AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 18, 1997

REGISTRATION NO. 333-19875
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 2

TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

INTERNATIONAL AIRCRAFT INVESTORS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

CALIFORNIA 7359 95-4176107
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER ID NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NO.)

3655 TORRANCE BOULEVARD, SUITE 410
TORRANCE, CALIFORNIA 90503
(310) 316-3080
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

WILLIAM E. LINDSEY
INTERNATIONAL AIRCRAFT INVESTORS
3655 TORRANCE BOULEVARD, SUITE 410
TORRANCE, CALIFORNIA 90503
(310) 316-3080
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:

RICHARD A. BOEHMER, ESQ. PAUL H. IRVING, ESQ.
STUART Y. KIM, ESQ. ALLEN Z. SUSSMAN, ESQ.
O'MELVENY & MYERS LLP MANATT, PHELPS & PHILLIPS, LLP
400 SOUTH HOPE STREET 11355 W. OLYMPIC BOULEVARD
LOS ANGELES, CALIFORNIA 90071 LOS ANGELES, CALIFORNIA 90064
(213) 669-6000 (310) 312-4000

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.

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2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED MARCH 18 , 1997

PRELIMINARY PROSPECTUS

1,820,000 SHARES
INTERNATIONAL AIRCRAFT INVESTORS

COMMON STOCK
------------------------

All of the shares of Common Stock offered hereby are being sold by
International Aircraft Investors (the "Company"). Prior to this offering, there
has been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price will be between $10.00 and
$12.00 per share. See "Underwriting" for information relating to the
determination of the initial public offering price.

The Company has applied to have the Common Stock approved for quotation on
the National Association of Securities Dealers Automated Quotation National
Market ("Nasdaq-NM") under the trading symbol "IAIS."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------
Per Share.......................... $ $ $
- -----------------------------------------------------------------------------------------------
Total(3)........................... $ $ $
===============================================================================================

(1) Excludes the value of warrants to purchase up to 182,000 shares of Common
Stock at an exercise price per share equal to 120% of the initial public
offering price per share issuable upon exercise of warrants to be issued to
Sutro & Co. Incorporated and Friedman, Billings, Ramsey & Co., Inc. (the
"Representatives") upon the closing of this offering. The Company has agreed
to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."

(2) Before deducting expenses payable by the Company estimated to be $630,000.

(3) The Company has granted the Underwriters an option, exercisable for 45 days
from the date of this Prospectus, to purchase a maximum of 273,000
additional shares of Common Stock from the Company solely to cover
overallotments, if any. If such option is exercised in full, the total Price
to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
------------------------

The shares of Common Stock are offered by the several Underwriters subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part and to withdraw, cancel or modify this offering without
notice. It is expected that delivery of the certificates for the shares will be
made on or about , 1997.

SUTRO & CO. INCORPORATED FRIEDMAN, BILLINGS, RAMSEY & CO., INC.

THE DATE OF THIS PROSPECTUS IS , 1997

LOGO
3

[THREE AIRCRAFT IN FLIGHT. TWO B 737S, ONE WITH THE LOGO AND NAME OF SOUTHWEST
AND ONE WITH THE LOGO AND NAME OF BRITISH MIDLAND. THE THIRD AIRCRAFT IS AN MD
82 WITH THE LOGO AND NAME OF ALASKA.]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING BIDS AND PURCHASES, SYNDICATE SHORT
COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus, including the information
appearing under "Risk Factors." Unless otherwise indicated, all financial
information and share and per share data in this Prospectus, other than the
Consolidated Financial Statements, (i) reflect a 1-for-6 reverse split of Common
Stock prior to the closing of the offering, (ii) assume no exercise of the
Underwriters' over-allotment option, (iii) assume the conversion of 4,811,666
outstanding shares of Convertible Preferred Stock (the "Preferred Stock") into
801,908 shares of Common Stock upon the closing of this offering, (iv) assume
the exercise of options to purchase 358,045 shares of Common Stock, and (v)
exclude up to 182,000 shares of Common Stock issuable upon exercise of a warrant
to be issued to Sutro & Co. Incorporated (the "Sutro Warrant") upon the closing
of this offering. See "Management -- Stock Option Plan," "Description of Capital
Stock" and "Underwriting." References in this Prospectus to the Company or IAI
shall be deemed to include International Aircraft Investors and its subsidiaries
unless otherwise stated.

THE COMPANY

International Aircraft Investors (the "Company" or "IAI") is primarily
engaged in the acquisition of used, single-aisle jet aircraft and engines for
lease and sale to domestic and foreign airlines and other customers. As of
December 31, 1996, the Company's portfolio, appraised at approximately $91.53
million, had seven aircraft on lease to seven customers. The Company leases its
aircraft under "triple net" operating leases where the lessee is responsible for
all operating costs (i.e., crew, fuel, insurance, taxes, licenses, landing fees,
navigation charges, maintenance, repairs and associated expenses) and the
Company retains the potential benefit and assumes the risk of the residual value
of the aircraft, as distinct from finance leases where the full cost of the
aircraft is recovered over the term of the lease at usually lower monthly rates.

The profits of the global airline industry are on the rise and passenger
traffic is expected to grow through 2016, according to the 1997 Current Market
Outlook published by the Boeing Commercial Airplane Group ("Boeing") in March
1997 (the "Boeing Report"). Boeing projects that traffic will increase 4.9%
annually through 2016 and that 16,162 new commercial jet aircraft will be
required over the next approximately 20 years. Airlines will confront an
increasingly competitive environment with long-term profitability dependent on
successful cost reductions. Such reductions will include improvements in fleet
planning designed to more closely match aircraft capacity with passenger demand.

An important element of fleet planning for many airlines is the use of
operating leases which tend to maximize fleet flexibility due to their
short-term nature and relatively small capital outlay, while minimizing
financial risks. While most operating leases are made for new aircraft, emphasis
on cost containment has been increasing the attractiveness of leasing used
commercial jet aircraft.

The Boeing Report estimates that 16,162 new commercial jet aircraft will be
required over the next approximately 20 years, resulting in a projected
worldwide fleet of approximately 23,600 commercial jet aircraft in 2016, net of
4,069 retired aircraft. Single-aisle jet aircraft with seating capacity of 121
to 170 are projected by the Boeing Report to account for approximately 29.7% of
new commercial jet aircraft deliveries over the next approximately 20 years.

Due to the increasing cost of commercial jet aircraft, the anticipated
modernization of the worldwide aircraft fleet, and the emergence of new
niche-focused airlines which generally use leasing for capital asset
acquisitions, the Company believes that airlines will increasingly turn to
operating leases as an alternative method to finance their fleets. Although
Boeing estimated in its 1996 Current Market Outlook that the fleets of operating
lessors have grown from over 200 aircraft in 1986 to over 1,000 in 1995,
commercial jet aircraft under operating lease represented only approximately 10%
of total commercial jet aircraft in service at year-end 1995. Aviation Week &
Space Technology ("Aviation Week") reports that leasing will be the primary
means by which the global air transport industry acquires new aircraft between
now and 1999, and probably beyond. Aviation Week, based upon data provided by GE
Capital Aviation Services, states that in 1986, 41% of the world's airlines
owned all of their equipment, 15% leased all of their equipment and 44% used a
mix of

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the two (with 80% owned and 20% leased). By contrast, in 1996, 16% owned all of
their equipment, 42% leased all of their equipment and 42% used a mix of the two
(with 60% leased and 40% owned).

The larger operating lessors appear to be focused on the lease of new,
rather than used, commercial jet aircraft. The Company believes that the market
for the operating lease of used commercial jet aircraft, including for
single-aisle jet aircraft with seating capacity of 121 to 170, should grow due
to the factors discussed above as well as the emphasis on airline cost
reduction, the desire of airlines for fleet flexibility and the growth in air
travel.

The Company's strategy is to focus on operating leases of used,
single-aisle jet aircraft to a diversified base of customers worldwide, while
employing strict risk management criteria. Key elements of the Company's
business strategy include the following:

Focus on Operating Leases. The Company believes that airlines are becoming
increasingly aware of the benefits of financing their fleet equipment on an
operating lease basis, including preservation of cash flow and flexibility
regarding fleet size and composition. The Company believes the operating lease
of jet aircraft, especially used jet aircraft, offers the potential for a higher
rate of return to the Company than other methods of aircraft financing, such as
finance leases.

Focus on Used Commercial Jet Aircraft with a Broad Market Acceptance. The
Company leases used, single-aisle jet aircraft, particularly aircraft between
six and 15 years old at the time the aircraft is acquired by the Company. The
Company is currently focusing on the acquisition and lease of single-aisle jet
aircraft, primarily aircraft with a seating capacity of 121 to 170 passengers,
which, according to the Boeing Report, accounted for approximately 35.9% of the
world fleet at December 31, 1996. The Boeing Report estimates that the
commercial replacement cycle for this type of aircraft is 25 to 28 years from
manufacture date. This category of jet aircraft includes aircraft such as the
Boeing 737-300/-400, the Airbus A320 and the McDonald Douglas MD80 series. The
Company will also consider acquiring and leasing Boeing 757 aircraft, which have
a seating capacity of 171 to 240 passengers. The Company will continue to
purchase aircraft which enjoy significant manufacturer's support and fit the
Company's criteria.

Optimize Relationship with ILFC. The Company has had a long and continuous
relationship with International Lease Finance Corporation, a wholly owned
subsidiary of American International Group, Inc. ("ILFC"). ILFC was an initial
investor in the Company and prior to the offering owned approximately 4.1% of
the Company's equity. ILFC is a major owner-lessor of commercial jet aircraft
having contacts with most airlines worldwide, the aircraft and engine
manufacturers and most of the significant participants in the aircraft industry
worldwide. The Company intends to use its relationship with ILFC to seek to gain
access, where appropriate, to various airlines and other participants in the
market to facilitate the purchase, lease, re-lease and sale of aircraft. ILFC's
primary focus is the acquisition and leasing of new commercial jet aircraft.
Thus, the Company believes that its business compliments rather than competes
with ILFC. See "Business -- Relationship With ILFC."

Leverage Management Experience. The successful purchase and leasing of used
commercial jet aircraft requires skilled management in order to evaluate the
condition and price of the aircraft to be purchased and the current and
anticipated market demand for that aircraft. The management of the Company and
the Board of Directors of the Company have significant global experience in the
aviation industry, with an average of 28 years of experience, especially in the
purchase, sale and financing of commercial jet aircraft, and have extensive
contacts with airlines worldwide. See "Management -- Directors and Executive
Officers."

Access a Diversified Global Customer Base. The Company's objective is to
diversify its customer base to avoid dependence on any one lessee, geographic
area or economic trend.

Employ Strict Risk Management Criteria. The Company will only purchase
aircraft that are currently under lease or are subject to a contractual
commitment for lease or purchase, will not purchase aircraft on speculation, and
will generally seek financing using a non-recourse loan structure. The Company
evaluates carefully the credit risk associated with each of its lessees and the
lessee's ability to operate and properly maintain the aircraft. The Company also
evaluates the return conditions in each lease since the condition of an

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aircraft at the end of a lease can significantly impact the amount the Company
will receive on the re-lease or sale of an aircraft.

The Company was incorporated in California in 1988, its principal executive
offices are located at 3655 Torrance Boulevard, Suite 410, Torrance, California
90503, and its telephone and facsimile numbers are (310) 316-3080 and (310)
316-8145, respectively.

THE OFFERING

Common Stock offered by the Company.. 1,820,000 shares
Common Stock to be outstanding after
the offering....................... 3,032,451 shares(1)
Use of proceeds...................... To finance the acquisition of aircraft, and for
working capital and other general corporate purposes
Proposed Nasdaq-NM symbol............ IAIS

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

(1) Excludes (i) 372,498 shares of Common Stock subject to options outstanding
on the date of this Prospectus with an exercise price of $6.00 per share;
(ii) 116,666 shares of Common Stock issuable upon conversion of a 5%
Subordinated Convertible Note due August 13, 1998 in the principal amount of
$700,000 (the "Convertible Note"); (iii) 182,000 shares of Common Stock
issuable upon exercise of the Sutro Warrant; (iv) 100,000 shares of Common
Stock reserved for issuance under the Company's 1997 Employee Stock Option
and Award Plan (the "1997 Option Plan") and the Company's 1997 Eligible
Directors Stock Option Plan (the "1997 Directors Plan"); and (v) 21,555
shares reserved for issuance upon conversion of the Preferred Stock.

RISK FACTORS

See "Risk Factors" beginning on page 8 for information that should be
considered by prospective investors. Such risk factors include the risks
associated with the ownership of aircraft; the effects of downturns or adverse
effects on the air transportation industry; the limited number of aircraft and
leases of the Company; the Company's reliance upon ILFC; the credit risks
associated with the Company's customers; international risks to the Company as a
result of leases to foreign customers; aircraft noise compliance; the Company's
dependence upon the availability of financing; interest rate risks to the
Company; substantial competition in the aircraft leasing industry; limitations
on stock ownership of the Company which may affect registration of the Company's
aircraft in the United States; uncertainty regarding limits on liability of
lessors of aircraft; the requirements and costs associated with the maintenance
and operation of aircraft; risks of changes in tax laws or accounting
principles; dependence on key management; quarterly fluctuations in operating
results; the absence of a prior public market for the Company's Common Stock and
the possible volatility of the stock price of the Company's Common Stock; broad
management, discretion in the allocation of the use of the net proceeds of the
offering; the number of shares eligible for future sale; certain anti-takeover
provisions; and the immediate and substantial dilution of purchasers of the
Common Stock of the Company.

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SUMMARY CONSOLIDATED FINANCIAL DATA

YEAR ENDED DECEMBER 31,
------------------------------------------------
UNAUDITED
---------
1992(1) 1993 1994 1995 1996
--------- ------ ------ ------ -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

INCOME STATEMENT DATA
Revenues:
Rental of flight equipment......................................... $ 6,166 $6,098 $8,108 $7,765 $12,681
Consulting fees.................................................... 68 742 213 491 461
Gain on sale of aircraft equipment................................. 841 -- -- -- 141
Interest income.................................................... 35 7 68 118 169
------ ------ ------ ------ -------
Total revenues................................................. 7,111 6,847 8,389 8,374 13,452
Expenses:
Interest........................................................... 3,182 2,293 3,548 3,776 6,277
Depreciation....................................................... 2,970 2,014 3,165 3,354 5,550
General and administrative......................................... 690 447 548 526 553
Loss on sale of aircraft........................................... 3,645(2) -- -- -- --
Other.............................................................. 185 -- -- -- --
------ ------ ------ ------ -------
Total expenses................................................. 10,672 4,754 7,261 7,656 12,380
Equity in earnings of affiliates..................................... -- -- -- 184 --
Income (loss) before income taxes and extraordinary items............ (3,562) 2,093 1,128 901 1,072
Income tax expense................................................... 2 45 59 30 37
Income (loss) before extraordinary items............................. (3,564) 2,048 1,069 871 1,035
Extraordinary items -- gain from debt forgiveness.................... 4,326 -- -- -- --
------ ------ ------ ------ -------
Net income (loss).................................................... $ 762 $2,048 $1,069 $ 871 $ 1,035
====== ====== ====== ====== =======
Net income (loss) per common and common equivalent share(3):
Income (loss) before extraordinary items........................... $ (0.60) $ 0.24 $ 0.14 $ 0.11 $ 0.13
Extraordinary items................................................ 0.73 -- -- -- --
------ ------ ------ ------ -------
Net income (loss)................................................ $ 0.13 $ 0.24 $ 0.14 $ 0.11 $ 0.13
====== ====== ====== ====== =======
Weighted average number of common and common equivalent shares
outstanding(3)..................................................... 5,863 9,857 7,766 7,766 7,821
Pro forma net income per common and common equivalent share(4)....... .62 1.48 .83 .70 .80
Pro forma weighted average number of common and common equivalent
shares outstanding(4).............................................. 1,503 1,503 1,503 1,503 1,520

DECEMBER 31, 1996
-----------------------
AS
ACTUAL ADJUSTED(5)
------- -----------
(IN THOUSANDS)

BALANCE SHEET DATA
Flight equipment under operating lease................................................... $89,885 $89,885
Total assets............................................................................. 92,620 112,981
Debt financing(6)........................................................................ 82,710 82,710
Shareholders' equity..................................................................... 5,084 25,445

YEAR ENDED DECEMBER 31,
---------------------------------------------------
UNAUDITED
---------
1992 1993 1994 1995 1996
--------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)

OTHER DATA
EBITDA(7)......................................................... $ 5,394 $ 6,400 $ 7,841 $ 8,031 $12,758
Cash Flow(8):
From operating activities....................................... -- $ 4,499 $ 4,466 $ 3,939 $ 6,796
From investing activities....................................... -- (28,665) (3,304) (40,967) 156
From financing activities....................................... -- 24,278 (1,006) 36,755 (5,812)
Return on average assets(9)....................................... 1.8% 5.8% 1.9% 1.5% 1.1%
Return on average equity(10)...................................... -- -- 39.6% 24.6% 22.9%
Aircraft equipment owned at period end(11)........................ 4 5 5 8 7

- ---------------
(1) Included in the 1992 income statement data is the consolidation of a wholly
owned subsidiary which the Company disposed of during 1992. The subsidiary
had net liabilities of $3,552,000 and was sold to ILFC for no consideration
as ILFC guaranteed the debt of the subsidiary. Accordingly, the Company
recognized an extraordinary gain from the disposal of the subsidiary for
relief of the net liabilities. During

(footnotes continue on next page)
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1992, revenues, expenses, gain on disposal, net loss and net loss per share
related to this subsidiary were $712,000, $1,144,000, $3,552,000, $(432,000)
and $(0.07), respectively.

(2) See "Business Aircraft Leasing."

(3) The treasury stock method was used to calculate net income (loss) per common
and common equivalent share information and weighted average number of
common and common equivalent shares outstanding. The treasury stock method
was modified as the number of common stock equivalents exceeded 20% of the
number of common shares outstanding at the end of each of the periods
presented in the accompanying consolidated financial statements.
Accordingly, the number of shares which could be repurchased with the
proceeds from such conversions was limited to 20% of the number of common
shares and the remaining balance was applied to reduce long-term debt. The
modified treasury stock method was applied only to 1993 as the effect on
1992, 1994, 1995 and 1996 was anti-dilutive. See Note 1 to Consolidated
Financial Statements. Does not give effect to the 1-for-6 reverse stock
split of Common Stock, the assumed conversion of outstanding shares of
Preferred Stock into Common Stock, or the assumed exercise of options to
acquire shares of Common Stock.

(4) Pro forma information was calculated as if the 1-for-6 reverse stock split,
the conversion of 4,811,666 outstanding shares of Preferred Stock into
801,908 shares of Common Stock and the exercise of options to acquire
358,045 shares of Common Stock had occurred at the beginning of the periods
indicated, with the proceeds from the exercise of the options used to
reduce long-term debt and related interest costs. For purposes of this
calculation, Preferred Stock and stock options at December 31, 1996 are
assumed to be outstanding for all periods presented and effected for the
related conversions and exercises.

(5) As adjusted to give effect to (i) the conversion of 4,811,666 outstanding
shares of Preferred Stock into 801,908 shares of Common Stock; (ii)
exercise of options to purchase 358,045 shares of Common Stock; (iii) the
sale of the 1,820,000 shares of Common Stock offered by the Company hereby
at an assumed offering price to the public of $11.00 per share, after
deducting underwriting discounts and commissions and estimated expenses of
the offering; and (iv) the application of the estimated net proceeds
therefrom. See "Use of Proceeds."

(6) Includes current portion of long-term debt of $42.2 million.

(7) EBITDA, defined as income before interest expense, income taxes,
depreciation, gain (loss) on sale of aircraft and extraordinary items, is
not intended to represent an alternative to net income (as determined in
accordance with generally accepted accounting principles) as a measure of
performance and is also not intended to represent an alternative to cash
flow from operating activities as a measure of liquidity. Rather, it is
included herein because management believes that it provides an important
additional perspective on the Company's operating results and the Company's
ability to fund its continuing operations.

(8) See Consolidated Statement of Cash Flows included in the Consolidated
Financial Statements. Cash flow information for 1992 is not available.

(9) Calculations are based on the average monthly balances.

(10) Calculations are based on average quarterly balances. Prior to 1994,
results are not considered meaningful.

(11) Aircraft equipment owned at period end includes one auxillary power unit
which was purchased in 1995 and sold for a gain of $141,000 in December,
1996.

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RISK FACTORS

An investment in the shares of Common Stock being offered hereby involves a
high degree of risk. In addition to other information in this Prospectus, the
following risk factors should be considered carefully by potential purchasers in
evaluating an investment in the Common Stock offered hereby. This Prospectus
contains forward-looking statements that involve risks and uncertainties, such
as statements of the Company's plans, objectives, expectations and intentions.
The cautionary statements made in this Prospectus should be read as being
applicable to all related forward-looking statements wherever they appear in
this Prospectus. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include those discussed below, as well as those discussed elsewhere herein.

OWNERSHIP RISKS

The Company leases its portfolio of aircraft under operating leases rather
than finance leases. Under an operating lease, the Company retains title to the
aircraft and assumes the risk of not recovering its entire investment in the
aircraft through the re-leasing and remarketing process. Operating leases
require the Company to re-lease or sell aircraft in its portfolio in a timely
manner upon termination of the lease in order to minimize off-lease time and
recover its original investment in the aircraft. Numerous factors, many of which
are beyond the control of the Company, may have an impact on the Company's
ability to re-lease or sell an aircraft on a timely basis or to re-lease at a
satisfactory lease rate. Among the factors are the demand for various types of
aircraft, general market and economic conditions, regulatory changes
(particularly those imposing environmental, maintenance and other requirements
on the operation of aircraft), changes in the supply or cost of aircraft and
technological developments. In addition, the success of an operating lease
depends in significant part upon having the aircraft returned by the lessee in
marketable condition as required by the lease. Consequently, there can be no
assurance that the Company's estimated residual value for aircraft will be
realized. If the Company is unable to re-lease or resell aircraft on favorable
terms, its business, financial condition and results of operations would be
adversely affected.

INDUSTRY RISKS

The Company is in the business of providing leases of commercial jet
aircraft to international and domestic airlines. Consequently, the Company is
affected by downturns in the air transportation industry in general. Substantial
increases in fuel costs or interest rates, increasing fare competition, slower
growth in air traffic, or any significant downturn in the general economy could
adversely affect the air transportation industry and may therefore negatively
impact the Company's business, financial condition and results of operations. In
recent months, there has been an increase in spot jet fuel prices. In addition,
in recent years, a number of commercial airlines have experienced financial
difficulties, in some cases resulting in bankruptcy proceedings. While the
Company believes that its lease terms protect its aircraft and the Company's
investment in such aircraft, there can be no assurance that the financial
difficulties experienced by a number of airlines will not have an adverse effect
on the Company's business, financial condition and results of operations.

LIMITED NUMBER OF AIRCRAFT AND LESSEES

The Company currently owns and leases seven aircraft to seven lessees. The
loss of any one aircraft or the financial difficulty of or lease default by any
one lessee could have a material adverse effect on the Company's business,
financial condition and results of operations.

RELIANCE UPON ILFC

To date, five of the Company's current seven aircraft and leases were
acquired from ILFC. See "Business -- Relationship With ILFC". In connection with
all of the Company's aircraft, ILFC has provided guarantees or other financial
support which have allowed the Company to finance the aircraft at more favorable
leverage rates than the Company could have obtained without the guarantees and
financial support of ILFC. In addition, ILFC has provided a portion of the
consulting fees reported by the Company. See

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"Management's Discussion and Analysis of Financial Condition and Results of
Operations." There can be no assurance that the Company will be able to continue
to acquire from ILFC or from other entities aircraft and leases of the type and
on terms as favorable as or better than the aircraft and leases acquired from
ILFC. If aircraft and leases are acquired from ILFC or others, there can be no
assurance that guarantees or financial support will be given by the seller or
whether the Company will be able to receive as favorable leverage and interest
rates from its lenders. If the Company is unable to acquire aircraft and leases
and to finance the acquired aircraft at competitive rates, the Company's
business, financial condition and results of operations could be adversely
affected. See "Business -- Relationship With ILFC," "Certain Transactions" and
Note 6 to Consolidated Financial Statements.

CUSTOMER CREDIT RISKS

Certain of the Company's existing and prospective customers are smaller
domestic and foreign passenger airlines which, together with major passenger
airlines, may suffer from the factors which have historically affected the
airline industry. See "Industry Risks" above. A lessee may default in
performance of its lease obligations and the Company may be unable to enforce
its remedies under a lease. A number of airlines have experienced financial
difficulties, and certain airlines have filed for bankruptcy and a number of
such airlines have ceased operations. In most cases where a debtor seeks
protection under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code"), creditors are stayed automatically from enforcing their
rights. In the case of United States certificated airlines, Section 1110 of the
Bankruptcy Code provides certain relief to lessors of aircraft. Specifically,
the airline has 60 days from the date the lessor makes its claim to agree to
perform its obligations and to cure any defaults before the lessor may repossess
the aircraft. The scope of Section 1110 has been the subject of significant
litigation and there can be no assurance that the provisions of Section 1110
will protect the Company's investment in an aircraft in the event of a lessee's
bankruptcy. In addition, Section 1110 does not apply to lessees located outside
of the United States and applicable foreign laws may not provide comparable
protection.

During the years ended December 31, 1994, 1995 and 1996, lease revenues
from flight equipment generated from foreign customers accounted for
approximately 80%, 69% and 45%, respectively, of total revenues. See
"International Risks" below. The following customers accounted for more than 10%
of the Company's total revenues in one or more of the three years ended December
31, 1996: British Midland Airways Limited (36%, 36% and 23% for the years ended
December 31, 1994, 1995 and 1996, respectively), Alaska Airlines, Inc. (21% for
the year ended December 31, 1996), Southwest Airlines Co. (15% for the year
ended December 31, 1996), ILFC (6%, 16% and 10% for the years ended December 31,
1994, 1995 and 1996, respectively), New Zealand International Airlines Limited
(42%, 26% and 10% for the years ended December 31, 1994, 1995 and 1996,
respectively) and Delta Air Lines, Inc. (12%, 11% and 7% for the years ended
December 31, 1994, 1995 and 1996, respectively).

In 1991, the Company had a DC-9 aircraft on lease to Midway Airlines
("Midway"). The aircraft was not acquired from ILFC and was financed under a
recourse loan to the Company. Due in part to expansion by Midway and an economic
downturn, Midway filed for protection under the Bankruptcy Code in March 1991.
At the time of the bankruptcy filing, the Company's DC-9 aircraft was undergoing
a scheduled major overhaul, which caused the aircraft to be in a condition that
it could not be flown.

After the filing under the Bankruptcy Code, the Company negotiated with
Midway and the Company's lender regarding the continued lease or other
disposition of the aircraft. Market conditions for the leasing of used
commercial jet aircraft deteriorated while these negotiations were underway.
Ultimately, the Company concluded that the aircraft should not remain on lease
to Midway. Management concluded that, because of the Company's then limited
capital resources and the significant capital investment required to return the
aircraft to a condition where it could be re-leased, the aircraft should be sold
and the Company's loan with respect to the aircraft should be renegotiated.

The aircraft, minus one engine which was at an overhaul shop, was then
recovered. The aircraft was sold, resulting in proceeds of $1.5 million. The
purchaser was required to complete the major overhaul work on the aircraft and
add an engine before the aircraft could be operated. In satisfaction of the
outstanding recourse

9
11

loan of approximately $6.7 million (including accrued interest), the lender
agreed to accept $4.0 million, a $750,000 Note due August 1998 and the
Convertible Note. The $4.0 million was obtained from ILFC. The Company paid to
ILFC the net proceeds from the sale of the aircraft, sold other assets to ILFC
and issued to ILFC a $1.7 million Note due in installments through August 1999.

These transactions resulted in a net loss to the Company in 1992 of $2.9
million. The Company's inability to collect receivables under a lease or to
repossess aircraft in the event of a default by a lessee would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Aircraft Leasing."

INTERNATIONAL RISKS

During 1994, 1995 and 1996, approximately 80%, 69% and 45%, respectively,
of the Company's lease revenue was generated by leases to foreign customers.
Such leases may present greater risks to the Company because certain foreign
laws, regulations and judicial procedures may not be as protective of lessor
rights as those which apply in the United States. In addition, many foreign
countries have currency and exchange laws regulating the international transfer
of currencies. The Company attempts to minimize its currency and exchange risks
by negotiating all of its aircraft lease transactions in U.S. Dollars. See
"Business -- Aircraft Leasing." The Company is subject to the timing and access
to courts and the remedies local laws impose in order to collect its lease
payments and recover its assets. Political instability abroad and changes in
international policy also present risks associated with expropriation of the
Company's leased aircraft. Although the Company has experienced no problems to
date with its foreign lessees, there can be no assurance that the Company will
not experience problems in collecting accounts due under leases to foreign
customers or reacquiring aircraft from such customers in the future.
International collection problems and problems in recovering aircraft could have
a material adverse effect on the Company's business, financial condition and
results of operations.

Many foreign countries have currency and exchange laws regulating the
international transfer of currencies. The Company attempts to minimize its
currency and exchange risks by negotiating all of its aircraft leasing in U.S.
dollars. The Company requires, as a condition to any foreign transaction, that
the lessee in a foreign country first obtain, if required, written approval of
the appropriate government agency, finance ministry or central bank for the
remittance of all funds contractually owed to the Company in U.S. dollars.
Although the Company has attempted to minimize the foreign currency risk, to the
extent that significant currency fluctuations result in materially higher rental
costs to a foreign lessee, the foreign lessee may be unable or unwilling to make
the required lease payments.

The Company's revenues and income may be affected by, among other matters,
political instability abroad, changes in national policy, competitive pressures
on certain air carriers, fuel shortages, labor stoppages, recessions and other
political or economic events adversely affecting world or regional trading
markets or impacting a particular customer.

The Company's aircraft can be subject to certain foreign taxes and airport
fees. Unexpected liens on an aircraft could be imposed in favor of a foreign
entity, such as Eurocontrol or the airports of the United Kingdom.

AIRCRAFT NOISE COMPLIANCE

The Airport Noise and Capacity Act of 1990 ("ANCA") requires the phaseout
of Stage 2 aircraft (defined as aircraft that comply with the Stage 2 noise
levels prescribed in Part 36 of the Federal Aviation Regulations) by December
31, 1999, subject to certain exceptions. The FAA regulations which implement the
ANCA require carriers to modify or reduce the number of Stage 2 aircraft
operated by 50% by the end of 1996, 75% by the end of 1998 and 100% by the end
of 1999. Alternatively, a carrier could satisfy these compliance requirements by
phasing in aircraft meeting the stricter Stage 3 requirements (set forth in Part
36 of the Federal Aviation Regulations) so that it has at least 65% Stage 3
aircraft by the end of 1996, 75% Stage 3 aircraft by the end of 1998 and 100% of
Stage 3 aircraft by the end of 1999.

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12

Similar rules exist in other countries, including the countries in Western
Europe, Australia, New Zealand and Japan, which either require compliance with
regulations substantially identical to Stage 3 or which forbid the operation of
additional non Stage 3 aircraft by carriers based in such jurisdictions, which
has the effect of limiting the Company's ability to place aircraft on lease in
such jurisdictions unless they have been modified to meet Stage 3 requirements.

Four of the Company's aircraft currently meet Stage 3 requirements. Two of
the Company's remaining three aircraft are currently leased in areas not
imposing Stage 3 requirements. The Company may be required to modify one or more
of its aircraft to meet Stage 3 requirements, which currently could cost in the
range of $1.7 million to $2.5 million per aircraft. See "Business -- Government
Regulation." The Company has no assurance that it will be able to obtain
financing for any such modifications. See "Dependance Upon Availability of
Financing" above.

The ANCA also recognizes the right of airport operators with special noise
problems to implement local noise abatement procedures as long as such
procedures do not interfere unreasonably with the interstate and foreign
commerce of the national air transportation system. ANCA generally requires FAA
approval of local noise restrictions on Stage 3 aircraft and establishes a
regulatory notice and review process for local restrictions on Stage 2 aircraft
first proposed after October 1990. As the result of litigation and pressure from
airport area residents, airport operators have taken local actions over the
years to reduce aircraft noise. These actions have included regulations
requiring aircraft to meet prescribed decibel limits by designated dates,
curfews during night time hours, restrictions on frequency of aircraft
operations and various operational procedures for noise abatement.

The imposition of and the cost of compliance by the Company with statutory
and regulatory requirements concerning noise restriction and abatement could
have a material adverse effect on the Company's business, financial condition
and results of operations.

DEPENDENCE UPON AVAILABILITY OF FINANCING

The operating lease business is a capital intensive business. The Company's
typical operating lease transaction requires a cash investment by the Company of
approximately 5% to 15% of the aircraft purchase price, commonly known as an
"equity investment." The Company's equity investments have historically been
financed from internally generated funds and other cash and seller financing
(primarily from ILFC), and in the future will include a substantial portion of
the net proceeds of the offering. The balance of the purchase price of an
aircraft is typically financed with the proceeds of non-recourse, secured
borrowings from banks or other financial institutions (to date with the support
of ILFC as the seller of the flight equipment). Accordingly, the Company's
ability to successfully execute its business strategy and to sustain its
operations is dependent, in part, on the availability of debt and equity
capital. In addition, the terms of the Company's loans generally end at the end
of the noncancelable portion of the lease of the related aircraft. If the lease
grants the lessee the option to renew the lease, the Company will be required to
renegotiate the loan with its lender or obtain other financing. At December 31,
1996, approximately $42.2 million of the Company's debt financing was classified
as current liabilities, primarily as a result of balloon payments due at the end
of the noncancellable portion of leases occurring in 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." There can be no assurance that
the necessary amount of such capital will continue to be available to the
Company on favorable terms, or at all. If the Company were unable to continue to
obtain any portion of required financing on favorable terms, the Company's
ability to add new leases to its lease portfolio, renew leases, re-lease an
aircraft, repair or recondition an aircraft if required or retain ownership of
an aircraft on which financing has expired would be limited, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company's financing arrangements to date
have been dependent in part upon ILFC. See "Reliance Upon ILFC" above and
"Business -- Relationship With ILFC," "Certain Transactions" and Note 6 to
Consolidated Financial Statements.

11
13

INTEREST RATE RISK

The Company's leases are generally structured at fixed rental rates for
specified terms. As of December 31, 1996, borrowings subject to interest rate
risk, after taking into account guarantees and interest rate swaps in place,
totaled $2.3 million or 3% of the Company's total borrowings. In addition, at
December 31, 1996, approximately $42.2 million of the Company's debt financing
matures or comes due within one year from such date, including approximately
$37.2 million of debt relating to four leases which expire between January and
August, 1997. Three of these leases were recently extended and a letter of
intent has been entered into for the re-lease of the fourth aircraft. See
"Business -- Lease Portfolio" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." There can be no assurance that the Company will be able to finance
or refinance its borrowings at fixed rates which result in acceptable interest
rate spreads to the applicable leases, or at fixed rates at all. Increases in
interest rates could narrow or eliminate the spread, or result in a negative
spread, between the rental revenue the Company realizes under its leases and the
interest rate that the Company pays under its loans. There can be no assurance
that the Company's business, financial condition and operating results will not
be adversely affected during any period of increases in interest rates.

SUBSTANTIAL COMPETITION

The aircraft leasing industry is highly competitive, depending in part upon
the type of leased aircraft and prospective lessees. The Company believes that
only a few comparably sized companies on a worldwide basis focus primarily on
the same segment of the aircraft leasing market as the Company. In addition, a
number of aircraft manufacturers, airlines and other operators, distributors,
equipment managers, leasing companies (including ILFC), financial institutions
and other parties engaged in leasing, managing, marketing or remarketing
aircraft compete with the Company, although their primary focus is not on the
market segment on which the Company focuses. Many of these periodic competitors
have significantly greater financial resources than the Company. The Company's
competitors may lease aircraft at lower rates than the Company and provide
benefits, such as direct maintenance, crews, support services and trade-in
privileges, which the Company does not intend to provide. There can be no
assurance that the Company will continue to compete effectively against present
and future competitors or that competitive pressures will not have a material
adverse effect on the Company's business, financial condition and results of
operations.

STOCK OWNERSHIP AFFECTING AIRCRAFT REGISTRATION

The Company intends to maintain United States registration of some of the
aircraft which it owns. Aircraft may not be registered in the United States
unless the registered owner is a citizen of the United States or other
permissible persons under the Federal Aviation Act. If a corporation is the
registered owner of an aircraft, the corporation must be organized under the
laws of the United States or any State, and the president and two-thirds or more
of the board of directors and at least 75% of the voting interest of the
corporation must be controlled by persons who are citizens of the United States.
Non-U.S. citizens may hold stock in a U.S. corporation through an appropriate
voting trust. Any successful challenge to registration of an aircraft by the
Federal Aviation Administration (the "FAA") may result in substantial penalties,
including the forced sale of the aircraft, the potential for uninsured
casualties to the aircraft, the loss of the benefits of the central recording
system under federal law (thereby leaving the aircraft exposed to liens or other
interests not of record with the FAA), and a breach by the Company of any leases
or financing agreements with respect to the aircraft. See "Principal
Shareholders."

UNCERTAINTY REGARDING LIMITS ON LIABILITY OF LESSORS

Section 44112 of Title 49 of the United States Code provides that a lessor
of aircraft generally will not be liable for any personal injury or death, or
damage to or loss of property, provided that such lessor is not in actual
possession or control of the aircraft at the time of such injury, death or
damage. Under certain circumstances, however, courts have interpreted Section
44112 narrowly, limiting its protection to certain aircraft lessors and have
held that state common law remedies may apply, notwithstanding the limitations
on liability under Section 44112. Under common law, the owner of an aircraft may
be held liable for injuries or

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damage to passengers or property, and such damage awards can be substantial.
Because there is little case law interpreting Section 44112, there can be no
assurance that the provisions of Section 44112 would fully protect the Company
from all liabilities in connection with any injury, death, damage or loss that
may be caused by any aircraft it owns. For example, Section 44112 may not
preempt state law with respect to liability for third party injuries arising
from a lessor's or owner's own negligence. It is anticipated that each lessee
under the terms of each lease to be entered into by the Company will be
obligated to indemnify the Company for, or insure the Company against, virtually
all claims by third parties; however, in the event that Section 44112 were not
applicable, no assurance can be given that the lessees could fulfill their
indemnity obligations under any such leases or that any insurance obtained will
be sufficient.

REQUIREMENTS AND COSTS ASSOCIATED WITH THE MAINTENANCE AND OPERATION OF AIRCRAFT

The maintenance and operation of aircraft are strictly regulated by the FAA
and foreign aviation authorities which oversee such matters as aircraft
certification, inspection, maintenance, certification of personnel, and
record-keeping. The cost of complying with such requirements are significant.
The Company will seek to lease its aircraft to lessees that agree to bear all or
a significant portion of the costs of complying with governmental regulations.
All of the Company's current leases require the lessee to bear all of the costs
of complying with governmental regulations. However, in the event a lessee fails
to maintain aircraft in accordance with the terms of a lease or a lease
terminates shortly before a major required overhaul, the Company may be required
to spend substantial sums to repair or recondition the aircraft and may be
required to borrow funds for the purpose. See "Customer Credit Risks" above. The
FAA issued several Airworthiness Directives ("ADs") in 1990 mandating changes to
the maintenance program for older aircraft. These ADs were issued to ensure that
the oldest portion of the nation's transport aircraft fleet remains airworthy.
The FAA is requiring that these aircraft undergo extensive structural
modifications. These modifications are required upon accumulation of 20 years'
time in service or prior to the accumulation of a designated number of
flight-cycles, whichever occurs later. Future regulatory changes may also
increase the cost of operating or maintaining the aircraft and may adversely
affect the residual value of the aircraft. The failure of a lessee to comply
with lease maintenance and operation obligations or the imposition of
governmental requirements involving substantial compliance costs could have a
material adverse effect on the Company's business, financial condition and
results of operations.

RISK OF CHANGES IN TAX LAWS OR ACCOUNTING PRINCIPLES

The Company's leasing activities generate significant depreciation
allowances that provide the Company with substantial tax benefits on an ongoing
basis. In addition, the Company's lessees currently enjoy favorable accounting
and tax treatment by entering into operating leases. Any change to current tax
laws or accounting principles that make operating lease financing less
attractive would adversely affect the Company's business, financial condition
and results of operations.

DEPENDENCE ON KEY MANAGEMENT

The Company's business operations are dependent in part upon the expertise
of certain key employees. Loss of the services of such employees, particularly
William E. Lindsey and Michael P. Grella, would have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company will have employment agreements with Mr. Lindsey and Mr. Grella. The
Company will maintain key man life insurance of $2.0 million on each of Mr.
Lindsey and Mr. Grella. See "Management."

QUARTERLY FLUCTUATIONS IN OPERATING RESULTS

The Company has experienced fluctuations in its quarterly operating results
and anticipates that these fluctuations may continue. Such fluctuations may be
due to a number of factors, including the timing of purchases or sales of
aircraft, the timing and extent of consulting and remarketing fees,
unanticipated early lease terminations, termination of a lease and the
subsequent re-lease at a different lease rate or a default by a lessee. Given
the possibility of such fluctuations, the Company believes that comparisons of
the results of its operations for preceding quarters are not necessarily
meaningful and that results for any one quarter should not

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15

be relied upon as an indication of future performance. In the event the
Company's revenues or earnings for any quarter are less than the level expected
by securities analysts or the market in general, such shortfall could have an
immediate and significant adverse impact on the market price of the Company's
Common Stock.

ABSENCE OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the offering, there has been no public market for the Common Stock
and there can be no assurance that an active trading market for the Common Stock
will develop or continue after the offering. The initial public offering price
of the Common Stock will be determined through negotiations between the Company
and the Representatives of the Underwriters, and may not be indicative of the
market price. Additionally, the market price of the Common Stock could be
subject to significant fluctuations in response to operating results of the
Company, changes in general conditions in the economy, the financial markets,
the airline industry, changes in accounting principles or tax laws applicable to
the Company or its lessees, or other developments affecting the Company, its
customers or its competitors, some of which may be unrelated to the Company's
performance, and changes in earnings estimates or recommendations by securities
analysts. See "Underwriting."

BROAD MANAGEMENT DISCRETION IN ALLOCATION OF NET PROCEEDS

The Company expects to use the net proceeds of the offering to acquire
additional aircraft for lease and for working capital and other general
purposes, but has not yet entered into agreements to purchase any specific
aircraft or otherwise identified any other specific uses for such net proceeds.
The Company's management, subject to approval by the Company's Board of
Directors, will retain broad discretion as to the allocation of the proceeds of
the offering. The failure of management to apply such proceeds effectively could
have a material adverse effect on the Company's business, financial condition
and results of operations.

SHARES ELIGIBLE FOR FUTURE SALE

After completion of the offering, the Company will have 3,032,451 shares of
Common Stock outstanding. Of those shares, the 1,820,000 shares of Common Stock
offered hereby (2,093,000 if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"), unless purchased by "affiliates" of the Company, as that term is defined
in Rule 144 under the Securities Act ("Rule 144"). The remaining 1,212,451
shares were issued by the Company in private transactions prior to this offering
and are "restricted securities" as that term is defined in Rule 144 and are
tradeable subject to compliance with Rule 144. In addition, 372,498 shares are
subject to existing options, 100,000 shares are reserved for issuance under the
Company's 1997 Option Plan and the 1997 Directors Plan and 21,555 shares are
reserved for issuance upon conversion of the Preferred Stock. The Company plans
to register the shares issuable upon exercise of these options under the
Securities Act.

The Company, its officers and directors, and certain of the shareholders of
the Company, who upon completion of this offering will own an aggregate of
1,073,489 shares of Common Stock, have agreed not to offer, sell or otherwise
dispose of any shares of Common Stock or any equity securities or securities
convertible into or exchangeable for equity securities or any options, rights or
warrants with respect to any equity securities, subject to certain exceptions,
for a period of 180 days from the date of this Prospectus, without the prior
written consent of the Representatives.

Because there has been no public market for shares of Common Stock of the
Company, the Company is unable to predict the effect, if any, that future sales
of shares, or the availability of shares for future sale, will have on the
market price for the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect market prices for the Common Stock and could
impair the Company's future ability to obtain capital through an offering of
equity securities. See "Shares Eligible for Future Sale."

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ANTI-TAKEOVER PROVISIONS

Certain provisions of law and the Company's Amended and Restated Articles
of Incorporation and Bylaws (as they will be amended prior to the offering)
could make more difficult the acquisition of the Company by means of a tender
offer, a proxy contest or otherwise, and the removal of incumbent officers and
directors. These provisions include authorization of the issuance of up to
15,000,000 shares of Preferred Stock, with such characteristics that may render
it more difficult or tend to discourage a merger, tender offer or proxy contest.
The Company's Amended and Restated Articles of Incorporation also provides that
shareholder action can be taken only at an annual or special meeting of
shareholders and may not be taken by written consent. The Company's Bylaws also
limit the ability of shareholders to raise matters at a meeting of shareholders
without giving advance notice. In addition, upon qualification of the Company as
a "listed corporation" as defined in Section 301.5(d) of the California
Corporations Code, cumulative voting will be eliminated. These provisions are
expected to discourage certain types of coercive takeover practices and
inadequate takeover bids, and to encourage persons seeking to acquire control of
the Company to negotiate first with the Company. See "Description of Capital
Stock -- Certain Anti-Takeover Provisions."

IMMEDIATE AND SUBSTANTIAL DILUTION

Purchasers of Common Stock in the offering will experience immediate and
substantial dilution of approximately $2.61 per share in the net tangible book
value per share of Common Stock from the assumed initial public offering price
of $11.00 per share. See "Dilution."

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,820,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$18.0 million (or $20.8 million if the Underwriters' over-allotment option is
exercised in full), after deducting underwriting discounts and commissions and
estimated expenses of the offering, and assuming an initial public offering
price of $11.00 per share. The Company intends to use the net proceeds, together
with debt financing, to acquire additional aircraft for lease and for working
capital and other general purposes. The Company has not yet entered into
agreements to purchase any specific aircraft or otherwise identified any other
specific uses of such net proceeds. See "Risk Factors -- Broad Management
Discretion in Allocation of Net Proceeds." Pending such uses, the Company will
invest the net proceeds in short-term, investment grade, interest-bearing
securities.

DIVIDEND POLICY

The Company has not paid any cash dividends on its capital stock. The
payment of cash dividends in the future will be made at the discretion of the
Board of Directors of the Company and will depend on a number of factors,
including future earnings, capital requirements, financial condition and future
prospects of the Company and such other factors as the Board of Directors may
deem relevant. Following consummation of the offering, the Company intends to
retain all available funds for use in its business. Accordingly, the Company
does not anticipate declaring or paying any dividends on the Common Stock in the
foreseeable future.

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CAPITALIZATION

The following table sets forth the capitalization of the Company at
December 31, 1996 on an actual basis, which gives effect to a 1-for-6 reverse
stock split, and as adjusted to give effect to (i) the conversion of 4,811,666
outstanding shares of Preferred Stock into 801,908 shares of Common Stock; (ii)
the exercise of options to acquire 358,045 shares of Common Stock; (iii) the
sale of the 1,820,000 shares of Common Stock offered by the Company hereby at an
assumed offering price to the public of $11.00 per share, after deducting
underwriting discounts and commissions and estimated expenses of the offering;
and (iv) the application of the estimated net proceeds therefrom. See "Use of
Proceeds."

DECEMBER 31, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS, EXCEPT
SHARE DATA)

Debt financing(1)...................................................... $82,710 $ 82,710
------- ---------
Shareholders' equity:
Convertible preferred stock, $.01 par value per share; 15,000,000
shares authorized; 4,941,000 shares issued and outstanding,
actual; 129,334 issued, as adjusted............................... 49 1
Common stock, $.01 par value per share; 20,000,000 shares authorized;
52,498 shares outstanding, actual; and 3,032,451 shares
outstanding, as adjusted(2)....................................... 3 30
Additional paid-in capital............................................. 5,170 25,509
Accumulated deficit.................................................... (139) (139)
------- ---------
Total shareholders' equity........................................... 5,083 25,445
------- ---------
Total capitalization......................................... $87,793 $ 108,155
======= =========

(1) Includes current portion of long-term debt of $42.2 million.

(2) Excludes (i) 372,498 shares of Common Stock subject to options outstanding
on the date of this Prospectus with an exercise price of $6.00 per share;
(ii) 116,666 shares of Common Stock issuable upon conversion of the
Convertible Note; (iii) 182,000 shares of Common Stock issuable upon
exercise of the Sutro Warrant; (iv) 100,000 shares of Common Stock reserved
for issuance under the 1997 Option Plan and the 1997 Directors Plan; and (v)
21,555 shares reserved for issuance upon conversion of the Preferred Stock.
See "Management -- Director Compensation" and " -- Stock Option Plan" and
"Underwriting."

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DILUTION

At December 31, 1996, the net tangible book value of the Company was $5.1
million or $96.83 per share of Common Stock. Net tangible book value per share
represents the Company's total tangible assets, less total liabilities, divided
by the number of shares of Common Stock outstanding after giving effect to a
1-for-6 reverse stock split. After giving effect to (i) the conversion of
4,811,666 outstanding shares of Preferred Stock into 801,908 shares of Common
Stock; and (ii) the exercise of options to acquire 358,045 shares of Common
Stock, the net tangible book value of the Company at December 31, 1996 would
have been $7.5 million, or $6.15 per share of common stock. After giving effect
to these conversions, the sale by the Company of the 1,820,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering price
to the public of $11.00 per share, and after deducting underwriting discounts
and commissions and estimated offering expenses, the as adjusted net tangible
book value of the Company at December 31, 1996 would have been $25.4 million, or
$8.39 per share. This represents an immediate increase in net tangible book
value of $2.24 per share to the existing shareholders and an immediate dilution
in net tangible book value to new investors of $2.61 per share. The following
table illustrates the per share dilution:

Assumed initial public offering price...................... $11.00
Net tangible book value per share at December 31, 1996... $96.83
Decrease attributable to conversion of Preferred Stock
and exercise of stock options......................... (90.68)
------
Adjusted net tangible book value per share before the
offering.............................................. 6.15
Increase attributable to new investors in the offering... 2.24
------
As adjusted, net tangible book value per common share after
the offering............................................. 8.39
------
Dilution per common share to new investors................. $ 2.61
======

The following table summarizes, as of December 31, 1996, after giving
effect to a 1-for-6 reverse stock split, the conversion of 4,811,666 outstanding
shares of Preferred Stock into 801,908 shares of Common Stock and the exercise
of options to acquire 358,045 shares of Common Stock, the difference between the
current shareholders and new investors with respect to the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid, assuming an initial public offering price to the
public of $11.00 per share.

SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------

Existing shareholders.................. 1,212,451 40.0% $ 7,595,943 27.5% $ 6.26
New investors.......................... 1,820,000 60.0 20,020,000 72.5 11.00
--------- ----- ----------- -----
Total........................ 3,032,451 100.0% $27,615,943 100.0%
========= ===== =========== =====

The foregoing excludes (i) 372,498 shares of Common Stock subject to
options outstanding on the date of this Prospectus with an exercise price of
$6.00 per share; (ii) 166,666 shares of Common Stock issuable upon conversion of
the Convertible Note; (iii) 182,000 shares of Common Stock issuable upon
exercise of the Sutro Warrant; (iv) 100,000 shares of Common Stock reserved for
issuance under the 1997 Option Plan and the 1997 Directors Plan; and (v) 21,555
shares reserved for issuance upon conversion of the Preferred Stock. See
"Management -- Director Compensation" and " -- Stock Option Plan" and
"Underwriting."

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19

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)

The following selected consolidated financial and operating data should be
read in conjunction with the accompanying Consolidated Financial Statements and
the related notes thereto included elsewhere in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The consolidated financial data set forth below as of and for the
fiscal years ended December 31, 1993, 1994, 1995 and 1996 have been derived from
the consolidated financial statements of the Company audited by KPMG Peat
Marwick LLP, independent certified public accountants. The consolidated
financial data set forth below as of and for the fiscal year ended December 31,
1992 have been derived from the unaudited consolidated financial statements of
the Company.

AT AND FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1992(1) 1993 1994 1995 1996
----------- ----------- ----------- ----------- -----------

STATEMENT OF INCOME DATA
Revenues:
Rental of flight equipment...................... $ 6,166 $ 6,098 $ 8,108 $ 7,765 $ 12,681
Consulting fees................................. 68 742 213 491 461
Gain on sale of aircraft equipment.............. 841 -- -- -- 141
Interest income................................. 35 7 68 118 169
---------- ----------- ---------- ---------- ----------
Total revenues.............................. 7,111 6,847 8,389 8,374 13,452
Expenses:
Interest........................................ 3,182 2,293 3,548 3,776 6,277
Depreciation.................................... 2,970 2,014 3,165 3,354 5,550
General and administrative...................... 690 447 548 526 553
Loss on sale of aircraft........................ 3,645(2) -- -- -- --
Other........................................... 185 -- -- -- --
---------- ----------- ---------- ---------- ----------
Total expenses.............................. 10,672 4,754 7,261 7,656 12,380
Equity in earnings of affiliates.................. -- -- -- 184 --
Income (loss) before income taxes and
extraordinary items............................. (3,562) 2,093 1,128 901 1,072
Income tax expense................................ 2 45 59 30 37
Income (loss) before extraordinary items.......... (3,564) 2,048 1,069 871 1,035
Extraordinary items -- gain from debt
forgiveness..................................... 4,326 -- -- -- --
---------- ----------- ---------- ---------- ----------
Net income (loss)................................. $ 762 $ 2,048 $ 1,069 $ 871 1,035
========== =========== ========== ========== ==========
Net income (loss) per common and common equivalent
share(3):
Income (loss) before extraordinary items........ $ (0.60) $ 0.24 $ 0.14 $ 0.11 $ .13
Extraordinary items............................. 0.73 -- -- -- --
---------- ----------- ---------- ---------- ----------
Net income (loss)........................... $ 0.13 $ 0.24 $ 0.14 $ 0.11 $ .13
========== =========== ========== ========== ==========
Weighted average number of common and common
equivalent shares outstanding(3)................ 5,863 9,857 7,766 7,766 7,821
Pro forma net income per common and common
equivalent share(4)............................. .62 1.48 .83 .70 .80
Pro forma weighted average number of common and
common equivalent shares outstanding(4)......... 1,503 1,503 1,503 1,503 1,520
BALANCE SHEET DATA
Flight equipment under operating lease............ $ 29,694 $ 56,346 $ 56,162 $ 95,450 89,885
Total assets...................................... 30,180 57,036 57,131 96,779 92,620
Debt financing(5)................................. 28,895 52,873 51,688 87,825 82,710
Shareholders' equity.............................. (340) 2,008 3,078 4,048 5,084
OTHER DATA
EBITDA(6)......................................... $ 5,394,000 $ 6,400,000 $ 7,841,000 $ 8,031,000 $12,758,000
Cash Flows(7):
From operating activities......................... -- 4,498,832 4,465,779 3,938,585 6,796,134
From investing activities......................... -- (28,665,000) (3,303,555) (40,966,917) 156,026
From financing activities......................... -- 24,278,491 (1,005,942) 36,754,685 (5,811,689)
Return on average assets(8)....................... 1.8% 5.8% 1.9% 1.5% 1.1%
Return on average equity(9)....................... -- -- 39.6% 24.6% 22.9%
Aircraft equipment owned at period end(10)........ 4 5 5 8 7

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

(footnotes on next page)

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20

(1) Included in the 1992 income statement data is the consolidation of a wholly
owned subsidiary which the Company disposed of during 1992. The subsidiary
had net liabilities of $3,552,000 and was sold to ILFC for no consideration
as ILFC guaranteed the debt of the subsidiary. Accordingly, the Company
recognized an extraordinary gain from the disposal of the subsidiary for
relief of the net liabilities. During 1992, revenues, expenses, gain on
disposal, net loss and net loss per share related to this subsidiary were
$712,000, $1,144,000, $3,552,000, $(432,000) and $(0.07), respectively.

(2) See "Business -- Aircraft Leasing."

(3) The treasury stock method was used to calculate net income (loss) per
common and common equivalent share information and weighted average number
of common and common equivalent shares outstanding. The treasury stock
method was modified as the number of common stock equivalents exceeded 20%
of the number of common shares outstanding at the end of each of the
periods presented in the accompanying consolidated financial statements.
Accordingly, the number of shares which could be repurchased with the
proceeds from such conversions was limited to 20% of the number of common
shares and the remaining balance was applied to reduce long-term debt. The
modified treasury stock method was applied only to 1993 as the effect on
1992, 1994, 1995 and 1996 was anti-dilutive. See Note 1 to Consolidated
Financial Statements. Does not give effect to the 1-for-6 reverse stock
split of Common Stock, the assumed conversion of outstanding shares of
Preferred Stock into Common Stock, or the assumed exercise of options to
acquire shares of Common Stock.

(5) Includes current portion of long-term debt.

(6) EBITDA, defined as income before interest expense, income taxes,
depreciation, gain (loss) on sale of aircraft and extraordinary items, is
not intended to represent an alternative to net income (as determined in
accordance with generally accepted accounting principles) as a measure of
performance and is also not intended to represent an alternative to cash
flow from operating activities as a measure of liquidity. Rather, it is
included herein because management believes that it provides an important
additional perspective on the Company's operating results and the Company's
ability to fund its continuing operations.

(7) See Consolidated Statement of Cash Flows included in the Consolidated
Financial Statements. Cash flow information for 1992 is not available.

(8) Calculations are based on the average monthly balances.

(9) Calculations are based on average quarterly balances. Prior to 1994,
results are not considered meaningful.

(10) Aircraft equipment owned at end of period includes one auxillary power unit
which was purchased in 1995 and sold for a gain of $141,000 in December,
1996.

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21

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands)

The following discussion of financial condition and results of operations
of the Company should be read in conjunction with the Consolidated Financial
Statements and the related Notes thereto included elsewhere in this Prospectus.
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ from the results
discussed in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in "Risk Factors."

The Company is primarily engaged in the acquisition of used, single-aisle
jet aircraft and engines for lease and sale to domestic and foreign airlines and
other customers. The Company leases aircraft under short- to medium-term
operating leases where the lessee is responsible for all operating costs and the
Company retains the potential benefit or risk of the residual value of the
aircraft, as distinct from finance leases where the full cost of the aircraft is
generally recovered over the term of the lease.

Rental amounts are accrued evenly over the lease term and are recognized as
revenue from the rental of flight equipment. The Company's cost of the leased
equipment is recorded on the balance sheet and is depreciated on a straight-line
basis over the estimated useful life to the Company's estimated salvage value.
Revenue, depreciation expense and resultant profit for operating leases are
recorded evenly over the life of the lease. Initial direct costs related to the
origination of leases are capitalized and amortized over ten years.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

Revenues from rental of flight equipment decreased by 4% from $8,108 in
1994 to $7,765 in 1995 principally as a result of the re-lease of one aircraft
in June 1995 at a lower lease rate. The increase of 63% to $12,681 in 1996 from
$7,765 in 1995 was principally due to the acquisition in December 1995 of two
aircraft and their related leases.

In addition to leasing operations, the Company provides consulting
services. In 1994, consulting revenues totalled $213, including $144 paid by
Great Lakes Holding, a company owned 100% by the Chief Executive Officer and the
President of the Company ("Great Lakes"), and $69 paid by ILFC. In 1995,
consulting revenues totalled $491, including $144 paid by Great Lakes and $347
paid by ILFC. In 1996, consulting revenues totalled $461, including $144 paid by
Great Lakes, $78 paid by ILFC, $49 paid by an unrelated airline and $190 paid by
an unrelated leasing company. No consulting fees are expected to be paid by
Great Lakes after 1996.

In 1996, the Company realized a gain on sale of aircraft equipment of $141
for the sale of an auxillary power unit previously on lease. The Company did not
realize any gains on the sale of aircraft equipment in 1994 and 1995.

Interest income increased from $68 in 1994 to $118 in 1995 principally as a
result of interest earned on increased maintenance reserves under certain
leases. The increase to $169 in 1996 resulted primarily from interest earned on
receivables from ILFC relating to an aircraft acquired from ILFC in December
1995. See Note 6 to the Consolidated Financial Statements.

Expenses as a percent of total revenues were 86.5% in 1994, 91.4% in 1995
and 92.0% in 1996. Interest expense increased from $3,548 in 1994 to $3,776 in
1995 and $6,277 in 1996. The increase from 1994 to 1995 was principally the
result of $2,430 of additional debt incurred during the third quarter of 1994 to
upgrade an aircraft to Stage 3. The increase in 1996 resulted from $39,288 of
additional debt to acquire two aircraft in December 1995.

Depreciation expense increased from $3,165 in 1994 to $3,354 in 1995 and
$5,550 in 1996, resulting from four aircraft acquisitions -- one in May 1993,
one in December 1993 and two in December 1995.

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22

General and administrative expenses were $548 in 1994, $526 in 1995 and
$553 in 1996. Variations were due mainly to travel and marketing expenses. The
number of personnel remained constant and management salary levels were
unchanged. Following the offering, the Company expects increased expenses as a
result of adding a corporate Controller and a Vice President, Technical,
additional requirements imposed due to maintaining the Company's status as a
public company and additional compensation expense as a result of new employment
agreements. See "Management -- Employment Agreements." As a result of the
revision of options held by certain executive officers, the Company expects to
incur additional compensation expense of approximately $250 in each of 1997,
1998, 1999 and 2000. See "Management -- Existing Stock Options."

Equity in earnings of affiliates in 1995 consisted of the Company's share
of income of $66 of International Engine Investors ("IEI"), a company formed
exclusively for the acquisition of one engine, and the Company's share of the
gain of $118 on the sale of the aircraft engine which constituted the sole asset
of IEI. See Note 3 to Consolidated Financial Statements, IEI was liquidated in
November 1995.

The Company recognized income tax expense of $59, $30 and $37 representing
effective income tax rates of 5%, 3% and 3% during 1994, 1995 and 1996,
respectively. The difference between the effective rates and the federal
statutory rate was primarily due to the recognition of deferred tax assets. See
Note 4 to Consolidated Financial Statements.

Net income decreased from $1,069 in 1994 to $871 in 1995 and increased to
$1,035 in 1996 due to the factors described above.

Inflation during recent years has not impacted the Company's operations or
profitability.

The Company anticipates that it will incur non-cash compensation expense of
approximately $250 in each of years 1997, 1998, 1999 and 2000 due to the vesting
of stock options granted to executive officers. See "Management -- Existing
Stock Options."

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal external sources of funds have been term loans from
banks and seller financing secured by aircraft. As a result, a substantial
amount of the Company's revenue from rental of flight equipment is applied to
principal and interest payments on secured debt. See
"Business -- Financing/Source of Funds." The principal use of cash is for
financing the acquisition of the Company's lease portfolio, which are financed
by loans secured by the applicable aircraft. As a result, the Company does not
currently maintain a line of credit.

At December 31, 1996 and January 31, 1997, the Company had cash and cash
equivalents of $1,174 and $1,136, respectively.

Net cash provided by operating activities decreased from $4,466 in 1994 to
$3,939 in 1995 and increased to $6,796 in 1996. The decrease in 1995 was
principally the result of the re-lease of one aircraft in June 1995 at a lower
lease rate. The increase in 1996 was principally the result of the cash flow
from the acquisition in December 1995 of two aircraft and their related leases.

In 1994 and 1995, net cash used in investing activities was $3,304 and
$40,967, substantially all of which were used to purchase aircraft. In 1996,
$156 was provided by investing activities as a result of the sale of aircraft
equipment for $355, offset by flight equipment purchases of $199.

In 1994, net cash used in financing activities was $1,006, consisting of
the repayment of notes of $3,616 offset by proceeds of additional borrowings of
$2,610. In 1995, net cash provided by financing activities was $36,755,
including the proceeds of borrowings of $39,805 offset by repayments of notes of
$3,150. In 1996, net cash used in financing activities was $5,812, consisting of
repayments of notes and other payables of $6,544 offset by the proceeds of
additional borrowings of $732.

Cash and cash equivalents vary from year to year principally as a result of
the timing of the purchase and sale of aircraft.

The Company uses interest swap arrangements to reduce the potential impact
of increases in interest rates on floating rate long-term debt and does not use
them for trading purposes. Premiums paid for purchased interest rate swaps
agreements are amortized to interest expense over the terms of the swap
agreements.

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23

The current portion of long term debt totalled $42,200 at December 31,
1996, of which $37,200 relate to four leases which expire between January and
August, 1997. Two of these leases have been extended to 1998, one has been
extended to 1999 and a letter of intent has been executed to re-lease the fourth
aircraft to May 2000, and negotiations are underway with the lenders to extend
the $37,200 of related debt. See "Risk Factors -- Dependence Upon Availability
of Financing."

The Company's ability to execute successfully its business strategy and to
sustain its operations is dependent, in part, on its ability to obtain financing
and to raise equity capital. There can be no assurance that the necessary amount
of such capital will continue to be available to the Company on favorable terms
or at all. If the Company were unable to continue to obtain any portion of
required financing on favorable terms, the Company's ability to add new aircraft
to its lease portfolio, renew leases, re-lease an aircraft, repair or
recondition an aircraft if required, or retain ownership of an aircraft on which
financing has expired would be impaired, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, the Company's financing arrangements to date have been dependent in
part upon ILFC. See "Risk Factors -- Reliance Upon ILFC" and "-- Dependence Upon
Availability of Financing."

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BUSINESS

The Company is primarily engaged in the acquisition of used, single-aisle
jet aircraft and engines for lease and sale to domestic and foreign airlines and
other customers. As of December 31, 1996, the Company had seven aircraft on
lease to seven customers. The Company leases its aircraft under "triple net"
operating leases where the lessee is responsible for all operating costs (i.e.,
crew, fuel, insurance, taxes, licenses, landing fees, navigation charges,
maintenance, repairs and associated expenses) and the Company retains the
potential benefit and assumes the risk of the residual value of the aircraft, as
distinct from finance leases where the full cost of the aircraft is recovered
over the term of the lease at usually lower monthly rates.

COMPANY HISTORY

The Company was formed in August 1988 by Mr. William E. Lindsey, Mr.
Michael P. Grella and Mr. Richard O. Hammond to take advantage of their
significant experience in both the airline industry in general and the aircraft
marketing industry in particular, and to meet the growing demand of customers in
a segment of the aircraft leasing market, specifically those customers
interested in the operating lease of used, single-aisle jet aircraft. See
"Management -- Directors and Executive Officers." Management believes that
leasing of used commercial jet aircraft under operating leases represents an
investment that is secured by a moveable asset which is required to be
maintained to FAA standards and which should maintain a substantial residual
value for a number of years. They also believe that a well developed risk
management criteria can minimize risk by prudent selection of aircraft, an
appropriate mix of lease termination dates, a worldwide customer base and strict
monitoring of technical and regulatory changes. The initial investors in the
Company included ILFC, a major owner-lessor of commercial jet aircraft, and
Christer and Sven Salen, whose family interests hold significant investments in
airline operations in Sweden. See "Relationship with ILFC" below,
"Management -- Directors and Executive Officers" and "Principal Shareholders."
The initial equity investment in the Company was $2.8 million, which allowed the
Company to purchase from ILFC a Boeing 727-200 Advanced aircraft under lease to
Delta Air Lines.

INDUSTRY BACKGROUND

The profits of the global airline industry are on the rise and passenger
traffic is expected to grow through 2016, according to the Boeing Report. Boeing
projects that traffic will increase 4.9% annually through 2016 and that 16,162
new commercial jet aircraft will be delivered over the next approximately 20
years. Airlines will confront an increasingly competitive environment with
long-term profitability dependent on successful cost reductions. Such reductions
will include improvements in fleet planning designed to more closely match
aircraft capacity with passenger demand.

The Boeing Report estimates that 16,162 new commercial jet aircraft will be
delivered over the next approximately 20 years, resulting in a projected
worldwide fleet of approximately 23,600 commercial jet aircraft in 2016, net of
4,069 retired aircraft. Single-aisle jet aircraft with seating capacity of 121
to 170 are projected by the Boeing Report to account for approximately 29.7% of
new commercial jet aircraft deliveries over the next approximately 20 years.

Due to the increasing cost of commercial jet aircraft, the anticipated
modernization of the worldwide aircraft fleet, and the emergence of new
niche-focused airlines which generally use leasing for capital asset
acquisitions, the Company believes that airlines will increasingly turn to
operating leases as an alternative method to finance their fleets. Although
Boeing estimated in its 1996 Current Market Outlook that the fleets of operating
lessors have grown from over 200 aircraft in 1986 to over 1,000 in 1995,
commercial jet aircraft under operating lease represented only approximately 10%
of total commercial jet aircraft in service at year-end 1995. Aviation Week
reports that leasing will be the primary means by which the global air transport
industry acquires new aircraft between now and 1999, and probably beyond.
Aviation Week, based upon data

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25

provided by GE Capital Aviation Services, states that in 1986, 41% of the
world's airlines owned all of their equipment, 15% leased all of their equipment
and 44% used a mix of the two (with 80% owned and 20% leased). By contrast, in
1996, 16% owned all of their equipment, 42% leased all of their equipment and
42% used a mix of the two (with 60% leased and 40% owned).

STRATEGY

The Company's strategy is to focus on entering into operating leases of
used, single-aisle jet aircraft to a diversified base of customers worldwide,
while employing strict risk management criteria. Key elements of the Company's
business strategy include the following:

Focus on Used Commercial Jet Aircraft with a Broad Market Acceptance. The
Company leases used, single-aisle jet aircraft, particularly aircraft between
six and 15 years old at the time the aircraft is acquired by the Company. The
Company is currently focusing on the acquisition and lease of single-aisle jet
aircraft, primarily aircraft with a seating capacity of 121 to 170 passengers,
which, according to the Boeing Report, accounted for approximately 35.9% of the
world fleet at December 31, 1996. The Boeing Report estimates that the
commercial replacement cycle for this type of aircraft is 25 to 28 years from
manufacturer date. This category of jet aircraft includes aircraft such as the
Boeing 737-300/-400, the Airbus A320 and the McDonald Douglas MD80 series. The
Company will also consider acquiring and leasing Boeing 757 aircraft, which have
a seating capacity of 171 to 240 passengers. The Company will continue to
purchase aircraft which enjoy significant manufacturer's support and fit the
Company's criteria.

Optimize Relationship with ILFC. The Company has had a long and continuous
relationship with ILFC. ILFC was an initial investor in the Company and prior to
the offering owned approximately 4.1% of the Company's equity. ILFC is a major
owner-lessor of commercial jet aircraft having contacts with most airlines
worldwide, the aircraft and engine manufacturers and most of the significant
participants in the aircraft industry worldwide. The Company intends to use its
relationship with ILFC to seek to gain access, where appropriate, to various
airlines and other participants in the market to facilitate the purchase, lease,
re-lease and sale of aircraft. ILFC's primary focus is the acquisition and
leasing of new commercial jet aircraft. Thus, the Company believes that its
business compliments rather than competes with ILFC. See "Relationship With
ILFC" below.

Leverage Management Experience. The successful purchase and leasing of used
commercial jet aircraft requires skilled management in order to evaluate the
condition and price of the aircraft to be purchased and the current and
anticipated market demand for that aircraft. The management of the Company and
the Board of Directors of the Company have significant experience in the
aviation industry, with an average of 28 years of experience, especially in the
purchase, sale and financing of commercial jet aircraft, and have extensive
contacts with airlines worldwide. See "Management -- Directors and Executive
Officers."

Access a Diversified Global Customer Base. The Company's objective is to
diversify its customer base to avoid dependence on any one lessee, geographic
area or economic trend.

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credit risk associated with each of its lessees and the lessee's ability to
operate and properly maintain the aircraft. The Company also evaluates the
return conditions in each lease since the condition of an aircraft at the end of
a lease can significantly impact the amount the Company will receive on the
re-lease or sale of an aircraft.

AIRCRAFT LEASING

All of the Company's current leases are operating leases rather than
finance leases. Under an operating lease, the Company retains title to the
aircraft thereby retaining the potential benefits and assuming the risk of the
residual value of the aircraft. Operating leases allow airlines greater fleet
and financial flexibility due to their shorter-term nature, the relatively small
initial capital outlay necessary to obtain use of the aircraft and off-balance
sheet treatment. Operating lease rates are generally priced higher than finance
lease rates, in part because of the risks to the lessor associated with the
residual value. See "Risk Factors -- Ownership Risks."

Before committing to purchase specific aircraft, the Company takes into
consideration factors such as the condition and maintenance history of the
aircraft, the rental rate and other lease terms, the breadth of the customer
base for the aircraft, trends in global supply and demand for the aircraft type,
the technology included in the aircraft, the stage of the production cycle and
manufacturer's support for the aircraft, estimates of future values, remarketing
potential and anticipated obsolescence. Certain types and vintages of aircraft
do not fit the profile for inclusion in the Company's portfolio of aircraft.

The Company targets the medium-term operating lease market, which generally
consists of leases with three to eight year initial noncancelable terms. The
Company's leases are "triple net leases" whereby the lessee is responsible for
all operating costs, i.e. crew, fuel, insurance, taxes, licenses, landing fees,
navigation charges, maintenance, repairs and associated expenses. In addition,
the leases contain extensive provisions regarding the remedies and rights of the
Company in the event of a default thereunder by the lessee. The leases have
payment clauses whereby the lessee is required to continue to make the lease
payments regardless of circumstances, including whether or not the aircraft is
in service. Certain of the Company's leases limit the lessee's obligation to
make lease payments if the Company violates the covenant of quiet enjoyment
regarding the aircraft or if the Company enters bankruptcy and does not assume
the lease. During the term of the lease, the Company is required to be named as
an additional insured on the lessee's aviation liability insurance policies.
Also, the leases contain very specific criteria for the maintenance and
regulatory status of the asset as well as the return conditions for the
airframe, engines, landing gears, auxiliary power unit and associated
components.

Generally, the lessee provides the Company with an initial security deposit
that is returnable at the expiration of the lease if all lease return conditions
are met by the lessee and there is no default under the lease. Depending on the
creditworthiness of a lessee, in some instances the lessee will also pay into a
maintenance reserve account a certain amount monthly for each hour the aircraft
and/or engine has flown. These maintenance reserves may be drawn upon by the
lessee to be applied towards the cost of periodic scheduled overhaul and
maintenance checks. At the termination of the lease, the lessee is required to
return the asset to the Company in the same condition as it was received, normal
wear and tear excepted, so the asset is in a proper condition for re-lease or
sale. Normally, any remaining maintenance reserves are retained by the Company.
See "Risk Factors -- Ownership Risks."

The Company makes an analysis of the credit risk associated with each lease
before entering into a lease. The Company's credit analysis consists of
evaluating the prospective lessee's available financial statements and trade and
banking references, and working with the Company's lender to evaluate country
and political risk, insurance coverage, liability and expropriation risk. The
process for credit approval is a joint undertaking between the Company and the
senior lender providing the debt financing for the lease. The Company obtains
extensive financial information regarding the lessee. See "Risk
Factors -- Customer Credit Risks."

Upon termination of a lease, the objective of the Company is to re-lease or
sell the aircraft. The Company's leases generally require that the lessee notify
the Company at least six to nine months prior to the termination of the lease as
to whether the lessee intends to exercise any option to extend the lease. This
allows the Company to commence its remarketing efforts well in advance of the
termination of a lease. Over the past

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two years, three of the Company's aircraft came off lease and were re-leased to
new customers. One Boeing 737-200 ADVANCED went from Britannia Airways (United
Kingdom) to New Zealand International Airlines Limited, a subsidiary of Air New
Zealand Limited; one Boeing 737-200 ADVANCED went from New Zealand International
Airlines Limited to TACA International Airlines (El Salvador) and subsequently
to its sister company, Compania Panamena De Aviacion, S.A. ("COPA") (Panama);
and one Boeing 737-200 ADVANCED went from Air New Zealand Limited to COPA. The
Company has entered into an agreement with ILFC pursuant to which ILFC has
agreed to assist the Company, if requested by the Company, in the remarketing of
its aircraft for a fee to be negotiated for each transaction. See "Relationship
With ILFC" below. If the Company is unable to re-lease or sell an aircraft on
favorable terms, its business, financial condition and results of operations may
be adversely affected. See "Risk Factors -- Ownership Risks" and "-- Customer
Credit Risks."

During the years ended December 31, 1994, 1995 and 1996, lease revenues
from flight equipment generated from foreign customers accounted for
approximately 80%, 69% and 45%, respectively, of total revenues. See "Risk
Factors -- International Risks." The following customers accounted for more than
10% of the Company's total revenues in one or more of the three years ended
December 31, 1996: British Midland Airways Limited (36%, 36% and 23% for the
years ended December 31, 1994, 1995 and 1996, respectively), Alaska Airlines,
Inc. (21% for the year ended December 31, 1996), Southwest Airlines Co. (15% for
the year ended December 31, 1996), ILFC (6%, 16% and 10% for the years ended
December 31, 1994, 1995 and 1996, respectively), New Zealand International
Airlines Limited (42%, 26% and 10% for the years ended December 31, 1994, 1995
and 1996), respectively, and Delta Air Lines, Inc. (12%, 11% and 7% for the
years ended December 31, 1994, 1995 and 1996, respectively).

LEASE PORTFOLIO

The following table sets forth certain information concerning the status of
flight equipment leased by the Company to others as of February 15, 1997:

MANUFACTURE NONCANCELABLE LEASE EXTENSION
AIRCRAFT YEAR LESSEE LEASE PERIOD OPTIONS
- ---------------------- ----------- ----------------------- -------------- -----------------------

B-727-200 ADVANCED(1) 1979 Delta Air Lines, Inc. April 1998 None
B-737-200 1978 ILFC/COPA (Panama) August 1999 None
ADVANCED(1)(2)
B-737-200 ADVANCED(1) 1980 COPA (Panama) June 1998 Two one year options
B-737-200 ADVANCED(3) 1980 New Zealand March 1998 Two six month options
International Airlines
Limited
B-737-300(3) 1989 British Midland Airways April 1997(4) None
Limited
B-737-300(3) 1985 Southwest Airlines Co. December 2002 Four one year options
MD-82(3) 1989 Alaska Airlines, Inc. October 1998 One one year option

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

(1) Stage 2 aircraft. See "Government Regulation" below.

(2) This aircraft is leased to ILFC and subleased to COPA.

(3) Stage 3 aircraft. See "Government Regulation" below.

(4) British Midland Airways Limited has notified the Company that it will not
renew its lease. A letter of intent has been executed to lease the aircraft
to Shanghai Airlines to May 2000.

APPRAISAL OF LEASE PORTFOLIO

Simat, Helliesen & Eichner, Inc. ("SH&E"), a recognized appraiser of
aircraft, has performed an appraisal of the aircraft and has determined that the
aggregate "Current Market Value" of this equipment as of December 31, 1996 was
$91.53 million, which compares favorably to the aggregate net book value of the
Company's aircraft at December 31, 1996 of $89.9 million. "Current Market Value"
is defined as SH&E's opinion of the most likely trading price that may be
generated for an aircraft under the market circumstances that are perceived to
exist at the time in question. Current Market Value assumes that the aircraft is
valued for its highest, best use, that the parties to the hypothetical sale
transaction are willing, able, prudent and knowledgeable, and under no unusual
pressure for a prompt sale, and that the transaction would be negotiated in an
open and unrestricted market on an arm's-length basis, for cash or equivalent
consideration, and given an adequate amount of time for effective exposure to
prospective buyers. See the appraisal report of SH&E appearing at page A-1 of
this Prospectus for a discussion of the assumptions utilized and various factors
considered by SH&E in performing its appraisal.

Since appraisals are only estimates of resale values, there can be no
assurance that such appraised values will not materially change due to factors
beyond the Company's control including, but not limited to, obsolescence and/or
changing market conditions, or that upon expiration of the leases, due to the
absence of purchasers or re-lease demand for the Company's aircraft, the Company
will realize either the then book or appraised value through either sale or
re-leasing of the aircraft.

SH&E was paid $17,000, plus out-of-pocket expenses, for its services in
connection with its appraisal.

FINANCING/SOURCE OF FUNDS

The Company purchases used aircraft and aircraft engines on lease to
airlines directly from other leasing companies or from airlines for leasing back
to the airline. The typical purchase requires both secured debt and an equity
investment by the Company. The Company generally makes an equity investment of
approximately 5% to 15% of the purchase price of aircraft and engines from
internally generated and other cash and seller financing (primarily from ILFC).
The balance of the purchase price is typically financed with the proceeds of
secured borrowings from banks or other financial institutions (to date with the
support of ILFC as the seller of the flight equipment). The Company maintains
banking relationships primarily with four commercial banks providing long-term
secured equipment financing to the Company at December 31, 1996 in an aggregate
amount of $68.8 million. ILFC has provided certain guarantees and other
financial support with respect to the Company's borrowings which have allowed
the Company to finance its aircraft at more favorable leverage rates than the
Company could have obtained without ILFC's support. See Notes 5 and 6 to
Consolidated Financial Statements and "Risk Factors -- Reliance Upon ILFC."

At December 31, 1996, $69.0 million (or 83%) of the Company's borrowings to
finance aircraft purchases are on a non-recourse basis. Non-recourse loans are
structured as loans to special purpose subsidiaries of the Company which only
own the assets which secure the loan. The Company, other than the relevant
special purpose subsidiary, is not liable for the repayment of the non-recourse
loan unless the Company breaches certain limited representations and warranties
under the applicable pledge agreement. The lender assumes the credit risk of
each lease, and its only recourse upon a default under the lease is against the
lessee, the leased equipment and the special purpose subsidiary of the Company.
Interest rates under this type of financing are negotiated on a
transaction-by-transaction basis and reflect the financial condition of the
lessee, the terms of the lease, any guarantees and the amount of the loan. The
remaining $13.7 million of the Company's

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borrowings are on a recourse basis. ILFC has agreed to indemnify the Company for
any payments under this recourse loan not funded by lease or sale payments.

The term of all of the Company's current borrowings ends within 30 to 60
days after the minimum noncancelable period under the related lease. Thus, the
Company will be required to renegotiate the loan or obtain other financing if
the lessee has and exercises an option to extend the term of the lease. See
"Risk Factors -- Dependence Upon Availability of Financing."

At December 31, 1996, the Company's borrowings had interest rates ranging
from 5.4% to 7.8% per annum, with a weighted average interest rate of 7.4% per
annum. At December 31, 1996, approximately 19% of the Company's borrowings
accrued interest on a floating rate basis. See "Risk Factors -- Reliance Upon
ILFC."

The Company has previously provided for all of its financing needs through
internally generated funds and borrowings. There is no assurance that such
sources will provide the Company with additional capital resources. The
Company's future growth is dependent upon raising additional capital. See "Risk
Factors -- Dependence Upon Availability of Financing."

RELATIONSHIP WITH ILFC

ILFC was an initial investor in the Company, and prior to the offering
owned approximately 4.1% of the Company's Common Stock. See "Company History"
above. Five of the Company's seven present aircraft were acquired from ILFC and
ILFC has provided certain guarantees and other financial support with respect to
the Company's borrowings. See "Financing/Source of Funds" above. ILFC has also
paid various fees to the Company for consulting and remarketing services. The
Company has entered into an agreement with ILFC pursuant to which ILFC has
agreed to assist the Company in the remarketing of its aircraft if requested by
the Company. See "Aircraft Leasing" above, "Risk Factors -- Reliance Upon ILFC,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations," "Certain Transactions" and Note 6 to
Consolidated Financial Statements.

ILFC is a wholly owned subsidiary of American International Group, Inc.
("AIG") and a major owner-lessor of commercial jet aircraft. At December 31,
1996, ILFC owned 296 aircraft and managed an additional 18 aircraft. ILFC's
flight equipment under operating lease at December 31, 1996 had an aggregate
book value of approximately $12.2 billion. For the year ended December 31, 1996,
ILFC had total revenues of $1.6 billion and net income of $252 million. AIG is a
holding company which, through its subsidiaries, is primarily engaged in a broad
range of insurance and insurance-related activities in the United States and
abroad. At December 31, 1996, AIG had total assets of approximately $149 billion
and, for the year ended December 31, 1996, had net income of approximately $2.9
billion. AIG's principal executive offices are located at 70 Pine Street, New
York, New York 10270. The Common Stock of AIG is listed on, among others, the
New York Stock Exchange. AIG does not guarantee the obligations of the Company
nor the obligations of ILFC to the Company.

COMPETITION

The aircraft leasing industry is highly competitive, depending in part upon
the type of leased aircraft and prospective lessees. Competition is primarily
based upon the availability of the aircraft required by the customer and the
lease rate. The Company believes that only a few comparably sized companies
focus primarily on the same segment of the aircraft leasing market as the
Company. In addition, a number of aircraft manufacturers, airlines and other
operators, distributors, equipment managers, leasing companies (including ILFC),
financial institutions and other parties engaged in leasing, managing, marketing
or remarketing aircraft compete with the Company, although their primary focus
is not on the same market segment on which the Company focuses. Many of these
periodic competitors have significantly greater financial resources than the
Company. The Company's competitors may lease aircraft at lower rates than the
Company and provide benefits, such as direct maintenance, crews, support
services and trade-in privileges, which the Company does not intend to provide.
The Company believes that it is able to compete in the leasing

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of used jet aircraft due to its experience in the industry and its reputation
and expertise in acquiring and leasing aircraft. See "Risk
Factors -- Competition."

GOVERNMENT REGULATION

The FAA, the Department of Transportation and the Department of State
exercise regulatory authority over the air transportation industry in the United
States. Most other countries have similar regulatory agencies. The FAA has
regulatory jurisdiction over registration and flight operations of aircraft
operating in the United States, including equipment use, ground facilities,
maintenance, communications and other matters.

The FAA regulates the repair and operation of all aircraft operated in the
United States. Its regulations are designed to insure that all aircraft and
aviation equipment are continuously maintained in proper condition to ensure
safe operation of the aircraft. Similar rules apply in most other countries. All
aircraft must be maintained under a continuous condition monitoring program and
must periodically undergo thorough inspection and maintenance. The inspection,
maintenance and repair procedures for the various types of aircraft equipment
are prescribed by regulatory authorities and can be performed only by certified
repair facilities utilizing certified technicians. The FAA can suspend or revoke
the authority of air carriers or their licensed personnel for failure to comply
with its regulations and can ground aircraft if their airworthiness is in
question.

The Department of State and the Department of Transportation, in general,
have jurisdiction over economic regulation of air transportation, but since the
Company does not operate its aircraft for public transportation of passengers
and property, it is not directly subject to their regulatory jurisdiction.

To export aircraft from the U.S. to a foreign destination, the Company is
required to obtain an export license from the United States Department of
Commerce. To date, the Company has not experienced any difficulty in obtaining
required certificates, licenses and approvals either from the FAA, the
Department of Commerce or any other regulatory agency or their foreign
counterparts.

Member countries of the United Nations are signatories to the International
Civil Aviation Organization (the "ICAO"). Each signatory has agreed to comply
with airworthiness directives of the country of manufacture of the aircraft. The
Company will not lease its aircraft to any carrier domiciled in a country which
is not a member of ICAO. The Company also requires its lessees to comply with
the most restrictive standards of either the FAA or its foreign equivalent. In
some instances, the Company may have to share in the cost of complying with
regulatory airworthiness directives. For older aircraft, a special group of
airworthiness directives require extensive inspections and repairs to bring such
aircraft into compliance, which are required to be paid by the lessee.

The FAA and the civil aviation authorities of most countries and
international entities issue regulations limiting permitted noise and other
emissions from aircraft. In most instances, older non-complying aircraft may be
brought into compliance by modifying the engines. One of the Company's aircraft
had noise compliance work performed at a cost of $2.45 million (all of which was
paid by the Company and the lease rate on the aircraft was increased) and three
of the Company's aircraft will require this work to be performed over the next
three years unless the aircraft is leased to a lessee in an area that does not
require the modifications. Currently, these modifications range in cost from
$1.7 million to $2.5 million per aircraft. In some instances, it is necessary to
perform noise compliance work to lease the aircraft into a new jurisdiction. For
example, Western Europe and the United States have non-addition rules which
state that an aircraft which does not meet specified noise compliance
regulations cannot be operated by an airline licensed by one of these
governments. A non-complying aircraft can only be leased or sold into a market
that does not require compliance with the stricter standards. See "Risk
Factors -- Aircraft Noise Compliance."

INSURANCE

The Company requires its lessees to carry those types of insurance which
are customary in the air transportation industry, including comprehensive
liability insurance and aircraft hull insurance. The Company

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is named as an additional insured on liability policies carried by the lessees.
All policies contain a breach of warranty endorsement so that the interests of
the Company are not prejudiced by any act or omission of the operator-lessee.

Insurance premiums are prepaid by the lessee on a periodic basis, with
payment acknowledged to the Company through an independent insurance broker. The
territorial coverage is, in each case, suitable for its lessee's area of
operations and the policies contain, among other provisions, a "no co-insurance"
clause and a provision prohibiting cancellation or material change without at
least 30 days advance written notice to the Company. Furthermore, the insurance
is primary and not contributory and all insurance carriers are required to waive
rights of subrogation against the Company.

The stipulated loss value schedule under aircraft hull insurance policies
is on an agreed value basis acceptable to the Company, which usually exceeds the
book value of the aircraft. Aircraft hull policies contain standard clauses
covering aircraft engines with deductibles required to be paid by the lessee.
Furthermore, the aircraft hull policies contain full war risk endorsements,
including, but not limited to, confiscation, seizure, hijacking and similar
forms of retention or terrorist acts, subject to certain specified exclusions.
All losses under such policies are payable in U.S. Dollars.

The comprehensive liability insurance policies include provisions for
bodily injury, property damage, passenger liability, cargo liability and such
other provisions reasonably necessary in commercial passenger and cargo airline
operations with minimal deductibles. Such policies generally have combined
comprehensive single liability limits of not less than $200 million and require
all losses to be paid in U.S. Dollars.

Insurance policies are generally placed or reinsured in the Lloyds of
London or U.S. markets. The insurance carrier under the insurance policies must
be approved by the Company.

EMPLOYEES

As of December 31, 1996, the Company had four employees. None of the
Company's employees is covered by a collective bargaining agreement and the
Company believes its employee relations are good. The Company intends to add a
Vice President, Technical and a Controller during 1997.

FACILITIES

The Company's principal offices are located at 3655 Torrance Boulevard,
Suite 410, Torrance, California. The Company occupies space in Torrance under a
lease that covers approximately 1,364 square feet of office space and expires on
February 1, 1999. The Company believes that its current facilities are adequate
for its needs and does not anticipate any difficulty replacing such facilities
or locating additional facilities, if needed. See Note 8 to Consolidated
Financial Statements.

LEGAL PROCEEDINGS

The Company is not currently involved in any litigation.

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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS

The Directors and executive officers of the Company are as follows:

SERVED AS
DIRECTOR
NAME POSITION WITH THE COMPANY AGE(1) SINCE
- ----------------------------- --------------------------------------- -------------------------------------- ---------

William E. Lindsey Chairman of the Board, Chief Executive 59 1988
Officer and Director
Michael P. Grella President and Director 40 1988
Richard O. Hammond Vice President -- Finance and Treasurer 67
Christopher W. Vorderkunz(2) Vice President -- Technical 47
Stuart M. Warren Secretary and Director 53 1988
Aaron Mendelsohn Director 45 1988
Christer Salen Director 55 1989
Kenneth Taylor Director 65 1994

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

(1) As of December 31, 1996.

(2) Mr. Vorderkunz's employment with the Company will commence in April 1997.

All members of the Board of Directors hold office until the next annual
meeting of shareholders or until their successors are duly elected and
qualified. Executive officers serve at the discretion of the Board of Directors.

MR. LINDSEY has served as Chairman of the Board of Directors, Chief
Executive Officer and a Director of the Company since 1988. He has over 30 years
of aviation experience as an aeronautical and astronautical engineer, attorney,
aircraft salesman, fleet and financial planner, and airline manufacturing
executive. Prior to joining the Company, he was Chairman of the Board of
Directors of Aircraft Finance Corporation ("AFC"), a privately held company
engaged in the acquisition, disposition and leasing of used commercial aircraft,
for approximately three years. In 1987, AFC was engaged by Sunworld Airlines to
manage its operations because Sunworld Airlines was in financial distress. As a
result of that engagement, Mr. Lindsey became Chairman of the Board of Sunworld
Airlines. In 1988, Sunworld Airlines entered bankruptcy proceedings and
discontinued operations the same year. Previously, Mr. Lindsey was employed by
Western Airlines for approximately 15 years as the Manager of Operations, as an
attorney in the corporate law department, and as the Director of Fleet Planning
with responsibility for the evaluation, negotiation and acquisition of aircraft.
From 1967 to 1972, in addition to his duties for Western Airlines, Mr. Lindsey
was qualified as a Designated Engineering Representative (DER) for the FAA,
which allowed him to approve all of Western Airlines' aircraft operational
parameters on behalf of the FAA. He holds a B.S. in aeronautical engineering
from Northrop University and a J.D. from Loyola University School of Law, Los
Angeles.

MR. GRELLA has served as President of the Company since 1988. Prior to
joining the Company, he was President of Aircraft Finance Corporation for
approximately three years. Previously, Mr. Grella served for seven years as
Director of Marketing for Aircraft Investment Corporation. In that capacity, he
was responsible for the marketing, negotiation and sale of commercial jet
aircraft on several continents, as well as for research, evaluation, pricing and
contract administration. Mr. Grella's experience also includes the evaluation,
inspection, selection and acquisition of aircraft on an international basis; and
the negotiation and management of a multiple aircraft modification program for a
major U.S. manufacturer. Mr. Grella holds a B.S. in business from Brockport
University.

MR. HAMMOND has served as the Vice President -- Finance and Treasurer of
the Company since 1988. Prior to joining the Company, he was the Chief Financial
Officer of Aircraft Finance Corporation for three years. For the past
approximately 35 years, Mr. Hammond has been actively engaged in the airline
industry and in aircraft financing, including Vice President and Treasurer of
Western Airlines from 1969 to 1982. His experience includes negotiating aircraft
leases and equipment trusts, raising corporate debt and equity capital,
negotiating domestic and foreign bank lines of credit, and arranging aircraft
hull and liability insurance.

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Mr. Hammond also has experience in insurance brokerage, specializing in aviation
insurance. He holds a B.S. with Honors in Accounting from the University of
California at Los Angeles.

MR. VORDERKUNZ will become a Vice President -- Technical in April 1997. For
the four years prior to December 1996, Mr. Vorderkunz was the Vice President of
Airclaims, Inc., an aviation loss adjustment company, responsible for
investigating and adjusting hull, liability, cargo, product and premises claims
primarily for insurance underwriters. Prior to his employment with Airclaims,
Inc., Mr. Vorderkunz was the Vice President-Technical for the Company for three
years. Mr. Vorderkunz has been an FAA licensed airframe and powerplant
technician since 1972.

MR. WARREN has served as Secretary and a Director of the Company since
1988. Mr. Warren is currently a principal in Warren & Sklar, a law corporation.
He has been a practicing attorney for the past 26 years, during the last 24 of
which he has been actively engaged in representing clients in the aviation
industry. Mr. Warren was engaged as an attorney for The Flying Tiger Line Inc.
for approximately 14 years and thereafter represented ILFC as well as other
leasing companies and airlines in connection with the purchase, finance and
lease of aircraft. He received his A.B. from Princeton University and his LL.B.
from the Harvard Law School and is a member of the State Bars of California and
New York.

MR. MENDELSOHN was an Associate Director of Bear Stearns & Co. Inc. from
1988 to March 1997. Mr. Mendelsohn was responsible for the public financing in
1984 of Wings West Airlines Inc, a commuter airline that was sold to American
Airlines in 1987. He currently serves on the Board of Directors of Display
Products, Inc (an electronics firm), Golden Ocean Group Limited (an
international shipping firm), Advanced Bionics Corporation (a medical device
technology company), and AMMI(a company engaged in the design and manufacture of
"smart cards"). He received his B.A. from the University of California at Los
Angeles, his J.D. from Loyola University School of Law, Los Angeles and is a
member of the California Bar Association (inactive status).

MR. TAYLOR retired from ILFC in early 1994 where he served as Vice
President-Technical. Prior to joining ILFC in 1983, Mr. Taylor was an officer,
director and principal shareholder of Century International, Ltd., which was
engaged in the business of aircraft sales, leasing and financing from 1978 to
1983. Prior to 1978, Mr. Taylor was an executive of TigerAir, Inc. and he was
active in the airline industry with Douglas Aircraft Company, Fairchild Aircraft
Marketing Company and DeHavilland Aircraft of Canada.

MR. SALEN has been engaged in the shipping and aviation sectors of the
transport industry for his entire working life. He is a director of EXXTOR
Group, Ltd., a London-based holding company for ventures principally engaged in
surface transportation and airline operations out of the United Kingdom. Mr.
Salen was the founding partner of Cargolux Airlines International, S.A. and
currently is also Chairman of European Aircraft Investors (an aviation holding
company), Caledonian Steamship Company (a shipping holding company) and SCS
Management Limited (a management company).

DIRECTOR COMPENSATION

No director currently receives any compensation or other remuneration for
their services as members of the Board of Directors. The Company proposes to pay
outside directors after the closing of the offering an annual fee of $8,000 and
a fee of $1,000 for each board meeting attended in person and $500 for each
telephonic board meeting attended and $500 for each committee meeting attended.
All directors will be reimbursed for their reasonable out-of-pocket expenses
incurred to attend Board of Directors or committee meetings.

Prior to the closing of the offering, the Board of Directors and
shareholders of the Company will approve the Company's 1997 Directors Plan. The
purpose of the 1997 Directors Plan is to promote the success of the Company by
providing an additional means through the grant of stock options to attract,
motivate and retain experienced and knowledgeable Eligible Directors (as defined
below). The 1997 Directors Plan provides that annually an Eligible Director will
receive an option to purchase 5,000 shares of Common Stock at an exercise price
equal to the market price of the Common Stock on the date of grant. The Board of
Directors has authorized 50,000 shares of Common Stock for issuance under the
1997 Directors Plan. Stock options granted

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under the 1997 Directors Plan will expire five years after the date of grant. If
a person's service as a member of the Board of Directors terminates, any
unexercisable portion of the option shall terminate and the option will
terminate six months after the date of termination or the earlier expiration of
the option by its terms. Options generally vest over a three-year period. Upon a
Change in Control Event (as defined in the 1997 Directors Plan), the options
will become fully exercisable. "Eligible Director" means a member of the Board
of Directors of the Company who as of the applicable date of grant is not (i) an
officer or employee of the Company or any subsidiary, or (ii) a person to whom
equity securities of the Company or an affiliate have been granted or awarded
within the prior year under or pursuant to any other plan of the Company or an
affiliate that provides for the grant or award of equity securities.

INDEMNIFICATION AND LIMITATION OF LIABILITY

The Amended and Restated Articles of Incorporation will contain provisions
that eliminate the personal liability of its directors for monetary damages
arising from a breach of their fiduciary duties in certain circumstances to the
fullest extent permitted by law. Such limitation of liability does not affect
the availability of equitable remedies such as injunctive relief or rescission.

Prior to the consummation of the offering, the Company will enter into
indemnity agreements with its officers and directors containing provisions which
are in some respects broader than the specific indemnification provisions
contained in the California Corporations Code. The indemnity agreements may
require the Company, among other things, to indemnify such officers and
directors against certain liabilities that may arise by reason of their status
or service as directors or officers, to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified, and
to obtain directors' and officers' insurance if available on reasonable terms.

At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding that may result in a claim for such indemnification.

AUDIT COMMITTEE

After the offering, an Audit Committee will be formed and consist of at
least three directors, a majority of whom will not be present or former
employees or officers of the Company. The Audit Committee's duties will include
reviewing internal financial information, monitoring cash flow, budget variances
and credit arrangements, reviewing the audit program of the Company, reviewing
with the Company's independent auditors the results of all audits upon their
completion, annually selecting and recommending independent accountants,
overseeing the quarterly unaudited reporting process and taking such other
action as may be necessary to assure the adequacy and integrity of all financial
information distributed by the Company.

COMPENSATION COMMITTEE

After the offering, a Compensation Committee will be formed and consist of
at least three directors, a majority of whom will not be present or former
employees or officers of the Company. The Compensation Committee will recommend
compensation levels of senior management and work with senior management on
benefit and compensation programs for Company employees.

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EXECUTIVE COMPENSATION

The following table provides certain summary information concerning the
compensation earned, for services rendered in all capacities to the Company, by
the Company's Chief Executive Officer for the year ended December 31, 1996. No
other executive officer of the Company had total salary and bonus in excess of
$100,000 for the year ended December 31, 1996. Certain columns have been omitted
from this Summary Compensation Table because they are not applicable.

SUMMARY COMPENSATION TABLE

ANNUAL
COMPENSATION
-----------------
NAME AND PRINCIPAL POSITION SALARY BONUS
----------------------------------------------------------- -------- ------

William E. Lindsey
Chairman of the Board and Chief Executive Officer........ $120,000 $ --

EXISTING STOCK OPTIONS

As of the date of the offering, executive officers will hold options to
acquire 372,498 shares of Common Stock, including options to acquire 220,000
shares of Common Stock granted to William E. Lindsey, the Chairman of the Board
and Chief Executive Officer. These options have an exercise price of $6.00 per
share, will vest 25% at December 31, 1997 and 25% at each anniversary thereafter
and will expire on March 31, 2007. If the executive is terminated for whatever
reason, the options vest in full.

EMPLOYMENT AGREEMENTS

Prior to the offering, the Company will enter into employment agreements
with each of William E. Lindsey, the Chairman of the Board and Chief Executive
Officer of the Company, and Michael P. Grella, the President of the Company.
Each employment agreement will be for a term of three years and will
automatically extend annually one additional year unless notice is given by the
Company or the employee. Mr. Lindsey and Mr. Grella will be entitled to a base
salary of $160,000 and $140,000 per year, respectively, and each will be
entitled to a bonus based upon certain pretax income targets, which could amount
to bonuses of up to 125% of the employee's base salary.

Under each employment agreement, in the event of a termination of the
employee's employment without cause, his total disability (as defined in the
agreements) or the employee resigns for "good reason" (as defined in the
agreements) within one year of a "change in control" (as defined below), the
employee is entitled to receive, in addition to salary and bonuses accrued to
the date of termination, all amounts payable under the agreement as though such
termination, total disability or resignation for good reason had not occurred. A
"change in control" occurs under the agreements upon (i) approval by the
shareholders of the Company of the dissolution or liquidation of the Company;
(ii) approval by the shareholders of the Company of an agreement to merge or
consolidate, or otherwise reorganize, with or into one or more entities not a
subsidiary of the Company, as a result of which less than 50% of the outstanding
voting securities of the surviving or resulting entity immediately after the
reorganization are, or will be owned, directly or indirectly, by shareholders of
the Company immediately before such reorganization (assuming for purposes of
such determination that there is no change in the record ownership of the
Company's securities from the record date for such approval until such
reorganization and that such record owners hold no securities of the other
parties to such reorganization, but including in such determination any
securities of the other parties to such reorganization held by affiliates of the
Company); (iii) approval by the shareholders of the Company of the sale, lease,
conveyance or other disposition of all or substantially all of the Company's
business and/or assets to a person or entity which is not a wholly owned
subsidiary of the Company; (iv) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), but
excluding any person described in and satisfying the conditions of Rule
13d-1(b)(1) thereunder), other than a person who is the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act) of more than 20% of the
outstanding shares of Common Stock of the Company at the time of the execution
of the employment agreements (or an affiliate, successor, heir, descendant or
related party of or to any such person), becomes the

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beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing more than 25% of the
combined voting power of the Company's then outstanding securities entitled to
then vote generally in the election of directors of the Company; or (v) a
majority of the Board of Directors of the Company not being comprised of
Continuing Directors. For purposes of this definition, "Continuing Directors"
are persons who were (A) members of the Board of Directors of the Company on the
date of the employment agreements or (B) nominated for election or elected to
the Board of Directors of the Company with the affirmative vote of at least a
majority of the directors who were Continuing Directors at the time of such
nomination or election.

STOCK OPTION PLAN

Prior to the closing of the offering, the Company and its shareholders will
adopt the Company's 1997 Option Plan. The 1997 Option Plan provides a means to
attract, motivate, retain and reward key employees of the Company and its
subsidiaries and other selected persons and promote the success of the Company.
A maximum of 50,000 shares of Common Stock (subject to certain anti-dilutive
adjustments) may be issued pursuant to grants and awards under the 1997 Option
Plan. The maximum number of shares that may be subject to all qualifying
share-based awards, either individually or in the aggregate, that during any
calendar year are granted under the 1997 Option Plan to any one participant will
not exceed 20,000 (subject to certain anti-dilutive adjustments).

Administration and Eligibility. The 1997 Option Plan will be administered
by the Board of Directors or a committee appointed by the Board of Directors
(the "Administrator"). The 1997 Option Plan empowers the Administrator among
other things, to interpret the 1997 Option Plan, to make all determinations
deemed necessary or advisable for the administration of the 1997 Option Plan and
to award to officers and other key employees of Company and its subsidiaries and
certain other eligible persons ("Eligible Employees"), as selected by the
Administrator, options, including incentive stock options ("ISOs") as defined in
the Internal Revenue Code (the "Code"), stock appreciation rights ("SARs"),
shares of restricted stock, performance shares and other awards valued by
reference to Common Stock, based on the performance of the participant, the
performance of the Company or its Common Stock and/or such other factors as the
Administrator deems appropriate. The various types of awards under the 1997
Option Plan are collectively referred to as "Awards." It is expected that after
the consummation of the offering there will be approximately five officers and
other employees eligible to participate in the 1997 Option Plan.

Transferability. Generally speaking, Awards under the 1997 Option Plan are
not transferable other than by will or the laws of descent and distribution, are
exercisable only by the participant, and may be paid only to the participant or
the participant's beneficiary or representatives. However, the Administrator may
establish conditions and procedures under which exercise by and transfers and
payments to certain third parties are permitted, to the extent permitted by law.

Options. An option is the right to purchase shares of Common Stock at a
future date at a specified price. The option price is generally the closing
price for a share of Common Stock as reported on the Nasdaq-NM ("fair market
value") on the date of grant, but may be a lesser amount if authorized by the
Administrator. The 1997 Option Plan authorizes the Administrator to award
options to purchase Common Stock at an exercise price which may be less than
100% of the fair market value of such stock at the time the option is granted,
except in the case of ISOs.

An option may be granted as an incentive stock option, as defined in the
Code, or a nonqualified stock option. An ISO may not be granted to a person who,
at the time the ISO is granted, owns more than 10% of the total combined voting
power of all classes of stock of the Company and its subsidiaries unless the
exercise price is at least 110% of the fair market value of shares of Common
Stock subject to the option and such option by its terms is not exercisable
after the expiration of five years from the date such option is granted. The
aggregate fair market value of shares of Common Stock (determined at the time
the option is granted) for which ISOs may be first exercisable by an option
holder during any calendar year under the 1997 Option Plan or any other plan of
the Company or its subsidiaries may not exceed $100,000. A nonqualified stock
option is not subject to any of these limitations.

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37

The 1997 Option Plan permits optionees, with certain exceptions, to pay the
exercise price of options in cash, Common Stock (valued at its fair market value
on the date of exercise), a promissory note, a combination thereof or, if an
option award so provides, by delivering irrevocable instructions to a
stockbroker to promptly deliver the exercise price to the Company upon exercise
(i.e., a so-called "cashless exercise"). Cash received by the Company upon
exercise will constitute general funds of the Company and shares of Common Stock
received by the Company upon exercise will return to the status of authorized
but unissued shares.

Consideration for Awards. Typically, the only consideration received by the
Company for the grant of an Award under the 1997 Option Plan will be the future
services by the optionee (as contemplated by the vesting schedule or required by
agreement), past services, or a combination thereof.

SARs. The 1997 Option Plan authorizes the Administrator to grant SARs
independent of any other Award or concurrently (and in tandem) with the grant of
options. An SAR granted in tandem with an option is only exercisable when and to
the extent that the related option is exercisable. An SAR entitles the holder to
receive upon exercise the excess of the fair market value of a specified number
of shares of Common Stock at the time of exercise over the option price. This
amount may be paid in Common Stock (valued at its fair market value on the date
of exercise), cash or a combination thereof, as the Administrator may determine.
Unless the Award agreement provides otherwise, the option granted concurrently
with the SAR must be cancelled to the extent that the appreciation right is
exercised and the SAR must be cancelled to the extent the option is exercised.
SARs limited to certain periods of time around a major event, such as a
reorganization or change in control, may also be granted under the 1997 Option
Plan.

Restricted Stock. The 1997 Option Plan authorizes the Administrator to
grant restricted stock to Eligible Employees on such conditions and with such
restricted periods as the Administrator may designate. During the restricted
period, stock certificates evidencing the restricted shares will be held by the
Company or a third party designated by the Administrator and the restricted
shares may not be sold, assigned, transferred, pledged or otherwise encumbered.

Performance Share Awards. The Administrator may, in its discretion, grant
Performance Share Awards to Eligible Employees based upon such factors as the
Administrator deems relevant in light of the specific type and terms of the
Award. The amount of cash or shares or other property that may be deliverable
pursuant to these Awards will be based upon the degree of attainment over a
specified period of not more than ten years (a "performance cycle") as may be
established by the Administrator of such measures of the performance of the
Company (or any part thereof) or the participant as may be established by the
Administrator. The Administrator may provide for full or partial credit, prior
to completion of a performance cycle or the attainment of the performance
achievement specified in the Award, in the event of the participant's death,
retirement, or disability, a Change in Control Event (as defined in the 1997
Option Plan) or in such other circumstances as the Administrator may determine.

Special Performance-Based Share Awards. In addition to awards granted under
other provisions of the 1997 Option Plan, performance-based awards within the
meaning of Section 162(m) of the Code and based on revenues, net earnings, cash
flow, return on equity or on assets, or other business criteria ("Other
Performance-Based Awards") relative to preestablished performance goals, may be
granted under the 1997 Option Plan. The specific performance goals relative to
these business criteria must be approved by the Administrator in advance of
applicable deadlines under the Code and while the performance relating to the
goals remains substantially uncertain. The applicable performance measurement
period may not be less than one nor more than ten years. Performance goals may
be adjusted to mitigate the unbudgeted impact of material, unusual or
nonrecurring gains and losses, accounting changes or other extraordinary events
not foreseen at the time the goals were set.

The eligible class of persons for Other Performance-Based Awards is
executive officers of the Company. In no event may grants of this type of Award
in any fiscal year to any participant relate to more than 20,000 shares or
$600,000 if payable only in cash. Before any Other Performance-Based Award is
paid, the Administrator must certify that the material terms of the Other
Performance-Based Award were satisfied. The Administrator will have discretion
to determine the restrictions or other limitations of the individual Awards.

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38

Stock Bonuses. The Administrator may grant a stock bonus to any Eligible
Employee to reward exceptional or special services, contributions or
achievements in the manner and on such terms and conditions (including any
restrictions on such shares) as determined from time to time by the
Administrator. The number of shares so awarded shall be determined by the
Administrator and may be granted independently or in lieu of a cash bonus.

Cash Awards. If Awards payable only in cash are not considered derivative
securities and are not intended to constitute a performance-based award under
the Code, such Awards will not reduce the number of shares available under the
1997 Option Plan. Some cash only awards, however, such as SARs, will reduce the
numbers of shares available under the 1997 Option Plan. Subject to the
provisions of the 1997 Option Plan, the Administrator has the sole and complete
authority to determine the employees to whom and the time or times at which such
awards will be made, the number of shares awarded and other conditions of the
awards.

Term and Exercise Period of Awards. The 1997 Option Plan provides that
awards may be granted for such terms as the Administrator may determine but not
greater than ten years after the date of the Award. The 1997 Option Plan does
not impose any minimum vesting period, post-termination exercise period or
pricing requirement, although in the ordinary course, customary restrictions
will likely be imposed. Options and SARs will generally be exercisable during
the holder's employment by the Company or by a related company and unearned
restricted stock and other Awards will generally be forfeited upon the
termination of the holder's employment prior to the end of the restricted or
performance period. Generally speaking, options which have become exercisable
prior to termination of employment will remain exercisable for three months
thereafter (12 months in the case of retirement, disability or death). Such
periods, however, cannot exceed the expiration dates of the Options. SARs have
the same post-termination provisions as the Options to which they relate. The
Administrator has the authority to accelerate the exercisability of Awards or
(within the maximum ten-year term) extend the exercisability periods.

Termination, Amendment and Adjustment. The Plan may be terminated by the
Board of Directors at any time. In addition, the Board may amend the 1997 Option
Plan from time to time, without the authorization or approval of the Company's
shareholders, unless the amendment (i) materially increases the benefits
accruing to participants under the 1997 Option Plan, (ii) materially increases
the aggregate number of securities that may be issued under the 1997 Option Plan
or (iii) materially modifies the requirements as to eligibility for
participation in the 1997 Option Plan, but in each case only to the extent then
required by the Code or applicable law, or deemed necessary or advisable by the
Board of Directors. No Award may be granted under the 1996 Option Plan after
March 1, 2007, although Awards previously granted may thereafter be amended
consistent with the terms of the 1997 Option Plan.

Upon the occurrence of a Change in Control Event (as defined in the 1997
Option Plan), there will be an acceleration of vesting unless the Administrator
determines otherwise prior to the Change in Control Event. In addition, upon the
occurrence of an extraordinary dividend or distribution or any extraordinary
corporate transaction, an appropriate adjustment to the number and type of
shares or other securities or property subject to an Award and the price thereof
may be made in order to prevent dilution or enlargement of rights under Awards.

Individual awards may be amended by the Administrator in any manner
consistent with the 1997 Option Plan. Amendments that adversely affect the
holder of an Award, however, are subject to his or her consent.

The 1997 Option Plan is not exclusive and does not limit the authority of
the Board of Directors or the Administrator to grant other awards, in stock or
cash, or to authorize other compensation, under any other plan or authority.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company did not have a compensation committee for the fiscal year ended
December 31, 1996. For the year ended December 31, 1996, all decisions regarding
executive compensation were made by the Board of Directors of the Company.
William E. Lindsey and Michael P. Grella, directors and executive officers of
the Company, did not participate in deliberations by the Board of Directors of
the Company regarding executive compensation. None of the executive officers of
the Company currently serves on the compensation committee of another entity or
any other committee of the board of directors of another entity performing
similar functions.

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CERTAIN TRANSACTIONS

ILFC is a shareholder of the Company. See "Business -- Relationship With
ILFC." During 1993 and 1995, the Company purchased aircraft from ILFC
aggregating $30.2 million and $41.5 million, respectively. None were purchased
during 1994 or 1996. At December 31, 1996, 79% of the Company's gross fleet cost
was comprised of aircraft acquired from ILFC. The Company financed these
acquisitions through bank loans, partially guaranteed by ILFC, as well as loans
from ILFC. ILFC provides these guarantees to lenders through an asset value
guarantee ("AVG") which generally covers financing in excess of the asset value,
as defined. ILFC's financial support has allowed the Company to finance aircraft
purchases at more favorable leverage than the Company could otherwise obtain.
The Company's typical operating lease transaction with an AVG requires a cash
investment by the Company of approximately 5% to 15% of the aircraft purchase
price while the industry standard ranges from 20% to 30%. At December 31, 1996,
$34.2 million of long-term debt was covered by AVG and $10.2 million was due to
ILFC. During 1993, the Company sold an aircraft to an unrelated party and
received proceeds of $1.5 million, of which $800,000 was from ILFC. ILFC had
assured the Company that it would recover at least $1.5 million from the sale of
this aircraft. See "Risk Factors -- Reliance Upon ILFC."

At December 31, 1996, the Company had one aircraft on lease to ILFC which
is subleased to COPA. See "Business -- Lease Portfolio." The lease originated in
August 1994 and provides for monthly rents of $80,000 through August 1999. The
Company recognized rental income of $400,000, $960,000 and $960,000 during the
years ended 1994, 1995 and 1996, respectively, from this lease.

The Company has an agreement with ILFC relating to the December 1995
purchase of an aircraft which provides for recovery of an operating loss, as
defined in the acquired lease. The Company estimates this loss will be incurred
through 1999. Accordingly, the Company reduced the purchase price of the related
aircraft and recognized a receivable for the present value of the estimated
recovery aggregating $579,000. The amount due from ILFC at December 31, 1996 was
$441,000, which includes accrued interest of $87,000. The loss stems from a
stated lease rate which is less than the market lease rate at the date of
acquisition. Accordingly, the Company allocated additional cost to the purchase
price and recognized deferred rent aggregating $1.7 million for the present
value of the difference between the market and stated rent. Deferred rent will
be amortized on the straight line method over the remaining lease term.

The Company realized consulting fee revenues of $69,000, $347,000 and
$78,000 during the years 1994, 1995 and 1996, respectively, for services to
ILFC. The consulting services provided to ILFC by the Company included assisting
in the marketing and remarketing of aircraft and related assets.

The Company's Chief Executive Officer and President own Great Lakes, an
affiliated company. From time to time, these officers provide consulting
services to Great Lakes, consisting of portfolio management and technical
services. In consideration of these services, Great Lakes paid the Company
$144,000 for each of the years 1994, 1995 and 1996.

In connection with the purchase of aircraft by the Company, the Company
borrowed from Great Lakes an aggregate of $2.1 million, due in June 1997 and
bearing interest at 5.4%. If the borrowings are not refinanced, Great Lakes will
extend the maturity date. See Note 5 of Consolidated Financial Statements.

During 1994, ILFC incurred $179,628 for certain improvements to an aircraft
which it leased from the Company. The Company accrued for such costs at December
31, 1994 and reimbursed ILFC in 1995. During 1995, ILFC advanced the Company
$696,000 to assist with the financing of an aircraft purchase which the Company
repaid during 1996. At December 31, 1994 and 1995, the Company had amounts due
to ILFC of $179,628 and $696,000, respectively. No amounts were due at December
31, 1996.

The Company intends to continue its relationship with ILFC, where
appropriate, to facilitate the purchase, lease, re-lease and sale of aircraft.
See "Risk Factors -- Reliance Upon ILFC" and "Business -- Strategy -- Optimize
Relationship with ILFC."

Management of the Company believes that the terms of the above described
transactions were as or more favorable to the Company than the Company could
have received from non-affiliated third parties.

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PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the date of this Prospectus as
adjusted to reflect to 1-for-6 reverse stock split, the conversion of 4,811,666
outstanding shares of Preferred Stock into 801,908 shares of Common Stock, the
exercise of options to acquire 358,045 shares of Common Stock and the sale of
the shares of Common Stock offered hereby for (i) each person known by the
Company to be the beneficial owner of more than five percent of the outstanding
shares of the Company's Common Stock, (ii) each director of the Company, (iii)
the Chief Executive Officer and (iv) all executive officers and directors of the
Company as a group.

PERCENT OF CLASS
-----------------------
NUMBER OF BEFORE THE AFTER THE
NAME(1) SHARES OFFERING OFFERING
- ----------------------------------------------------------------- --------- ---------- ----------

Christer Salen(2)................................................ 301,904 24.9% 10.0%
Sven Salen(3).................................................... 254,791 21.0 8.4
Gunnar Bjorg(4).................................................. 157,187 13.0 5.2
William E. Lindsey............................................... 29,000 2.4 1.0
Michael P. Grella................................................ 19,332 1.6 *
Aaron Mendelsohn(5).............................................. 52,704 4.3 1.7
Kenneth Taylor................................................... 7,722 * *
Stuart M. Warren(6).............................................. 44,166 3.6 1.5
All directors and executive officers as a group (8 persons)(7)... 458,994 37.9 15.1

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

* Less than one percent

(1) The address for each of named individuals is 3655 Torrance Boulevard, Suite
410, Torrance, California 90503.

(2) 289,092 of the shares are held by George Alexander, as Voting Trustee under
a Voting Trust for European Aircraft Investors. The address of Mr. Alexander
is East 4511 Mockingbird Lane, Paradise Valley, Arizona 85253. Christer
Salen is a director of and owns 9% of the outstanding stock of European
Aircraft Investors. The remaining stock of European Aircraft Investors is
indirectly owned by discretionary trusts of which Mr. Salen is not a
beneficiary. Mr. Salen disclaims beneficial ownership of the shares held by
such trusts. Christer Salen is the brother of Sven Salen and disclaims
beneficial ownership of the shares beneficially owned by Sven Salen.

(3) Shares are held by John T. McMahan, as Voting Trustee under a Voting Trust
for Salenia AB. The address for Mr. McMahan is 1980 Post Oak Boulevard,
Houston, Texas 77056. Salenia AB is beneficially owned by Sven Salen and his
family. Sven Salen is the brother of Christer Salen and disclaims beneficial
ownership of the shares beneficially owned by Christer Salen and European
Aircraft Investors.

(4) Shares are held by Menzane International Corp., P.O. Box 184, Lettstrasse
37, FC-9490 Vaduz, Liechtenstein. Gunnar Bjorg is the beneficial owner of
Menzane International Corp.

(5) Shares are owned by G-G Associates, a general partnership. Mr. Mendelsohn
shares voting and dispositive power.

(6) Does not include 10,000 shares held by C. H. Cleworth Pension Plan, as to
which Mr. Warren does not have voting or dispositive power. Mr. Warren and
his parents are the sole beneficiaries of the C. H. Cleworth Pension Plan.

(7) See footnotes (2), (5) and (6).

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DESCRIPTION OF CAPITAL STOCK

Upon consummation of the offering, the authorized capital stock of the
Company will consist of 20,000,000 shares of Common Stock, $.01 par value, and
15,000,000 shares of Preferred Stock, $.01 par value. After giving effect to the
offering, there will be 3,032,451 shares of Common Stock outstanding, assuming
the conversion of outstanding Preferred Stock into 801,908 shares of Common
Stock and the exercise of options to purchase 358,045 shares of Common Stock.

COMMON STOCK

Subject to the rights of the holders of any Preferred Stock which may be
outstanding, each holder of Common Stock on the applicable record date is
entitled to receive such dividends as may be declared by the Board of Directors
out of funds legally available therefor, and, in the event of liquidation, to
share pro rata in any distribution of the Company's assets after payment or
providing for the payment of liabilities and the liquidation preference of any
outstanding Preferred Stock. Each holder of Common Stock is entitled to one vote
for each share held of record on the applicable record date on all matters
presented to a vote of shareholders. Holders of Common Stock have no preemptive
rights to purchase or subscribe for any stock or other securities and there are
no conversion rights or redemption or sinking fund provisions with respect to
such Common Stock. All outstanding shares of Common Stock are, and the shares of
Common Stock offered hereby will be when issued, fully paid and nonassessable.

PREFERRED STOCK

As of December 31, 1996, the Company had outstanding 4,941,000 shares of
Convertible Preferred Stock with a liquidation preference of $1.00 per share.
Each share of Convertible Preferred Stock, after giving effect to the 1-for-6
reverse stock split, will be convertible into one-sixth of a share of Common
Stock subject to adjustment upon the occurrence of certain events, including the
issuance of Common Stock or rights, options or securities convertible into or
exchangeable for Common Stock at a price per share of Common Stock less than the
then effective conversion price of the Convertible Preferred Stock. The holders
of the Convertible Preferred Stock are entitled to receive dividends pro rata
with the holders of the Common Stock and vote together with the holders of the
Common Stock, voting as one class, on all matters except for certain amendments
to the terms of the Convertible Preferred Stock which require the approval of
the holders of 67% (and in some cases 90%) of the shares of Convertible
Preferred Stock, voting as a separate class. Upon consummation of the offering,
all but 129,334 shares of the Convertible Preferred Stock will be converted to
Common Stock.

The Company is authorized to issue 15,000,000 shares of Preferred Stock in
one or more series, and to designate the rights, preferences, limitations,
restrictions of and upon shares of each series, including voting, redemption and
conversion rights. The Board of Directors may also designate dividend rights and
preferences in liquidation. It is not possible to state the effect of the
authorization and issuance of any series of Preferred Stock upon the rights of
holders of Common Stock until the Board of Directors determines the specific
terms, rights and preferences of such a series of Preferred Stock. However, such
effects might include, among other things, restricting dividends on the Common
Stock, diluting the voting power of the Common Stock or impairing the
liquidation rights of such shares without further action by holders of Common
Stock. In addition, under certain circumstances, the issuance of Preferred Stock
may render more difficult or tend to discourage a merger, tender offer or proxy
contest, the assumption of control by a holder of a large block of the Company's
securities or the removal of incumbent management, which could thereby depress
the market price of the Company's Common Stock. At present, the Company has no
plans to issue any additional shares of Preferred Stock.

CERTAIN ANTI-TAKEOVER PROVISIONS

Certain provisions of the Company's Amended and Restated Articles of
Incorporation and Bylaws (as they will be amended prior to the offering)
summarized in the following paragraphs may be deemed to have anti-takeover
effects and may delay, defer or prevent a tender offer or takeover attempt that
a shareholder

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might consider to be in such shareholder's best interest, including those
attempts that might result in a premium over the market price for the shares
held by shareholders.

The Company's Amended and Restated Articles of Incorporation will include
authorization of the issuance of up to 15,000,000 shares of Preferred Stock,
with such characteristics that may tend to discourage a merger, tender offer or
proxy contest, as described in "Preferred Stock" above. The Company's Amended
and Restated Articles of Incorporation will also provide that shareholder action
can be taken only at an annual or special meeting of shareholders and may not be
taken by written consent. The Company's Bylaws also will limit the ability of
shareholders to raise matters at a meeting of shareholders without giving
advance notice. In addition, upon qualification of the Company as a "listed
corporation" as defined in Section 301.5(d) of the California Corporations Code,
cumulative voting will be eliminated.

The Amended and Restated Articles of Incorporation and the Bylaws will
provide that the affirmative vote of the holders of at least 66 2/3% of the
outstanding shares of the Company then entitled to vote on the matter is
required to amend the Bylaws and certain provisions of the Amended and Restated
Articles of Incorporation, including those provisions relating to the number of
directors, the filling of vacancies on the Board of Directors, the prohibition
on shareholders action without a meeting, indemnification of directors, officers
and others, the limitation on liability of directors and the supermajority
voting requirements in the Amended and Restated Articles of Incorporation and
Bylaws. These voting requirements will have the effect of making more difficult
any amendment by stockholders, even if a majority of the Company's stockholders
believes that such amendment would be in its best interests.

The Company will also include in its Amended and Restated Articles of
Incorporation provisions to eliminate the personal liability of its directors
for monetary damages resulting from breaches of their fiduciary duty to the
extent permitted by the California General Corporation Law. See "Risk
Factors -- Anti-Takeover Provisions."

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar of the Common Stock is American Stock
Transfer & Trust Company.

REPORTS TO SHAREHOLDERS

The Company will furnish its shareholders with annual reports containing
financial statements audited by independent accountants and quarterly reports
for the first three quarters of each year containing unaudited financial
statements.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the offering, the Company will have outstanding
3,032,451 shares of Common Stock. Of these shares, the 1,820,000 shares sold in
the offering plus any additional shares sold upon exercise of the Underwriters'
over-allotment option will be freely tradeable without restriction or further
registration under the Securities Act except for any of such shares held by
"affiliates" of the Company.

The remaining shares of Common Stock held by the existing shareholders are
"restricted securities" as that term is defined in Rule 144 of the Securities
Act. 1,073,489 of these restricted securities are subject to lock-up agreements
with the Underwriters. Pursuant to these agreements, the Company's shareholder
has agreed not to offer, sell or otherwise dispose of any shares of Common Stock
or any equity securities or securities convertible into or exchangeable for
equity securities or any options, rights or warrants with respect to any equity
securities, subject to certain exceptions, for a period of 180 days from the
date of this Prospectus, without the prior written consent of the
Representatives. All of such restricted shares will be eligible for sale in the
public market in accordance with Rule 144 under the Securities Act upon
expiration of such agreements.

In general, under Rule 144 as currently in effect, beginning 90 days after
the consummation of the offering, a person (or persons whose shares are
aggregated) who has beneficially owned restricted shares for at least one year,
as well as persons who may be deemed "affiliates" of the Company, will be
entitled to sell in

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any three-month period a number of shares that does not exceed the greater of
(i) 1% of the then outstanding shares of Common Stock or (ii) the average weekly
trading volume of the Common Stock during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission. Sales pursuant to Rule 144 are also subject to certain
other requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or persons whose shares
are aggregated) who is not deemed to have been an affiliate of the Company at
any time during the three months immediately preceding the sale is entitled to
sell restricted shares pursuant to Rule 144(k) without regard to the limitations
described above, provided that two years have expired since the later of the
date on which such restricted shares were first acquired from the Company or
from an affiliate of the Company.

Currently 372,498 authorized shares of Common Stock are subject to
outstanding options. Additionally, 100,000 shares of Common Stock of the Company
have been reserved for issuance pursuant to the 1997 Option Plan and the 1997
Directors Plan. Following the offering, the Company intends to file a
registration statement under the Securities Act to register the 100,000 shares
of Common Stock reserved for issuance upon the exercise of stock options
outstanding and to be granted under the 1997 Option Plan and the 1997 Directors
Plan. Shares granted or issued upon the exercise of stock options after the
effective date of such registration statement generally will be available for
sale in the open market as long as they are not held by affiliates.

Because there has been no public market for shares of Common Stock of the
Company, the Company is unable to predict the effect that sales made under Rule
144, pursuant to future registration statements or otherwise may have on any
then prevailing market price of shares of the Common Stock. Nevertheless, sales
of a substantial amount of Common Stock in the public market, or the perception
that such sales could occur, could adversely affect market prices.

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UNDERWRITING

The Underwriters named below, acting through their representatives, Sutro &
Co. Incorporated and Friedman, Billings, Ramsey & Co., Inc. (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement with the Company, to purchase from the Company the
number of shares of Common Stock set forth opposite their respective names. The
Underwriters are committed to purchase and pay for all such shares if any are
purchased.

NUMBER OF
SHARES
---------

Sutro & Co. Incorporated..........................................
Friedman, Billings, Ramsey & Co., Inc. ...........................
---------
Total................................................... 1,820,000
=========

The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow selected
dealers a concession of not more than $ per share, and the Underwriters
may allow, and such dealers may reallow, a concession of not more than
$ per share to certain other dealers. After the initial public
offering, the price and concessions and reallowances to dealers may be changed
by the Representatives. The Common Stock is offered subject to receipt and
acceptance by the Underwriters and to certain other conditions, including the
right to reject orders in whole or part.

The Company has granted the Underwriters an option exercisable for 45 days
after the date of the Underwriting Agreement to purchase up to a maximum of
273,000 additional shares of Common Stock to cover over-allotments, if any. If
the Underwriters exercise such option, the Underwriters have severally agreed,
subject to certain conditions, to purchase such additional shares in
approximately the same proportion as set forth in the foregoing table.

The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including civil liabilities
under the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.

The Company, its directors, officers and certain shareholders have agreed
not to offer, sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable for shares of Common Stock of the
Company for a period of 180 days after the date of this Prospectus without the
prior written consent of Sutro & Co. Incorporated except for: (i) the sale of
the shares hereunder, (ii) the issuance by the Company of Common Stock pursuant
to the exercise of options under the Company's stock plans disclosed in the
Prospectus; (iii) the granting by the Company of stock options after the date of
this Prospectus under the 1997 Option Plan or the 1997 Directors Plan; or (iv)
as a bona fide gift to a third party or as a distribution to the partners or
shareholders of a Company shareholder, provided that the recipient(s) thereof
agree in writing to be bound by the terms of the Lock-Up Agreement to which such
shareholder is bound.

If the Underwriters create a short position in the Common Stock in
connection with the offering, (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus), the Representatives
may reduce that short position by purchasing Common Stock in the open market.
The Representatives also may elect to reduce any short position by exercising
all or part of the over-allotment option described herein.

The Representatives also may impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the offering.

In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases.

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45

The imposition of a penalty bid may have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the offering.

Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of, or any effect that the
transactions described above may have on, the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions or,
once commenced, will not be discontinued without notice.

The Company has agreed to sell to Sutro & Co. Incorporated, for $.01 per
warrant, the Sutro Warrant to purchase from the Company up to 182,000 shares of
Common Stock at an exercise price per share equal to 120% of the initial public
offering price per share. The Sutro Warrant may not be sold, transferred,
assigned, pledged or hypothecated for a period of twelve (12) months from the
date of this Prospectus except to officers or partners of Sutro and other
members of the underwriting or selling group and officers or partners thereof in
compliance with the applicable provisions of the Corporate Financing Rule of the
National Association of Securities Dealers, Inc. The Sutro Warrant will be
exercisable for a three year period beginning one year from the date of this
Prospectus. In addition, the Company has granted certain demand and piggyback
registration rights to the holders of the Sutro Warrant which enable them to
register the Common Stock underlying the Sutro Warrant under the Securities Act.
Under the terms of the Sutro Warrant, Sutro & Co. Incorporated will be the
underwriter of any demand registration requested to be in the form of an
underwritten offering.

Prior to this offering, there has been no public market for the Common
Stock. Accordingly, the initial public offering price for the Common Stock was
determined by negotiations between the Company and the Representatives. Among
the factors considered in such negotiations were the history of, and the
prospects for, the Company and the industry in which it competes, an assessment
of the Company's management, its past and present operations, its past and
present earnings and the trend of such earnings, the prospects for future
earnings, the present state of the Company's development, the general conditions
of the securities market at the time of the offering, and the market prices of
publicly traded common stocks of comparable companies in recent periods. The
Representatives have informed the Company that the Underwriters do not intend to
confirm sales to any accounts over which they exercise discretionary authority.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by O'Melveny & Myers LLP, Los Angeles, California. Certain
legal matters will be passed upon for the Underwriters by Manatt, Phelps &
Phillips, LLP, Los Angeles, California.

EXPERTS

The Consolidated Financial Statements of the Company as of December 31,
1995 and December 31, 1996 and for each of the years in the three year period
ended December 31, 1996 included in this Prospectus have been so included in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, given on the authority of said firm as experts in accounting and
auditing.

The report of Simat, Helliesen & Eichner, Inc. is included herein in
reliance upon the authority of such firm as an expert with respect to the
matters contained in such report.

44
46

ADDITIONAL INFORMATION

A Registration Statement on Form S-1, including amendments thereto,
relating to the Common Stock offered hereby has been filed by the Company with
the Securities and Exchange Commission, Washington, D.C. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. Statements contained in this Prospectus as
to the contents of any contract or other document referred to are not
necessarily complete and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to such Registration Statement, exhibits and
schedules. Copies of the Registration Statement may be obtained from the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, upon the payment of certain fees
prescribed by the Commission or may be examined without charge at the offices of
the Commission, or accessed through the Commission's Internet address at
http://www.sec.gov.

45
47

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
----

Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996.......................... F-3
Consolidated Statements of Income for the years ended December 31, 1994, 1995 and
1996................................................................................ F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1994,
1995 and 1996....................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996................................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-7

F-1
48

INDEPENDENT AUDITORS' REPORT

The Board of Directors
International Aircraft Investors:

We have audited the accompanying consolidated balance sheets of
International Aircraft Investors and subsidiaries as of December 31, 1995 and
1996 and the related consolidated statements of income, shareholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
International Aircraft Investors and subsidiaries as of December 31, 1995 and
1996 and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996 in conformity with
generally accepted accounting principles.

KPMG PEAT MARWICK LLP

Los Angeles, California
January 31, 1997, except
the third paragraph
of Note 9 which

is as of March 4, 1997

F-2
49

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

ASSETS

DECEMBER 31,
---------------------------
1995 1996
----------- -----------

Current assets:
Cash and cash equivalents....................................... $ 33,898 $ 1,174,369
Accounts receivable from ILFC (note 6).......................... 54,000 12,106
Due from ILFC (note 6).......................................... 293,000 332,000
Other assets.................................................... 118,747 627,535
----------- -----------
Total current assets.................................... 499,645 2,146,010
Flight equipment, at cost, net (notes 2, 5 and 6)................. 95,449,700 89,884,974
Due from ILFC, less current portion (note 6)...................... 286,000 109,000
Deferred fees..................................................... 366,515 268,776
Cash, restricted (note 1)......................................... 177,006 210,827
----------- -----------
$96,778,868 $92,619,587
=========== ===========
LIABILITY AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 5)................. $ 5,272,554 $42,176,253
Accounts payable and accrued expenses........................... 37,762 195,193
Accrued interest................................................ 205,800 632,500
Lease deposits.................................................. 835,000 835,000
Maintenance reserves............................................ 181,426 468,060
Advanced rentals................................................ 795,850 798,000
Deferred rent (note 6).......................................... 250,000 250,000
Payable to affiliate (note 3)................................... 36,750 --
Payable to ILFC (note 6)........................................ 696,695 --
----------- -----------
Total current liabilities............................... 8,311,837 45,355,006
Deferred rent, less current portion (note 6)...................... 1,497,000 1,247,000
Deferred tax liability (note 4)................................... 369,017 400,000
Long-term debt, less current installments (note 5)................ 82,552,733 40,534,040
----------- -----------
92,730,587 87,536,046
----------- -----------
Commitments and contingencies (note 8)
Shareholders' equity (notes 9 and 10):
Convertible preferred stock, $.01 par value. Authorized
15,000,000 shares; issued and outstanding 4,941,000 shares;
liquidation value of $1 per share............................ 49,410 49,410
Common Stock, $.01 par value. Authorized 20,000,000 shares;
issued and outstanding 315,000 shares in 1995 and 1996....... 3,150 3,150
Additional paid-in capital...................................... 5,170,098 5,170,098
Accumulated deficit............................................. (1,174,377) (139,117)
----------- -----------
Net shareholders; equity................................ 4,048,281 5,083,541
----------- -----------
$96,778,868 $92,619,587
=========== ===========

See accompanying notes to consolidated financial statements

F-3
50

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
---------- ---------- -----------

Revenues (note 6)
Rental of flight equipment.............................. $8,107,751 $7,764,763 $12,681,153
Consulting fees......................................... 213,500 491,045 460,950
Gain on sale of aircraft equipment...................... -- -- 141,000
Interest income (note 1)................................ 67,997 117,961 169,023
---------- ---------- ----------
Total revenues.................................. 8,389,248 8,373,769 13,452,126
Expenses:
Interest................................................ 3,547,600 3,776,165 6,277,388
Depreciation............................................ 3,164,800 3,354,400 5,549,700
General and administrative.............................. 548,494 526,021 552,778
---------- ---------- ----------
Total expenses.................................. 7,260,894 7,656,586 12,379,866
---------- ---------- ----------
Operating income.............................. 1,128,354 717,183 1,072,260
---------- ---------- ----------
Equity in earnings of affiliate (note 3):
Earnings from operations................................ -- 66,028 --
Gain on sale of aircraft engine......................... -- 117,500 --
---------- ---------- ----------
Total equity in earnings........................ -- 183,528 --
---------- ---------- ----------
Income before income taxes................................ 1,128,354 900,711 1,072,260
---------- ---------- ----------
Income tax expense (note 4)............................... 59,000 30,000 37,000
---------- ---------- ----------
Net income...................................... $1,069,354 $ 870,711 $ 1,035,260
========== ========== ==========
Net income per common and common equivalent shares........ $ .14 $ .11 $ .13
========== ========== ==========
Weighted average common and common equivalent shares
outstanding (note 1).................................... 7,766,452 7,766,452 7,821,096
========== ========== ==========

See accompanying notes to consolidated financial statements

F-4
51

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

CONVERTIBLE COMMON STOCK ADDITIONAL
PREFERRED ---------------- PAID-IN ACCUMULATED
STOCK SHARES AMOUNT CAPITAL DEFICIT NET
----------- -------- ------ ---------- ----------- ----------

Balance at December 31, 1993.... $49,410 215,000 $2,150 $5,071,098 $(3,114,442) $2,008,216
Net income...................... -- -- -- -- 1,069,354 1,069,354
------- ------- ------ ---------- ----------- ----------
Balance at December 31, 1994.... 49,410 215,000 2,150 5,071,098 (2,045,088) 3,077,570
Issuance of common stock from
exercise of stock options..... -- 100,000 1,000 99,000 -- 100,000
Net income...................... -- -- -- -- 870,711 870,711
------- ------- ------ ---------- ----------- ----------
Balance at December 31, 1995.... 49,410 315,000 3,150 5,170,098 (1,174,377) 4,048,281
Net income...................... -- -- -- -- 1,035,260 1,035,260
------- ------- ------ ---------- ----------- ----------
Balance at December 31, 1996.... $49,410 315,000 $3,150 $5,170,098 $ (139,117) $5,083,541
======= ======= ====== ========== =========== ==========

See accompanying notes to consolidated financial statements

F-5
52

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,
----------------------------------------
1994 1995 1996
----------- ------------ -----------

Cash flow from operating activities:
Net income....................................................... $ 1,069,354 $ 870,711 $ 1,035,260
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of flight equipment............................... 3,164,800 3,354,400 5,549,700
Amortization of deferred transaction fees...................... 171,348 101,082 158,410
Gain on sale of aircraft equipment............................. -- -- (141,000)
Equity in earnings of affiliate................................ -- (183,528) --
(Increase) decrease in assets:
Accounts receivable from ILFC................................ (20,570) (28,430) 41,894
Due from ILFC................................................ -- -- 138,000
Deferred fees................................................ (66,836) (225,811) (60,671)
Other assets................................................. 117,593 (225,142) (542,607)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses........................ (54,033) 61,587 120,681
Accrued interest............................................. 39,023 413 426,700
Lease deposits............................................... (500,000) 475,000 --
Maintenance reserves......................................... -- 181,426 286,634
Advance rentals.............................................. 123,356 (103,396) 2,150
Deferred rent................................................ -- -- (250,000)
Deferred taxes............................................... 58,622 23,395 30,983
Due to lessee................................................ 363,122 (363,122) --
----------- ------------ -----------
Net cash provided by operating activities.................... 4,465,779 3,938,585 6,796,134
----------- ------------ -----------
Cash flows from investing activities:
Purchase of flight equipment................................... (2,981,305) (41,472,695) (198,974)
Proceeds from sale of aircraft................................. -- -- 355,000
Investment in (dividends and sale of IEI)...................... (322,250) 505,778 --
----------- ------------ -----------
Net cash provided by (used in) investing activities.......... (3,303,555) (40,966,917) 156,026
----------- ------------ -----------
Cash flows from financing activities:
Repayment of notes payable..................................... (1,884,003) (2,749,082) (5,322,926)
Repayment of notes payable to ILFC............................. (1,731,567) (400,800) (524,292)
Proceeds from notes payable.................................... 2,430,000 29,725,000 244,724
Proceeds from notes payable to ILFC............................ -- 7,950,000 --
Proceeds from notes payable to GLH............................. -- 1,612,500 487,500
Issuance of common stock....................................... -- 100,000 --
Payable to ILFC................................................ 179,628 517,067 (696,695)
----------- ------------ -----------
Net cash provided by (used in) financing activities.......... (1,005,942) 36,754,685 (5,811,689)
----------- ------------ -----------
Net increase (decrease) in cash and cash equivalents......... 156,282 (273,647) 1,140,471
Cash and cash equivalents at beginning of year................... 151,263 307,545 33,898
----------- ------------ -----------
Cash and cash equivalents at end of year......................... $ 307,545 $ 33,898 1,174,369
=========== ============ ===========
Supplemental disclosure of cash flow information -- cash paid for
interest....................................................... $ 3,339,156 $ 3,548,054 $ 5,722,256
=========== ============ ===========

Supplemental disclosure of noncash investing and financing activities:

During 1995, the Company earned $311,000 of consulting fees from ILFC which
were applied to amounts owed ILFC.

See accompanying notes to consolidated financial statements

F-6
53

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1994, 1995 AND 1996

(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

International Aircraft Investors (the Company) is primarily engaged in the
acquisition of used, single aisle jet aircraft and engines for lease and sale to
domestic and foreign airlines and other customers. The Company leases aircraft
under short- to medium-term operating leases where the lessee is responsible for
all operating costs and the Company retains the potential benefit or risk of the
residual value of the aircraft, as distinct from finance leases where the cost
of the aircraft is generally recovered over the term of the lease.

Five of the Company's seven aircraft at December 31, 1996 were acquired
from International Lease Finance Corporation (ILFC), a 5.7% shareholder of the
Company. In connection with certain of these aircraft acquisitions, ILFC has
provided loan guarantees or other financial support which have provided more
favorable borrowing arrangements than the Company could otherwise have obtained.
Additionally, the Company has derived certain consulting fees from ILFC for
providing remarketing and other services.

The accompanying consolidated financial statements include the accounts of
the Company and wholly owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

Cash and cash equivalents includes cash and highly liquid investments
purchased with an original maturity of less than 90 days. Cash and short-term
investments restricted for the repayment of a security deposit pursuant to a
certain lease agreement was $210,827 at December 31, 1996. Such security deposit
matures June 15, 1998.

Deferred Transaction Fees

The direct costs related to purchase and lease agreements are capitalized
and amortized to expense using the straight-line method , which approximates the
effective interest method, over the term of the related lease.

The costs related to asset value guarantees (AVGs - note 6) are capitalized
and amortized to expense using the straight-line method over the term of the
AVG, generally ten years. At December 31, 1996, deferred transaction fees
related to AVGs were $207,500.

Rentals

The Company leases flight equipment under operating leases. Accordingly,
income is recognized over the life of noncancelable lease terms under the
straight-line method.

Flight Equipment and Depreciation

Flight equipment is stated at cost.

Depreciation of flight equipment is generally computed on a straight-line
method over the estimated remaining useful lives (25 year original life less
years in service at the date of acquisition) of the related assets. At December
31, 1996, the Company's fleet, related useful lives and estimated salvage values
were as follows:

USEFUL LIFE AT
YEAR OF ACQUISITION
DESCRIPTION OF ASSET ACQUISITION DATE SALVAGE VALUE
---------------------------------------- ----------- -------------- -------------

1979 Boeing 727-200..................... 1988 16 years $ 2,500,000

F-7
54

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

USEFUL LIFE AT
YEAR OF ACQUISITION
DESCRIPTION OF ASSET ACQUISITION DATE SALVAGE VALUE
---------------------------------------- ----------

1978 Boeing 737-219..................... 1990 13 2,500,000
1980 Boeing 737-219..................... 1991 14 2,500,000
1989 Boeing 737-300..................... 1993 21 3,000,000
1980 Boeing 737-204..................... 1993 12 3,000,000
1985 Boeing 737-300..................... 1995 15 3,000,000
1989 McDonnell MD-82.................... 1995 19 3,000,000

Maintenance Reserves and Interest Income

Normal maintenance and repairs of flight equipment on lease are provided by
and paid for by the lessee. Maintenance reserves received under certain leases
amounted to $181,426 and $268,581 during the year ended December 31, 1995, and
1996, respectively. Additionally, one of the Company's lessees holds a related
maintenance reserve with ILFC in accordance with an agreed-upon arrangement. The
Company receives interest earned on this reserve held with ILFC which amounted
to $48,885, $95,116 and $62,100 during 1994, 1995 and 1996, respectively. The
related lease expires in April 1997 at which time this arrangement will cease.

Impairment of Long-Lived Assets

Statement of Financial Accounting Standards No. 121 (SFAS No. 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," issued in March 1995 and effective for fiscal years beginning
after December 15, 1995, establishes accounting standards for the recognition
and measurement of impairment of long-lived assets, certain identifiable
intangibles and goodwill either to be held or disposed of. The Company adopted
SFAS No. 121 during 1996. The adoption of SFAS No. 121 did not have a material
impact on the Company's financial position or results of operations.

The Company evaluates the carrying value of its flight equipment on an
ongoing basis and when required will provide for any impairment of long-lived
assets.

Income Taxes

The Company accounts for income taxes under the asset and liability method
whereby deferred tax assets and liabilities are recognized for the future tax
consequences for differences between the financial statement carrying amounts of
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years when such temporary differences are expected to be recovered
or settled. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in income at the enactment date.

Earnings per Share

Net earnings per share has been computed using the weighted average number
of common and common equivalent shares outstanding for each of the periods
presented. Common stock equivalents represent the number of shares which would
be issued assuming the exercise of common stock options, conversion of preferred
stock and conversion of a note payable reduced by the number of shares which
could be purchased with the proceeds from such conversions using the treasury
stock method.

Supplemental earnings per share have been computed assuming the stock split
and conversions (Note 10) had occurred at the beginning of 1996.

Fully diluted net income per common and common equivalent share is not
presented since the amounts do not differ significantly from the primary net
income per share presented.

F-8
55

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Stock Compensation

Statement of Financial Accounting Standards No. 123 (SFAS No. 123),
"Accounting for Stock-Based Compensation," issued in October 1995 and effective
for fiscal years beginning after December 15, 1995, encourages, but does not
require, a fair-value-based method of accounting for employee stock options or
similar equity instruments. SFAS No. 123 allows an entity to elect to continue
to measure compensation cost under Accounting Principles Board Opinion No. 25
(APBO No. 25), "Accounting for Stock Issued to Employees," but requires pro
forma disclosures of net earnings and earnings per share as if the fair-value-
based method of accounting had been applied. The Company elected to continue to
measure compensation cost under APBO No. 25. During the year ended December 31,
1996, no stock options were granted by the Company, accordingly, no pro forma
disclosures are presented.

Interest Rate Swap Agreements

The Company uses interest rate swap arrangements to reduce the potential
impact of increases in interest rates on floating rate long-term debt and does
not use them for trading purposes. Premiums paid for purchased interest rate
swap agreements are amortized to interest expense over the terms of the swap
agreements.

All outstanding swap agreements are hedges and, therefore, are not marked
to market.

Fair Values of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses and payable to ILFC approximate fair market
value because of the short maturity of these items.

The fair values of the Company's interest rate swaps approximates
unamortized costs as the remaining amortization periods are short-term. The fair
value of the amount due from ILFC approximates the carrying value as it was
determined using the present value method with the Company's internal rate of
return. The fair values of the Company's debt instruments, including the related
AVGs, approximate the carrying values because 1) the rates currently offered to
the Company are similar to the rates for these items, or 2) the yields to
maturity approximate the rates for these items.

Management Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions. These affect the reported amounts of assets, liabilities, revenues
and expenses and the amount of any contingent assets or liabilities disclosed in
the financial statements. Actual results could differ from the estimates made.

The Company leases aircraft to various commercial airline fleets, on
short-to-medium-term operating leases, generally three to five years. The
related aircraft are generally financed by borrowings that becomes due at or
near the end of the lease term through a balloon payment. As a result, the
Company's operating results depend on management's ability to roll over debt
facilities, renegotiate favorable leases and realize estimated salvage values.

F-9
56

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Significant Customers

The following customers individually accounted for 10% or more of revenues:

NUMBER OF
SIGNIFICANT PERCENTAGE OF REVENUES BY
CUSTOMERS SIGNIFICANT CUSTOMERS
--------- ---------------------------

Year ended December 31:
1994............................... 3 12%, 42% and 36%
1995............................... 4 11%, 16%, 26% and 36%
1996............................... 5 10%, 10%, 15%, 21% and 23%

(2) FLIGHT EQUIPMENT

The Company's investment in flight equipment (primarily purchased from
ILFC) as of December 31, 1995 and 1996 is as follows:

1995 1996
------------ ------------

Flight equipment.............................. $108,788,000 $108,736,974
Accumulated depreciation...................... (13,338,300) (18,852,000)
------------ ------------
Flight equipment, net......................... $ 95,449,700 $ 89,884,974
============ ============

(3) INVESTMENT IN JOINT VENTURE

During 1994, the Company purchased a 50% non-controlling interest in
International Engine Investors (IEI) for $322,250. IEI was formed in December
1994 between the Company and Partimande Holding Anstalt (wholly owned by a
shareholder of the Company) for the purpose of acquiring an aircraft engine. The
Company used the equity method to account for its investment. The Company's
share of IEI's income for 1995 was $66,028. On November 11, 1995, the engine was
sold by IEI, and IEI was liquidated. The Company's share of the gain on sale was
$117,500. At December 31, 1995, the Company had a payable to Partimande Holding
Anstalt of $36,750 related to the sale of the engine.

(4) INCOME TAXES

Provision for taxes on income consisted of the following:

TOTAL CURRENT DEFERRED
------- ------- --------

Year ended December 31:
1994:
Federal.................................. $ -- -- $ --
State.................................... 59,000 -- 59,000
------- ------- -------
$59,000 -- $ 59,000
======= ======= =======
1995:
Federal.................................. $ -- $ -- $ --
State.................................... 30,000 7,000 23,000
------- ------- -------
$30,000 $ 7,000 $ 23,000
======= ======= =======
1996:
Federal.................................. $ -- $ -- $ --
State.................................... 37,000 6,000 31,000
------- ------- -------
$37,000 $ 6,000 $ 31,000
======= ======= =======

F-10
57

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As of December 31, 1996, the Company had net operating loss carryforwards
("NOL") for Federal and state income tax purposes of approximately $23,082,000
and $4,472,000 expiring from 2005 through 2011 and from 1996 through 2001,
respectively, as follows:

EXPIRES FEDERAL NOL STATE NOL
--------------------------------------------------- ----------- ----------

1997............................................... -- $3,436,000
1998............................................... -- --
1999............................................... -- --
2000............................................... -- --
2001............................................... -- 660,000
2002-2006.......................................... $17,741,000 376,000
2007-2011.......................................... 3,136,000 --
2012............................................... 2,205,000 --
----------- ----------
$23,082,000 $4,472,000
=========== ==========

Temporary differences which give rise to deferred tax liabilities result
primarily from timing differences for depreciation and net operating losses. The
deferred tax liabilities of $369,017 and $400,000 at December 31, 1995 and 1996,
respectively, are comprised of the following:

DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------

Net operating loss carryforward................... $ 7,098,058 $ 7,847,880
Flight equipment, principally due to differences
in depreciation................................. (7,754,765) (8,542,840)
Deferred and advanced rent........................ 1,048,186 691,832
Other............................................. (116,641) (113,539)
----------- -----------
274,838 (116,667)
Valuation allowance............................... (643,855) (283,333)
----------- -----------
$ (369,017) (400,000)
=========== ===========

Management believes it is more likely than not that the results of future
operations will generate sufficient taxable income to realize deferred tax
assets net of the valuation allowance.

A reconciliation of total income tax expense with the expected amount
computed by applying the Federal and state statutory tax rates to earnings
before income taxes follows:

YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
--------- --------- ---------

Computed "expected" Federal tax expense......... $ 384,000 $ 306,000 $ 364,000
State taxes, net of Federal income tax
benefit....................................... 21,000 17,000 10,000
Change in valuation allowance................... (308,000) (284,000) (361,000)
Other........................................... (38,000) (9,000) 24,000
--------- --------- ---------
$ 59,000 $ 30,000 $ 37,000
========= ========= =========

F-11
58

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(5) LONG-TERM DEBT

Long-term debt as of December 31, 1995 and 1996 is summarized as
follows:

DECEMBER 31,
-------------------------
1995 1996
----------- -----------

Notes payable to bank bearing interest at 7.50% on $7,000,000 and
LIBOR plus 1.125% (6.7% at December 31, 1996) on $649,079, secured
by flight equipment, 33 1/3% guaranteed by ILFC, payable in
monthly installments of $75,000 including interest, balloon
payment of $7,500,000, due August 1997............................ $ 7,960,343 $ 7,649,079
Note payable to bank bearing interest at 7.3125% on $3,500,000 and
LIBOR plus 1.125% (6.7% at December 31, 1996) on $1,641,000,
secured by flight equipment, 33 1/3% guaranteed by ILFC, payable
in monthly installments of $87,000 including interest, balloon
payment of $4,000,000, due June 1998.............................. 5,595,152 5,141,600
Notes payable to bank bearing interest at 7.545% (Floating plus
Swap), secured by flight equipment, 50% guaranteed by ILFC up to
$2,400,000, balloon payment of $4,300,028, due on demand.......... 4,943,028 4,401,028
Notes payable to bank bearing interest at 7.60% (Floating plus
Swap), secured by flight equipment, 50% guaranteed by ILFC,
balloon payment of $3,180,000, due March 1997..................... 3,796,000 3,307,000
Note payable to bank bearing interest at 7.10% (Floating plus Swap),
secured by flight equipment, 50% guaranteed by ILFC, balloon
payment of $1,814,979, due March 1997............................. 2,045,600 1,804,300
Note payable to bank bearing interest at 7.73% (Floating plus Swap),
secured by flight equipment, 50% guaranteed by ILFC, balloon
payment of $18,085,371, due July 1997............................. 19,734,963 18,582,417
Note payable to bank, refinanced November 4, 1996, bearing interest
at LIBOR plus 1.2 (6.8% at December 31, 1996), secured by flight
equipment, 100% guaranteed by ILFC, payable in quarterly
installments of $445,000 including interest, due January 2003..... 14,500,000 13,700,000
Note payable to bank, refinanced May 17, 1996, bearing interest at
7.75%, secured by flight equipment, guaranteed up to $2,175,000 by
ILFC, payable in quarterly installments of $510,000 including
interest, due May 2001............................................ 15,225,000 14,193,403
Note payable to bank with interest accrued at 6%, payment is based
on profit sharing agreements on certain flight equipment,
principal due August 1998......................................... 909,551 887,608
Convertible note payable to bank with interest accrued at 5.0%,
payable quarterly, principal due August 1998...................... 792,000 757,000
Note payable to ILFC bearing interest at 5.9%, payable in quarterly
installments including interest, balloon payment of $3,513,000,
due October 1998.................................................. 3,600,000 3,572,000
Note payable to ILFC bearing interest at 5.5%, secured by flight
equipment, balloon payment of $441,000, due March 1997............ 444,000 441,600
Note payable to ILFC bearing interest at 5.5%, secured by flight
equipment, balloon payment of $889,585, due July 1997............. 1,160,305 982,330
Note payable to ILFC bearing interest at 6.0%, balloon payment of
$511,845, due August 1999......................................... 1,156,845 976,845

F-12
59

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31,
1995 1996
----------- -----------

Note payable to ILFC bearing interest at 7.8%, payable in quarterly
installments of $110,000 including interest, balloon payment of
$3,718,293 due December 2000...................................... 4,350,000 4,214,083
Notes payable to Great Lakes Holdings (affiliated company),
refinanced in 1996, bearing interest at 5.4%, due June 1997....... 612,500 700,000
Notes payable to Great Lakes Holdings (affiliated company),
refinanced in 1996, bearing interest at 5.4%, due July 1997....... 1,000,000 1,400,000
----------- -----------
Total..................................................... 87,825,287 82,710,293
----------- -----------
Less current installments........................................... 5,272,554 42,176,253
----------- -----------
$82,552,733 $40,534,040
=========== ===========

As indicated above, certain borrowings aggregating $31,337,500 at December
31, 1995 were refinanced during 1996. Accordingly, the amounts due under these
notes payable have been classified in the accompanying December 31, 1995
consolidated balance sheet based on the refinanced terms. The Company plans to
refinance long-term debt expiring in 1997 in connection with the re-leasing or
lease extensions of the related aircraft. At January 31, 1997, the Company has
extended leases on three of its aircraft, two for additional one-year periods
and one for an additional two-year period. Long-term debt related to these
aircraft at December 31, 1996 was approximately $17,161,000.

At December 31, 1996, $34,186,000 of the Company's long-term debt was
guaranteed by ILFC and $10,186,000 of the Company's long-term debt was due to
ILFC.

The convertible note payable was entered into in August 1992 with an
original principal balance of $700,000. The note payable, or $1,000 multiples
thereof, is convertible into shares of preferred stock at $1 per share or up to
700,000 shares at any time prior to August 13, 1998.

Scheduled future repayments of long-term debt subsequent to December 31,
1996 are as follows:

DECEMBER 31:
----------------------------------------

1997............................... $42,176,253
1998............................... 11,847,061
1999............................... 2,870,808
2000............................... 6,140,780
2001............................... 10,976,391
Thereafter......................... 8,699,000
-----------
$82,710,293
===========

Certain notes payable contain various financial covenants including
tangible net worth and delivery of audited financial statements. The Company was
in compliance with these covenants at December 31, 1996.

F-13
60

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company has entered into interest rate swaps with financial
institutions under terms that provide payment of interest on the notional amount
of the swap. In accordance with these arrangement, the Company pays interest at
a fixed rate and the financial institution pays interest at variable rates
pursuant to terms of the loans. The following table presents the Company's
interest rate swap agreements at December 31, 1995 and 1996:

DECEMBER 31, 1995

WEIGHTED AVERAGE
TYPE NOTIONAL AMOUNT INTEREST RATE (%) MATURITY
--------------------------------- --------------- ----------------- ---------

Fixed/variable................... $30,520,000 7.64/7.13 2/97-7/97

DECEMBER 31, 1996

WEIGHTED AVERAGE
TYPE NOTIONAL AMOUNT INTEREST RATE (%) MATURITY
--------------------------------- --------------- ----------------- ---------

Fixed/variable................... $28,094,000 7.65/6.66 2/97-7/97

The net effect of swaps was to record $372,000, $131,000 and $265,000 of
additional interest expense during 1994, 1995 and 1996, respectively.

(6) RELATED PARTY TRANSACTIONS

During 1996, the Company sold certain aircraft equipment in connection with
an ILFC transaction to a third party. The Company recognized a gain on sale of
this equipment of $141,000.

During 1995, the Company purchased aircraft from ILFC aggregating
$41,473,000. None were purchased during 1994 and 1996. At December 31, 1996, 79%
of the Company's gross fleet cost was comprised of aircraft acquired from ILFC.
The Company financed these acquisitions through bank loans, partially guaranteed
by ILFC, as well as loans from ILFC (note 5). ILFC provides these guarantees to
lenders through an asset value guarantee (AVG) which generally covers financing
in excess of the asset value, as defined. ILFC's financial support has allowed
the Company to finance aircraft purchases at more favorable leverage than the
Company could otherwise obtain. The Company's typical operating lease
transaction with an AVG requires a cash investment by the Company of
approximately 5% to 15% of the aircraft purchase price while the industry
standard ranges from 20% to 30%. At December 31, 1996, $34,186,000 of long-term
debt was covered by AVGs and $10,186,000 was due to ILFC.

The Company has one aircraft leased to ILFC at December 31, 1996. The lease
originated in August 1994 and provides for monthly rents of $80,000 through
August 1999. The Company recognized rental income of $400,000, $960,000 and
$960,000 during the years ended 1994, 1995 and 1996, respectively, from this
lease.

The Company has an agreement with ILFC related to the December 1995
purchase of an aircraft which provides for recovery of an operating loss, as
defined, in the acquired lease. The Company estimates this loss will be incurred
through 1999. Accordingly, the Company reduced the purchase price of the related
aircraft and recognized a receivable for the present value of the estimated
recovery aggregating $579,000. The amount due from ILFC at December 31, 1996 was
$441,000, which includes accrued interest of $87,000. The loss stems from a
stated lease rate which is less than the market lease rate at the date of
acquisition. Accordingly,

F-14
61

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

the Company allocated additional cost to the purchase price and recognized
deferred rent aggregating $1,747,000 for the present value of the difference
between the market and stated rent. Deferred rent will be amortized on the
straight line method over the remaining lease term.

The Company realized consulting fee revenues of $69,000, $347,000 and
$78,000 during the years 1994, 1995 and 1996, respectively, for services to
ILFC.

The Company's Chairman and President collectively own Great Lakes Holdings
(GLH), an affiliated company. From time to time, these officers provide
consulting services to GLH. GLH paid the Company $144,000 for each of the years
1994, 1995 and 1996 for these services. Additionally, the Company earned
consulting fees of $239,000 during 1996 from unrelated parties, however,
$190,000 of the amount was derived from a transaction in which the Company
provided services in connection with a sale by ILFC of aircraft equipment to a
third party.

During 1994, ILFC incurred $179,628 for certain improvements to an aircraft
which it leased from the Company. The Company accrued for such costs at December
31, 1994 and reimbursed ILFC in 1995. During 1995, ILFC advanced the Company
$696,000 to assist the financing of an aircraft purchase. The advance was repaid
during 1996. At December 31, 1994 and 1995, $179,628 and $696,695, respectively,
was due to ILFC.

(7) RENTAL INCOME

Minimum future rental income on noncancelable operating leases of flight
equipment at December 31, 1996, adjusted for the lease renewals below, is as
follows:

Year ended December 31:
1997.......................................... $10,421,000
1998.......................................... 6,483,000
1999.......................................... 2,926,000
2000.......................................... 2,326,000
2001.......................................... 2,076,000
Thereafter.................................... 2,076,000
-----------
$26,308,000
===========

During December 1996 and January 1997, the Company renewed three of its
leases extending the expiration dates to March 1998, April 1998 and August 1999,
respectively.

One of the aircraft leases expires in 1997, four expire in 1998, one
expires in 1999 and one expires in 2002.

(8) COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases offices from a third party under a noncancelable
operating lease. Future minimum lease payments are:

Year ended December 31:
1997............................................. $22,000
1998............................................. 22,000
1999............................................. 2,000
-------
$46,000
=======

F-15
62

INTERNATIONAL AIRCRAFT INVESTORS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Total rent expense under operating leases for the years ended December 31,
1994, 1995 and 1996 was $24,600, $20,665 and $20,460, respectively.

Government Regulations

The maintenance and operation of aircraft are regulated by the Federal
Aviation Administration (FAA) and foreign aviation authorities which oversee
such matters as aircraft certification, inspection, maintenance, certification
of personnel, and record-keeping. All current leases require the lessee to bear
the costs of complying with governmental regulations. However, in the event a
lessee fails to maintain aircraft in accordance with the terms of a lease, the
Company could be required to repair or recondition the aircraft. Failure of a
lessee to fulfill lease maintenance and operation obligations could have a
material adverse effect on the Company's financial condition and results of
operations.

The FAA and civil aviation authorities of most countries and international
entities issue regulations limiting permitted noise and other emissions from
aircraft. These older non-complying aircraft can be brought into compliance by
modifying the engines. One of the Company's aircraft had noise compliance work
performed at a cost of approximately $2.4 million during 1994 (all of which was
paid by the Company) and three aircraft will require this work to be performed
over the next three years unless the aircraft is leased and operated in an area
that does not require the modification.

(9) STOCKHOLDERS' EQUITY

The holders of convertible preferred stock are entitled to convert each
share to one share of common stock. In the event of liquidation, holders of
preferred stock are entitled to receive $1 per share plus accrued and unpaid
dividends, if any, before distributions to holders of common stock. The
convertible preferred stock do not bear dividends and contains certain defined
antidilution provisions.

Through March 1993, the Company granted options to purchase 2,913,735
shares of common stock at management's estimate of fair value, $1 per share;
100,000 options were exercised during December 1995. Through May 1991, the
Company granted options to purchase 1,569,550 shares of convertible preferred
stock at management's estimate of fair value, primarily $1.15 per share. These
options are exercisable no later than the earlier of December 31, 1998 or a sale
of the Company's shares under the Securities Act of 1933. At December 31, 1996,
4,383,285 options were outstanding and all were exercisable.

During March, 1997, the Company extended the expiration date on 2,235,000
stock options to March 31, 2007. Such options will vest ratably through December
31, 2000. Accordingly, the Company will recognize aggregate compensation of
approximately $1 million over the four-year vesting period.

(10) PROPOSED INITIAL PUBLIC OFFERING AND REVERSE STOCK SPLIT

The Company is currently contemplating an initial public offering (IPO) of
its common stock. In connection with the IPO, the Company plans to effect a
1-for-6 reverse stock split of its common stock.

Concurrent with the IPO, the Company anticipates the conversion of
4,811,666 issued and outstanding shares of preferred stock into 801,908 shares
of common stock, and the exercise of stock options to acquire 358,045 shares
(post reverse stock split) (note 9).

F-16
63
APPENDIX 1

Simat, Helliesen & Eichner, Inc. 212-682-8455 Fax: 212-986-1825
90 Park Avenue Telex: 4949296
New York, New York 10016 SITA: BOSSHCR

[SH&E LOGO]

March 1, 1997

International Aircraft Investors
3655 Torrance Boulevard, Suite 410
Torrance, California 90503

Gentlemen:

Simat, Helliesen & Eichner, Inc. ("SH&E") has been retained to determine
the aggregate Current Market Value ("CMV") for one (1) Boeing 727-200ADV, three
(3) 737-200ADV and two (2) 737-300 aircraft and one (1) McDonnell Douglas MD-82
aircraft (the "Subject Aircraft"), all owned by International Aircraft Investors
("IAI"). The Subject Aircraft and APU are collectively referred to herein as
(the "Collateral") and are identified on Attachment A.

SH&E has determined the aggregate Current Market Value of the Collateral as
of December 31, 1996 to be $91.53 million.

VALUATION DETERMINATION

SH&E has studied many aircraft transactions over the past 30 years. This
list includes a wide variety of pure jet, fan-powered and turboprop powered two,
three and four-engined transports. Models studied have covered many types,
including Boeing 707, 727, 737, 757, 767 and 747 aircraft; Douglas DC-8, DC-9,
DC-10, MD80 and MD-11 models; Airbus A300, A310, A320, A330 and A340 models;
Lockheed L-1011; BAC 1-11; and various turboprop models, including most major
commuter aircraft.

The SH&E valuation approach starts by determining a half-life value. The
term "half-life" represents an aircraft whose major components (e.g. airframe,
engines, landing gear and APU) have used 50 percent of the time between
scheduled or expected overhauls. This initial appraisal can then be adjusted
(positive or negative) for each individual unit to reflect the airframe's
maintenance status relative to next overhaul. In most cases, the Base Value (as
defined below) of an aircraft assumes its physical condition is average for an
aircraft of its type and age, and its maintenance time status is at mid-life (or
benefitting from an above-average maintenance status if it is new or nearly new,
as the case may be).

In the case of new aircraft, the above half-life values are automatically
adjusted upwards to reflect the fact that the aircraft has the full span of
maintenance overhaul intervals available. Consequently, SH&E's initial
depreciation of new aircraft is considerably greater than for a used aircraft,
thereby accounting for both the change in its maintenance status and its
intrinsic depreciation.

SH&E half-life values are determined on a semi-annual basis by reviewing
recent past sales, aircraft availability trends, technological aspects,
environmental constraints and maintenance requirements.

The Base Value is the appraiser's opinion of the underlying economic value
of an aircraft in an open, unrestricted and stable market environment with a
reasonable balance of supply and demand, and also assumes full considerations of
its "highest and best use". An aircraft's Base Value is founded in the
historical trend of values and in the projection of value trends and presumes an
arm's-length, cash transaction between willing, able and knowledgeable parties,
acting prudently, with an absence of duress and with a reasonable period of time
available for marketing.
64

Since Base Value pertains to a somewhat idealized aircraft and market
combination it may not necessarily reflect the actual value of the aircraft in
question, but is a nominal starting value to which adjustments may be applied to
determine an actual value.

The Base Value of each aircraft is derived from SH&E's aircraft valuation
models. The SH&E Base Value models provide trend lines derived from known
transactions, econometric factors affecting aircraft values, and aircraft
economic life estimates. Because it is related to long-term market trends, the
Base Value definition is normally applied to analyses of historical values and
projections of residual values.

The Current Market Value (CMV) is SH&E's opinion of the most likely trading
price that may be generated for an aircraft under the market circumstances that
are perceived to exist at the time in question. CMV assumes that the aircraft is
valued for its highest, best use, that the parties to the hypothetical sale
transaction are willing, able, prudent and knowledgeable, and under no unusual
pressure for a prompt sale, and that the transaction would be negotiated in an
open and unrestricted market on an arm's-length basis, for cash or equivalent
consideration, and given an adequate amount of time for effective exposure to
prospective buyers.

The CMV of a specific aircraft is derived from, and will tend to be
somewhat consistent with its Base Value in a stable market environment, but
where a reasonable equilibrium between supply and demand does not exist, trading
prices, and therefore CMVs, are likely to be at variance with the Base Value of
that aircraft. CMV may be based upon either the actual (or specified) physical
condition and maintenance time status of the aircraft, or alternatively upon an
assumed average physical condition and mid-life, mid-time maintenance time
status, depending on the nature of the appraisal assignment.

QUALIFICATIONS

SH&E has provided consulting services to the aviation industry since its
founding 30 years ago. The staff consists of more than 75 professionals with
many years of experience of air transportation management, planning, operations,
and economic research. SH&E has performed numerous world-wide assignments for
clients which include airlines, manufacturers, government agencies and financial
institutions.

An appraiser from SH&E is certified by the International Society of
Transport Aircraft Trading (ISTAT).

LIMITATIONS

SH&E used information supplied by IAI together with in-house data
accumulated through other recent studies of aircraft transactions.

SH&E's opinions are based upon historical relationships and expectations
that it believes are reasonable. Some of the underlying assumptions, including
those described above, may not materialize because of unanticipated events and
circumstances. SH&E's opinions could, and would, vary materially, should any of
the above assumptions prove to be inaccurate.

The opinions expressed herein are not given for, or as an inducement or
endorsement of, any financial transaction.

This report reflects SH&E's expert opinion and best judgment based upon the
information available to it at the time of its preparation. SH&E does not have,
and does not expect to have, any financial interest in the appraised property.

For SH&E:

/s/ CLIVE G. MEDLAND

--------------------------------------
Clive G. Medland Vice President
Certified Appraiser International
Society of Transport Aircraft Trading

A-2
65

ATTACHMENT A

MAXIMUM
AIRCRAFT SERIAL YEAR OF ENGINE TAKEOFF
TYPE NUMBER MANUFACTURE TYPE WEIGHT (LBS) CURRENT OPERATOR
- ---------- ------ ------------ --------- ------------ ------------------

727-200ADV 21826 1979 JT8D-15 190,500 Delta Air Lines
737-200ADV 21645 1978 JT8D-15 117,000 COPA
737-200ADV 22088 1980 JT8D-15 117,500 COPA
737-200ADV 22364 1980 JT8D-15A 121,500 Air New Zealand
737-300 24300 1989 CFM56-3B1 134,500 British Midland
737-300 23264 1985 CFM56-3B1 135,000 Southwest Airlines
MD-82 49925 1989 JT8D-219 149,500 Alaska Airlines

A-3
66

[THREE AIRCRAFT IN FLIGHT. TWO B 737 AIRCRAFT, ONE WITH THE LOGO AND NAME OF
COPA AND ONE WITH THE LOGO AND NAME OF AIR NEW ZEALAND. THE THIRD AIRCRAFT IS A
B 727 WITH THE LOGO AND NAME OF DELTA.]
67

======================================================

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE COMMON STOCK
TO WHICH IT RELATES OR AN OFFER IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------

TABLE OF CONTENTS

PAGE
----

Prospectus Summary.................... 3
Risk Factors.......................... 8
Use of Proceeds....................... 15
Dividend Policy....................... 15
Capitalization........................ 16
Dilution.............................. 17
Selected Consolidated Financial and
Operating Data...................... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 23
Management............................ 31
Certain Transactions.................. 37
Principal Shareholders................ 39
Description of Capital Stock.......... 40
Shares Eligible for Future Sale....... 41
Underwriting.......................... 43
Legal Matters......................... 44
Experts............................... 44
Additional Information................ 44
Index to Consolidated Financial
Statements.......................... F-1
Simat, Helliesen & Eichner, Inc.
Appraisal........................... A-1

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

UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================

1,820,000 SHARES

LOGO

INTERNATIONAL AIRCRAFT INVESTORS

COMMON STOCK
--------------------

PROSPECTUS

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

SUTRO & CO. INCORPORATED

FRIEDMAN, BILLINGS, RAMSEY
& CO., INC.

, 1997
======================================================
68

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee and the NASD fee.

AMOUNT TO
BE PAID
---------

SEC registration fee.............................................. $ 7,611
NASD fee.......................................................... 3,012
Nasdaq-NMS listing fee............................................ 25,340
Printing and engraving expenses................................... 100,000
Legal fees and expenses........................................... 200,000
Accounting fees and expenses...................................... 200,000
Blue Sky qualification fees and expenses.......................... 10,000
Transfer Agent and Registrar fees................................. 5,000
Miscellaneous fees and expenses................................... 79,037
---------
Total................................................... $ 630,000
=========

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Amended and Restated Articles of Incorporation of the Company will
contain a provision eliminating the personal liability of the directors to the
Company or its shareholders to the fullest extent permitted under the California
General Corporations Law. The Bylaws of the Company provide for indemnification
of directors, officers, employees and agents of the Company consistent with the
provisions of the California General Corporation Law. Reference is also made to
Section 10 of the Underwriting Agreement, contained in Exhibit 1 hereto,
indemnifying officers and directors of the Company against certain liabilities.
See also the form of Indemnity Agreement, included herein as Exhibit 10.3, to be
entered into with the directors and officers of the Company.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

None.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

NUMBER DESCRIPTION
------- -------------------------------------------------------------------------

II-1
69

NUMBER DESCRIPTION
------- -------------------------------------------------------------------------

*3.7 Form of Bylaws of the Company to be effective upon consummation of the
Offering
4.1 Specimen of Common Stock certificate
*4.2 Amended and Restated Aircraft Loan Agreement dated as of November 4, 1996
between SWA I Corporation and Wells Fargo Bank, N.A.
*4.3 Secured Promissory Note in the original principal amount of $13,700,000
made November 4, 1996 by SWA I Corporation in favor of Wells Fargo Bank,
N.A.
*4.4 Amended and Restated Guaranty Agreement dated as of November 4, 1996 made
by International Aircraft Investors in favor of Wells Fargo Bank, N.A.
*4.5 Senior Term Loan Agreement dated as of May 17, 1996 between IAI Alaska I
Corporation and City National Bank
*4.6 Aircraft Secured Promissory Note in the original principal amount of
$14,650,000 made May 17, 1996 by IAI Alaska I Corporation in favor of
City National Bank
*4.7 Secured Credit Agreement dated as of December 21, 1993 between IAI II,
Inc. and Continental Bank, N.A.
*4.8 Note in the original principal amount of $21,976,677 made by IAI II, Inc.
in favor of Continental Bank, N.A.
4.9 The Company hereby agrees to furnish to the Commission upon request a
copy of any instrument with respect to long-term debt where the total
amount of securities authorized thereunder does not exceed 10% of the
consolidated assets of the Company
5 Opinion of O'Melveny & Myers LLP regarding the legality of the securities
to be registered
*10.1 Form of 1997 Employee Stock Option and Award Plan
*10.2 Lease of principal offices
*10.3 Form of indemnity agreement
*10.4 Letter agreement, dated November 6, 1996, between the Company and ILFC.
*10.5 Letter agreement, dated January 14, 1997, between the Company and ILFC.
**10.6 Form of Employment Agreement with William E. Lindsey.
**10.7 Form of Employment Agreement with Michael P. Grella.
10.8 Form of 1997 Eligible Directors Stock Option Plan.
10.9 Form of Restated Stock Option Agreements for options outstanding at
consummation of the offering.
*11 Statement regarding computation of earnings per share.
21 The Company's subsidiaries are as follows: IAI Atlantic Leasing, Inc.,
IAI-I, Inc., IAI-II, Inc., IAI Pacific Leasing, Inc., IAI Alaska I
Corporation and SWA I Corporation.
23.1 Consent of KPMG Peat Marwick LLP, independent certified public
accountants
23.2 Consent of O'Melveny & Myers LLP (included in Exhibit 5)
23.3 Consent of Simat Helliesen & Eichner, Inc.
*24 Power of Attorney
*27.1 Financial Data Schedule for the year ended December 31, 1996.

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

* Previously filed.

** To be filed by amendment.

II-2
70

(b) FINANCIAL STATEMENT SCHEDULES

All schedules for which provision is made in the applicable accounting
regulations of the Commission are provided in the Notes to the Consolidated
Financial Statements included elsewhere in this Registration Statement or are
not required under the applicable instructions or are inapplicable and therefore
have been omitted.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions described in
Item 14 or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel, the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
Rule 497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

II-3
71

SIGNATURE

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this Amendment No. 2 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on this 17th day of March, 1997.

INTERNATIONAL AIRCRAFT INVESTORS

By: /s/ WILLIAM E. LINDSEY
William E. Lindsey
Chairman of the Board and
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE
- ----------------------------------------------- ---------------------------- -----------------

/s/ WILLIAM E. LINDSEY Chairman of the Board, Chief March 17, 1997
William E. Lindsey Executive Officer and
Director (Principal
Executive Officer)

/s/ MICHAEL P. GRELLA* President and Director March 17, 1997
Michael P. Grella

/s/ RICHARD O. HAMMOND* Vice President -- Finance March 17, 1997
Richard O. Hammond and Treasurer (Principal
Financial and Accounting
Officer)
/s/ STUART M. WARREN* Director March 17, 1997
Stuart M. Warren

/s/ AARON MENDELSOHN* Director March 17, 1997
Aaron Mendelsohn

/s/ CHRISTER SALEN* Director March 17, 1997
Christer Salen

/s/ KENNETH TAYLOR* Director March 17, 1997
Kenneth Taylor

* /s/ WILLIAM E. LINDSEY
William E. Lindsey
Attorney-in-fact

II-4
72

EXHIBIT INDEX

NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------

**1 Form of Underwriting Agreement
*3.1 Articles of Incorporation of the Company
*3.2 Certificate of Amendment of Articles of Incorporation of the Company, dated
November 15, 1988
*3.3 Certificate of Amendment of Articles of Incorporation of the Company, dated
April 1, 1992
*3.4 Certificate of Determination with respect to Convertible Preferred Stock
*3.5 Bylaws of the Company
3.6 Form of Amended and Restated Articles of Incorporation of the Company to be
effective upon consummation of the Offering
*3.7 Form of Bylaws of the Company to be effective upon consummation of the
Offering
4.1 Specimen of Common Stock certificate
*4.2 Amended and Restated Aircraft Loan Agreement dated as of November 4, 1996
between SWA I Corporation and Wells Fargo Bank, N.A.
*4.3 Secured Promissory Note in the original principal amount of $13,700,000 made
November 4, 1996 by SWA I Corporation in favor of Wells Fargo Bank, N.A.
*4.4 Amended and Restated Guaranty Agreement dated as of November 4, 1996 made by
International Aircraft Investors in favor of Wells Fargo Bank, N.A.
*4.5 Senior Term Loan Agreement dated as of May 17, 1996 between IAI Alaska I
Corporation and City National Bank
*4.6 Aircraft Secured Promissory Note in the original principal amount of
$14,650,000 made May 17, 1996 by IAI Alaska I Corporation in favor of City
National Bank
*4.7 Secured Credit Agreement dated as of December 21, 1993 between IAI II, Inc.
and Continental Bank, N.A.
*4.8 Note in the original principal amount of $21,976,677 made by IAI II, Inc. in
favor of Continental Bank, N.A.
4.9 The Company hereby agrees to furnish to the Commission upon request a copy of
any instrument with respect to long-term debt where the total amount of
securities authorized thereunder does not exceed 10% of the consolidated
assets of the Company
5 Opinion of O'Melveny & Myers LLP regarding the legality of the securities to
be registered
*10.1 Form of 1997 Employee Stock Option and Award Plan
*10.2 Lease of principal offices
*10.3 Form of indemnity agreement
*10.4 Letter agreement, dated November 6, 1996, between the Company and ILFC
*10.5 Letter agreement, dated January 14, 1997, between the Company and ILFC
**10.6 Form of Employment Agreement with William E. Lindsey
**10.7 Form of Employment Agreement with Michael P. Grella
10.8 Form of 1997 Eligible Directors Stock Option Plan
10.9 Form of Restated Option Agreement for options outstanding at consummation of
the Offering.
10.10
*11 Statement regarding computation of earnings per share and supplemental
earnings per share
21 The Company's subsidiaries are as follows: IAI Atlantic Leasing, Inc., IAI-I,
Inc., IAI-II, Inc., IAI Pacific Leasing, Inc., IAI Alaska I Corporation and
SWA I Corporation
23.1 Consent of KPMG Peat Marwick LLP, independent certified public accountants
23.2 Consent of O'Melveny & Myers LLP (included in Exhibit 5)

NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------

23.3 Consent of Simat Helliesen & Eichner, Inc.
*24 Power of Attorney
*27.1 Financial Data Schedule for the year ended December 31, 1996

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

* Previously filed.

** To be filed by amendment.