the Company than those that might be obtained in arms-length transactions with
unaffiliated third parties.

Joint Marketing. The Company is a party to several agreements with
Fairchild which provide for various methods of expense sharing related to
combined sales and marketing efforts to obtain customers in foreign countries.
As of March 31, 1998, the Company had contributed less than $125,000 under these
agreements. Fairchild and the Company will share commission income to the extent
commissions exceed expenses. No such commissions have been received to date.

Tax Indemnity Agreement. Under a Tax Indemnity Agreement ("Tax
Indemnity"), Fairchild has agreed to indemnify the Company from and against any
federal, state, local and foreign income, franchise, withholding and alternative
minimum taxes (including interest, additions to tax and penalties with respect
thereto) for periods ending on or before August 2, 1990 when the sale of 52.8%
of the Common Stock was sold in the IPO. The Company has agreed to pay Fairchild
for any tax savings it realizes after the IPO as a result of adjustments to, or
utilization of net operating loss or tax credit carryforwards attributable to,
income tax returns for prior periods. Although Fairchild has agreed to indemnify
the Company for taxes for periods ending on or before the IPO, the Tax Indemnity
is not binding upon either the Internal Revenue Service or upon state, local or
foreign taxing authorities, any of which are permitted to collect from the
Company all relevant taxes owed by the Company and, in certain instances, by
Fairchild and its subsidiaries for periods covered by the Tax Indemnity. The
effectiveness of the Tax Indemnity is therefore dependent on the ability of
Fairchild to pay amounts owed, if any, under the Tax Indemnity.

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19

Registration Rights. As long as Fairchild owns 15% or more of the issued
and outstanding Common Stock, it has the unlimited right to require the Company
to use its best efforts pursuant to a Registration Rights Agreement to register,
under the Agreement, all the shares of Common Stock beneficially owned by
Fairchild at any time and from time to time, at Fairchild's expense. In
addition, Fairchild has piggyback registration rights that are subject to
certain limitations.

Indebtedness. On December 20, 1996, the Company entered into a
Subordinated Loan Agreement with RHI Holdings, Inc. ("RHI", a Fairchild
subsidiary), pursuant to which RHI agreed to lend the Company up to $30.0
million for acquisitions to be consummated by the Company. The initial interest
rate under such loan agreement was 10.0% per annum. Payment under such loan
agreement was due on the earlier of completion of the Company's Rights Offering
or November 15, 2003. The Company borrowed an aggregate of $28.0 million from
RHI under such loan, of which $16 million was used for a subsidiary to acquire
PB Herndon Aerospace, Inc. (a distributor to the aerospace industry), and the
balance was used for working capital. On June 25, 1997, pursuant to the
Company's Rights Offering, such indebtedness ($28.0 million in principal) was
satisfied by the issuance of 3,043,478 shares of Preferred Stock to RHI and its
affiliates.

Stock Exchange Agreement. The Company entered into a Stock Exchange
Agreement with Fairchild, effective May 12, 1997, pursuant to which the Company
may acquire Fairchild Scandinavian Bellyloading Company AB ("FSBC") from
Fairchild in exchange for 230,000 shares of Common Stock initially. This
transaction was approved by a special committee of the Board of Directors, and
was approved by the Company's stockholders at a meeting on June 18, 1997. Under
the terms of the Stock Exchange Agreement, Fairchild could terminate the
agreement if it sold FSBC to a third party by reason of an unsolicited offer,
provided that Fairchild pays the Company a reasonable termination fee and the
Company's out-of-pocket expenses. On July 1, 1997, Fairchild exercised its
option to terminate the Stock Exchange Agreement. As a result, Fairchild paid
the Company a termination fee of $300,000 and out-of-pocket expenses of
approximately $447,000, and also agreed to allow the Company to participate
equally in future royalties from FSBC, if any.

Joint Insurance. The Company and Fairchild have purchased a joint
insurance policy which provides, among other coverages, for a combined annual
aggregate limit for the Company and Fairchild of $100 million related to certain
earthquake exposures. The Company and Fairchild have entered into an agreement
addressing the resolution process to be applied if both companies suffer damages
from earthquakes aggregating in excess of the $100 million limit.

OTHER TRANSACTIONS

The Company pays for a chartered aircraft used from time to time for
business related travel. The owner of the chartered aircraft is a company 51%
owned by an immediate family member of Mr. Jeffrey Steiner. Cost for such
flights charged to the Company are comparable to those charged in arm's length
transactions between unaffiliated third parties. Payments by the Company in
fiscal 1998 were approximately $36,000. The Company prepaid hours for a
chartered helicopter used from time to time for business related travel. The
owner of the chartered helicopter is a company controlled by Mr. Jeffrey
Steiner. Cost for such flights charged to the Company are comparable to those
charged in arm's length transactions between unaffiliated third parties. Prepaid
hours by the Company in fiscal 1998 were $225,000.

ITEM 2 -- APPROVAL OF MATERIAL TERMS OF PERFORMANCE
GOALS FOR FISCAL 1999 INCENTIVE COMPENSATION AWARD FOR THE COMPANY'S
CHIEF EXECUTIVE OFFICER

At the Annual Meeting, the stockholders will be asked to approve the
material terms of the performance goals for the fiscal 1999 incentive
compensation award for the Company's Chief
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Executive Officer. Effective for tax years beginning in 1994, the Internal
Revenue Code disallows deductions for publicly-held corporations with respect to
compensation in excess of $1,000,000 paid to certain executive officers.
However, compensation payable solely on account of attainment of one or more
performance goals is not subject to this deduction limitation if the performance
goals are objective, pre-established and determined by a compensation committee
comprised solely of two or more outside directors, the material terms of the
performance goals under which the compensation is to be paid are disclosed to
the stockholders and approved by a majority vote, and the compensation committee
certifies that the performance goals and other material terms were in fact
satisfied before the compensation is paid.

On April 1, 1998 and May 29, 1998, the Company's Compensation and Stock
Option Committee established performance goals for the Chief Executive Officer's
fiscal 1999 incentive compensation award and the maximum amount payable to the
Chief Executive Officer if the goals are achieved. The performance goals and
maximum amounts payable for fiscal 1999 are as follows:

1. If the Company (including its consolidated subsidiaries) achieves
pre-tax profits for fiscal 1999, the Chief Executive Officer may receive up
to three percent (3%) of such pre-tax profits.

2. The purchase price (in the form of shares of common stock of
AlliedSignal Inc.) received by the Company from the disposition of its
Hardware Group and PacAero, is subject to certain post-closing adjustments.
If such post-closing purchase price adjustments result in the Company being
able to retain in excess of 8,850,000 shares of common stock of
AlliedSignal Inc., the Chief Executive Officer may receive up to
eight-tenths of one percent (0.8%) of the shares retained by the Company.

3. If the Company engages in an extraordinary transaction (e.g.,
purchase or sale of assets not in the ordinary course, including, without
limitation, through a public offering or private placement of securities)
during fiscal 1999, the Chief Executive Officer may receive up to two and
one-half percent (2 1/2%) of the total value of the transaction.

All of the foregoing will be computed in such a manner as to avoid
duplication.

The Compensation and Stock Option Committee retains the right to determine
the actual amount of incentive compensation to be awarded to the Chief Executive
Officer in fiscal 1999 based on his individual contribution, consistent with the
foregoing goals and in an amount no greater than the maximum amounts set forth
above.

Assuming the stockholders approve the material terms of the performance
goals as described herein, the Company believes that any such incentive
compensation award to the Chief Executive Officer will qualify as
performance-based compensation that will be deductible from the Company's gross
income for federal income tax purposes.

THE BOARD RECOMMENDS A VOTE "FOR" APPROVAL OF THIS PROPOSAL

ITEM 3 -- APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS

Although the bylaws of the Company do not require the submission of the
election of independent public accountants to the stockholders for approval, the
Board considers it desirable that its designation of independent public
accountants be ratified by the stockholders. The firm of Arthur Andersen LLP, an
international firm of public accountants, has audited the annual financial
statements of the Company since 1990. The Board considers them to be well
qualified and will ask the stockholders at the Annual Meeting to approve the
designation of this firm as independent public accountants for the Company for
the year ending March 31, 1999.

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Representatives of Arthur Andersen LLP are expected to be present at the
Annual Meeting and they will have an opportunity to make a statement, should
they desire to do so, and to respond to appropriate questions.

THE BOARD RECOMMENDS A VOTE "FOR" RATIFICATION OF THE SELECTION
OF THE INDEPENDENT PUBLIC ACCOUNTANTS.

OTHER MATTERS

To the extent that information contained in this Proxy Statement is
peculiarly within the knowledge of persons other than the management of the
Company, it has relied upon such persons for the accuracy and completeness
thereof.

EXPENSES OF SOLICITATION

The cost of soliciting these proxies will be borne by the Company. In
addition to the use of the mail, proxies may be solicited by directors, officers
or employees of the Company, in person or by telephone or fax. The Company will
also reimburse brokerage firms and others for forwarding proxy material to
beneficial owners of the Common Stock.

STOCKHOLDER PROPOSALS

Any stockholder who wishes to submit a proposal to be included in the
Company's proxy materials for its 1999 annual meeting, must notify the Company
of such proposal no later than April 16, 1999.

Any stockholder who wishes to submit a proposal for the 1999 annual meeting
but does not require such proposal to be included in the Company's proxy
materials, must notify the Company of such proposal by no later than June 30,
1999. If such notice is not received by June 30, 1999, the proposal shall be
considered untimely.

All stockholder proposals must conform to the requirements set forth in
Regulation 14A under the Securities Exchange Act of 1934, and should be
submitted to the Company's headquarters, 45025 Aviation Drive, Suite 300,
Dulles, VA 20166-7516, Attention: Secretary.

ANNUAL REPORT

The Company's Annual Report to Stockholders for the fiscal year ended March
31, 1998, has previously been, or will simultaneously herewith be, furnished to
stockholders of record. A copy of the Annual Report on Form 10-K of the Company
for fiscal year 1998 is included with the Annual Report. THE ANNUAL REPORT ON
FORM 10-K, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES, MAY BE OBTAINED BY ANY
PERSON WITHOUT CHARGE UPON WRITTEN REQUEST TO: BANNER AEROSPACE, INC., 45025
AVIATION DRIVE, SUITE 300, DULLES, VA 20166-7556, ATTENTION: EUGENE W. JURIS,
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER.

By Order of the Board of Directors

Bradley T. Lough
Secretary

19
22
PROXY BANNER AEROSPACE, INC. PROXY
45025 AVIATION DRIVE
SUITE 300 DULLES, VA 20166

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS - SEPTEMBER 18, 1998

The undersigned hereby appoints Jeffrey J. Steiner, Warren D. Persavich and
Eugene W. Juris as proxies, each with the power to appoint his substitute and
hereby authorizes them to represent and vote, as designated below, all the
shares of Common Stock, par value $1.00 per share, of Banner Aerospace, Inc.
held of record by the undersigned on July 22, 1998, at the Annual Meeting of
Stockholders to be held September 18, 1998, at any adjournments of postponements
thereof.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR ALL LISTED NOMINEES AND FOR APPROVAL OF PROPOSALS 2 AND 3.

PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.

(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)

BANNER AEROSPACE, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [ ]

1. ELECTION OF DIRECTORS. Michael T. Alcox, Steven L. Gerard, Charles M. Haar, For Withheld For All
Phillipe Hercot, Michael D. Herdman, Warren D. Persavich, Dr. Eric I. All All Except
Steiner, Jeffrey J. Steiner and Leonard Toboroff. [ ] [ ] [ ]

2. A proposal to approve the material terms of the performance goals for the For Against Abstain
fiscal 1999 incentive compensation award for the Company's Chief Executive [ ] [ ] [ ]
Officer.

FOR ALL EXCEPT NOMINEES WRITTEN IN BELOW:

-----------------------------------------

3. A proposal to approve the Board of Directors' selection of Auditors. For Against Abstain
[ ] [ ] [ ]

4. In their discretion, the proxies are authorized to vote upon such other For Against Abstain
business as may properly come before the meeting. [ ] [ ] [ ]

Dated:__________________________________ , 1998

Signature(s)___________________________________

_______________________________________________

When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporate name by the President
or other partnership name by authorized person.