UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (date of earliest event reported): September 18, 1996
Commission File No. 2-91762
POLARIS AIRCRAFT INCOME FUND I
State of Organization: California
IRS Employer Identification No. 94-2938977
201 Mission Street, 27th Floor, San Francisco, California94105
Telephone - (415) 284-7400
This document consists of 4 pages.
Item 5. Other Events
Viscount Air Services, Inc. (Viscount) Default
As discussed in Polaris Aircraft Income Fund I's (the Partnership's) Quarterly
Report to the Securities and Exchange Commission on Form 10-Q (Form 10-Q) for
the quarterly period ended June 30, 1996, GE Capital Aviation Services, Inc.
(GECAS), on behalf of the Partnership, First Security Bank, National Association
(formerly known as First Security Bank of Utah, National Association) (FSB), the
owner/trustee under the Partnership's leases with Viscount (the Leases),
Viscount, certain guarantors of Viscount's indebtedness and others executed in
April 1996 a Compromise of Claims and Stipulation under Section 1110 of the
Bankruptcy Code (the Compromise and Stipulation), which was subsequently
approved by the Bankruptcy Court. The Compromise and Stipulation provided that
in the event that Viscount failed to promptly and timely perform its monetary
obligations under the Leases and the Compromise and Stipulation, without further
order of the Bankruptcy Court, GECAS would be entitled to immediate possession
of the aircraft for which Viscount failed to perform and Viscount would deliver
such aircraft and all records related thereto to GECAS.
GECAS agreed to a rescheduling of Viscount's September rent obligations to allow
Viscount to make a 25% payment on September 3, 1996, with any defaults to be
cured on or before September 6, 1996. The remainder of the rents and all
maintenance reserve obligations were to be paid on September 10, 1996, with any
defaults to be cured on or before September 13, 1996. Viscount agreed to the
proposed cure dates and waived any requirement for a notice of default to be
sent. Viscount failed to make the rent and maintenance reserve payments on
September 10, 1996 and asserted that it was entitled to various credits and
offsets with respect to such obligations. GECAS disputed Viscount's assertions
and notified Viscount that it was in default under the Leases and the Compromise
and Stipulation. On September 18, 1996, GECAS (on behalf of the Partnership,
Polaris Holding Company, Polaris Aircraft Income Fund II, Polaris Aircraft
Income Fund IV and Polaris Aircraft Investors XVIII) (collectively, the Polaris
Entities) and Viscount entered into a Stipulation and Agreement (the Stipulation
and Agreement) by which Viscount agreed to voluntarily return all of the Polaris
Entities' aircraft and engines, turn over possession of the majority of its
aircraft parts inventory, and cooperate with GECAS in the transition of aircraft
equipment and maintenance, in exchange for which, upon Bankruptcy Court approval
of the Stipulation and Agreement, the Polaris Entities would waive their pre-and
post-petition claims against Viscount for amounts due and unpaid.
The Stipulation and Agreement provides that upon the return and surrender of
possession of the Partnership's three airframes and eight engines (two of which
were spare engines), Viscount's rights and interests therein shall terminate. As
of September 13, 1996, Viscount had returned (or surrendered possession of) two
of the Partnership's airframes and seven of the Partnership's engines. One of
the returned airframes (together with one installed engine) is currently in the
possession of and being operated by Nations Air Express, Inc. (Nations Air),
with whom the Partnership expects to negotiate the terms of a direct lease.
Nations Air continues to make lease payments directly to the Partnership. Six of
the seven returned engines are in the possession of certain maintenance
facilities and will require maintenance work in order to be made operable.
Viscount returned the Partnership's remaining airframe and one installed engine
on October 1, 1996. The Partnership is currently evaluating the condition of the
returned equipment in order to determine the cost of placing such equipment in
airworthy condition and to determine whether such equipment should be marketed
for sale or re-lease. GECAS, on behalf of the Polaris Entities, is evaluating
the spare parts inventory to which Viscount relinquished possession in order to
determine its condition and value, the portion allocable to the Partnership, and
the Partnership's alternatives for the use and/or disposition of such parts.
The Stipulation and Agreement also provides that the Polaris Entities, GECAS and
FSB shall release any and all claims against Viscount, Viscount's bankruptcy
estate, and the property of Viscount's bankruptcy estate, effective upon entry
of a final non-appealable court order approving the Stipulation and Agreement.
Viscount's affiliates, Rock-It Cargo USA, Inc. and Riverhorse Investments, Inc.,
are expected to assume Viscount's engine finance sale note to the Partnership as
provided under the Compromise and Stipulation. Payments are expected to begin
October 31, 1996.
As discussed in the Partnership's June 30, 1996 Form 10-Q, the Partnership has
recorded an allowance for credit losses of approximately $1.25 million for the
aggregate unsecured receivables from Viscount. The line of credit, which was
advanced to Viscount in 1994, was, in accordance with the Compromise and
Stipulation, secured by certain of Viscount's trade receivables and spare parts.
The pending Stipulation and Agreement releases the Partnership's claim against
Viscount's trade receivables. As a result, in the Partnership's financial
statements to be presented in the Partnership's Form 10-Q for the quarterly
period ended September 30, 1996, the Partnership will record an additional
allowance for credit losses of approximately $339,000, representing Viscount's
outstanding balance of the line of credit. Payments received by the Partnership
from the sale of the spare aircraft parts, if any, will be recorded as revenue
The Partnership is currently evaluating these aircraft for potential re-lease or
sale. As noted above, the Partnership expects to negotiate with Nations Air for
a direct lease of the Partnership's aircraft Nations Air is currently operating.
While the Partnership has not yet completed its evaluation of this equipment, it
believes it is likely that very substantial maintenance and refurbishment costs
will be required with respect to any equipment that the Partnership decides to
re-lease rather than sell. If the Partnership decides to remarket all of the
three aircraft for re-lease, maintenance and refurbishment costs may well exceed
an estimated $3.2 million. A portion of these costs would likely be paid from
the Partnership's current maintenance reserves. The balance would likely be paid
from the Partnership's cash reserves and would be capitalized or expensed.
Alternatively, with respect to any equipment that the Partnership decides to
sell rather than re-lease, such sale would likely be made on an "as is, where
is" basis, without the Partnership incurring substantial maintenance costs.
Pursuant to the requirements 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.
POLARIS AIRCRAFT INCOME FUND I
By: Polaris Investment
October 4, 1996 By: /S/Marc A. Meiches
Marc A. Meiches
Chief Financial Officer
(principal financial officer and
principal accounting officer of
Polaris Investment Management
Corporation, General Partner of
Dates Referenced Herein and Documents Incorporated by Reference