ITEM 1. BUSINESS
General
Pegasus Aircraft Partners, L.P. (the "Partnership" or the "Registrant") is a limited partnership organized under the laws of the State of Delaware on June 23, 1988. The general partners of the Partnership are Pegasus Aircraft Management Corporation, the Managing General Partner, a California corporation that is a wholly-owned subsidiary of Pegasus Capital Corporation, and Air Transport Leasing, Inc., the Administrative General Partner, a Delaware corporation that is a wholly-owned subsidiary of UBS Americas, Inc. UBS Americas is a successor through acquisition to Paine Webber Group, Inc. (Pegasus Aircraft Management Corporation and Air Transport Leasing, Inc. are herein collectively referred to as the "General Partners")
On October 18, 1988, the Partnership commenced an offering of limited partnership depositary units ("Units"). The $80,000,000 maximum offering size was reached during the first quarter of 1989. The Partnership incurred $8,441,000 of commissions and other expenses in connection with the sale of these Units.
Although the Partnership was organized on June 23, 1988, the Partnership conducted no activities and recognized no revenues, profits or losses prior to December 21, 1988 at which time the Partnership commenced operations. During the period between December 23, 1988 and March 22, 1989, the Partnership acquired its portfolio of used commercial aircraft, which are principally subject to triple net operating leases with commercial air carriers. Two of the initial aircraft have been converted to a freighter configuration and leased to freight companies.
Although it is anticipated that the Partnership will be liquidated sooner, the Partnership is required to dissolve and distribute all of its assets no later than December 31, 2012. The Partnership sold its Boeing 747 in 2000 and its MD-82 in 2001 and is in discussions with TNT Transport International B.V. for the sale of the aircraft to TNT. The sale of the two aircraft resulted in the Partnership owning 3 aircraft and 50% ownership in a trust that owns one aircraft. The net proceeds of the aircraft sales were generally first utilized to pay off the Partnership's debt and then applied to general working capital reserves.
Outlook for the Airline and Aircraft Leasing Industries
The US airline industry had an unprofitable year in 2001 that ended the industry's sustained trend of profitability. Results were adversely affected by continuing high fuel prices during much of 2001 and higher labor costs. The industry also accepted delivery of a large number of new aircraft which also put pressure on profitability. Furthermore, as discussed below, the events of September 11, 2001 have negatively impacted air travel and air freight.
The industry's results historically have been highly correlated to general economic activity. Due to concerns regarding an economic slowdown, the US Federal Reserve Board has reduced its key lending rate on a number of occasions in an attempt to stimulate economic activity. It is unclear as to the ultimate impact on the level of economic activity of these rate decreases, however, a significant economic slowdown has had an adverse affect on air travel and airline performance. The economic downturn was further exacerbated by the events of September 11, 2001, which also adversely affected air travel and the air freight industry. Subsequent to September 11, at least two major US airlines announced the accelerated retirement of aircraft of a similar type to those owned by the Partnership which has further adversely impacted the value of the Partnership's aircraft.
On January 10, 2001, Trans World Airlines, Inc. ("TWA"), which accounted for 37% of the Partnership's revenues in 2000, filed for Chapter 11 Bankruptcy protection. On January 9, 2001, TWA entered into an Asset Purchase Agreement with American Airlines, Inc. American purchased substantially all of TWA's assets, and assumed certain of its liabilities. As part of the transaction, American Airlines purchased the Partnership's MD-82. Kitty Hawk Aircargo, Inc. which leases a Boeing 727 freighter, accounted for 31% of the Partnership's revenue in the year 2001 and has been operating under protection of the Federal bankruptcy law since May 2000. Due to an inability to find adequate financing and reduced freight traffic, Kitty Hawk has recently made only partial rent payments.
Passenger aircraft and freighter aircraft leasing continues to be a highly competitive business and the Partnership's lessees also continue to face significant challenges.
Aircraft Portfolio
Based in part on appraised values for the Partnership's aircraft, the Partnership's net asset value at December 31, 2001 was equal to $1.43 per Unit. It should be noted that this is only an estimate of values at that date and is not necessarily representative of the values that will ultimately be realized when these aircraft are disposed of, nor does this represent the values that may be realized upon the disposition of a Unit.
The following table describes the Partnership's aircraft portfolio at December 31, 2001:
Notes:
(1) Acquisition costs do not include acquisition related fees paid to the General Partners. The Partnership previously owned a Boeing 747 and a McDonnell-Douglas MD-82, both of which have been sold.
(2) An independent aircraft appraisal firm determined December 2001 appraised values. Appraised values include the present value of rents due under leases in place plus the present value of an estimated residual value for the aircraft at the end of the lease, generally assuming half time condition. The appraiser also assumes that achieving fair market value may require 12 to 18 months of exposure to prospective buyers. It should be noted that appraisals are only estimates of value and should not be relied on as measures of immediately realizable value. A discount rate of 10% was utilized and inflation was assumed to be 2.5%. For the table above, the Off-Lease aircraft is shown at the current book value, which also approximates the General Partners' estimate of realizable value.
The value of the Kitty Hawk aircraft is based on collected reserves and the estimated value of lease unencumbered aircraft, which approximates the book value of the aircraft. The value for the TNT aircraft is the expected amount to be realized upon the sale of the aircraft at the end of the lease. The Vanguard aircraft is shown at its appraised value which assumed a monthly utilization of approximately 108 hours per month.
(3) Lease expiration dates do not include renewal options unless already exercised.
(4) The number of cumulative flight cycles and cumulative flight hours shown are as of December 31, 2001.
(5) The remaining one-half beneficial interest is owned by Pegasus Aircraft Partners II, L.P., an affiliated partnership.
(6) Airframe is advanced, engines are JT8D-9A's
(7) Federal Express hushkit installed.
(8) Kitty Hawk aircraft converted to a freighter during 1999, and TNT aircraft converted to a freighter during the end of 1997 and the beginning of 1998.
A description of the principal financial terms of the leases is discussed further in Item 8, Note 4.
Significant Lessees
The Partnership leased its aircraft to five different airlines during 2001. Revenues from each of the airlines below accounted for greater than 10% of the total rental revenues of the Partnership during 2001:
Percent of Total Airline Rental Revenues ------- --------------- Trans World Airlines, Inc. 15% TNT Transport International B.V. 37% Kitty Hawk Aircargo Inc. 31% US Airways Group, Inc. 17%
Safety Requirements and Aircraft Aging
In addition to registration, the FAA imposes strict requirements governing aircraft inspection and certification, maintenance, equipment requirements, general operating and flight rules (including limits on arrivals and departures), noise levels, certification of personnel and record keeping in connection with aircraft maintenance. FAA regulations establish standards for repairs, periodic overhauls and alterations and require that the owner or operator of an aircraft establish an airworthiness inspection program to be carried out by certified mechanics. Pursuant to the leases and FAA regulations, no aircraft of the Partnership may be operated without a current airworthiness certificate.
The FAA periodically reviews Service Bulletins which are issued by the aircraft manufacturers. These bulletins focus on safety problems that have developed during the aircraft's operation. The FAA may incorporate these Service Bulletins in Airworthiness Directives ("ADs"), which are mandates requiring the airline to perform specific maintenance within a specified period of time.
Aircraft aging is a significant issue in aircraft safety regulation. In the past, certain aviation incidents and accidents raised concerns over the structural integrity of older aircraft. In 1989, in its "Report to Congress on the Status of the U.S. Stage II Commercial Aircraft Fleet", the FAA stated that "no correlation has been established between the chronological age of an aircraft and its structural airworthiness. A more accurate assessment of the physical "age" of an aircraft is the total number of flight cycles and flight hours flown." A flight cycle is defined as one takeoff and one landing. A flight cycle is important because of the added stress on the airframe, landing gear and other components from repeated takeoffs, landings and pressurizations. As different types of aircraft have different missions, and carriers fly a variety of routes, flight cycles can vary widely among aircraft of the same chronological age. In general, narrow-body aircraft which are used for short-haul service will have greater cycles per year than wide-body aircraft used for longer routes. Other factors which contribute to the aging of an aircraft are the number of hours actually flown, the predominant environment in which an aircraft has flown, and its actual age in years.
The FAA has adopted certain ADs for Boeing and McDonnell Douglas aircraft models, including Boeing 727s, 737s and 747s and McDonnell Douglas DC-9s, MD-80s and DC-10s. These ADs make mandatory the periodic replacement or modification of structural materials, fittings and skin at certain times in the life of an aircraft, typically when the aircraft reaches a certain number of flight cycles or age threshold. Previously, these aircraft were subject only to periodic inspection, and the replacement and modification of materials and parts was done where deemed necessary. Similar ADs for Lockheed and Airbus manufactured aircraft are expected to be proposed and adopted by the FAA. In addition, it is widely expected that foreign civil aviation authorities, especially in Europe and Japan, will adopt similar measures to protect the structural integrity of older aircraft.
These aging aircraft ADs initially impacted only a limited number of older aircraft, but additional aircraft are covered as they accumulate time-and-service and reach the thresholds for the required modifications. Significantly, in the case of each aircraft type, a significant majority of replacements or modifications are mandated when a plane reaches a certain number of flight cycles and relatively few required replacements are triggered when a plane reaches a certain chronological age or number of flight hours.
The following table summarizes the age, flight cycle, and flight hour thresholds for each major aircraft type under the ADs. In general, these thresholds are based on the "economic design goal" of an aircraft, which is
typically considered to be the period of service after which an increase in maintenance costs is expected to take place in order to assure continued operational safety. In addition, the table provides an estimate by the FAA of the costs of complying with all of the mandated replacements and modifications of the ADs. It is important to note that since most of the proposed work under the ADs is based on flight cycle thresholds, those lower-cycle aircraft which reach the aircraft age or flight hour thresholds should incur significantly lower AD compliance cost than the total amounts estimated below.
Aircraft Flight Flight Estimated Aircraft Age Cycle Hour AD Type Threshold Threshold Threshold Costs - -------- --------- --------- --------- --------- (Years)
Boeing 727 20 60,000 N/A $1,100,000 Boeing 737 20 75,000 N/A 934,000 Boeing 747 20* 20,000* N/A 3,400,000 McDonnell Douglas DC-9 20 100,000 75,000 79,000 McDonnell Douglas MD-80 20 75,000 75,000 4,000 McDonnell Douglas DC-10 None 42,000 60,000 187,000
* Substantially cycle limited
Flight cycle and flight hour information with respect to the Partnership's aircraft is included in the aircraft portfolio table included earlier in Item 1.
The Partnership's leases generally require the lessees to bear the costs of compliance with ADs which require action during the lease terms. The Partnership's three Boeing 727-200 aircraft have had the major calendar modifications performed as required.
In 1999, the FAA organized a two year industry task force, the Aging Transport Systems Rulemaking Advisory Committee, to investigate non-structural, aging aircraft systems. It cannot be determined at this time what recommendations, if any, will be made by the task force.
Aircraft Noise Regulations
On November 5, 1990, Congress enacted into law the Airport Noise and Capacity Act of 1990 (the "Act"). On September 24, 1991, the FAA issued the final rules of implementation for the Act. The Act provided that Stage II aircraft would be phased out from operation within United States airspace by December 31, 1999.
Implementing regulations proposed by the FAA required each United States operator to increase its Stage III airplane fleet to 50 percent by December 31, 1996; to 75 percent by December 31, 1998 and to 100 percent by December 31, 1999.
However, the Act further provided, that if by July 1, 1999, at least 85% of an air carrier's fleet complied with Stage III noise levels, the carrier may apply for a waiver of the operational ban for the remaining aircraft in the operator's fleet until December 31, 2003. The application for such a waiver must be submitted to the Secretary of the Department of Transportation no later than January 1, 1999 and must include a plan with firm orders for making all aircraft operated by the air carrier comply with Stage III noise levels by December 31, 2003.
Stage III hushkitting and re-engineering for the Boeing 727-200 aircraft have been approved by the FAA and the Partnership's three Boeing 727-200 aircraft have had Federal Express hushkits installed.
The European Commission has promulgated rules relating to aircraft noise that would ban aircraft that are modified ("hushkitted") to achieve Stage III noise compliance from European airspace after the year 2002. Such aircraft cannot be added to European fleets after April of 1999. It is unclear in what manner and if such rules will achieve full implementation.
Competition
The aircraft leasing industry is highly competitive. The Partnership competes with aircraft manufacturers, distributors, airlines and other operators, equipment managers, leasing companies, financial institutions and other parties engaged in leasing, managing or remarketing aircraft, many of which have significantly greater financial resources and greater experience than the Partnership. Such competitors may lease aircraft at lower rates than the Partnership and provide benefits, such as direct maintenance, crews, support services and trade-in privileges, which the Partnership does not intend to provide. Competitors may include certain affiliates of the General Partners.
Employees
The Partnership has no employees. The officers, directors and employees of the General Partners and their affiliates perform services on behalf of the Partnership. The General Partners are entitled to certain fees and reimbursements of certain out-of-pocket expenses incurred in connection with the performance of these management services. See Item 10 of this Report, "Directors and Executive Officers of the Registrant," and Item 13 of this Report, "Certain Relationships and Related Transactions," which are incorporated herein by reference.
ITEM 2.
ITEM 2. PROPERTIES
The Partnership does not own or lease any physical properties other than the aircraft which are discussed in Item 1 of this Report, "Business," which is incorporated herein by reference.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Although Kitty Hawk had affirmed the Partnership's lease in bankruptcy, Kitty Hawk intends to file a motion in bankruptcy court in late March to terminate the lease, and not pay damages. The Partnership has terminated the lease by reason of Kitty Hawk's default and will file a motion for damages under the lease. Oral arguments will be heard in early April and a decision is anticipated sometime thereafter.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF UNIT HOLDERS
No matters were submitted to a vote of the Limited Partners of the Partnership, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year ended December 31, 2001.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S PARTNERSHIP CAPITAL AND RELATED UNITHOLDER MATTERS
The Units represent the economic rights attributable to limited partnership interests in the Partnership. There is no organized trading market for the purchase and sale of the Units and certain measures have been adopted and implemented to assure that no such organized trading market will develop.
As of March 1, 2002, the number of Limited Partners of record was approximately 4,383.
The Partnership declared the following distributions to its Limited Partners during 2001 and 2000:
Amount of Distribution Period Per Unit Record Date Payment Date ------ -------- ----------- ------------
1st Quarter 2001 $.00 None Paid 2nd Quarter 2001 .30 June 30, 2001 July 10, 2001 3rd Quarter 2001 .00 None Paid 4th Quarter 2001 .00 None Paid 1st Quarter 2000 $.40 March 31, 2000 April 25, 2000 2nd Quarter 2000 .30 June 30, 2000 July 25, 2000 3rd Quarter 2000 .30 September 30, 2000 October 25, 2000 4th Quarter 2000 .00 None Paid
Total distributions to all partners for 2001 and 2000 were declared as follows (in thousands):
2001 2000 ---- ----
Limited Partners $1,200 $4,000 General Partners 12 40 ------ ------ $1,212 $4,040 ====== ======
Distributions may be characterized for tax, accounting and economic purposes as a return of capital, a return on capital, or both. The portion of each cash distribution by a partnership which exceeds its net income for the fiscal period may be deemed a return of capital. Based on the net loss reported by the Partnership for accounting purposes, all of the cash distributions paid to the partners for the year 2001 constituted a return of capital. Approximately, 96%, and 88% of the cash distributions declared for the years ended December 31, 2000, and 1999, respectively, constituted a return of capital. Also, based on the amount of net loss reported by the Partnership for accounting purposes, approximately 76% of the cash distributions paid to the partners from inception of the Partnership through December 31, 2001 constituted a return of capital. Investors who participated in the Partnership closings, irrespective of the Partnership closing in which they participated, have received distributions in excess of their original investment of $20.00 per Unit. The total actual economic return on capital over the Partnership's life can only be determined at the termination of the Partnership after all cash flows, including proceeds from the sale of the aircraft, have been realized.
As has historically been the case, the amount of future cash distributions, if any, will be determined on a quarterly basis after an evaluation of the Partnership's operating results and its current and expected financial position.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of the Partnership was derived from the audited financial statements for the indicated periods. The information set forth below should be read in conjunction with the Partnership's financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Items 8 and 7, respectively, of this Form 10-K Report.
(1) Distribution amounts are reflected on the accrual basis. The amount of each distribution will be determined on a quarterly basis after an evaluation of the Partnership's operating results and its current and expected financial position.
(2) Includes gain on sale of spare aircraft engine of $177.
(3) Prior years restated to include ownership in MD81 Trust on the equity method which resulted in a revenue reduction of $1,214 per year in years 1999 through 1996. There was no effect on Net Income.
(4) Includes gain on sale of Boeing 747.
(5) Includes gain on sale of McDonnell Douglas MD-82.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected Financial Data" and the Financial Statements of the Partnership and the Notes thereto. This report may contain, in addition to historical information, Forward-Looking statements that include risks and other uncertainties. The Partnership's actual results may differ materially from those anticipated in these Forward-Looking statements. Factors that might cause such a difference include those discussed below, as well as general economic and business conditions, competition and other factors discussed elsewhere in this report. The Partnership undertakes no obligation to release publicly any revisions to the Forward-Looking Statements, if any, to reflect events or circumstances after the date hereof or to reflect the occurrence of anticipated or unanticipated events.
Liquidity and Capital Resources
The Partnership owns and manages a portfolio of commercial passenger and freighter aircraft and makes distributions to the partners of net cash flows generated by operations in the current and/or prior periods. In certain situations, the Partnership may retain cash flow from operations to finance authorized capital expenditures, or for general working capital purposes. As has historically been the case, the amount of future cash distributions will be determined on a quarterly basis after an evaluation of the Partnership's operating results and its current and expected financial position.
The Partnership invests working capital and cash flow from operations prior to its distributions to the partners in short-term, highly liquid investments or a fund that invests in such instruments. At December 31, 2001, the Partnership's unrestricted cash and cash equivalents of $2,516,000 were primarily invested in such a fund. This amount was $575,000 more than the
Partnership's unrestricted cash and cash equivalents at December 31, 2000 of $1,941,000. This increase in unrestricted cash was primarily attributable to cash from operating activities of $2,649,000, investing activities of $10,188,000, offset by cash used in financing activities of $12,262,000.
Net cash provided by operating activities was $2.6 million in 2001, $4.7 million in 2000, and $5.6 million in 1999. In the aggregate, for this three year period, net cash provided by operating activities totaled $12.9 million.
Net cash provided by operating activities is comprised of net income or net loss adjusted for non cash items such as depreciation and changes in assets and liabilities discussed below.
Rents receivable were down 100%, from $149,000 at December 31, 2000, to zero at December 31, 2001, due to the termination of the leases with US Airways and the sale of the MD-82, formerly leased to TWA, and arrearages by Vanguard and Kitty Hawk in the payment of rent (both accounted for on a non-accrual basis).
Payable to affiliates increased by 74%, or $747,000, from $1,004,000 at December 31, 2000 to $1,751,000 at December 31, 2001, principally due to an increase in unpaid management fees due to the General Partners. Payment of fees on a current basis has been suspended due to the Partnership Agreement provisions that require fees not to be paid if cash distributions fall below 8% of initial capital per annum. The fees are being accrued but cash payments on a current basis have been suspended.
Maintenance reserves payable decreased by 32% or $546,000 from $1,700,000 at December 31, 2000, to $1,154,000 at December 31, 2001. This decrease was primarily due to the maintenance reserves of the Boeing 727, formerly leased to Sky Trek, being taken into income in the second quarter 2001, partially offset by the receipt of payments from TNT, Vanguard and Kitty Hawk.
There was no accrued interest payable at December 31, 2001, compared to $105,000 at December 31, 2000, as the Partnership fully paid off its debt in April 2001.
Cash flows from investing activities were $10,188,000 for the year 2001, due to proceeds of $9,500,000 from the sale of the McDonnell Douglas MD-82 aircraft, formerly leased to TWA, and $688,000 in cash distributions from investment in the MD-81 Trust.
Net investment in the MD-81 Trust decreased by 28%, or $287,000, from $1,028,000 at December 31, 2000 to $741,000 at December 31, 2001, due to receipt of cash distributions of $688,000 offset by equity interest earnings of $401,000.
The McDonnell Douglas MD-81 aircraft under lease to USAirways Group, Inc. ("USAir") is owned by a trust ("MD-81 Trust") in which the Partnership has a 50% interest. An affiliated Partnership owns the other 50% interest. As the lease ended in June 2001, USAir returned the aircraft in July 2001 and paid rent through the return date. In August 2001, the Trust entered into a three-year lease of the aircraft with Vanguard Airlines, a Kansas City, Missouri airline. The lease agreement is on a "power by the hour" basis, at the rate of $600 per flight hour, to a maximum of $130,000 per month. Vanguard is also responsible for funding the maintenance reserves for the aircraft. Due to the events of September 11, 2001 and the abrupt slowdown in passenger traffic, Vanguard only paid $260,000, of which 50% was distributed to the Partnership and 50% to the other affiliated Partnership, in 2001. These payments were applied to maintenance reserves within the Trust. Based on the Vanguard's financial position, the Trust is accounting for rental income on a cash basis.
The Partnership has adopted the guidance in EITF Issue No. 00-1 Investor Balance Sheet and Income Statement Display under the Equity Method of Investments in Certain Partnerships and Other Ventures (EITF 00-1) in its Annual Report on Form 10-K starting the fiscal year ended December 31, 2000 and accounts for its investment in the Trust which owns the MD-81 aircraft leased to USAirways under the equity method. In prior years, the Partnership reported its ownership in the MD-81 Trust on a proportionately consolidated basis. The financial results in prior years contained herein have been restated utilizing the equity method. The aircraft had been subject to a tax benefit transfer lease, which expired in April 2000.
During the year ended December 31, 2000, the Partnership capitalized approximately $1.3 million with respect to the overhaul of two engines for the Boeing 727-200 aircraft leased to Kitty Hawk. There was no cash outflow for capitalized improvements during the year ended December 31, 2001.
Net cash used in financing activities was $12,262,000 for the year 2001. This amount represents the retirement of the Partnership's bank note which had a balance of $11,050,000 at the beginning of 2001, and cash distributions of $1,212,000 paid to the partners in July 2001.
In February 1999, the Partnership consummated an agreement to increase the committed amount of its loan facility from $10 million to $14.5 million and increase the interest rate from 1.25 % to 1.5% over prime. The Partnership had pledged all of its aircraft as collateral for this loan facility and the principal amount was due in October 2000. In January 2001, the note was extended to June 30, 2001 with the provision that all monthly cash flow in excess of certain scheduled expenses was to be paid to reduce the principal. In January 2001, TWA filed for Chapter 11 bankruptcy protection under the U.S. Bankruptcy Code and just before it filed, it entered into an Asset Sale and Purchase Agreement with American Airlines. On April 9, 2001, the Partnership sold the McDonnell Douglas MD-82 aircraft, formerly leased to TWA, to American Airlines for $9.5 million. Approximately $8.9 million of the sale proceeds were used to fully pay off the Partnership's loan balance.
Cash distributions declared by the Partnership were approximately $1.2 million in 2001 ($0.30 per unit), $4 million ($1.00 per unit) in 2000, and $6.5 million in 1999 ($1.60 per unit). In the aggregate, for this three year period, cash distributions declared by the Partnership totaled $11.7 million. With the off-lease status of the Boeing 727-200 previously leased to Sky Trek, the sale of the Boeing 747 to TWA, the sale of the MD-82 to American Airlines, as well as the non- payment of rent of Vanguard, and the reduction in receipts from Kitty Hawk rent, the Partnership is generating less cash on an operating basis. These factors have all contributed to the reduction and suspension of the cash distribution.
Partnership capital was $3,058,000, a decrease of approximately $1,657,000 or 36% from December 31, 2000, from the net loss of $445,000, and $1,212,000 of distributions to partners.
All the Partnership leases are paid in US dollars. Jet fuel prices are a large component of the cost of airline and air freight operations and therefore higher fuel prices as experienced in most of 2001 had an adverse impact on operator finances. Additionally, the Partnership aircraft are, typically, older, less fuel efficient aircraft than the more current designs.
Critical Accounting Policies
High-quality financial statements require rigorous application of high-quality accounting policies. The policies discussed below are considered by management to be critical to an understanding of the Partnership's financial statements because their application requires significant judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. For all of these policies, management cautions that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment.
Lease Revenue Recognition:
Revenue under operating leases is recognized as rental income over the lease term.
Depreciation:
Aircraft are recorded at cost and depreciated on a straight-line basis over the estimated life to its estimated residual value. Certain major additions and modifications to aircraft may be capitalized. The estimates are reviewed periodically to ensure continued appropriateness.
Aircraft Valuation:
Aircraft are periodically reviewed for impairment in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". An impairment loss is recognized when the fair value of the undiscounted future cash flows of the aircraft is less than its net book value. The fair value of the aircraft is generally based on independent appraisals of the aircraft and estimates of undiscounted future cash flows. The appraisals assume, among other things, that the aircraft are utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the market place are disregarded and it is assumed that there is no necessity either to dispose of a significant number of aircraft simultaneously or to dispose of aircraft quickly.
The Partnership determined the critical principles by considering accounting policies that involve the most complex or subjective decisions or assessments. The Partnership identified the most critical accounting policies to be those related to lease revenue recognition, depreciation methods and valuation of aircraft. The Partnership also states these accounting policies in the notes to the consolidated financial statements and at relevant sections in this discussion and analysis.
Results of Operations
The Partnership's net loss was $445,000 for the year 2001 (the "2001 Period") as compared to net income of $155,000 for the year 2000 (the "2000 Period"). The reason for the Partnership's net loss for the 2001 Period compared to net income of 2000 was principally due to substantial write down of the aircraft and a decrease in rentals from operating leases, partially offset by the gain on sale of aircraft and decreased depreciation.
Rentals from operating leases decreased by 41%, or $2,305,000, from $5,645,000 at December 31, 2000 to $3,340,000 at December 31, 2001, due primarily to the lack of rental revenue from the Boeing 747 which was sold to TWA in April 2000, the McDonnell Douglas MD-82 aircraft sold to American Airlines in April 2001, the off-lease status of the Boeing 727, formerly leased to Sky Trek which was returned in May 2000, and the 50% reduction in rent for Kitty Hawk for the last three months of the year.
The Partnership recognized a gain of $7,317,000 for the 2001 Period due to the sale of the McDonnell Douglas MD-82 aircraft to TWA during April, 2001, compared to a gain of $1,611,000 for the 2000 Period for the sale of the Boeing 747-100 aircraft to TWA .
Other Income increased by $848,000, or 100%, in the 2001 Period, as compared to the 2000 Period, principally due to the maintenance reserves of the Boeing 727 being taken into income in the first quarter 2001.
Depreciation decreased by 61%, or $1,984,000, in the 2001 Period, as compared to the 2000 Period. This decrease was primarily due to the sale of the Boeing 747 to TWA in April 2000, the sale of the McDonnell Douglas MD-82
aircraft to American Airlines in April 2001, and the Sky Trek Boeing 727 being off lease, which the General Partners are attempting to sell for parts or as is.
The Partnership provided a write-down aggregating $9,302,000 for the 2001 Period, to reduce the carrying value to the fair market value of three Boeing 727-200 aircraft, one previously leased to Sky Trek, the TNT aircraft, and the Kitty Hawk aircraft. These write downs were $1,766,000 on the Boeing 727, formerly leased to Sky Trek, $2,216,000 on the TNT aircraft, and $5,320,000 on the Kitty Hawk aircraft. There was a $950,000 write-down on the Sky Trek and $1,157,000 write down on the TNT aircraft for the 2000 Period.
Management and re-lease fees payable to the General Partners for the 2001 Period increased by 6%, or $43,000, in comparison to the 2000 Period, which was primarily attributable to sales proceeds from the sale of the McDonnell-Douglas MD-82 aircraft to American Airlines during April 2001.
Interest expense decreased by 74%, or $959,000, in the 2001 Period, as compared to the 2000 Period, due to the payoff of the Partnership's bank note on April 9, 2001 and a reduction in interest rate.
Direct Lease expense increased by 339%, or $410,000, in the 2001 Period, as compared to the 2000 Period. This increase was due to the return of the MD-81 from USAir and the work done on the aircraft to put it in condition for lease to Vanguard Airlines.
Engine rental expense was $84,000 during the 2000 Period, due to the Partnership temporarily renting two JT8D-9A engines, from an affiliate of the Managing General Partner, for the aircraft leased to Kitty Hawk. There was no such expense during the 2001 Period.
2000 as compared to 1999
The Partnership's net income was $155,000 for the year ended December 31, 2000 ("2000 Period") as compared to $805,000 for the year ended December 31, 1999 ("1999 Period"), an 81% decrease. This was due primarily to writing down the carrying value of two of the Partnership's aircraft and a decrease in rentals from operating leases. This was offset by a gain on the sale of the Boeing 747, a settlement with Continental Airlines, reduced depreciation expense and lower engine rental expenses.
Rental revenue decreased $1,365,000 or 19% due to the loss of revenue from Sky Trek which returned the Boeing 727 aircraft in early 2000, and the sale of the Partnership's 747 to TWA. This reduction was partially offset by having a full twelve months of revenue from Kitty Hawk for the lease of a Boeing 727 freighter.
The Partnership provided a write-down aggregating $500,000, to reduce the carrying value to an approximation of market value for the Boeing 727-200 aircraft previously leased to Sky Trek, at June 30, 2000, and an additional write down of $450,000 for the same aircraft at December 31, 2000. The Boeing 727 aircraft leased to TNT was also written down at December 31, 2000 by $1,157,000. There were no write-downs during the 1999 Period.
The Partnership recognized other income of $181,000 from a lease return settlement with Continental Airlines in connection with the return of the Boeing 727 now leased by Kitty Hawk. There was no similar revenue in 1999.
Net investment in the MD-81 Trust decreased by $771,000 from $1,799,000 at December 31,1999 to $1,028,000 at December 31, 2000, due to the receipt of cash distributions of $1,214,000 offset by equity interest earnings of $443,000.
Depreciation and amortization was down $1,141,000 or 26% from $4,380,000 in the 1999 Period, to $3,239,000 in the 2000 Period. This was due primarily to the sale of the Boeing 747-100 aircraft to TWA during April 2000 and the termination of the lease to Sky Trek in May 2000. Partially offsetting these decreases was an increase in depreciation related to the aircraft on lease to Kitty Hawk (off-lease during the first half of 1999).
Management and re-lease fee expenses to the General Partners for the 2000 Period increased $77,000, or 12%, in comparison to the 1999 Period. This was primarily attributable to sales proceeds of $4.36 million, from the sale of the Boeing 747-100 aircraft to TWA during April 2000.
Engine rental expense was $84,000 during the 2000 Period, due to the Partnership temporarily renting two JT8D-9A engines, from an affiliate of the Managing General Partner, for the aircraft leased to Kitty Hawk. This was down $112,000 or 57% from $196,000 during the 1999 Period.
Interest expense was up 6% or $76,000 from $1,215,000 in the 1999 Period to $1,291,000 in the 2000 Period. The increase is due to higher interest rates during the 2000 Period than during the 1999 Period. The Note required only interest payments during the 2000 Period except for the application of $2.95 million from the sale of the Boeing 747 aircraft to principal reduction.
Inflation and Changing Prices
Market and worldwide economic conditions and changes in federal and foreign aircraft regulations have in the past, and may in the future, impact the airline industry and thus lease rates and aircraft values. Additionally, inflation and changing prices, may affect future leasing rates and the eventual selling prices of the aircraft. Higher jet fuel prices for most of 2001 and increasing labor costs affected the airline industry profitability and that of the Partnership's lessees.
Due to concerns regarding the economic slowdown, the US Federal Reserve Board reduced its key lending rate on a number of occasions in an attempt to stimulate economic activity. It is unclear as to the ultimate impact on the level of economic activity of these rate changes, however, the economic slowdown has had an adverse affect on air travel and airline performance.
Risks and Uncertainties
The events of September 11, 2001 have had a negative impact on the US economy and the passenger airlines, including increases in airline costs such as insurance and security, and a significant decline in passenger demand for air travel. Due to the conversion of its aircraft to freighter configurations, the Partnership is more reliant on the air freight industry than the passenger airlines. While certain prohibitions on passenger planes carrying cargo have increased cargo for the fully dedicated air freight business, the air freight business in general has been negatively impacted by the economic slowdown. These conditions have caused certain lessees to reduce payments and should they continue, may further affect these and the other lessees' ability to make rent and other lease payments and may impair the ability of the Partnership to re-lease aircraft on a timely basis and at favorable rates and may reduce the value of the aircraft. Also, because of reduced passenger traffic, major airlines such as United Airlines and American Airlines have announced plans to accelerate the retirement of their Boeing 727-200 aircraft, which has also negatively impacted the value of the Partnership's aircraft.
Accounting Pronouncements
The Partnership has adopted the guidance in EITF Issue No. 00-1 Investor Balance Sheet and Income Statement Display under the Equity Method of Investment in Certain Partnerships and Other Ventures (EITF 00-1) in its Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and accounts for its investment in the Trust which owns the MD-81 aircraft leased to US Airways under the equity method. In prior years the Partnership had reported its ownership in the MD-81 Trust on a proportionately consolidated basis. The financial results in prior years contained herein have been restated utilizing the equity method. The aircraft had been subject to a tax benefit transfer lease which expired in April 2000.
In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.144 ("SFAS 144") Accounting for the Impairment or Disposal of Long Lived Assets". SFAS 144, which is effective for fiscal years beginning after December 15, 2001 with earlier application encouraged, addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supercedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of ", and the accounting and reporting provisions of APB 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a segment of a business (as previously defined in that Opinion). The implementation of this Statement is not expected to have a material effect on the Company's financial position, results of operations or cash flows.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
List of Financial Statements Page ----
Report of Independent Accountants .................................... 16
Balance Sheets -- December 31, 2001 and 2000.......................... 17
Statements of Income for the years ended December 31, 2001, 2000, and 1999................................ 18
Statements of Partners' Capital for the years ended December 31, 2001, 2000, and 1999 ............................... 19
Statements of Cash Flows for the years ended December 31, 2001, 2000, and 1999................................ 20
Notes to Financial Statements......................................... 22
All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted since (1) the information required is disclosed in the financial statements and notes thereto; (2) schedules are not required under the related instruction or; (3) the schedules are inapplicable.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Pegasus Aircraft Partners, L.P.
In our opinion, the accompanying balance sheets and the related statements of income, of partners' capital and of cash flows present fairly, in all material respects, the financial position of Pegasus Aircraft Partners, L.P. (the "Partnership") as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Partnership's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP San Francisco, California March 19, 2002
PEGASUS AIRCRAFT PARTNERS, L.P.
BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
ASSETS
2001 2000 ---- ---- (in thousands, except unit data)
Cash and cash equivalents $ 2,516 $ 1,941 Rent receivable -- 149 Aircraft, net 3,941 16,968 Other assets 16 7 ------- ------- Total Assets $ 6,473 $19,065 ======= =======
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES: Notes payable $ -- $11,050 Accounts payable and accrued expenses 124 105 Accrued interest payable -- 105 Payable to affiliates 1,751 1,004 Maintenance reserves payable 1,154 1,700 Deferred rental income and deposits 386 386 ------- ------- Total Liabilities $ 3,415 $14,350 ======= =======
COMMITMENTS (Note 6)
PARTNERS' CAPITAL: General Partners 34 50 Limited Partners (4,000,005 units issued and outstanding in 2001 and 2000) 3,024 4,665 ------- ------- Total Partners' Capital 3,058 4,715 ------- -------
Total Liabilities and Partners' Capital $ 6,473 $19,065 ======= =======
The accompanying notes are an integral part of these financial statements.
PEGASUS AIRCRAFT PARTNERS, L.P.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
2001 2000 1999 ---- ---- ---- (in thousands, except unit data and per unit amounts)
REVENUES: Rentals from operating leases $ 3,340 $ 5,645 $ 7,010 Interest and other 81 74 84 Gain on sale of engine and equipment 7,317 1,611 -- Return condition settlement -- 181 -- Other 848 -- -- Equity in earnings of MD-81 Trust 401 443 443 ----------- ----------- ----------- 11,987 7,954 7,537 ----------- ----------- -----------
EXPENSES: Depreciation 1,255 3,239 4,380 Interest 332 1,291 1,215 Management and re-lease fees 769 726 649 Write-downs 9,302 2,107 -- General and administrative 243 231 211 Direct lease 531 121 81 Engine rental and other -- 84 196 ----------- ----------- ----------- 12,432 7,799 6,732 ----------- ----------- -----------
NET INCOME (445) 155 805 =========== =========== ===========
NET INCOME ALLOCATED: To the General Partners (4) 800 8 To the Limited Partners (441) (645) 797 ----------- ----------- ----------- (445) 155 805 ----------- ----------- -----------
NET INCOME PER LIMITED PARTNERSHIP UNIT $ (0.11) $ (0.16) $ 0.20 =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF LIMITED PARTNERSHIP UNITS ISSUED AND OUTSTANDING 4,000,005 4,000,005 4,000,005 =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
PEGASUS AIRCRAFT PARTNERS, L.P.
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
General Limited Partners Partners Total -------- -------- ----- (dollar amounts in thousands)
Balance, December 31, 1998 $ (653) $ 14,913 $ 14,260
Net income 8 797 805
Distributions declared to partners (65) (6,400) (6,465) -------- -------- --------
Balance, December 31, 1999 (710) 9,310 8,600
Net income 800 (645) 155
Distributions declared to partners (40) (4,000) (4,040) -------- -------- --------
Balance, December 31, 2000 50 4,665 4,715
Net income (4) (441) (445) Distributions declared to partners (12) (1,200) (1,212) -------- -------- --------
Balance, December 31, 2001 $ 34 $ 3,024 $ 3,058 ======== ======== ========
The accompanying notes are an integral part of these financial statements.
PEGASUS AIRCRAFT PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
2001 2000 1999 ---- ---- ---- (dollar amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ (445) $ 155 $ 805 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,255 3,239 4,380 Write-downs 9,302 2,107 -- Gain on sale of engine and equipment (7,317) (1,611) -- Equity in earnings of MD-81 Trust (401) (443) (443) Change in assets and liabilities: Rent and other receivables 149 327 -- Other assets (9) 43 (24) Accounts payable and accrued expenses 19 (6) 14 Payable to affiliates 747 513 60 Maintenance reserves payable (546) 731 619 Deferred rental income and deposits -- (439) 147 Accrued interest payable (105) 105 -- -------- -------- -------- Net cash provided by operating activities 2,649 4,721 5,558 -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES: Cash distributions from investment in MD-81 Trust 688 1,214 1,214 Proceeds from sale of equipment 9,500 4,000 -- Capitalized aircraft improvements -- (1,261) (4,563) -------- -------- -------- Net cash provided by (used in) investing activities 10,188 3,953 (3,349) -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable -- -- 4,000 Repayment of notes payable (11,050) (2,950) -- Cash distributions paid to partners (1,212) (5,656) (6,465) -------- -------- -------- Net cash used in financing activities (12,262) (8,606) (2,465) -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 575 68 (256)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,941 1,873 2,129 -------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,516 $ 1,941 $ 1,873 ======== ======== ========
The accompanying notes are an integral part of these financial statements.
PEGASUS AIRCRAFT PARTNERS, L.P.
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
2001 2000 1999 ---- ---- ---- (dollar amounts in thousands)
SUPPLEMENTAL CASH FLOW INFORMATION: Interest Paid $ 437 $1,183 $1,201
NONCASH TRANSACTIONS: Distributions declared to partners but unpaid $ -- $ -- $1,616
Application of security deposit to sale of aircraft $ -- $ 360 $ --
The accompanying notes are an integral part of these financial statements.
`PEGASUS AIRCRAFT PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
1. Significant Accounting Policies
Basis of Presentation. Pegasus Aircraft Partners, L.P. (the "Partnership"), a Delaware limited partnership, maintains its accounting records and prepares financial statements on the accrual basis of accounting. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant assumptions and estimates relate to useful life and recoverability of the aircraft values. Actual results could differ from such estimates. Certain financial statement items in the years prior to 2000 have been reclassified to conform to the 2000 and 2001 presentation.
Cash and Cash Equivalents. The Partnership invests funds not immediately required for operations or distributions in short term, highly liquid investments until such time as the funds are required to meet its obligations. The short term, highly liquid investments are recorded at cost which approximates fair market value. For purposes of the balance sheets and the statements of cash flows, the Partnership considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
Aircraft and Depreciation. The aircraft are recorded at cost, which includes acquisition costs and the acquisition fee and the financial management advisory fee paid upon acquisition to the General Partners. Depreciation to an estimated salvage value (generally 10%) is computed using the straight-line method over an estimated economic life of twelve years (five years for the aircraft engine sold in 1997). Major improvements to aircraft are capitalized when incurred and are depreciated, generally, over the remaining useful life of the improvement.
In accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"), the recognition of an impairment for a long-lived asset is required when the estimate of undiscounted future cash flows expected to be generated by the asset is less than its carrying amount. Measurrement of an impairment loss is to be recognized based on the fair value of the asset. The Partnership generally bases its estimate of fair market value of the aircraft upon valuation by an independent third party. SFAS 121 also requires that long-lived assets to be disposed of be reported at the lower of the carrying amount or fair value less estimated disposal costs.
MD-81 Trust. The McDonnell Douglas MD-81 aircraft, currently under lease to Vanguard Airlines ("Vanguard"), is owned by a trust in which the Partnership has a 50% interest. An affiliated Partnership owns the other 50% interest. The Partnership has adopted the guidance in EITF Issue No. 00-1 "Investor Balance Sheet and Income Statement Display under the Equity Method of Investment in Certain Partnerships and Other Ventures" (EITF 00-1) in its Annual Report on Form 10-K starting from the fiscal year ended December 31, 2000 and accounts for its investment in the Trust which owns the MD-81 aircraft leased to Vanguard under the equity method. In prior years, the Partnership had reported its ownership in the MD-81 Trust on a proportionately consolidated basis. The financial results in prior years contained herein have been restated utilizing the equity method. The aircraft had been subject to a tax benefit transfer lease, which expired in April 2000.
Maintenance Reserve Funds. The Partnership has three leases where the lessee is required to make monthly payments to maintenance reserve funds administered by the Partnership. The Partnership may be obligated to reimburse the lessee for specified maintenance costs out of the reserve funds, upon submission of appropriate evidence documenting the maintenance costs incurred by the lessee. Excess costs over the reserve are the lessees' responsibility.
Operating Leases. The aircraft leases, which are structured principally as triple net leases, are accounted for as operating leases. Lease revenues are recognized ratably over the terms of the related leases.
Deferred Rental Income. Some of the Partnership's operating leases require rental payments to be paid monthly in advance. Deferred rental income represents rental payments received in advance which have not been earned.
Income Taxes. No provision for income taxes has been made in the financial statements since such taxes are the responsibility of the individual partners rather than the Partnership.
Net Income or Loss Per Limited Partnership Unit. The net income or loss per limited partnership unit is computed by dividing the net income or loss allocated to the Limited Partners by the weighted average number of Units outstanding during the year.
Accounting Pronouncements
In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144 ("SFAS 144") "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS 144, which is effective for fiscal years beginning after December 15, 2001 with earlier application encouraged, addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This Statement supersedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of", and the accounting and reporting provisions of APB 30, "Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a segment of a business (as previously defined in that Opinion). The implementation of this Statement is not expected to have a material effect on the Company's financial position, results of operations or cash flows.
2. Organization of the Partnership
The Partnership was formed on June 23, 1988 for the purpose of acquiring, leasing, and ultimately selling used commercial aircraft principally to US airlines. The Managing General Partner of the Partnership is Pegasus Aircraft Management Corporation, a wholly-owned subsidiary of Pegasus Capital Corporation, and the Administrative General Partner is Air Transport Leasing, Inc., a wholly-owned subsidiary of UBS Americas, Inc. UBS Americas is a successor through acquisition to Paine Webber Group, Inc. (collectively, the "General Partners").
The Partnership is required to dissolve and distribute all of its assets no later than December 31, 2012. The Partnership had the right, subject to certain conditions, to reinvest the proceeds from sales of aircraft occurring prior to March 22, 1997.
Upon formation of the Partnership, the General Partners each contributed $500 to the capital of the Partnership, and the initial Limited Partner contributed $100 for five limited partnership depositary units ("Units"). An additional 4,000,000 Units were then sold at a price of $20.00 per Unit, with the Partnership receiving gross offering proceeds of $80,000,000.
Title to the aircraft owned by the Partnership is held by non-affiliated trustees of trusts of which the Partnership is the beneficiary or one of two beneficiaries. The purpose of this method of holding title is to satisfy certain registration requirements of the Federal Aviation Administration.
3. Partnership Allocations
The Partnership Agreement provides that cash flow from operations be distributed on a quarterly basis at the General Partners' discretion, 99% to the Limited Partners and 1% to the General Partners. Cash flow is defined in the Partnership Agreement as including cash receipts from operations and interest income earned, less expenses incurred and paid in connection with the ownership and lease of the aircraft. Depreciation and amortization expenses are not deducted from cash receipts in determining cash flow. Distributable proceeds from sales of aircraft upon liquidation of the Partnership will be distributed in accordance with the partners' capital accounts after all allocations of income and losses.
Income and losses generally will be allocated 99% to the Limited Partners and 1% to the General Partners. Upon the sale of aircraft, gain generally will be allocated, first, to the General Partners in an amount equal to the difference between their capital contributions and 1.01% of the aggregate capital contributions of the Limited Partners, and then, 99% to the Limited Partners, and 1% to the General Partners.
4. Aircraft
Net Investment in Aircraft
The Partnership's net carrying value of aircraft as of December 31, 2001 and 2000 consisted of the following (in thousands):
2001 2000 ---- ----
Aircraft on operating leases, at cost $ 26,951 $ 48,788 Less: Accumulated depreciation (12,259) (30,658) Write-downs (11,692) (4,156) -------- -------- $ 3,000 $ 13,974 -------- --------
Net Investment in MD-81 Trust $ 741 $ 1,028 -------- --------
Aircraft held for lease, at cost 11,915 11,915 Less: Accumulated depreciation (6,365) (6,365) Write-downs (5,350) (3,584) -------- -------- $ 200 $ 1,966 -------- -------- Aircraft, net $ 3,941 $ 16,968 ======== ========
Financial Terms of Leases
Kitty Hawk Aircargo, Inc. ("Kitty Hawk"). The Boeing 727-200 Advanced aircraft was hushkitted, converted to a freighter and delivered to Kitty Hawk in August, 1999. Kitty Hawk is a Dallas, Texas based operator of more than 100 freighter aircraft. The lease agreement provides for 84 months rent at $117,800 per month. Kitty Hawk has provided a security deposit of $236,000 and is obligated to fund maintenance reserves, in the aggregate, at a rate of $375 per flight hour. Compliance with the recently issued AD relating to freighter conversions was performed in conjunction with the conversion. The Partnership invested approximately $4.4 million in hushkitting, a C-check and the cargo conversion.
During 2000, the Partnership invested approximately $1.3 million with respect to the overhaul of two engines for the Boeing 727-200 aircraft leased to Kitty Hawk. While these engines were being overhauled, the Partnership leased two other engines from an affiliate of the Managing General Partner. One of the overhauled engines was re-installed on the aircraft and the leased engine removed and returned to the Affiliate. The Partnership exchanged with the Managing General Partner's affiliate, the second overhauled engine for the other leased engine. There was no gain or loss recognized on this transaction.
During 2001, Kitty Hawk determined that it was more economic to replace one of the Pratt & Whitney JT8D-9A engines on the aircraft than to induct it into a shop for repairs. The Partnership paid, in June 2001, $201,000 from the Kitty Hawk engine reserves to Kitty Hawk and agreed to an engine exchange. Kitty Hawk bore the additional cost for the replacement engine.
Kitty Hawk filed for protection under Chapter 11 of the U.S. Bankruptcy Code on May 1, 2000, but stayed current with regard to its rent payments through September 2001. For the months of October, November, and December 2001, Kitty Hawk could not make a full payment of the monthly rent , and the Partnership agreed to a payment of only half of the amount due. The Partnership also agreed to a 50% reduction of the maintenance reserves due for the months of September, October, and November 2001. Kitty Hawk accounted for 31% of the Partnership's lease revenue during 2001. The default or deferral of lease payments on the part of Kitty Hawk, or any other lessee, may adversely affect future cash distributions by the Partnership. See Note 9 "Subsequent Events".
The Partnership wrote down, in December 2001, the value of the aircraft by $5.3 million.
Trans World Airlines Leases. In April 2000, the Partnership sold its Boeing 747-100 to the lessee, TWA, for total consideration of $4,360,000. As part of the sale, the Partnership retained deposits received from TWA, aggregating $360,000, which had been held by the Partnership, applying them
towards the sales price for this aircraft. The Partnership recognized a net gain of $1,611,000 on the sale of this aircraft during the second quarter 2000.
During February 1989, the Partnership acquired a McDonnell Douglas MD-82 aircraft for a total purchase price of $21,017,000 which, as of December 31, 2000, was subject to a lease with Trans World Airlines, Inc. ("TWA") providing for rentals of $185,000 per month for a term scheduled to expire in September 2004. TWA missed making lease payments during December 2000, January and February 2001. TWA filed for Chapter 11 bankruptcy protection under the Federal Bankruptcy code in January 2001, and entered into an Asset Sale and Purchase Agreement with American Airlines, Inc., who paid for all TWA's rents in March 2001. On April 9, 2001, American Airlines purchased TWA's assets and also acquired the Partnership's McDonnell Douglas MD-82 aircraft for $9.5 million. The sale price of the aircraft was in excess of the net book value of $2.2 million, and the proceeds were applied to pay off the Partnership's debt of approximately $8.9 million. TWA accounted for 15% of the Partnership's lease revenue in 2001.
US Airways Group, Inc. ("USAir") Lease. During March 1989, the Partnership acquired one half of the beneficial interest in a trust ("Trust") that is the owner/lessor of a McDonnell Douglas MD-81 ("MD-81") for a purchase price of $9,999,000. The remaining one-half interest in the Trust is owned by Pegasus Aircraft Partners II, L.P., an affiliated partnership.
The MD-81 was leased to US Airways, which renewed its lease from June 1, 1998 to June 1, 2001, at the original lease rate. Rental payments were payable quarterly, in arrears, at a rate of $304,000 (for the Partnership's one-half interest in the aircraft. USAir also had three additional one-year renewal options at fair market rental rates, but returned the aircraft in July, 2001 and paid rent through the return date.
Vanguard Airlines Lease ("Vanguard") Lease. US Airways returned the MD-81 in July 2001, and in August 2001, the Trust entered into a three-year lease of the aircraft with Vanguard Airlines, a Kansas City, Missouri airline providing passenger services to 14 U.S. cities. The lease agreement is on a "power by the hour" basis for 36 months, starting August 27, 2001,at the rate of $600 per flight hour, to a maximum of $130,000 per month. Vanguard is also responsible for funding the maintenance reserves for the aircraft. Due to the events of September 11, 2001, Vanguard only paid its August and September aircraft utilization payment and a partial amount of its October aircraft utilization. Vanguard was unable to pay any of its maintenance reserves due. As of December 31, 2001, Vanguard has paid a total of $260,000, of which 50% was paid to the Partnership and 50% to another affiliated Partnership. These payments were applied towards its maintenance reserves. In January 2002, the Trust was negotiating a payment plan of its rent and maintenance reserves with Vanguard As a result, the Trust has decided to account for the Vanguard lease on a cash basis
TNT Transport International B.V. Lease. In November 1997, the Partnership entered into an agreement to lease a Boeing 727-200 to a European freight carrier, TNT Transport International B.V. ("TNT") for a term of four years. The lease provides for monthly rentals of $123,500 (subject to a subsequent rent reduction of approximately 10% after two years if TNT exercises an option, during the lease term, to extend the lease for an additional two years beyond the original expiration date) and airframe and landing gear reserves aggregating $85 per flight hour. TNT has provided a $150,000 security deposit . TNT has contracted with a third party service provider for the maintenance of the engines.. TNT is responsible for the first $50,000 of cost in complying with the newly issued freighter conversion AD. Costs in excess of this amount are initially paid for by TNT. At the end of the lease, TNT will be reimbursed by the Partnership for a portion of the AD compliance cost based on a formula set forth in the Partnership agreement, not to exceed $250,000. The aircraft was written down at December 31, 2000, by $1,157,000.
For the year ended December 31, 2001, TNT accounted for 37% of the Partnership's lease revenue. The current lease ends in March 2002, and the Partnership agreed to sell the aircraft to TNT for $500,000 (see Note 9. "Subsequent Events").
The Partnership wrote down, in December 2001, the value of the aircraft by $2.2 million.
Boeing 727-200. The Boeing 727-200, formerly leased to Discovery Airlines (Sky Trek), was returned in March 2000. The Partnership has been unsuccessful in marketing the aircraft to a new lessee and therefore, has decided to dismantle it and attempt to sell its parts individually ("part out"). During the second quarter 2001, the Partnership took $848,000 of paid-in maintenance reserves relating to the aircraft into income and wrote down the aircraft's value by $1,766,000 to $200,000, which represents the estimated realizable value.
General. The aircraft leases are principally triple net leases. As such, during the terms of leases, the lessees are required to pay substantially all expenses associated with the aircraft and in the case of Kitty Hawk and TNT, also fund certain maintenance expenses through hourly maintenance reserves paid monthly.
Significant Lessees
The Partnership leased its aircraft to five different airlines or air freight companies during 2001. Revenues from airlines which accounted for greater than 10% of the Partnership's total rental revenues during 2001, 2000, and 1999 are as follows:
Percentage of Rental Revenues ----------------------------- Airlines 2001 2000 1999 - -------- ---- ---- ----
Trans World Airlines, Inc. 15% 37% 49% US Airways Group, Inc. 17 18 15 Kitty Hawk Aircargo, Inc. 31 21 (a) TNT Transport International B.V 37 22 18 Sky Trek International Airlines, Inc. (a) (a) 12
(a) Represents less than 10%.
Revenues include rentals from aircraft leased to foreign airlines or carriers of $1,482,000 in each of the year 2001, 2000 and 1999. The year 2001 amount for TWA does not include the proceeds of the sale of the McDonnell Douglas MD-82, and the year 2000 amount for TWA does not include the proceeds of the sale of the Boeing 747.
Future Minimum Rental Income
The following is a schedule by year of future minimum rental income under the leases as of December 31, 2001 (in thousands):
2002 1,759 2003 1,414 2004 1,414 2005 1,414 Thereafter 942 ------ Total $6,943 ======
Note: includes rents from Kitty Hawk of $117,800 per month through 08/26/06.
The Partnership operates in one industry, the leasing of used aircraft to commercial passenger and freight airlines.
5. Transactions With Affiliates
Management Fees. The General Partners earn a quarterly subordinated base management fee in an amount generally equal to 1.5% of gross aircraft rentals, net of re-lease fees. Of this amount, 1.0% is payable to the Managing General Partner and 0.5% is payable to the Administrative General Partner. During the years ended December 31, 2001, 2000, and 1999, the General Partners earned base management fees of $60,000, $103,000, and $123,000, respectively.
Incentive Management Fee. The General Partners also earn a quarterly subordinated incentive management fee in an amount equal to 4.5% of quarterly cash flow and sales proceeds (net of resale fees), of which 2.5% is payable to the Managing General Partner and 2.0% is payable to the Administrative General Partner. During the years ended December 31, 2001, 2000, and 1999, the General Partners earned incentive management fees of $116,000, $425,000, and $281,000, respectively.
Re-lease Fee. The General Partners earn a quarterly subordinated fee for re-leasing aircraft or renewing a lease in an amount equal to 3.5% of the gross rentals from such re-lease or renewal for each quarter for which such payment is received. Of this amount, 2.5% is payable to the Managing General
Partner and 1.0% is payable to the Administrative General Partner. During the years ended December 31, 2001, 2000, and 1999, the General Partners earned $593,000, $198,000, and $245,000, respectively of re-lease fees.
Payment of the above fees on a current basis is subordinated to the limited partners receiving an 8% annual non-cumulative return based upon original contributed capital (as defined and adjusted per the Partnership agreement). Fees are therefore not being paid on a current basis and are being accrued. Pursuant to the terms of the Partnership Agreement, the General Partner's Capital Accounts were allocated $807,000 of the gain from the sale of the Boeing 747-100 aircraft. Since 1996, as part of a class action settlement, an affiliate of the Administrative General Partner places fees and distributions remitted to it by the Administrative General Partner into an account for the benefit of the class members.
Accountable Expenses. The General Partners are entitled to reimbursement of certain expenses, paid on behalf of the Partnership which are incurred in connection with the administration and management of the Partnership. There were no such reimbursable expense in each of the year ended December 31, 2001, 2000 and 1999. The continued absence of accountable expenses is due to the subcontracting of certain accounting services, and their cost is included in general and administrative expenses.
Other. During 1999, the Partnership purchased parts in connection with certain capital projects for costs totaling $875,513 from a Company in which the President and Director of the Managing General Partner had an interest. There were no such purchases in 2000. In 2001, similar expenses were $203,000. In 2000 and 1999, the Partnership paid $84,000 and $196,000 respectively for two engine leases (Kitty Hawk Aircraft) to an affiliate of the Managing General Partner. The leases were both for $21,000 per month for each engine. As of March, 2000, engines owned by the Partnership were placed on the aircraft.
During 2001, 2000, and 1999, the Partnership paid $22,000, $26,358, and $26,279, respectively, to a licensed maintenance provider that is affiliated with the Managing General Partner.
6. Notes Payable
In January 1998, the Partnership's lender increased its borrowing commitment from $7,500,000 to $10,000,000 and increased the interest rate from 1% to 1.25% over prime. The Partnership provided, as additional collateral, the Boeing 727-200 aircraft leased to Continental and the Boeing 727-200 aircraft leased to Sky Trek. The proceeds were used to fund the cargo conversion of the aircraft delivered to TNT.
In February 1999, the lender further agreed to increase the borrowing commitment from $10 million to $14.5 million and increase the interest rate from 1.25% to 1.5% over prime with the funds primarily being utilized for the Kitty Hawk aircraft conversion.
During 2000, $2.95 million of the sale proceeds from the sale of the Boeing 747 to TWA was used to reduce outstanding debt. In January 2001, the Note, which had become due in October 2000, was extended an additional six months to June 30, 2001. A condition of the extension was that all cash flow in excess of certain operating expenses was to be used to reduce the principal of the Note. On April 9, 2001, American Airlines purchased the McDonnell Douglas MD-82 aircraft, formerly leased to TWA, for $9.5 million. Approximately $8.9 million of the sale proceeds were used to fully pay off the Partnership's loan balance.
7. Reconciliation to Income Tax Method of Accounting
The following is a reconciliation of the net income as shown in the accompanying financial statements to the taxable income reported for federal income tax purposes (in thousands):
2001 2000 1999 ---- ---- ----
Net income per financial statements $ (445) $ 155 $ 805 Increase (decrease) resulting from: Depreciation 8,664 3,453 2,760 Reserves for maintenance costs and write-downs -- -- -- Allowance for bad debts provided for book -- -- -- TBT interest income less TBT rental expense 128 (573) (1,492) Difference in basis of aircraft sold 2,184 2,428 -- Maintenance reserves collected and related interests net of expenditures (476) 685 694 Deferred rental income -- (33) (33) Purchase Option from Partnership/Write Off (3118) -- -- Other 200 (76) (9) ------- ------- ------- Taxable income per federal income tax return $ 6,737 $ 6,039 $ 2,725 ======= ======= =======
The following is a reconciliation of the amount of the Partnership's total Partnership capital as shown in the accompanying financial statements to the tax bases of the Partnership's net assets (in thousands):
2001 2000 1999 ---- ---- ---- Total Partnership capital per financial statements $ 3,058 $ 4,715 $ 8,600 Increase (decrease) resulting from: Commissions and expenses paid in connection with the sale of limited partnership units 8,441 8,441 8,441 Reserves for maintenance costs and write-downs including Continental lease settlement, accounted for as cost recovery 17,221 7,919 9,484 Aircraft expenditures capitalized for tax, net (8,453) 514 514 Distributions payable to partners -- -- 1,600 Deferred rental income -- -- 112 Maintenance reserves collected and used to restore aircraft net -- 1,344 1,934 Accumulated depreciation (4,440) (5,986) (14,021) TBT interest income less TBT rental expense -- (7,191) (6,614) Maintenance reserves payable 1,154 1,700 1,015 Other -- -- (7) -------- -------- -------- Tax bases of net assets $ 16,981 $ 11,456 $ 11,058 ======== ======== ========
8. Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of fair value of certain financial instruments, whether or not reported in the balance sheet. Where quoted market prices are unavailable the values are based on estimates using present value or other valuation techniques. The results are significantly affected by the assumptions used including the discount rate and estimates of future cash flows. In addition, because SFAS No. 107 excludes certain assets such as leased aircraft owned by the Partnership from its disclosure requirements, the aggregate fair value amounts discussed below do not purport to represent and should not be considered representative of the underlying market value of the Partnership.
The methods and assumptions used to estimate the fair value of each class of the financial instruments are described below.
Cash and cash equivalents, rents and other receivables. For these balances, carrying value approximates fair value due to their short term nature.
Notes payable. For notes payable, carrying value approximates fair value due to its short term remaining maturity.
Accounts payable and accrued expenses, payable to affiliates, and accrued interest payable. For these balances, carrying value approximates fair value due to their short-term nature.
9. Subsequent Events
The Partnership agreed with Kitty Hawk for the payment of approximately 71% of the monthly rent, and no maintenance reserves for each of the first three months of 2002. Any unpaid rent and reserves will be added to the existing Chapter 11 administrative claims. Although Kitty Hawk had affirmed the Partnership's lease in bankruptcy, Kitty Hawk intends to file a motion in bankruptcy court in late March to terminate the lease, and not pay damages. The Partnership has terminated the lease by reason of Kitty Hawk's default and will file a motion for damages under the lease. Oral arguments will be heard in early April and a decision is anticipated sometime thereafter.
In February 2002, the Partnership reached an agreement with TNT for the ending of its lease on March 24, 2002. According to this Buyout Agreement, TNT agreed to pay the Partnership approximately $710,000 for waiver of the contractually required C check and waiver of the installation of the Flight Data Recorder Upgrade. On March 13, 2002, the Partnership and TNT signed a Side Letter to confirm their agreement of the financial settlement and the Partnership received approximately $741,000, net of the $150,000 security deposit the Partnership held from TNT. TNT also purchased the aircraft for a price of $500,000 on March 26, 2002.
The Partnership is negotiating with Vanguard with regards to its payments of the monthly rent and maintenance reserves.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in accountants or disagreements with accountants with respect to accounting or financial disclosure issues during 2001 or 2000 .
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no officers and directors. The General Partners jointly manage and control the affairs of the Partnership and have general responsibility and authority in all matters affecting its business. Richard L. Funk resigned his position as Senior Vice President, Technical of Pegasus Aircraft Management as of January 15, 2001 at which time Ervin Bach assumed the position. Information concerning the directors and executive officers of the General Partners is as follows:
Pegasus Aircraft Management Corporation
Name Positions Held ---- --------------
Richard S. Wiley President and Chairman of the Board Carol L. Chase Executive Vice President, General Counsel and Secretary Richard M. Oster Senior Vice President, Chief Financial Officer Erv Bach Senior Vice President, Technical
Richard S. Wiley, age 48 is President and Chairman of the Board of the Managing General Partner and Pegasus Capital Corporation ("PCC"), which was formed in 1988. Prior to forming Pegasus Capital Corporation, Mr. Wiley was a Vice President of CIS Corporation ("CIS"), a wholly-owned subsidiary of Continental Information Systems Corporation ("Continental") for the period 1986 to 1988. Mr. Wiley originated aircraft transactions throughout the world and sold aircraft to third-party investors. From 1985 to 1986, Mr. Wiley worked as Treasurer of Caterpillar Capital Company in San Diego, California. From 1983 to 1985, he served as Managing General Partner and President of RAM Financial Corporation in Houston, Texas, an equipment leasing venture capital company. Prior to joining RAM, he worked for GATX Leasing Corporation as a District Manager from 1980 to 1983. Mr. Wiley received a B.S. degree from the Indiana University School of Business and an M.B.A. from the University of California, Los Angeles.
Carol L. Chase, Esq., age 49, is Executive Vice President, General Counsel and Secretary of the Managing General Partner and Pegasus Capital Corporation. She is responsible for providing legal counsel for all aspects of capital equipment leasing, financing and placement. Prior to joining Pegasus, from 1987 to 1988, Ms. Chase was Senior Corporate Counsel at CIS where she provided legal counsel for transactions involving aircraft and related equipment. From 1981 to 1987, Ms. Chase was legal counsel at Transamerica Airlines where she was responsible for the legal negotiation and documentation for the purchase, sale, lease and finance of aircraft and aircraft-related equipment. Ms. Chase received a B.A. degree from California State University, Hayward and a J.D. degree from the University of California, Davis. She is a member of the State Bar of California, the American Bar Association, and the American Corporate Counsel Association.
Richard M. Oster, age 50, is Chief Financial Officer and Senior Vice President Administration of the Managing General Partner . Mr. Oster, is primarily responsible within the Pegasus companies for all corporate-wide Finance and Administration functions that include all financial reporting, planning and analysis, accounting, information systems, human resources and other administrative functions. Prior to joining Pegasus, Mr.Oster served as Senior Vice President and Chief Financial Officer of Crowley Maritime Corporation; and prior to that, as Senior Vice President and Chief Financial Officer of Inchcape Shipping Services. Mr.Oster is a CPA and holds a B.S. in Business Administration from the University of North Carolina and a M.B.A. from the Rutgers Graduate School of Business.
Erv Bach, 40, is Senior Vice President, Technical of the Managing General Partner and Pegasus Capital Corporation. Mr. Bach has been employed in various technical capacities with affiliates of the Managing General Partner since 1996. From 1994 to 1996, he was Manager of Structures for Hamilton Aviation, Tucson, and he held the same position with Lockheed Aeromod, Tucson, from 1993 to 1994. From 1989 to 1993, Mr. Bach held various positions with Evergreen Air Center, Marana, Arizona, the last being Manager of Engineering.
During 1991, Mr. Bach was employed for seven months as a structural mechanic with Trans World Airlines, Kansas City. Mr. Bach was with the United States Air Force from 1982 to 1989, rising to the rank of Staff Sergeant with the responsibility of maintaining the mission worthiness of 13 Electronic Combat, C-130s. Mr. Bach holds an Airframe and Powerplant license and attended USAF technical and leadership schools. Mr. Bach attended Pima Community College during 1990-91.
Air Transport Leasing, Inc.
Name Positions Held ---- --------------
Clifford B. Wattley President, Chief Financial and Accounting Officer and Director Stephen R. Dyer Vice President, Secretary, Treasurer and Director
Clifford B. Wattley, age 52, is President, Chief Financial and Accounting Officer and a Director of the Administrative General Partner. Mr. Wattley is a Corporate Vice President with UBS PaineWebber Inc., having joined the firm in 1986. He also was employed previously by Paine, Webber, Jackson & Curtis from 1979 to 1980. From 1986 to 1992, Mr. Wattley participated in Paine Webber's Principal Transactions Group. Since 1992, Mr. Wattley has been a member of the Private Investment Department. He holds a Bachelor of Science degree in engineering from Columbia University and a Masters in Business Administration from Harvard University. Mr. Wattley assumed the positions of Chief Financial and Accounting Officer on March 11, 2002, will serve in that capacity until such time as a replacement for Carmine Fusco is named.
Stephen R. Dyer, age 42, is Vice President, Secretary and a Director of the Administrative General Partner. He joined UBS PaineWebber Inc. in June 1988 as a Divisional Vice President and is currently a Senior Vice President and Director of Private Investments. Prior to joining UBS PaineWebber Inc., Mr. Dyer had been employed, since June 1987, as an Assistant Vice President in the Retail National Products Group of L.F. Rothschild & Co. Incorporated. Prior to joining L.F. Rothschild he was employed, beginning in January 1985, as an Associate in the Real Estate Department of Thomson McKinnon Securities Inc. From July 1981 to August 1983, Mr. Dyer was on the audit staff of the accounting firm of Arthur Young & Company. He received his Bachelor of Science degree in Accounting in 1981 from Boston College and a Masters of Business Administration from Indiana University in December 1984. Mr. Dyer is a Certified Public Accountant. Mr. Dyer also assumed the positions of Secretary and Treasurer on March 11, 2002 and will serve until such time as a replacement for Carmine Fusco is named.
Carmine Fusco, age 33, was a Vice President, Secretary, Treasurer and Chief Financial and Accounting Officer of the Administrative General Partner and also served as an Assistant Vice President within the Private Investments Department of UBS PaineWebber Inc. On February 25, 2000, Mr. Fusco was charged with, and on January 14, 2002 pleaded guilty to, conspiracy to distribute a controlled substance. His employment with UBS PaineWebber Inc. and the Administrative General Partner was terminated on March 11, 2002, the date UBS PaineWebber Inc. and the Administrative General Partner were informed of these facts.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
No compensation was paid by the Partnership to the officers and directors of the General Partners. See Item 13 of this Report, "Certain Relationships and Related Transactions", which is incorporated herein by reference, for a description of the compensation and fees paid to the General Partners and their affiliates by the Partnership during 2001.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) As of the date hereof, no person is known by the Partnership to be the beneficial owner of more than 5% of the Units of the Partnership. The Partnership has no directors or officers, and neither of the General Partners of the Partnership owns any Units. The Assignor Limited Partner for the Partnership, Pegasus Assignor L.P.A., Inc. (an affiliate of the Managing General Partner), owns 5 Units. Additionally, as of December 31, 2001, ATL Inc., an affiliate of the Administrative General Partner owns approximately 69,016 Units.
The names and addresses of the General Partners are as follows:
Managing General Partner:
Pegasus Aircraft Management Corporation Four Embarcadero Center, 35th Floor San Francisco, CA 94111
Administrative General Partner:
Air Transport Leasing, Inc. 800 Harbor Boulevard, 3rd Floor Weehawken, NJ 07087
The General Partners, collectively, have a 1% interest in each item of the Partnership's income, gains, losses, deductions, credits and distributions.
(b) The following table sets forth the number of Units beneficially owned as of March 1, 2002, by directors of the Managing General Partner and the Administrative General Partner and by all directors and officers of such corporations as a group:
Number of Units Beneficially Percent Name Owned of Class ---- ----- --------
Managing General Partner Richard S. Wiley 3,216 *
All directors and officers as a group (4 persons) 3,216 *
Administrative General Partner None
* Less than 1% of class.
(c) The Partnership knows of no arrangements, the operation of the terms of which may at a subsequent date result in a change in control of the Partnership.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The General Partners and their affiliates have received, or will receive, certain types of compensation, fees or other distributions in connection with the operations of the Partnership. The fees and compensation were determined in accordance with the applicable provisions of the Partnership Agreement.
Following is a summary of the amounts paid, or payable, to the General Partners and their affiliates during 2001.
Base Management Fee. The General Partners receive a quarterly subordinated fee in an amount generally equal to 1.5% of gross aircraft rentals, net of re-lease fees paid. Of this amount, 1.0% is payable to the Managing General Partner and 0.5% is payable to the Administrative General Partner. During 2001, the General Partners earned base management fees of $60,000.
Incentive Management Fee. The General Partners also receive a quarterly subordinated fee, in an amount equal to 4.5% of quarterly cash flow and sales proceeds (net of resale fees), of which 2.5% is payable to the Managing General Partner and 2.0% is payable to the Administrative General Partner. During 2001, the General Partners earned incentive management fees of $593,000.
Re-lease Fee. The General Partners receive a quarterly subordinated fee for re-leasing aircraft or renewing a lease in an amount equal to 3.5% of the gross rentals from such re-lease or renewal for each quarter for which such payment is received. Of this amount, 2.5% is payable to the Managing General Partner and 1.0% is payable to the Administrative General Partner. During 2001, the General Partners earned re-lease fees of $116,000.
Beginning January 1, 1996, as part of the 1996 and 1997 class action settlement, the Administrative General Partner remits to an affiliate, all management fees as well as all 1997 and future fees and distributions received by the Administrative General Partner, for deposit into an escrow account for the benefit of the class members. Due to the subordination provisions of the Partnership Agreement, all General Partner fees are currently being accrued but are not being paid on a current basis.
Accountable Expenses. The General Partners are entitled to reimbursement of certain expenses paid on behalf of the Partnership which are incurred in connection with the administration and management of the Partnership. There were no such reimbursable expenses during 2001 and 2000. As discussed in Note 5 to the Financial Statements, accountable expenses declined due to the subcontracting of certain accounting services, and their cost is included in general and administrative expenses.
Partnership Interest. In the aggregate, the General Partners were entitled to receive cash distributions of $12,000 as their allocable share of distributable cash flow for 2001. In addition, $4,000 of the Partnership's net taxable loss for 2001 was allocated to the General Partners.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements: (Incorporated by reference to Item 8 of this Report, "Financial Statements and Supplementary Data").
(b) The Partnership filed a Form 8-K on June 30, 2001, reporting a distribution of $0.30 per Unit on or about July 10, 2001 to unitholders of record as of June 30, 2001. The distribution was a result of cash flow from operations and in part funds available from the sale of the McDonnell-Douglas MD-82 to American Airlines in April 2001.
During the fourth quarter of 2001, the Partnership did not file any reports on Form 8-K.
(c) Exhibits required to be filed.
Exhibit No. Description - ----------- -----------
3.1 (a) First Amended and Restated Limited Partnership Agreement dated September 30, 1988. Filed as Exhibit 3.1 to Pre-Effective Amendment No. 2 to Form S-1 Registration Statement dated September 16, 1988 (Commission File No. 33-22986).*
(b) Amendment, dated as of December 26, 1990, to the First Amended and Restated Limited Partnership Agreement dated September 30, 1988. Filed as Exhibit 1 to the Registrant's Current Report on Form 8-K dated December 26, 1990.*
(c) Amendment, dated as of March 31, 1992, to the First Amended and Restated Limited Partnership Agreement dated September 30, 1988. Filed as Exhibit 4 to Registrant's Current Report on Form 8-K dated April 16, 1992.*
4.1 Depositary Agreement dated December 20, 1988, by and among Pegasus Aircraft Partners, L.P. ("Registrant"), Pegasus Aircraft Management Corporation, a California corporation, Paine Webber Aircraft Leasing, Inc., a Delaware corporation, Pegasus Assignor L.P.A., Inc., a California corporation, dated April 27, 1989. Filed as Exhibit 4.1 to the Registrant's Form 8-A on May 1, 1989 (Commission File No. 33-22986).*
10.1 (a) Lease Agreement dated as of September 26, 1988 by and between Pegasus Capital Corporation, a California corporation ("Seller") and Northwest Aircraft, Inc. ("Lessee") (Boeing Model 727-251 airframe, SN 20289). Filed as Exhibit 10.2(c) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988.*
(b) Lease Agreement dated as of September 26, 1988 by and between the Seller and Northwest Airlines, Inc. ("Lessee") (Boeing Model 727-251 airframe, SN 19977). Filed as Exhibit 10.2(d) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988.*
(c) Sublease Agreement dated as of September 26, 1988 by and between Lessee and Northwest Airlines, Inc. ("Sublessee") (Boeing Model 727-251 airframe, SN 20289). Filed as Exhibit 10.2(e) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988.*
(d) Sublease Agreement dated as of September 26, 1988 by and between Lessee and Northwest Airlines, Inc. ("Sublessee") (Boeing Model 727-251 airframe, SN 19977). Filed as Exhibit 10.2(f) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988.*
(e) Trust Agreement 258 dated as of December 23, 1988 by and between First Security Bank of Utah, National Association in its capacity as Owner Trustee ("Owner Trustee") and Registrant. Filed as Exhibit 10.2(i) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988.*
(f) Trust Agreement 267 dated as of December 23, 1988 by and between the Owner Trustee and Registrant. Filed as Exhibit 10.2(j) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988.*
(g) Amendment 1 to Lease Agreement, dated May 27, 1993, between First Security Bank of Utah, National Association as Owner Trustee and Northwest Aircraft Inc. to amend a Lease Agreement, dated September26, 1988, for one Boeing 727-200 aircraft, U.S. Registration No. N258US. Filed as Exhibit 10.1(a) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993.*
(h) Amendment 1 to Lease Agreement, dated May 27, 1993, between First Security Bank of Utah, National Association as Owner Trustee and Northwest Aircraft Inc. to amend a Lease Agreement, dated September 26, 1988, for one Boeing 727-200 aircraft, U.S. Registration No. N267US. Filed as Exhibit 10.1(b) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993.*
(i) Lease Agreement dated April 15, 1994 between First Security Bank of Utah, National Association, as Trustee, (Lessor) and Kiwi International Airlines, Inc., (Lessee) with respect to one used Boeing 727-251 Aircraft US Registration number N258US.*
(j) Lease Agreement dated February 15, 1994, between First Security Bank of Utah, National Association, as Trustee, (Lessor) and Kiwi International Airlines, Inc., (Lessee) with respect to one used Boeing 727-251 Aircraft US Registration number N267US.*
(k) Lease Amendment No. 1 dated March 15, 1995 with respect to the lease between First Security Bank of Utah, National Association, as Trustee, (Lessor) and Kiwi International Airlines, Inc., (Lessee) in reference 10 (1) (i) dated April 15, 1994.*
(l) Lease Amendment No. 1 dated March 15, 1995 with respect to the lease between First Security Bank of Utah, National Association, as Trustee, (Lessor) and Kiwi International Airlines, Inc., (Lessee) in reference 10 (1) (j) dated February 15, 1994.*
10.2 (a) Trust Agreement 603, dated as of October 10, 1988 by and between the Seller and Owner Trustee providing for, among other things, the acquisition of one Boeing Model 747-143 Aircraft (the "Aircraft"), and concurrently therewith leasing the Aircraft to Continental Airlines, Inc. ("Lessee"). Filed as Exhibit 10.3(b) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988.*
(b) Lease Agreement 603, dated as of October 14, 1988 by and between the Owner Trustee and Lessee. Filed as Exhibit 10.3(e) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988.*
(c) Stipulation and Order, dated June 19, 1991, among Continental Airlines, Inc., New York Airlines, Inc., Bay Air Lease I, Cirrus Capital Corporation of Florida, Bay Air Lease III, Meridian Trust Company, as Owner Trustee, IAL Aircraft Acquisitions, Inc., Pegasus Aircraft Partners II, L.P., Pegasus Capital Corporation, IAL Aviation Resources, Inc., Aircraft Leasing, Inc., Pegasus Aircraft Partners, L.P., Gilman Financial Services, Inc. and First Security Bank of Utah, as Owner Trustee concerning various aircraft and aircraft engines. Filed as Exhibit 19.1(a) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991.*
(d) Agreed Order, dated July 3, 1991, in connection with approval of Stipulation and Order, dated June 19, 1991, among Continental Airlines, Inc., New York Airlines, Inc., Bay Air Lease I, Cirrus Capital Corporation of Florida, Bay Air Lease III, Meridian Trust Company, as Owner Trustee, IAL Aircraft Acquisitions, Inc., Pegasus Aircraft Partners II, L.P., Pegasus Capital Corporation, IAL Aviation Resources, Inc., Aircraft Leasing, Inc., Pegasus Aircraft Partners, L.P., Gilman Financial Services, Inc. and First Security Bank of Utah, as Owner Trustee concerning various aircraft and aircraft engines. Filed as Exhibit 19.1(b) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991.*
(e) Supplemental Stipulation and Order, dated December 30, 1992, among Continental Airlines, Inc., Bay Air Lease I, Cirrus Capital Corporation of Florida, Bay Air Lease III, Aviation Assets I, Aviation Assets II, Aviation Assets III, Aviation
Assets IV, IAL Aircraft Acquisitions, Inc., Pegasus Aircraft Partners II, L.P., Pegasus Capital Corporation, IAL Aviation Resources, Inc., Pegasus Aircraft Partners, L.P., Gilman Financial Services, and First Security Bank of Utah, as Owner Trustee concerning various aircraft and aircraft engines. Filed as Exhibit 10.2(e) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992.*
(f) Lease termination agreement dated October 16, 1995, between Continental Airlines, Inc. and First Security Bank of Utah, N.A. as trustee of a trust in which Pegasus Aircraft Partners, L.P. is the sole beneficiary with respect to the lease of the 747-143 aircraft.
10.3 (a) Trust Agreement 735, dated as of September 26, 1988 by and between Seller and Owner Trustee providing for, among other things, the acquisition of one Boeing Model 727-224 aircraft (the "Aircraft"), and concurrently therewith leasing the Aircraft to Continental Airlines, Inc. ("Lessee"). Filed as Exhibit 10.4(b) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988.*
(b) Lease Agreement 735, dated as of September 26, 1988 by and between Owner Trustee and Lessee. Filed as Exhibit 10.4(d) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988.*
(c) Stipulation and Order, dated June 19, 1991, among Continental Airlines, Inc., New York Airlines, Inc., Bay Air Lease I, Cirrus Capital Corporation of Florida, Bay Air Lease III, Meridian Trust Company, as Owner Trustee, IAL Aircraft Acquisitions, Inc., Pegasus Aircraft Partners II, L.P., Pegasus Capital Corporation, IAL Aviation Resources, Inc., Aircraft Leasing, Inc., Pegasus Aircraft Partners, L.P., Gilman Financial Services, Inc. and First Security Bank of Utah, as Owner Trustee concerning various aircraft and aircraft engines. Filed as Exhibit 19.1(a) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991.*
(d) Agreed Order, dated July 3, 1991, in connection with approval of Stipulation and Order, dated June 19, 1991, among Continental Airlines, Inc., New York Airlines, Inc., Bay Air Lease I, Cirrus Capital Corporation of Florida, Bay Air Lease III, Meridian Trust Company, as Owner Trustee, IAL Aircraft Acquisitions, Inc., Pegasus Aircraft Partners II, L.P., Pegasus Capital Corporation, IAL Aviation Resources, Inc., Aircraft Leasing, Inc., Pegasus Aircraft Partners, L.P., Gilman Financial Services, Inc. and First Security Bank of Utah, as Owner Trustee concerning various aircraft and aircraft engines. Filed as Exhibit 19.1(b) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991.*
(e) Supplemental Stipulation and Order, dated December 30, 1992, among Continental Airlines, Inc., Bay Air Lease I, Cirrus Capital Corporation of Florida, Bay Air Lease III, Aviation Assets I, Aviation Assets II, Aviation Assets III, Aviation Assets IV, IAL Aircraft Acquisitions, Inc., Pegasus Aircraft Partners II, L.P., Pegasus Capital Corporation, IAL Aviation Resources, Inc., Pegasus Aircraft Partners, L.P., Gilman Financial Services, and First Security Bank of Utah, as Owner Trustee concerning various aircraft and aircraft engines. Filed as Exhibit 10.3(e) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992.*
(f) Amendment No. 1 to Lease Agreement 735 dated as of February 28, 1997 between the Owner Trustee and Continental Airlines, Inc.
10.4 (a) Trust Certificate dated February 16, 1989, for the benefit of the Registrant from New DC-9T-I, Inc., a New York Corporation and Meridian Trust Company ("Trustee"). Filed as Exhibit 19.2(c) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1989.*
(b) Lease, dated as of May 20, 1983, as supplemented by Lease Supplement No. 1 dated May 24, 1983, between DC-9T-I, Inc., as Lessor, and Trans World Airlines, Inc., as Lessee, pertaining to one McDonnell Douglas DC-9-82 aircraft, U.S. Registration No. 904TW. Filed as Exhibit 10.4 (b) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991. *
(c) Amendment Agreement, dated as of December 15, 1986, between Trans World Airlines, Inc., as Lessee, and DC-9T-I, Inc., as Lessor. Filed as Exhibit 10.4 (c) to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991. *
(d) Amendment No. 1, dated as of May 1, 1991, to Lease dated as of May 20, 1983, each between Meridian Trust Company, as Owner Trustee and Lessor, and Trans World Airlines, Inc., as Lessee. Filed as Exhibit 19.1(a) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1991.*
(e) Amendment No. 2, dated as of April 15, 1993, between Meridian Trust Company, as Owner Trustee, and Trans World Airlines, Inc. as Lessee.*
(f) Agreed Order, dated April 14, 1993, approving lease amendments among Trans World Airlines, Inc., Registrant, Pegasus Aircraft Partners II, L.P. and Pegasus Capital Corporation relating to leases of certain aircraft.*
(g) Amendment No. 3 dated as of January 16, 1995 between Meridian Trust Company Owner Trustee as Lessor and TWA as lessee with respect to the lease of one McDonnell Douglas MD-82, U.S. Registration No. N904TW.*
10.5 (a) Amended and Restated Lease No. 1, dated October 14, 1988, between PS Group, Inc. and USAir, Inc. Filed as Exhibit 10.2.9 to Form S-1 Registration Statement, dated July 3, 1989 for Pegasus Aircraft Partners II, L.P. (Commission File No. 33-28359).*
(b) Agreement pursuant to Section 168(f)(8) of the Internal Revenue Code of 1954, as Amended between Pacific Southwest Airlines and General Mills, Inc. Filed as Exhibit 19.3(c) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1989.*
(c) Assumption Agreement, dated March 22, 1989, among Pegasus Capital Corporation, a California corporation ("PCC"), the Purchaser, Concord Asset Management, Inc., a Delaware corporation ("CAMI") and the Registrant. Filed as Exhibit 19.3(e) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1989.*
(d) Participation Agreement, dated September 21, 1989, among Registrant, First Security Bank of Utah, a national association (the "Owner Trustee"), CAMI and Pegasus Aircraft Partners II, L.P., a Delaware limited partnership. Filed as Exhibit 19.2(e) to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1989 for Pegasus Aircraft Partners II, L.P. (Commission File No. 33-28359).*
(e) Amended and Restated Reimbursement Agreement, dated September 21, 1989, between the Registrant and CAMI. Filed as Exhibit 19.2(f) to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1989 for Pegasus Aircraft Partners II, L.P. (Commission File No. 33-28359).*
(f) Amended and Restated Security Agreement, dated September 21, 1989, between the Registrant and CAMI. Filed as Exhibit 19.2(h) to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1989 for Pegasus Aircraft Partners II, L.P. (Commission File No. 33-28359).*
(g) Security Agreement, dated September 21, 1989, between the Registrant and Pegasus Aircraft Partners II, L.P. Filed as Exhibit 19.2(j) to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1989 for Pegasus Aircraft Partners II, L.P. (Commission File No. 33-28359).*
(h) Security Agreement, dated September 21, 1989, between Pegasus Aircraft Partners II, L.P. and the Registrant. Filed as Exhibit 19.2(k) to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1989 for Pegasus Aircraft Partners II, L.P. (Commission File No. 33-28359).*
(i) Trust Agreement 814, dated as of March 10, 1989, among PCC, as Beneficiary, the Registrant, as Beneficiary, and the Owner Trustee. Filed as Exhibit 19.3(i) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1989.*
(j) First Amendment to Trust Agreement 814, dated September 21, 1989, among Pegasus Aircraft Partners II, L.P., as Beneficiary, the Registrant, as Beneficiary and the Owner Trustee. Filed as Exhibit 19.2(m) to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1989 for Pegasus Aircraft Partners II, L.P. (Commission File No. 33-28359).*
(k) Letter of Credit Agreement, dated as of April 30, 1992, between First Security Bank of Utah as Owner Trustee and Philadelphia National Bank, Incorporated, as CoreStates Bank, N.A. Filed as Exhibit 10.1(a) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1992.*
(l) Assumption Agreement, dated April 30, 1992, among Pegasus Aircraft Partners, L.P. and Pegasus Aircraft Partners II, L.P. as Obligors and Philadelphia National Bank, Incorporated, as CoreStates Bank, N.A. Filed as Exhibit 10.1(b) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1992.*
(m) Security Agreement and Assignment of lease, dated as of April 30, 1992, between First Security Bank of Utah, National Association as Owner Trustee and Philadelphia National Bank, Incorporated, as CoreStates Bank, N.A. Filed as Exhibit 10.1 (c) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1992. *
(n) Assignment of Collateral, dated as of April 30, 1992, between Pegasus Aircraft Partners, L.P. and Philadelphia National Bank, Incorporated, as CoreStates Bank, N.A. Filed as Exhibit 10.1(d) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1992. *
10.6 (a) Loan Agreement, dated April 22, 1994, between Pegasus Aircraft Partners, L.P. and Philadelphia National Bank, Incorporated as CoreStates Bank, N.A..* (b) Promissory Note, dated April 22, 1994, made by Pegasus Aircraft Partners, L.P. in favor of Philadelphia National Bank Incorporated as CoreStates Bank, N.A.*
(c) Security Agreement and Assignment of lease between First Security Bank of Utah, National Association as owner trustee and Philadelphia National Bank Incorporated as CoreStates Bank, N.A. with respect to aircraft N17010.*
(d) Assignment of beneficial interest for Pegasus Aircraft Partners, L.P. to Philadelphia National Bank Incorporated as CoreStates Bank, N.A. with respect to the Pegasus interest in the USAir Trust Agreement and the Continental Trust Agreement.*
(e) Amended and restated loan agreement dated as of July 20, 1995 between Pegasus Aircraft Partners, L.P. and CoreStates Bank N.A..
11 Partnership policy Regarding Requests for Partner Lists.
19.1 Prospectus of Registrant, dated as of September 30, 1988. Filed as Exhibit 19.1 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1988.*
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 28, 2002
Pegasus Aircraft Partners, L.P. (Registrant)
By: Air Transport Leasing, Inc. Administrative General Partner
By: /s/ CLIFFORD B. WATTLEY Clifford B. Wattley President, Chief Financial and Accounting Officer, and Director
By: Pegasus Aircraft Management Corporation Managing General Partner
By: /s/ RICHARD S. WILEY Richard S. Wiley President and Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 28, 2002.
Signature Title
/s/ RICHARD S. WILEY President and Chairman of Richard S. Wiley the Board of Pegasus Aircraft Management Corporation
/s/ CLIFFORD B. WATTLEY President, Chief Financial and Accounting Officer, Clifford B. Wattley and Director of Air Transport Leasing, Inc.
/s/ STEPHEN R. DYER Vice-President, Treasurer, Secretary and Director of Stephen R. Dyer Air Transport Leasing, Inc.