<PAGE>


[COVER]

                                                                 Exhibit 13.1
                            Gulfstream
                      Exceeding Expectations

                            [Picture]

1997 Annual Report


Exceeding Expectations


     Two simple, but powerful words which act as a common thread uniting the 


     nearly 5,800 employees of Gulfstream Aerospace Corporation. 


     Incorporating this theme into all that we do has resulted in Gulfstream 


     setting the standard for business aviation through excellence in 


     product, service and financial return.  By continuing to do so, we will 


     remain the leader in large cabin business aviation far into the future. 


On the Front Cover

     Nearly twice the size of the windows on other corporate jets, 


     Gulfstream's signature oval windows offer exceptional interior 


     lighting, panoramic views and enhance the already spacious 


     cabin's appeal.




<PAGE>

GULFSTREAM AEROSPACE CORPORATION

Financial Highlights

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                 -------------------------------
                                                                                      1997       1996       1995
-------------------------------------------------------------------------------  ---------  ---------  ---------
(Dollars in millions, except per share amounts and units)

<S>                                                                              <C>        <C>        <C>
Aircraft Deliveries............................................................         51         27         26

Net Revenues...................................................................  $ 1,903.5  $ 1,063.7  $ 1,041.5

Net Income.....................................................................  $   243.0  $    47.0  $    28.9

Earnings per Share (EPS)*......................................................  $    3.12  $    0.60  $    0.37

Pro Forma Fully Taxed EPS*.....................................................  $    1.68  $    0.37  $    0.23

Contractual Backlog............................................................  $ 2,782.1  $ 3,104.0  $ 1,938.3
</TABLE>





                                   [BAR GRAPH]




*   Diluted EPS, see notes to the Consolidated Financial Statements.

TABLE OF CONTENTS
-----------------

LETTER TO SHAREHOLDERS                                              2

GULFSTREAM V                                                        7

GULFSTREAM IV-SP                                                   11

GULFSTREAM SHARES                                                  12

MANUFACTURING                                                      13

CUSTOMIZED INTERIORS                                               15

AIRCRAFT SERVICES                                                  16

BOARD OF DIRECTORS                                                 18

1997 FINANCIAL REVIEW                                              19

CORPORATE INFORMATION                                              42

COLLIER TROPHY                                                     43





<PAGE>

DEAR SHAREHOLDERS

          As Gulfstream enters its fortieth year as the world's leading 
     business aviation company, we are pleased to report that the Company's 
     strong momentum continues. We met or exceeded all of our key operating 
     and financial goals in 1997 and are positioned for significant growth 
     going forward. Demand for our products remains strong as evidenced by 
     the Company's backlog which totaled 88 aircraft valued at $2.8 billion 
     at the end of 1997. Our production expansion plans are ahead of schedule 
     and we are continuing to invest in new services and technology to 
     position Gulfstream for the 21st century.

     1997: Delivering On Our Promises

          For 1997, Gulfstream reported record revenues and earnings. 
     Revenues increased nearly 80 percent over 1996 to $1.9 billion and 
     earnings per share increased almost five-fold to $3.12 or $1.68 on a pro 
     forma fully taxed basis. Net income was $243 million and we ended the 
     year with a cash balance of $306 million.

          The Gulfstream V,-Registered Trademark- the world's 
     only ultra-long range business jet in service, received final 
     FAA certification in April and has already set 47 world and 
     national records. The Gulfstream V has met or exceeded all 
     performance specifications and customer reaction continues to 
     be extremely positive. With a significant first-to-market 
     advantage over the competition, we had taken 81 orders through 
     December 31 and, in 1997, we delivered 29 Gulfstream Vs as 
     planned.

          In a fitting tribute to the remarkable achievement of the 
     Gulfstream V, Gulfstream and the Gulfstream V Industry Team received 
     aviation's most prestigious award, the 1997 Robert J. Collier Trophy. 
     Presented annually by the National Aeronautics Association, this award 
     recognized Gulfstream for the successful application of advanced design, 
     efficient manufacturing techniques and innovative international business 
     partnerships, to place into customer service the Gulfstream V - the 
     world's first ultra-long range business jet.

          Demand also remains strong for the Gulfstream 
     IV-SP-Registered Trademark-. This outstanding aircraft has 
     dominated the large cabin business jet category since its 
     introduction. Its success continued as we ended the year with 
     43 aircraft in backlog and delivered the 327th Gulfstream 
     IV/IV-SP.
    
                                    Aircraft on runway
                                    Mechanic working on landing gear
                                    Aircraft on tarmac 


                                [Picture]


<PAGE>

          In total, we received firm orders for 46 new aircraft in 1997. Our 
     customer base continues to be predominately Fortune 500 companies with 
     nearly 80 percent of our backlog held by North American corporations and 
     the Gulfstream Shares-Registered Trademark- program. In addition, we are 
     continuing to enhance our network of international sales and service 
     offices to support our growing business worldwide.

          The strong backlog and demand for Gulfstream products has led to an 
     expansion of the Company's manufacturing and completion capacity. In 
     1997, in support of our announced production goal of 60 aircraft per 
     year by 1999, we initiated cross-functional teams focused on quality and 
     efficiency in product design, manufacturing and interior completion. As 
     a result, we ended the year ahead of our initial production plans and 
     delivered 51 new aircraft in 1997. We are now targeting production in 
     excess of 60 aircraft for 1999.

     Setting The Stage For Future Growth

          Looking forward, we are investing for continued revenue and 
     earnings growth. For 1998, we are targeting nearly a 70 percent increase 
     in fully taxed earnings per share to $2.85 as we ramp up production, 
     reduce costs and continue to expand the products and services offered 
     under the Gulfstream brand. 

          The Company is investing $35 million over 1997 and 1998 to support 
     the targeted increase in our manufacturing and completion capabilities. 
     These investments, along with our quality teams, are driving cost 
     efficiencies ahead of our original forecast and we are on track to 
     realize continued improvements in margins in 1998 and beyond. In our 
     completions business, we are improving our processes while maintaining 
     the quality craftsmanship and reliability which distinguish Gulfstream 
     aircraft. We now provide aircraft interiors for nearly every aircraft we 
     sell, up from 70 percent at the beginning of the decade.

          Anticipating and effectively meeting the aviation transportation 
     needs of corporations, governments and leaders worldwide is a hallmark 
     of Gulfstream's success. Gulfstream Shares and Gulfstream Financial 
     Services Corporation (GFSC) are both examples of the Company's efforts 
     to meet the changing needs of its customers. The Gulfstream Shares 
     program has exceeded our initial expectations for market expansion by 
     providing new customers the benefits of Gulfstream ownership at a 
     fraction of the cost and by offering existing customers a cost effective 
     means of expanding their aircraft fleet. In the U.S., 29 aircraft are 
     either in service or under contract for the Gulfstream Shares program. 

                                          GIV-SP flying
                                          Green aircraft in production 
                                          GIV-SP flying


                          [Picture]


<PAGE>

                         [Picture]


                                          Gulfstream Management Committee

     Our announced expansion of this program into the Middle East positions 
     us for continued growth to other strategic areas of the world, including 
     the Far East.

          Gulfstream Financial Services Corporation also positions the 
     Company for future growth by making it easier to finance the purchase of 
     Gulfstream aircraft. Today, GFSC has a portfolio of 27 aircraft, valued 
     at $580 million, which have been financed through private label 
     relationships. In 1997, GFSC provided financing for over $300 million of 
     our products.

          We are also exploring new opportunities to complement our existing 
     portfolio of products and services. These include comprehensive 
     maintenance programs, aircraft management services and short-term 
     operating lease capabilities.

          1997 was a very strong year for Gulfstream, one in which we 
     exceeded customer and shareholder expectations in all key areas of our 
     business. We are proud of our accomplishments and of the nearly 5,800 
     Gulfstream employees who contributed to the Company's outstanding 
     performance. We also want to thank our suppliers, customers, partners 
     and investors for their continued support.

          Going forward, we will continue to capitalize on our growth 
     opportunities and enhance shareholder value. Our decision, in early 
     1998, to initiate a Common Stock Repurchase Program for up to $200 
     million supports our investment strategy and our firm belief that 
     Gulfstream is well positioned for earnings growth in 1998 and beyond.

          We intend to continue our commitment to setting the standards for 
     business aviation and exceeding the expectations of our customers and 
     our shareholders.

     Sincerely, 




                         /s/ THEODORE J. FORSTMANN
                         -------------------------
                         THEODORE J. FORSTMANN
                         Chairman of the Board
                         Chairman of the Management Committee

<TABLE>
<S>                            <C>                                  <C>                             <C>
     /s/ W. W. BOISTURE        /s/ CHRIS A. DAVIS                   /s/ JAMES T. JOHNSON            /s/ BRYAN T. MOSS
     ------------------        ------------------                   --------------------            -----------------
     W.W. BOISTURE, JR.        CHRIS A. DAVIS                       JAMES T. JOHNSON                BRYAN T. MOSS 
     Executive Vice President  Executive Vice President and         President and                   Vice Chairman 
     Member of the             Chief Financial Officer              Chief Operating Officer         Member of the 
     Management Committee      Member of the                        Member of the                   Management Committee
                               Management Committee                 Management Committee

</TABLE>

     February 28, 1998

<PAGE>

                              [Picture]


                               GV flying over water

<PAGE>

                              [Picture]


                               (left to right/top to bottom)
                               Cockpit of GV
                               GV in flight
                               Interior of GV
                               GIV-SP at service center


<PAGE>

Gulfstream V: A TRADITION OF EXCELLENCE

                          On April 11, 1997, Gulfstream introduced a new era 
                      in the history of business aviation with the final FAA 
                      certification of the Gulfstream V, the world's first 
                      ultra-long range, large cabin business jet.

                          The Gulfstream V has already distinguished itself 
                      as the premier business jet by meeting or exceeding all 
                      performance specifications as promised. The Gulfstream 
                      V has set 47 world and national records for nonstop 
                      distance, speed, time to climb, cruise altitude and 
                      payload.

                          As of December 31, 1997, Gulfstream had received 81 
                      orders for the Gulfstream V. Twenty-nine Gulfstream Vs 
                      were delivered to customers in 1997, and at year end, 
                      the backlog for the Gulfstream V was 45 aircraft.

                     Advanced Technology Leads To Unmatched Performance

  As a confirmation       The Gulfstream V features the most sophisticated 
  of its innovative  technology available to support the rigorous demands of 
design and advanced  intercontinental missions. From the unique engine 
    technology, the  design and highly advanced communications capabilities 
   Gulfstream V was  to the cabin that offers maximum passenger comfort and 
   awarded the 1997  flexibility, the Gulfstream V continues the Gulfstream 
  Robert J. Collier  legacy of innovation and high quality.
         Trophy for
       aeronautical       The Gulfstream V's ability to travel nonstop for 
        achievement.  6,500 nautical miles at speeds up to Mach 0.885 sets 
                      the benchmark for world travel. For the first time, 
                      nonstop business travel between destinations such as 
                      New York and Tokyo, London and Beijing, Los Angeles and 
                      Moscow is routine. No other business jet in service can 
                      match the Gulfstream V's performance for distance.

                          Additionally, we designed the Gulfstream V to 
                      provide maximum passenger and crew comfort and 
                      productivity. Featuring a spacious cabin with a 1,669 
                      cubic foot interior, the Gulfstream V offers room for 
                      up to 19 passengers and more baggage capacity than any 
                      other corporate jet.

<PAGE>

                          The Gulfstream V also features a 100 percent fresh 
                      air ventilation system and maintains a constant cabin 
                      altitude pressure of 6,000 feet.  Other corporate and 
                      commercial aircraft recirculate air, typically allowing 
                      less than 75 percent fresh air. Both of these features 
                      minimize the stress of long range travel by reducing 
                      passenger fatigue and offering a healthier travel 
                      environment.

                          The Gulfstream V's ability to cruise at 51,000 
                      feet, well above commercial traffic and adverse 
                      weather, permits more direct routing and shorter time 
                      en route. In contrast, commercial airliners are 
                      required to fly at considerably lower altitudes (31,000 
                      to 37,000 feet), leaving them susceptible to turbulent 
                      conditions and rerouting due to weather and traffic.

     Able to fly          Finally, the Gulfstream V offers significant 
     comfortably      technical advancements, including an innovative 
   above weather      aerodynamic design and an all new wing. Powered by twin 
    and traffic,      BMW Rolls-Royce BR710 turbofan engines, developed 
the Gulfstream V      especially for the Gulfstream V, the aircraft can take 
    connects key      off under the most arduous conditions without fuel or 
  cities such as      payload restrictions. This gives the Gulfstream V more 
    New York and      travel flexibility than any other current or planned 
      Tokyo, and      corporate jet. The Gulfstream V is able to land and 
          remote      depart from thousands of airports worldwide, which 
       locations      larger corporate jets are unable to access, including 
      worldwide.      remote locations like Aspen, Bogota and Nairobi.

                          With these enhanced features, the Gulfstream V 
                      offers a lower operating cost than other business jets 
                      in its class. Its excellent short runway


                                      [Picture]

                                         GV in flight
                                         Statue of Liberty and New York skyline
                                         GV flying over mountains

<PAGE>

                      performance, advanced flight control systems, low noise 
                      and clean emissions, combined with unmatched stability 
                      and maneuverability make the Gulfstream V an aircraft 
                      with truly exceptional performance standards.

                     Superior Capabilities Meet Government
                     and Special Mission Requirements

                          In testimony to the Gulfstream V's exceptional 
                      performance, the United States Air Force (USAF) 
                      selected the Gulfstream V to provide intercontinental 
                      transportation for senior government officials and 
                      dignitaries.

 The versatility          This builds on a long legacy of Gulfstream aircraft 
 and exceptional      used for special missions and provides the opportunity 
  performance of      for expansion to other governments worldwide. Over 130 
the Gulfstream V      Gulfstream aircraft are currently in service with 38 
     provides an      nations in a variety of roles such as photo 
       effective      reconnaissance, maritime surveillance, medical 
    platform for      evacuation, weather research and astronaut training.
 special mission
   applications.          The Gulfstream V was also chosen by Lockheed Martin 
                      and Northrop Grumman as the aircraft platform for bids 
                      for the United Kingdom's Royal Air Force Airborne 
                      Standoff Radar (ASTOR) program. The selection of the 
                      Gulfstream V by two of the ASTOR contenders underscores 
                      the flexibility and adaptability of this unique 
                      aircraft.

                                     [Picture]


                                      GV flying over water
                                      Mt. Fuji
                                      Frontview of GV in flight
<PAGE>

                                       [Picture]

                                      GIV-SP on runway
<PAGE>

GULFSTREAM IV-SP: 
  THE WORLD'S BEST-SELLING 
  LARGE CABIN BUSINESS AIRCRAFT

                         The Gulfstream IV-SP continues to dominate the long 
                      range, large cabin market. The 327th Gulfstream 
                      IV/IV-SP was delivered in 1997 and worldwide demand for 
                      the aircraft remained strong with 39 new orders and 43 
                      aircraft in backlog at December 31, 1997. 

                         The Gulfstream IV-SP is the world's best selling 
                      large cabin business jet with a record for technical 
                      performance, safety and reliability. The aircraft holds 
                      67 flight records, has more than 850,000 flight hours 
                      and boasts a 99.4 percent reliability rate.

  Unprecedented          The Gulfstream IV-SP's range of 4,220 nautical miles 
 demand for the       connects many major North American cities with most of 
     Gulfstream       Western Europe, South America and Northern Africa. It 
IV-SP continued       flies at 45,000 feet, maintaining a constant 6,500 foot 
  in 1997 as we       cabin pressure and a 100 percent fresh air 
received orders       environmental control system to maximize passenger 
for 39 aircraft       comfort.
  and ended the
    year with a           Demand for pre-owned Gulfstream IV-SPs is also 
 backlog of 43.       strong. Like their predecessors, Gulfstream IV-SPs 
                      retain their value long after their depreciable life.

                     Rugged and Reliable, A Proven Platform For Special
                     Missions

                          The Gulfstream IV-SP's robust construction and 
                      reputation for reliability allow the aircraft to be 
                      used for challenging special missions without 
                      sacrificing the Gulfstream performance advantage.

                          The Gulfstream IV-SP is used as a hurricane tracker 
                      for the U.S. National Oceanic and Atmospheric 
                      Administration (NOAA) in Honolulu, Hawaii. With a 
                      cruising altitude of 45,000 feet, the Gulfstream IV-SP 
                      provides observation coverage at levels critical for 
                      defining weather systems in the upper atmosphere. The 
                      aircraft's extensive range allows NOAA to monitor and 
                      assess storm systems worldwide. Other key uses include 
                      special military missions and governmental use for VIP 
                      travel. The Gulfstream IV-SP's efficient short-field 
                      operations make it popular for medical evacuations.

<PAGE>

GULFSTREAM SHARES: 
   EXPANDING OWNERSHIP 
   OPPORTUNITIES WORLDWIDE


                          Now in its fourth year, the Gulfstream Shares 
                      program continues to successfully expand the market for 
                      Gulfstream aircraft. The program offers eighth, quarter 
                      and half shares in Gulfstream IV-SP aircraft and allows 
                      customers with more limited aviation requirements to 
                      own the world's most prestigious business jet. For the 
                      individual or corporation that has not previously 
                      operated aircraft, the Gulfstream Shares program 
                      provides the opportunity to realize the benefits of a 
                      Gulfstream at a fraction of the cost. The program has 
                      also become popular as a way to supplement the fleets 
                      of existing aircraft operators.

                          Growth of Gulfstream Shares, a joint program with 
                      Executive Jet International (EJI), has exceeded 
                      expectations. There are currently 15 Gulfstream Shares 
                      aircraft in service today. In total, 27 Gulfstream 
                      IV-SPs and two Gulfstream Vs have been ordered for the 
                      Gulfstream Shares program. Of these, eleven were 
                      ordered by EJI in 1997. Gulfstream sells the GIV-SPs 
                      into the program and provides supporting technical 
      The highly      services and maintenance, while EJI manages scheduling, 
      successful      customer service and daily flight operations.
      Gulfstream
          Shares          The Gulfstream Shares program also provides an 
program provides      opportunity to expand Gulfstream's presence worldwide. 
  ownership of a      In 1997, Gulfstream announced the expansion of the 
      Gulfstream      Gulfstream Shares program to the Middle East with a 
   aircraft at a      commitment of 12 aircraft to the region. This 
 fraction of the      represents the first step in creating a global 
    cost and has      fractional ownership network. Gulfstream is also 
   significantly      considering expanding the program into the Far East, as 
    expanded the      well as including Gulfstream V aircraft.
  market for our 
       products. 



                                               GIV-SP over water
                                               San Francisco Golden Gate bridge
                                               Front view of GIV-SP in flight


                                       [Picture]


<PAGE>

MANUFACTURING: 
   MEETING THE CHALLENGES 
   OF STRONG PRODUCT DEMAND

                          The strong demand for Gulfstream products and 
                      services has challenged the Company to seek new ways of 
      In 1997 we      improving delivery while maintaining the highest 
     established      quality standards. For the first time in the Company's 
          cross-      history, we are producing two Gulfstream models 
      functional      simultaneously, the Gulfstream IV-SP and new ultra-long 
  teams to focus      range Gulfstream V.
  on quality and
   efficiency in          By strategically redeploying resources and 
  product design      increasing productivity, we made significant strides in 
             and      1997 toward achieving our goal of producing 60 aircraft 
  manufacturing.      by 1999 without having to add new manufacturing 
  The Company is      facilities. In 1997, 51 aircraft (22 Gulfstream IV-SPs 
  now positioned      and 29 Gulfstream Vs) were produced versus 27 in 1996 
         to cost      (24 Gulfstream IV-SPs and three Gulfstream Vs). In 
     effectively      June, the Company delivered its 1,000th aircraft, 
      produce 60      continuing a tradition of leadership in aviation that 
     aircraft by      spans forty years.
 1999, more than
 double the 1996          In 1997, cross-functional teams were initiated to 
          level.      focus on quality and efficiency in product design, 
                      manufacturing and interior completions. Capitalizing on 
                      the collective expertise of Gulfstream's highly skilled 
                      work force, we reduced final assembly production time 
                      for the Gulfstream V from 75 to 30 days in just over 
                      six months. At the same time, the manufacturing process 
                      was redesigned to allow Gulfstream the flexibility to 
                      change its annual product mix between Gulfstream IV-SPs 
                      and Gulfstream Vs depending upon customer demand.

                          As a result of these efficiencies and our focus on 
                      quality, the Company expects to produce 58 aircraft in 
                      1998 and in excess of 60 aircraft in 1999.

                                       [Picture]

                                       GIV-SP in flight
                                       Big Ben, London skyview
                                       GIV-SP over cityscape

<PAGE>
                                         [Picture]

                                       Interior of GV
<PAGE>

CUSTOMIZED INTERIORS:
   ENSURING THAT GULFSTREAM AIRCRAFT 
   MEET CUSTOMER NEEDS


                          For many customers, the look and feel of the 
                      aircraft interior and exterior are as important as the 
                      aircraft's performance  specifications. Gulfstream 
                      understands this and has built a reputation for 
      Gulfstream      offering the finest quality craftsmanship available to 
    continues to      meet its customers' demand for superior quality, both 
       invest in      inside and outside the aircraft. Interiors designed for 
  technology and      business customers include the most advanced 
   capability to      communications technology to ensure that time spent 
     provide the      traveling is as productive as time spent in the office. 
 highest quality      Gulfstream has also certified configurations for 
        and most      government and military applications which include 
      productive      features such as oversized cargo doors, electronic and 
 designs to meet      optical airborne surveillance equipment and advanced 
    the needs of      medical technology.
  our customers.
           Today          In 1997, Gulfstream invested significant capital to 
      Gulfstream      enhance its full-service design and completions 
       completes      capabilities. A new design presentation center was 
      nearly 100      unveiled at the Company's completion center in 
  percent of its      Savannah, Georgia. Using advanced computer modeling, 
        customer      Gulfstream designers can manipulate a variety of cabin 
      interiors.      configurations and color schemes to match the 
                      customer's exact needs and specifications. Gulfstream's 
                      newly installed video conferencing technology enables 
                      the customer to participate in the design process from 
                      anywhere in the world.

                          In addition, in 1997, the Company invested $8.5 
                      million to build a state-of-the-art paint facility at 
                      its Long Beach, California location. The nearly 60,000 
                      square foot facility gives Gulfstream the ability to 
                      paint up to 40 additional aircraft per year, doubling 
                      the Company's current paint capacity. The hangar, 
                      operating on a three shift, 24 hour a day basis, 
                      includes three individual bays which allow three 
                      aircraft to be worked on simultaneously. The new 
                      facility incorporates the latest technology in 
                      environmental air and water pollution control systems 
                      and exceeds current federal and state regulatory 
                      standards.

                          Gulfstream's customized completions business is an 
                      important source of revenue. The Company now completes 
                      virtually 100 percent of customer interiors, up from 70 
                      percent at the beginning of the decade.

<PAGE>

AIRCRAFT SERVICES: 
   PROVIDING VALUE AND SECURITY
   FOR CUSTOMERS WORLDWIDE


                      Manufacturing and completing the world's finest 
                 business jets is only part of what makes Gulfstream a leader 
                 in its industry. Gulfstream customers also know that they 
                 can count on outstanding service and support wherever their 
                 travels may take them.

                      To support the Company's products, Gulfstream has built 
                 a 24 hour a day, seven day a week network of service 
                 providers. In Savannah, Georgia, the Company's flagship 
                 service center covers more than four football fields and can 
                 house up to 22 aircraft. Gulfstream also operates 
                 Company-owned service centers in Brunswick, Georgia and Long 
     Gulfstream  Beach, California. Outside the U.S., Gulfstream customers 
   continues to  will find five additional Gulfstream Authorized Service 
     expand our  Centers or Warranty Repair Facilities located on three 
      worldwide  continents.
maintenance and  
      technical      In 1997, Gulfstream introduced the first phase of an 
        support  on-line spare parts system. This enables Gulfstream 
      services,  operators to order spare  parts from anywhere in the world 
      providing  through the Company's website (www.gulfstreamaircraft.com). 
 customers easy  Also in 1997, the Company launched ServiceCare for 
access 24 hours  Gulfstream IV-SP customers. ServiceCare is the industry's 
         a day.  most comprehensive nose-to-tail, guaranteed hourly 
                 maintenance program. ServiceCare covers virtually every 
                 part, component, assembly and system on the aircraft, 
                 offering customers predictable operating costs and around 
                 the clock service.

                      With over 900 aircraft in the Gulfstream fleet 
                 worldwide, managing the service needs of Gulfstream 
                 customers is a growing and profitable source


 
                                        Gulfstream employee manufacturing
                                        GV on tarmac
                                        Landing gear


                                [Picture]

<PAGE>


                 of revenue. At year end, Gulfstream had approximately 60
                 percent service market share and is on track to achieve
                 its goal of 65 percent share in 1998.


Comprehensive Training: Benefiting Customers
Through Partnerships

                      To ensure that customers take advantage of the full 
    Gulfstream's  capabilities of our aircraft, Gulfstream has formed 
     focus is on  long-term partnerships with FlightSafety International 
 providing value  (FSI) and SimuFlite Training International. Through these 
  added products  partnerships Gulfstream offers its customers comprehensive 
     and service  pilot and maintenance training. FSI maintains and operates 
       offerings  its training facilities which are co-located with 
  which meet the  Gulfstream operations in Savannah and Long Beach. In 1997, 
 entire spectrum  FSI opened a new 65,000-square-foot learning center in 
          of our  Savannah which incorporates fully computerized, automated 
      customers'  training on all Gulfstream products. SimuFlite training 
 aviation needs.  sessions are conducted at the Dallas-Ft. Worth 
                  International Airport.

Aircraft Financing: Providing Customized Solutions 
To Funding Aircraft Acquisitions

                      Gulfstream Financial Services Corporation (GFSC) makes 
                  it easier to acquire Gulfstream aircraft by offering 
                  customers a variety of financing alternatives such as 
                  capital and operating leases, loans, tax advantaged leases, 
                  like-kind exchange options and Export-Import Bank support. 
                  In 1997, GFSC provided financing, through private label 
                  relationships, for over $300 million of our products.


Employee working
Open engine
Aircraft on tarmac
Tech rep working 
on aircraft

                                [Picture]


<PAGE>

Board of Directors

                           [Full page picture]

<TABLE>
<CAPTION>

<S>                                     <C>                                <C>                               <C>

                                                                                          [Photo]                      [Photo]
BOARD OF DIRECTORS                                                                                                         
                                                                                  ROBERT ANDERSON           CHARLOTTE L. BEERS
                                                                                Chairman Emeritus            Chairman Emeritus
                                                                           Rockwell International            Ogilvy and Mather
                                                                                                               Worldwide, Inc.
                                                                                                                              
                                                                                                                              
                     [Photo]                              [Photo]                         [Photo]                      [Photo]
                                                                                                                              
         THOMAS D. BELL, JR.                   W.W. BOISTURE, JR.                  CHRIS A. DAVIS                LYNN FORESTER
                 President &             Executive Vice President      Executive Vice President &                  President &
     Chief Executive Officer     Gulfstream Aerospace Corporation         Chief Financial Officer      Chief Executive Officer
           Burson-Marsteller                                                 Gulfstream Aerospace      FirstMark Holdings, Inc.
                                                                                      Corporation
                                                                                                                               
                     [Photo]                              [Photo]                         [Photo]                       [Photo]
                                                                                                                             
       NICHOLAS C. FORSTMANN                THEODORE L. FORSTMANN               SANDRA J. HORBACH             JAMES T. JOHNSON
    Founding General Partner                             Chairman                 General Partner                  President &
      Forstmann Little & Co.     Gulfstream Aerospace Corporation          Forstmann Little & Co.      Chief Operating Officer
                                         Founding General Partner                                         Gulfstream Aerospace
                                           Forstmann Little & Co.                                                  Corporation
                                                                                                                              
                                                                                                                               
                     [Photo]                              [Photo]                         [Photo]                       [Photo]
                                                                                                                             
          HENRY A. KISSINGER                           DREW LEWIS               MARK H. McCORMACK                 BRYAN T. MOSS
                    Chairman                    Former Chairman &           Chairman, President &                 Vice Chairman
  Kissinger Associates, Inc.              Chief Executive Officer         Chief Executive Officer          Gulfstream Aerospace
    Former U.S. Secretary of            Union Pacific Corporation  International Management Group                   Corporation
                       State               

                                                                                                                               
                      [Photo]                             [Photo]                         [Photo]                       [Photo]
                                                                                                                               
             MICHAEL S. OVITZ                    ALLEN E. PAULSON                 ROGER S. PENSKE               COLIN L. POWELL
   Former Chairman & Co-Owner                   Chairman Emeritus                        Chairman           Chairman, America's
Creative Artists Agency, Inc.    Gulfstream Aerospace Corporation              Penske Corporation          Promise-The Alliance
                                                                                                                      for Youth
                                                                                                                Former Chairman
                                                                                                          Joint Chiefs of Staff
                                                                                                                               
                                                                                                                               
                      [Photo]                             [Photo]                         [Photo]                       [Photo]
                                                                                                                               
              GERARD R. ROCHE                  DONALD H. RUMSFELD                GEORGE P. SHULTZ             ROBERT S. STRAUSS
                     Chairman                            Chairman           Former U.S. Secretary             Founder & Partner
   Heidrick & Struggles, Inc.               Gilead Sciences, Inc.                        of State          Akin, Gump, Strauss,
                                            Former U.S. Secretary                                                  Hauer & Feld
                                                       of Defense                                        Former U.S. Ambassador
                                                                                                                      to Russia


</TABLE>



<PAGE>


GULFSTREAM AEROSPACE CORPORATION


                                1997 Financial Review


Management's Discussion and Analysis of
Financial Condition and Results of Operations                               20

Consolidated Balance Sheets                                                 26

Consolidated Statements of Income                                           27

Consolidated Statements of Stockholders' Equity                             28

Consolidated Statements of Cash Flows                                       29

Notes to Consolidated Financial Statements                                  30

Report of Independent Accountants and
Report of Management's Responsibilities                                     38

Quarterly Financial Results                                                 39

Selected Financial Data                                                     40


<PAGE>

Management's Discussion and Analysis
of Financial Condition and Results of Operations

    The following discussion should be read in conjunction with the 
consolidated financial statements and notes thereto beginning on page 26, 
which are incorporated herein by reference. Narrative descriptions of 
Gulfstream Aerospace Corporation's ("Gulfstream" or the "Company") principal
products begin on page 7.
 
Business
 
    Gulfstream is recognized worldwide as a leading designer, developer, 
manufacturer and marketer of the most technologically advanced 
intercontinental business jet aircraft. The Company's current principal 
aircraft products are the Gulfstream IV-SP, the Gulfstream V, Gulfstream 
Shares (fractional ownership interests in Gulfstream IV-SPs) and pre-owned 
Gulfstream aircraft. As an integral part of its aircraft product offerings, 
the Company offers aircraft completion and worldwide aircraft maintenance 
services and technical support for all Gulfstream aircraft. In addition, the 
Company's financial services subsidiary, Gulfstream Financial Services 
Corporation, through its private label relationship with a third-party 
aircraft financing provider, offers customized products to finance the 
worldwide sale of Gulfstream aircraft.
 
Operating Data
 
    The Company recognizes revenue for the sale of a new "green" aircraft 
(i.e., before exterior painting and installation of customer selected 
interiors and optional avionics) when that aircraft is delivered to the 
customer. Revenues from completion services are recorded when the outfitted 
aircraft is delivered to the customer. Revenues on all other products and 
services, including pre-owned aircraft, are recognized when such products are 
delivered or such services are performed. Generally, production of aircraft 
for delivery remains relatively smooth throughout a year. However, deliveries 
of such aircraft can vary significantly depending upon the timing of contract 
execution and final customer acceptance. Accordingly, the Company's revenues 
can vary significantly from quarter to quarter.
 
 
    The following sets forth certain statistical data concerning the 
Company's deliveries, orders and backlog for new aircraft.
 
<TABLE>
<CAPTION>
                                                        Year ended December 31,
                                                    -------------------------------
                                                         1997         1996      1995
                                                    ---------  ----------- ---------
<S>                                                 <C>        <C>        <C>
Operating Data:
Units delivered during period:
Gulfstream IV-SP..................................         22         24         26
Gulfstream V......................................         29          3          0
                                                          ---        ---        ---
Total green deliveries............................         51         27         26
Units ordered during period:
Gulfstream IV-SP..................................         39         44         30
Gulfstream V......................................          7         21         12
                                                          ---        ---        ---
Total orders......................................         46         65         42
Units in backlog at end of period:
Gulfstream IV-SP(1)...............................         43         27          7
Gulfstream V(2)...................................         45         67         50
                                                          ---        ---        ---
Total backlog (in units)(3).......................         88         94         57
Estimated backlog (in billions)(3)................  $     2.8  $     3.1  $     1.9
</TABLE>
 
------------------------
 
(1) Net of 1 cancellation in 1997, which relates to an order placed in that
    year.
 
(2) Net of cancellations of 1 and 2 in 1996 and 1995, respectively, which
    generally relate to orders placed in prior years.
 
(3) See discussion of contractual backlog on page 24.
 
Comparison of the Years Ended
December 31, 1997 and 1996
 
    Net Revenues.  Total net revenues increased by $839.8 million, or 79.0%, 
to $1,903.5 million in 1997 from $1,063.7 million in 1996. Revenues from 
green aircraft increased $739.3 million due primarily to the delivery of 29 
Gulfstream V aircraft in 1997, as full scale production commenced, compared 
to three Gulfstream V aircraft in 1996. During 1997, a total of 51 green 
aircraft were delivered as compared to 27 in 1996. Also contributing to the 
revenue gain was a $57.1 million increase in the sale of pre-owned aircraft 
related to trade-ins on the higher level of Gulfstream V deliveries. In 
addition, completion revenues increased by $11.5 million in 1997 principally 
due to initial Gulfstream V completion deliveries. Aircraft Services revenue 
increased by $22.7 million in 1997, as the Company continues 

[BAR GRAPH]

to aggressively market and expand its aftermarket products and 
maintenance services.



<PAGE>

    Cost of Sales.  Total cost of sales increased to $1,557.5 million in 1997 
compared to $839.3 million in 1996. Excluding pre-owned aircraft, which are 
generally sold at break-even levels, the gross profit percentage for 1997 was 
20.0% compared to 24.8% for 1996. The decline in gross profit percentage is 
primarily attributable to the introduction of the Gulfstream V aircraft into 
production and the higher costs associated with the early stages of the 
Gulfstream V production and completions. Timing of the learning curve on the 
Gulfstream V completions is expected to delay margin improvements somewhat in 
the first half of 1998. Overall the Company expects the margin percentage of 
revenue on the Gulfstream V to continue to improve as it realizes increased 
manufacturing efficiencies.
 
    Selling and Administrative Expense.  Selling and administrative expense 
decreased by $2.0 million, or 2.0%, to $97.5 million in 1997 from $99.5 
million in 1996 and, as a percentage of net revenues, decreased to 5.1% in 
1997 from 9.4% in 1996. Expenses were higher in 1996 due principally to the 
level of advertising and marketing expense associated with the certification 
and initial customer deliveries of the Gulfstream V.

[BAR GRAPH]
 
    Stock Option Compensation Expense.  The issuance of options to purchase 
common stock of the Company resulted in a non-cash compensation charge of 
$1.6 million in 1997 and $7.2 million in 1996.
 
    Research and Development Expense.  Research and development expense was 
$10.8 million in 1997 a decrease of $47.3 million from 1996, and as a 
percentage of net revenues was 0.6% versus 5.5%. Research and development 
expense decreased during 1997 principally as a result of the substantial 
completion of the Gulfstream V development program. Research and development 
expense for 1997 and 1996 are net of credits of $10.0 million and $8.0 
million, respectively, for launch assistance funds received from vendors 
participating in the development of the Gulfstream V. Research and 
development expenditures in 1998 and the near-term future are expected to 
stem principally from product improvements and enhancements, rather than new 
aircraft development.
 
    Amortization of Intangibles and Deferred Charges.  This non-cash expense 
includes amortization of goodwill and other intangible assets consisting of 
aftermarket service and aftermarket product support, as well as deferred 
financing charges related to the Company's pre-existing and new bank credit 
facilities. Amortization of intangibles and deferred charges of $7.3 million 
for 1997 were $2.1 million lower than 1996. This decrease was a result of the 
accelerated amortization in 1996 of financing charges associated with the 
Company's prior bank credit facilities, which were repaid in October 1996. 
See "Liquidity and Capital Resources."
 
    Interest Income and Expense.  Interest income decreased by $3.1 million 
to $11.5 million in 1997 from $14.6 million in 1996 as a result of lower 
average cash balances the Company had invested in 1997 compared to 1996. 
Interest expense consists almost entirely of interest paid on long-term 
borrowings under the Company's bank credit facilities. Interest expense 
increased to $31.2 million for 1997 from $17.9 million in 1996. This increase 
was due to an increase in average borrowings partially offset by the 
Company's lower average borrowing costs of 7.7% in 1997 versus 9.0% in 1996. 
See "Liquidity and Capital Resources."
 
    Income Taxes.  The Company recorded an income tax benefit of $33.9 
million for 1997. No provision for income taxes was recorded in 1996, 
principally due to the utilization of net operating loss carryforwards. The 
Company, in estimating its ability to realize the benefit of its net deferred 
tax assets, considers both positive and negative evidence and gives greater 
weight to evidence that is objectively verifiable. As a result of numerous 
factors including, but not limited to, recent earnings trends and the size of 
its contractual backlog, the Company currently believes that its net deferred 
tax asset is more likely than not to be realized. In the third quarter of 
1997, the Company released its deferred tax valuation allowance, totaling 
$94.2 million. Of this amount, $29.4 million related to the exercise of stock 
options and was credited to additional paid-in capital and $64.8 million was 
recorded as a one-time non-cash income tax benefit. During the fourth quarter 
of 1997, the Company recorded a provision for income taxes based on its 
overall estimated effective tax rate of 37.5%. The Company had available at 
December 31, 1997 and 1996, net operating loss carryforwards for regular 
federal income tax purposes of approximately $65.0 million and $228.0 
million, respectively, which will begin expiring in 2006.
 
    Earnings Per Share.  The Company reported diluted earnings per share of 
$3.12 during 1997, up from 1996 diluted earnings per share of $0.60. On a pro 
forma basis, assuming an effective tax rate of 37.5%, the Company's earnings 
per share would have been $1.68 and $0.37 for 1997 and 1996, respectively.

[BAR GRAPH]

<PAGE>

Comparison of the Years Ended
December 31, 1996 and 1995

    Net Revenues.  Total net revenues increased by $22.2 million, or 2.1%, to 
$1,063.7 million in 1996 from $1,041.5 million in 1995. Revenues from green 
aircraft increased $55.1 million due to the delivery of one more unit and the 
commencement of Gulfstream V deliveries which have higher selling prices. In 
1996, a total of 27 green aircraft, 24 Gulfstream IV-SPs and 3 Gulfstream Vs, 
were delivered as compared to 26 Gulfstream IV-SP deliveries in 1995. In 
addition, Aircraft Services revenues increased by $33.2 million in 1996 
principally due to international spares sales and the opening in 1996 of a 
new service center in Savannah. Offsetting these increases was a decrease of 
$67.3 million in the sale of pre-owned aircraft resulting from a reduced 
number of trade-ins and a decrease of $14.0 million in revenues attributable 
to the conclusion in 1995 of a U.S. Department of Defense logistical supply 
contract.
 
    Cost of Sales.  Total cost of sales of $839.3 million in 1996 was 
relatively unchanged compared to $835.5 million in 1995. Excluding pre-owned 
aircraft, which are generally sold at break-even levels, the gross profit 
percentage for 1996 was 24.8% compared to 25.6% for 1995. This decline is 
primarily attributable to higher costs associated with the early part of the 
production learning curve on Gulfstream V aircraft.
 
    Selling and Administrative Expense.  Selling and administrative expense 
increased by $6.3 million, or 6.8%, to $99.5 million in 1996 from $93.2 
million in 1995 and as a percentage of net revenues increased to 9.4% in 1996 
from 9.0% in 1995. The increase principally resulted from increased 
advertising and marketing expenses associated with the Gulfstream V program, 
higher sales commission and aircraft demonstration costs resulting from 
increased levels of sales activity, and continued emphasis on the expansion 
of international sales activities.
 
    Stock Option Compensation Expense.  The issuance of options to purchase 
common stock of the Company during 1996 resulted in a non-cash compensation 
charge of $7.2 million.

    Research and Development Expense.  Substantially all research and 
development expense during 1996 and 1995 was associated with the Gulfstream V 
development program, which was substantially completed at the end of 1996. 
Research and development expense was $58.1 million in 1996, a decrease of 
$5.0 million from 1995, and as a percentage of net revenues was 5.5% versus 
6.1%. Research and development expense for 1996 is net of an $8.0 million 
credit for launch assistance funds received from vendors participating in the 
development of the Gulfstream V.
 
    Amortization of Intangibles and Deferred Charges.  This non-cash expense 
includes amortization of goodwill and other intangible assets consisting of 
aftermarket service and aftermarket product support, as well as deferred 
financing charges related to the Company's pre-existing and new bank credit 
facilities. Amortization of intangibles and deferred charges of $9.4 million 
for the year ended December 31, 1996 was $1.9 million higher than 1995. This 
increase resulted from the accelerated amortization of financing charges 
associated with the Company's pre-existing bank credit facilities, which were 
repaid in October 1996. See "Liquidity and Capital Resources."
 
    Interest Income and Expense.  Interest income increased by $9.1 million 
to $14.6 million in 1996 from $5.5 million in 1995 as a result of higher 
average cash balances the Company had invested in 1996 compared to 1995. The 
Company generated these higher cash levels from operations, principally 
through the receipt of customer deposits and associated progress payments on 
new aircraft orders. Interest expense consists almost entirely of interest 
paid on borrowings under the Company's new and pre-existing bank credit 
facilities. Interest expense decreased to $17.9 million for 1996 from $18.7 
million in 1995. This decrease was due to the Company's lower average 
borrowing costs of 9.0% in 1996 versus 10.1% in 1995, partially offset by an 
increase in average borrowings. See "Liquidity and Capital Resources."
 
    Income Taxes.  At December 31, 1996 and 1995 the Company had available 
net operating loss carryforwards for regular federal income tax purposes of 
approximately $228 million and $150 million, respectively, which will begin 
expiring in 2006. Although the Company recorded net income during 1996 and 
1995, no provision for income taxes was recorded in either period principally 
as a result of the utilization of net operating loss carryforwards.
 
Liquidity and Capital Resources
 
    The Company's liquidity needs arise from working capital requirements, 
capital expenditures, principal and interest payments on long-term debt and 
the Company's share repurchase program described below. During 1997 and 1996, 
the Company relied on its available cash balances to fund these needs.

[BAR GRAPH]
 
    Net cash generated by operating activities was $120.4 million, $243.4 
million and $282.4 million in 1997, 1996 and 1995, respectively. The 
reduction in 1997 was primarily due to the decrease in customer progress 
payments associated with new aircraft in backlog. The reduction in 1996 was 
primarily due to the temporary build-up in inventory associated with 
Gulfstream V production and the timing

<PAGE>

of cash receipts to satisfy customer receivables, partially offset by the 
increase in customer progress payments associated with aircraft in backlog 
and new sales activities.
 
    During the year ended December 31, 1997, additions to property and 
equipment amounted to $26.7 million. At December 31, 1997, the Company was 
not committed to the purchase of any significant amount of property and 
equipment. Additions to property and equipment were $16.2 million in 1996 and 
$25.2 million in 1995. The increased level of spending of $10.5 million in 
1997 over 1996, primarily related to the Company's strategic initiative to 
increase its annual production rate to approximately 60 aircraft by 1999, a 
twofold increase over its 1996 annual production rate. As a result, in 1997, 
the Company's capital expenditures increased $15 million and in 1998 are 
expected to increase by approximately another $20 million above previously 
planned annual levels of approximately $15 million. At December 31, 1997, the 
Company was nearing completion on a new $8.5 million paint facility located 
at its Long Beach, California plant. This facility is part of the Company's 
60 aircraft plan and will allow the Company to double its present volume of 
painting new, pre-owned and customer aircraft. The Company continually 
monitors its capital spending in relation to current and anticipated business 
needs. As circumstances dictate, facilities are added, consolidated, or 
modernized.
 
    During 1997, 1996 and 1995 the Company invested $3.0 million, $2.1 
million and $25.7 million, respectively, for tooling associated with the 
Gulfstream V program. As of December 31, 1997, the Company had recorded, net 
of amortization, an aggregate of $42.7 million in tooling associated with the 
Gulfstream V program. Gulfstream V tooling is being amortized to cost of 
sales on a unit basis over the first 200 units of the Gulfstream V program. 
Tooling associated with the Gulfstream IV and IV-SP has been fully amortized 
to cost of sales.
 
    In January 1998, the Company established a program to repurchase up to 
$200 million of its common stock. The purchases will be made from time to 
time in the open market or through negotiated transactions as market 
conditions warrant. The Company expects to fund the stock purchases from cash 
on hand. As of January 30, 1998, approximately 2.5 million shares, at an 
average price of $30.01 per share, had been repurchased under this plan for 
an aggregate amount of $74.6 million.
 
    On October 16, 1996, Gulfstream Delaware Corporation, a wholly owned 
subsidiary of the Company, entered into a $650 million credit facility (the 
"Credit Agreement"). The Credit Agreement consists of a $400 million term loan 
facility and a $250 million revolving credit facility. A portion of the 
revolving credit facility, in an amount not to exceed $150 million, may be 
used (to the extent available) for standby and commercial letters of credit, 
and up to $200 million of the revolving credit facility will be available to 
the Company for borrowings. In addition, up to $20 million of the revolving 
credit facility may be used for swing line loans. The revolving credit 
facility expires September 30, 2002 with any amounts outstanding due on that 
date. There were no amounts outstanding under the revolving credit facility 
on December 31, 1997. The Credit Agreement contains customary affirmative and 
negative covenants including restrictions on the ability of the Company and 
its subsidiaries to pay cash dividends, as well as financial covenants under 
which the Company must operate. As of December 31, 1997, the Company was in 
compliance with the covenants contained in the Credit Agreement. Payments 
under the term loan facility were $20.0 million in 1997, and scheduled 
repayments are $75.0 million in each of the years 1998 through 2001 and $80.0 
million in 2002.
 
    On October 16, 1996, the Company completed an initial public offering 
(the "Offering") from which the Company received net proceeds of approximately 
$100 million after deducting underwriting discounts and other expenses. In 
connection with the Offering, certain members of senior management and other 
employees of the Company exercised options to purchase approximately 4 
million shares of common stock of the Company and sold those shares in the 
Offering, resulting in additional net proceeds to the Company of $14.2 
million. The Company used the net proceeds of the Offering, together with the 
$400 million term loan under the new Credit Agreement and available cash from 
operations, to (i) repurchase the remaining $450 million of 7% Cumulative 
Preferred Stock and pay accrued dividends, (ii) repay all the outstanding 
indebtedness under the Company's pre-existing credit facilities, which 
totaled $107.7 million, and (iii) pay fees and expenses incurred in 
connection with the Offering and the refinancing of the Company's 
indebtedness. During 1996, the Company had previously repurchased 
approximately four shares of 7% Cumulative Preferred Stock at their stated 
value of $18.9 million and paid accumulated dividends of $105.3 million out 
of available cash from operations.
<PAGE>

    The Company's principal source of liquidity both on a short-term and 
long-term basis is cash flow provided from operations, including customer 
progress payments and deposits on new aircraft orders. Occasionally, however, 
the Company may borrow against the Credit Agreement to supplement cash flow 
from operations. The Company believes, based upon its analysis of its 
consolidated financial position, its cash flow during the past 12 months and 
its expected results of operations in the future, that operating cash flow 
and available borrowings under the Credit Agreement will be adequate to fund 
operations, capital expenditures, debt service and the Company's share 
repurchase program for at least the next 12 months. The Company intends to 
repay its remaining indebtedness primarily with cash flow from operations. 
There can be no assurance, however, that future industry specific 
developments or general economic trends will not adversely affect the 
Company's operations or its ability to meet its cash requirements.
 
    As of December 31, 1997, in connection with orders for 21 Gulfstream V 
aircraft in the backlog, the Company has offered customers trade-in options 
(which may or may not be exercised by the customer) under which the Company 
will accept trade-in aircraft (primarily Gulfstream IVs and IV-SPs) at a 
guaranteed minimum trade-in price. Additionally, in connection with recorded 
sales of new aircraft, the Company has agreed to accept pre-owned aircraft 
with trade-in values totaling $174.6 million as of December 31, 1997. 
Management believes that the fair market value of all such aircraft exceeds 
the specified trade-in value.
 
    The Company is currently engaged in the monitoring and cleanup of certain 
ground water at its Savannah facility under the oversight of the Georgia 
Department of Natural Resources. Expenses incurred for cleanup have not been 
significant. Liabilities are recorded when environmental assessments and/or 
remedial efforts are probable and the costs can be reasonably estimated. The 
Company believes other aspects of the Savannah facility, as well as other 
Gulfstream properties, are being carefully monitored and are in substantial 
compliance with current federal, state and local environmental regulations. 
The Company believes the liabilities, if any, that will result from the above 
environmental matters will not have a material adverse effect on its 
financial statements.
 
    On December 24, 1997, the Company executed final documents with the 
Pension Benefit Guaranty Corporation (the "PBGC") concerning funding of the 
Company's defined benefit pension plans. The terms were essentially the same 
as those set out in the agreement in principle reached between the PBGC and 
the Company during October 1996. Pursuant to this agreement, the Company 
contributed $25.0 million in 1997 and has agreed to contribute a total of 
$25.0 million annually from 1998 through 2000 to its pension plans which 
payments are expected to result in such plans being fully funded. The 
payments to be made under this agreement were already part of the Company's 
overall financial planning and therefore, are not expected to have a material 
adverse effect on the Company's financial statements. The funding required 
under this agreement will not result in any increase in the Company's annual 
pension expense.
 
    The Company is involved in tax audits by the Internal Revenue Service 
covering the years 1990 through 1994. The revenue agent's report and the 
notice of proposed adjustments include several proposed adjustments involving 
the deductibility of certain compensation expense, items relating to the 
initial capitalization of the Company, the allocation of the original 
purchase price for the acquisition by the Company of the Gulfstream business, 
including the treatment of advance payments with respect to and the cost of 
aircraft that were in backlog at the time of the acquisition, and the 
amortization of amounts allocated to intangible assets. The Company believes 
that the ultimate resolution of these issues will not have a material adverse 
effect on its financial statements because the financial statements already 
reflect what the Company currently believes is the expected loss of benefit 
arising from the resolution of these issues.
 
Contractual Backlog
 
    At December 31, 1997, the Company had a firm contract backlog of 
approximately $2.8 billion, representing a total of 43 contracts for 
Gulfstream IV-SPs and 45 contracts for Gulfstream Vs, compared with $3.1 
billion at the end of 1996, representing a total of 27 contracts for 
Gulfstream IV-SPs and 67 contracts for Gulfstream Vs. The decline in backlog 
from 1996 is directly related to the increased level of Gulfstream V 
deliveries during 1997.

[BAR GRAPH]
 
    The Company includes an order in backlog only if the Company has entered 
into a purchase contract (with no contingencies) with the customer and has 
received a significant (generally non-refundable) deposit from the customer. 
In total, approximately 38% of the Company's contractual backlog is scheduled 
for delivery beyond 1998.
 
    The Company continually monitors the condition of its backlog and 
believes, based on the nature of its customers and its historical experience, 
that there will not be a significant number of cancellations. However, to the 
extent that there is a lengthy period of time between a customer's aircraft 
order and its expected delivery date, there may be increased uncertainty as 
to changes in business and economic conditions which may affect customer 
cancellations.

<PAGE>

Foreign Exchange

    The Company does not have any significant assets located outside the 
United States. All the Company's sales and contracts have historically been 
and currently are denominated in U.S. dollars and, as a result, are not 
subject to changes in exchange rates. In addition, substantially all of the 
Company's material purchases are currently denominated in U.S. dollars.

Inflation

    The Company continually attempts to minimize any effect of inflation on 
earnings by controlling its operating costs and selling prices. During the 
past few years, the rate of inflation has been low and has not had a 
significant impact on the results of the Company's operations.

    A significant portion of the Company's Gulfstream V contracts contain an 
adjustment in the purchase price to account for inflation. Such adjustments 
are generally capped at an aggregate of 3% per year. These adjustments are 
intended to minimize the Company's cost risk associated with the small 
portion of material contracts which are not under long-term agreements.

Outlook

    The Company plans to deliver 58 green aircraft in 1998 and to double its 
completion rate. The gross margins are expected to improve from 20% in 1997 
to the mid-20s by the end of 1998. Based on projections of increasing 
aircraft production and improving margins, Gulfstream now expects 1998 
diluted earnings per share of approximately $2.85. The Company also expects 
diluted earnings per share to increase 15% per year in 1999 and 2000.

Forward-Looking Information Is Subject To
Risk and Uncertainty

    Certain statements contained in this "Management's Discussion and 
Analysis of Financial Condition and Results of Operations", including the 
statements under the heading "Outlook", as well as other statements elsewhere 
in this Annual Report to Stockholders, contain forward-looking information. 
These forward-looking statements are subject to risks and uncertainties. 
Actual results might differ materially from those projected in the 
forward-looking statements. Additional information concerning factors that 
could cause actual results to materially differ from those in the 
forward-looking statements is contained in Exhibit 99 to the Company's 
Securities and Exchange Commission filings.

<PAGE>

Consolidated Balance Sheets

GULFSTREAM AEROSPACE CORPORATION
 
<TABLE>
<CAPTION>
                                                     December 31,
                                             --------------------------
                                                   1997               1996
-------------------------------------------  ----------       ------------
(In thousands, except for share amounts)
<S>                                          <C>          <C>

Assets

Cash and cash equivalents..................    $306,451       $   233,172
Accounts receivable (less allowance for                                  
  doubtful accounts:$1,144 and $3,243).....     177,228           137,342
Inventories................................     629,876           655,237
Deferred income taxes......................      33,795             --     
Prepaids and other assets..................      11,318             7,915
                                             ----------       -----------
  Total current assets.....................   1,158,668         1,033,666
Property and equipment, net................     134,611           126,503
Tooling, net of accumulated amortization:
  $7,680 and $600..........................      43,471            47,677
Goodwill, net of accumulated amortization:
  $8,433 and $7,322........................      38,957            35,799
Other intangible assets, net...............      50,485            55,556
Deferred income taxes......................      32,950              --
Other assets and deferred charges..........      14,525            14,014
                                             ----------       -----------
Total Assets...............................  $1,473,667       $ 1,313,215
                                             ----------       -----------
                                             ----------       -----------
Liabilities and Stockholders' Equity

Current portion of long-term debt..........     $75,000       $    20,000
Accounts payable...........................     147,618           129,410
Accrued liabilities........................      93,798           111,243
Customer deposits-current portion..........     546,441           634,922
                                             ----------       -----------
Total current liabilities..................     862,857           895,575
Long-term debt.............................     305,000           380,000
Accrued postretirement benefit cost........     115,405           108,705
Customer deposits-long-term................      88,075           109,037
Other long-term liabilities................       9,573             8,709
Commitments and contingencies
Stockholders' equity
Common stock; $.01 par value; 300,000,000 
  shares authorized; 86,522,089 shares 
  issued in 1997 and 85,890,212 shares 
  issued in 1996...........................         865               859
Additional paid-in capital.................     370,258           333,686
Accumulated deficit........................    (225,960)         (468,971)
Minimum pension liability..................        (762)           (1,464)
Unamortized stock plan expense.............      (1,155)           (2,432)
Less: Treasury stock: 11,978,439 shares in      
  1997 and 1996............................     (50,489)          (50,489)
                                             ----------       -----------
Total stockholders equity..................      92,757          (188,811)
                                             ----------       -----------
Total Liabilities and Stockholders'          
  Equity...................................  $1,473,667        $1,313,215
                                             ----------       -----------
                                             ----------       -----------
</TABLE>

                See Notes to Consolidated Financial Statements


<PAGE>

Consolidated Statements of Income

GULFSTREAM AEROSPACE CORPORATION
 
<TABLE>
<CAPTION>
                                                                        Year ended December 31,
                                                                  ----------------------------------
                                                                        1997        1996        1995
----------------------------------------------------------------  ----------  ----------  ----------
(In thousands, except per share amounts)
<S>                                                               <C>         <C>           <C>

Net revenues....................................................  $1,903,494  $1,063,713  $1,041,514
Cost and expenses
  Cost of sales.................................................   1,557,520     839,254     835,547
  Selling and administrative....................................      97,499      99,452      93,239
  Stock option compensation expense.............................       1,640       7,186          --
  Research and development......................................      10,792      58,118      63,098
  Amortization of intangibles and deferred charges..............       7,347       9,434       7,540
                                                                  ----------  ----------  ----------
    Total costs and expenses....................................   1,674,798   1,013,444     999,424
                                                                  ----------  ----------  ----------
Income from operations..........................................     228,696      50,269      42,090
Interest income.................................................      11,532      14,605       5,508
Interest expense................................................     (31,159)    (17,909)    (18,704)
                                                                  ----------  ----------  ----------
Income before income taxes......................................     209,069      46,965      28,894
Income tax expense (benefit)....................................     (33,942)         --          --
                                                                  ----------  ----------  ----------
  Net income....................................................  $  243,011  $   46,965  $   28,894
                                                                  ----------  ----------  ----------
                                                                  ----------  ----------  ----------
Earnings per share:
  Net income per share--basic...................................  $     3.28  $      .64  $      .39
                                                                  ----------  ----------  ----------
                                                                  ----------  ----------  ----------
  Net income per share--diluted.................................  $     3.12  $      .60  $      .37
                                                                  ----------  ----------  ----------
                                                                  ----------  ----------  ----------
</TABLE>


                See Notes to Consolidated Financial Statements


<PAGE>

Consolidated Statements of Stockholders' Equity 

GULFSTREAM AEROSPACE CORPORATION
 
<TABLE>
<CAPTION>
                                                    Additional                 Minimum    Unamortized                   Total
                            Preferred     Common     Paid-in    Accumulated   Pension    Stock Plan    Treasury   Stockholders'
                              Stock        Stock     Capital       Deficit    Liability     Expense       Stock        Equity
-------------------------  ----------  -----------  ----------  ------------  ---------  ------------  ----------  -------------
(In thousands)
<S>                        <C>         <C>          <C>         <C>           <C>        <C>           <C>         <C>

Balance as of 
  December 31, 1994......  $  468,938       $ 523     $210,621    $(439,507)    $(1,136)  $              $(50,489)   $ 188,950
Net income for fiscal
  1995...................                                            28,894                                             28,894
Exercise of common stock
  options................                                   10                                                              10
Minimum pension liability
  adjustment.............                                                          (314)                                  (314)
                           ----------       -----   ----------  ------------  ---------  ------------  ----------  ------------
Balance as of 
  December 31, 1995......     468,938         523      210,631     (410,613)     (1,450)                  (50,489)     217,540
Net income for fiscal
  1996...................                                            46,965                                             46,965
Repurchase of preferred
  stock..................    (468,938)                                                                                (468,938)
Dividends paid on
  preferred stock........                                          (105,323)                                          (105,323)
Issuance of compensatory
  common stock options...                                9,618                                (9,618)
Amortization of stock
  plan expense...........                                                                      7,186                     7,186
Conversion of common
  stock..................                      (8)           8                                                              --
Stock split of 
  1.5 for 1..............                     258         (258)                                                             --
Common stock offering,
  net of expenses........                      46       99,557                                                          99,603
Exercise of common stock
  options................                      40       14,130                                                          14,170
Minimum pension liability
  adjustment.............                                                           (14)                                   (14)
                           ----------       -----   ----------  ------------  ---------  ------------  ----------  ------------
Balance as of 
  December 31, 1996......          --         859      333,686     (468,971)     (1,464)      (2,432)     (50,489)    (188,811)
Net income for fiscal
  1997...................                                           243,011                                            243,011
Issuance of compensatory
  common stock options...                                  363                                  (363)                       --
Amortization of stock
  plan expense...........                                                                      1,640                     1,640
Tax benefit of
  exercised common stock
  options................                               33,682                                                          33,682

Exercise of common stock
  options................                       6        2,527                                                           2,533
Minimum pension liability
  adjustment.............                                                           702                                    702
                           ----------       -----   ----------  ------------  ---------  ------------  ----------  ------------
Balance as of 
  December 31, 1997......  $       --       $ 865     $370,258    $(225,960)    $  (762)     $(1,155)    $(50,489)   $  92,757
                           ----------       -----   ----------  ------------  ---------  ------------  ----------  ------------
                           ----------       -----   ----------  ------------  ---------  ------------  ----------  ------------
</TABLE>


                See Notes to Consolidated Financial Statements


<PAGE>

Consolidated Statements of Cash Flows

GULFSTREAM AEROSPACE CORPORATION
 
<TABLE>
<CAPTION>
                                                                                     Year ended December 31,
                                                                                ----------------------------------
                                                                                      1997        1996        1995
------------------------------------------------------------------------------  ----------  ----------  ----------
(In thousands)
<S>                                                                              <C>         <C>         <C>

Cash Flows from Operating Activities

Net income....................................................................  $  243,011  $   46,965  $   28,894
Adjustments to reconcile net income to net cash provided by operating
  activities:
  Depreciation and amortization...............................................      33,022      26,910      23,094
  Postretirement benefit cost.................................................       6,700       6,684       6,395
  Provision for loss (recovery) on pre-owned aircraft.........................      (1,600)      1,000       2,050
  Non-cash stock option compensation expense..................................       1,640       7,186
  Deferred income tax benefit.................................................     (37,867)
  Other, net..................................................................       1,428         417       2,277
  Change in assets and liabilities:
    Accounts receivable.......................................................     (39,978)    (55,029)     91,817
    Inventories...............................................................      26,961    (263,112)   (105,844)
    Prepaids, other assets, and deferred charges..............................      (5,080)     (5,578)      1,368
    Accounts payable and accrued liabilities..................................         763     102,551      11,975
    Customer deposits.........................................................    (109,443)    432,365     217,934
    Other long-term liabilities...............................................         864     (56,956)      2,412
                                                                                ----------  ----------  ----------
Net Cash Provided by Operating Activities.....................................     120,421     243,403     282,372

Cash Flows from Investing Activities

Expenditures for property and equipment.......................................     (26,692)    (16,167)    (25,186)
Dispositions of property and equipment........................................           1          28          18
Expenditures for tooling......................................................      (2,984)     (2,085)    (25,693)
                                                                                ----------  ----------  ----------
Net Cash Used in Investing Activities.........................................     (29,675)    (18,224)    (50,861)

Cash Flows from Financing Activities

Proceeds from issuance of common stock........................................                  99,603
Proceeds from exercise of common stock options................................       2,533      14,170          10
Repurchase of preferred stock.................................................                (468,938)
Dividends paid on preferred stock.............................................                (105,323)
Proceeds from issuance of long-term debt......................................                 400,000
Payment of financing costs....................................................                  (8,500)
Principal payments on long-term debt..........................................     (20,000)   (146,331)    (31,814)
                                                                                ----------  ----------  ----------
Net Cash Used in Financing Activities.........................................     (17,467)   (215,319)    (31,804)
                                                                                ----------  ----------  ----------
Increase in cash and cash equivalents.........................................      73,279       9,860     199,707
Cash and cash equivalents, beginning of year..................................     233,172     223,312      23,605
                                                                                ----------  ----------  ----------
Cash and cash equivalents, end of year........................................  $  306,451  $  233,172  $  223,312
                                                                                ----------  ----------  ----------
                                                                                ----------  ----------  ----------
</TABLE>


                See Notes to Consolidated Financial Statements


<PAGE>

Notes to Consolidated Financial Statements

GULFSTREAM AEROSPACE CORPORATION

NOTE 1 Summary of Significant Accounting Policies

     Business

     Gulfstream is primarily engaged in the design, development, production 
and sale of large business jet aircraft. The Company is also engaged in 
a number of related businesses, including: product support and services 
for customer-owned aircraft, which include maintenance services and 
replacement parts for the Company s world-wide fleet; aircraft 
completion services, which involve the installation of customized 
interiors and optional avionics as well as exterior painting; and the 
sale of pre-owned aircraft. The majority of the Company s aircraft are 
sold to domestic and multinational corporations and domestic and 
foreign governments.

     Basis of Presentation

     The consolidated financial statements include the accounts of the 
Company and its subsidiaries, all of which are wholly-owned. All 
significant intercompany transactions and balances have been 
eliminated.

     Use of Estimates

     The preparation of financial statements in conformity with generally 
accepted accounting principles requires management to make assumptions 
and estimates that directly affect the amounts reported in the 
consolidated financial statements. Significant estimates for which 
changes in the near term are considered reasonably possible and that 
may have a material effect on the financial statements are addressed in 
these notes to the consolidated financial statements.

     Revenue Recognition

     Contracts for new aircraft are segmented between the manufacture of the 
"green" aircraft (i.e., before exterior painting and installation of 
customer selected interiors and optional avionics) and its completion. 
Sales of new Gulfstream green aircraft are recorded as deliveries are 
made to the customer prior to the aircraft entering the completion 
process. With respect to completed aircraft, any costs related to parts 
to be installed and services to be performed under the contract, after 
the delivery of the aircraft, which are not significant, are included 
as cost of sales at the time of the sale of the new aircraft. Sales of 
all other products and services, including pre-owned aircraft, are 
recognized when delivered or the service is performed.

     Cash and Cash Equivalents

     Cash and cash equivalents consist of highly liquid financial 
instruments which have maturities of less than three months upon 
purchase. The Company places its temporary cash investments with high 
credit quality financial institutions.

     Inventories

     Inventories of work in process and finished goods for aircraft are 
stated at the lower of cost (based on estimated average unit costs of 
the number of units in a production lot) or market. Raw materials, 
material components of other work in process and substantially all 
purchased parts inventories are stated at the lower of cost (first-in, 
first-out method) or market. Pre-owned aircraft acquired in connection 
with the sale of new aircraft are recorded at the lower of the trade-in 
value or estimated net realizable value.

     Property and Equipment

     Property and equipment are stated at cost and depreciated by the 
straight-line method over their estimated useful lives, ranging from 15 
to 25 years for buildings and improvements and 4 to 12 years for all 
other property and equipment. The cost of maintenance and repairs is 
charged to operations as incurred; significant renewals and betterments 
are capitalized.

     Tooling

     Tooling is stated at cost and represents primarily production tooling 
relating to the Gulfstream V aircraft program. Tooling associated with 
the Gulfstream V is amortized to cost of sales on a unit basis over the 
first 200 units of the Gulfstream V program.

     Intangibles and Other Assets

     Goodwill is being amortized on a straight-line basis over 40 years. 
Other intangible assets consisting of aftermarket service and product 
support (i.e. customer lists) are being amortized on a straight-line 
basis over the expected useful lives which range from 10 to 21 years.

     The costs of obtaining bank financing have been included in other 
assets and deferred charges and are being amortized over the lives of 
the related bank borrowings.

     Research and Development

     Research and development expenses are charged directly to operations as 
incurred.

     Product Warranties

     Product warranty expense is recorded as aircraft are delivered based 
upon the estimated aggregate future warranty costs relating to the 
aircraft.

     Customer Deposits

     Substantially all customer deposits represent advance payments for new 
aircraft purchases. The deposits on aircraft that are expected to be 
delivered in the following year are classified as current in the 
accompanying consolidated balance sheets.


<PAGE>

     Concentrations of Credit

     Financial instruments which may potentially subject the Company to 
concentrations of credit risk consist principally of temporary cash 
investments and trade and contract receivables. Approximately 32.0% and 
34.0%, respectively, of accounts receivable outstanding at December 31, 
1997 and 1996 are represented by a contract receivable associated with 
the sale of multiple aircraft to one customer. Generally, contract 
receivables are satisfied prior to delivery of the outfitted aircraft. 
In the normal course of business the Company performs ongoing credit 
evaluations of its customers  financial position, and for trade 
receivables, generally requires no collateral from its customers. 
Overall, credit risk with respect to trade receivables are limited due 
to the Company's large number of customers and their dispersion across 
many industries and geographic regions.

     Income Taxes

     Deferred income taxes reflect the impact of temporary differences 
between the amounts of assets and liabilities recognized for financial 
reporting purposes and the amounts recognized for tax purposes as well 
as tax credit carryforwards and loss carryforwards. These deferred 
income taxes are measured by applying enacted tax rates in the years in 
which the differences are expected to reverse. A valuation allowance 
reduces deferred tax assets when it is "more likely than not" that some 
portion or all of the deferred tax assets will not be realized.

     Fair Value of Financial Instruments

     The carrying amount of cash and cash equivalents, accounts receivable, 
accounts payable and accrued liabilities reflected in the financial 
statements approximates fair value because of the short-term nature of 
these instruments. Based on the borrowing rates currently available to 
the Company for bank loans with similar terms and maturities, the 
Company estimates that the carrying value of its long-term debt 
approximates fair value.

     Impairment of Long-Lived Assets

     The Company periodically assesses the recoverability of assets based on 
its expectations of future profitability and undiscounted cash flow of 
the related operations and, when circumstances dictate, adjusts the 
carrying value of the asset. These factors, along with management s 
plans with respect to the operations, are considered in assessing the 
recoverability of goodwill, other purchased intangibles, and property 
and equipment.

     Stock Options

     Statement of Financial Accounting Standard No. 123, Accounting for 
Stock-Based Compensation (SFAS No. 123) defines a fair value based 
method of accounting for an employee stock option or similar equity 
instrument. This statement gives entities a choice of recognizing 
related compensation expense by adopting the fair value method or to 
measure compensation using the intrinsic value approach under 
Accounting Principles Board (APB) Opinion No. 25. The Company has 
elected to continue using the measurement method prescribed by APB 
Opinion No. 25, and accordingly, this pronouncement did not affect the 
Company's financial position or results of operations.

     Earnings per Share

     In February 1997, the Financial Accounting Standards Board issued SFAS 
No. 128, Earnings per Share, which simplifies the standards for computing 
earnings per share (EPS) information and makes the computation comparable to 
international EPS standards. SFAS No. 128 replaces the presentation of 
"primary" (and when required "fully diluted") EPS with a presentation of 
"basic" and "diluted" EPS. Basic EPS is computed based on net income divided 
by the weighted average common shares  outstanding. Diluted EPS is computed 
by dividing net income by the weighted average common shares outstanding plus 
the incremental shares that would have been outstanding under stock option 
plans. All EPS information for 1996 and 1995 has been restated to conform to 
the requirements of SFAS No. 128.

     New Accounting Standards

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 
130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures 
about Segments of an Enterprise and Related Information, which are both 
effective no later than for the Company s 1998 fiscal year. Management 
believes that the adoption of these statements will not have a material 
effect on the Company's consolidated financial statements.

NOTE 2 Inventories

    Inventories consisted of the following at:
<TABLE>
<CAPTION>
                                                           December 31,           
                                                     -------------------------- 
                                                             1997          1996  
                                                     ------------  ------------
<S>                                                  <C>            <C>      
(In thousands)                                                                
                                                                              
Work in process...................................      $ 330,155      $355,198 
Raw materials.....................................        134,973       108,041 
Vendor progress payments..........................         60,606       104,318 
Pre-owned aircraft................................        104,142        87,680 
                                                     ------------   -----------
                                                        $ 629,876      $655,237 
                                                     ------------   -----------
                                                     ------------   -----------
</TABLE>

NOTE 3 Property and Equipment

    The major categories of property and equipment consisted of the 
following at:

<TABLE>
<CAPTION>
                                                           December 31,           
                                                     --------------------------
                                                              1997         1996
                                                     -------------  -----------
<S>                                                  <C>            <C>          
(In thousands)                                                                   
                                                                                 
Land.............................................       $    4,109     $  4,109
Buildings and improvements.......................          101,836       96,201
Machinery and equipment..........................          118,077      107,428
Furniture and fixtures...........................           12,414       10,451
Construction in progress.........................            9,074        1,826
                                                      ------------   ----------
Total............................................          245,510      220,015
Less accumulated depreciation....................         (110,899)     (93,512)
                                                      ------------   ----------
                                                        $  134,611     $126,503  
                                                      ------------   ----------
                                                      ------------   ----------
</TABLE>

NOTE 4 Other Intangible Assets

    Other intangible assets were comprised of the following at:

<TABLE>
<CAPTION>
                                                           December 31,
                                                     ---------------------------
                                                            1997            1996
                                                     -----------     -----------
<S>                                                  <C>            <C>   
(In thousands)                                                                
                                                                                 
Aftermarket--Service Center......................       $ 15,000        $ 15,000 
Aftermarket--Product Support.....................         75,000          75,000 
                                                     -----------     -----------
Total............................................         90,000          90,000
Less accumulated amortization....................        (39,515)        (34,444)
                                                     -----------    ------------
                                                        $ 50,485        $ 55,556
                                                     -----------    ------------
                                                     -----------    ------------
</TABLE>

<PAGE>

NOTE 5 Income Taxes

    The components of income tax expense (benefit) consisted of the 
following at:

<TABLE>
<CAPTION>
                                                                    December 31,
                                                                  --------------
                                                                           1997 
                                                                  -------------
<S>                                                               <C>           
(In thousands)                                                                  
                                                                                
Current.........................................................       $  3,925 
Deferred........................................................         26,934 
Decrease in valuation allowance.................................        (64,801)
                                                                  -------------
Income tax expense (benefit)....................................       $(33,942)
                                                                  -------------
                                                                  -------------
</TABLE>

     Although the Company recorded net income during 1996 and 1995, no 
provision for income taxes was recorded, principally as a result of 
utilization of net operating loss carryforwards. The Company made 
income tax payments of $4.8 million and $0.3 million for 1997 and 1996, 
respectively. No income tax payments were made in 1995. The Company's 
provision for income taxes differed from the amount computed by 
applying the U. S. federal income tax rate as follows:

<TABLE>
<CAPTION>
                                                                    December 31, 
                                                                  -------------- 
                                                                           1997  
                                                                  -------------- 
<S>                                                               <C>            
(In thousands)                                                                   
                                                                                 
Tax expense at statutory rates..................................    $    73,174  
Decrease in valuation allowance.................................        (64,801) 
Net operating loss carryforwards................................        (43,613) 
Foreign Sales Corporation tax benefit...........................         (1,888) 
State income taxes..............................................          1,605  
Other, net......................................................          1,581  
                                                                  -------------- 
Income tax expense (benefit)....................................       $(33,942) 
                                                                  -------------- 
                                                                  -------------- 
</TABLE>

    The tax effects of significant components of the Company's deferred tax 
assets and liabilities are as follows:

<TABLE>
<CAPTION>
                                                            December 31,
                                                      --------------------------
                                                            1997           1996
                                                      -------------  -----------
<S>                                                   <C>            <C>        
(In thousands)                                                                  
                                                                                
Deferred Tax Assets                                                             
                                                                               
Postretirement benefits.............................     $43,386        $40,873
Net operating loss carryforwards....................      24,500         85,760
Intangible assets...................................       7,031         13,072
Pension and other benefits..........................          --          3,253
Other...............................................      10,169         17,559
                                                      ----------     ----------
Total...............................................      85,086        160,517
Less valuation allowance............................          --       (145,490)
                                                      ---------   -  ----------
                                                          85,086         15,027
Deferred Tax Liabilities

Property and equipment, 
  principally due to
  basis difference..................................     (17,392)       (15,027)

Other...............................................        (949)            --
                                                      ----------     ----------
Net deferred tax assets.............................    $ 66,745       $     --
                                                      ----------     ----------
                                                      ----------     ----------
</TABLE>

     At December 31, 1997, the Company had available a net operating loss 
carryforward for regular federal income tax purposes of approximately 
$65.0 million which will expire beginning in 2006.

     As a result of numerous factors, including, but not limited to recent 
earnings trends and the size of its contractual backlog, 
the Company currently believes that its net deferred tax asset is more 
likely than not to be realized, and in the third quarter of 1997 
released its deferred tax valuation allowance, totaling $94.2 million. 
Of this amount, $29.4 million related to the exercise of stock options 
and was credited to additional paid-in capital and the remainder, $64.8 
million, was recorded as a one-time, non-cash income tax benefit.

     The Company is involved in tax audits by the Internal Revenue Service 
covering the years 1990 through 1994. The revenue agent s report and 
the notice of proposed adjustments include several proposed adjustments 
involving the deductibility of certain compensation expense, items 
relating to the initial capitalization of the Company, the allocation 
of the original purchase price for the acquisition by the Company of 
the Gulfstream business, including the treatment of advance payments 
with respect to and the cost of aircraft that were in backlog at the 
time of the acquisition, and the amortization of amounts allocated to 
intangible assets. The Company believes that the ultimate resolution of 
these issues will not have a material adverse effect on its financial 
statements because the financial statements already reflect what the 
Company currently believes is the expected loss of benefit arising from 
the resolution of these issues.

NOTE 6 Accrued Liabilities

     Accrued liabilities were comprised of the following at:

<TABLE>
<CAPTION>
                                                           December 31,  
                                                     ---------------------------
                                                             1997          1996 
                                                     -------------  ------------
<S>                                                  <C>            <C>         
(In thousands)                                                                  
                                                                                
Employee compensation and benefits................       $ 33,245      $ 47,424 
Accrued warranty..................................         23,844        11,644 
Uncompleted work on delivered aircraft............         11,098         8,737 
Deferred income...................................          9,499        18,758 
Other.............................................         16,112        24,680 
                                                     -------------  ------------
                                                         $ 93,798      $111,243 
                                                     -------------  ------------
                                                     -------------  ------------
</TABLE>

NOTE 7 Long-term Debt

Long-term debt consisted of the following at:

<TABLE>
<CAPTION>
                                                           December 31,
                                                     --------------------------- 
                                                              1997          1996 
                                                     -------------  ------------ 
<S>                                                  <C>            <C>          
(In thousands) 

Term loans.........................................       $380,000      $400,000 
Less current portion...............................        (75,000)      (20,000)
                                                     -------------  ------------ 
                                                          $305,000      $380,000
                                                     -------------  ------------ 
                                                     -------------  ------------ 
</TABLE>

     On October 16, 1996, the Company entered into a new long-term credit 
agreement under which the lenders who are parties to the credit 
agreement made available to the Company a $400 million term loan 
facility and a $250 million revolving credit facility. A portion of the 
revolving credit facility, in an amount not to exceed $150 million, may 
be used (to the extent available) for standby and commercial letters of 
credit, and up to $200 million of the revolving credit facility is 
available to the Company for borrowings. Concurrently with entering 
into the credit agreement, the Company repaid all amounts outstanding 
under its pre-existing credit agreements totaling $107.7 million, and 
terminated such agreements.


<PAGE>

     The term loan is repayable in consecutive quarterly installments which 
commenced June 30, 1997 with a final maturity on September 30, 2002, in 
aggregate amounts for each of the following years as follows: 1998 
through 2001-$75.0 million; 2002-$80.0 million. The revolving credit 
facility expires September 30, 2002 with any outstanding amounts due on 
that date. The Company is required to pay commitment fees on the 
average daily unutilized portion of the term loan facility and the 
revolving credit facility, which fees were initially set at 0.375% per 
annum. The credit agreement permits the Company to choose either the 
Adjusted Base Rate (the "ABR") interest option which is based on the 
greater of the prime rate or the federal funds rate, or a Eurodollar 
rate (LIBOR), in each case, plus an applied margin. The interest rates 
and commitment fees are subject to change based on the Company's 
performance with respect to certain financial ratios set forth in the 
credit agreement.

     The credit agreement includes restrictions as to, amongst other things, 
the amount of additional indebtedness, contingent obligations, liens, 
capital expenditures, and dividends, and requires the maintenance of 
certain financial ratios. In addition, under the credit agreement, 
certain changes in control of the Company would cause an event of 
default and the banks could declare all outstanding borrowings under 
the credit agreement immediately due and payable. None of the 
restrictions contained in the credit agreement are expected to have a 
significant effect on the ability of the Company to operate. As of 
December 31, 1997, the Company was in compliance with all financial and 
operating covenants under the credit agreement.

     The Company has pledged the common stock of certain of its subsidiaries 
as well as certain intercompany notes as collateral under the credit 
agreement, and the Company and certain of its subsidiaries have 
guaranteed repayment of amounts borrowed under the credit agreement.

     The available revolving credit commitment was $203.6 million at 
December 31, 1997. At December 31, 1997 and December 31, 1996, the 
Company had outstanding letters of credit totaling $46.4 million and 
$23.1 million, respectively.

     The effective interest rate on the Company's long-term debt 
at December 31, 1997 and 1996 was 6.93% and 7.44%, respectively. The Company 
paid interest of $32.3 million, $12.9 million and $19.4 million during the 
years 1997, 1996 and 1995, respectively.

NOTE 8 Leases

     The Company has various operating leases for both real and personal 
property including Company aircraft. Rental expense for 1997, 1996 and 
1995 was $10.9 million, $13.4 million and $14.9 million, respectively. 
Future minimum lease payments for all noncancelable operating leases 
having a remaining term in excess of one year at December 31, 1997 
aggregated approximately $40.3 million, and payments during the next 
five years are: 1998, $10.3 million; 1999, $8.7 million; 2000, $5.9 
million; 2001, $4.3 million; 2002, $1.5 million. The Company also 
receives sub-lease rental income under an operating lease, which the 
approximate annual future minimum sub-rentals are $2.5 million through 
November 1999.

NOTE 9 Employee Benefit Plans

     Pension Plans

     The Company maintains three noncontributory plans covering 
substantially all employees. Benefits paid to retirees are based 
primarily on age at retirement, years of credited service 
and compensation earned during employment. The Company's funding policy 
complies with the requirements of Federal law and regulations. The 
Company's total pension fund contributions were $25.0 million, $34.4 
million and $14.3 million in 1997, 1996 and 1995, respectively. The 
Company's contributions are made to a master trust and invested in a 
diversified portfolio consisting primarily of equity and debt 
securities.

     The Company has recorded an additional minimum liability representing 
the excess of the accumulated benefit obligation over the fair value of plan 
assets and accrued pension liability. The additional liability has been 
offset by intangible assets to the extent of previously unrecognized prior 
service cost. Amounts in excess of previously unrecognized prior service cost 
are recorded as a reduction of stockholders' equity of $0.8 million, $1.5 
million and $1.5 million in 1997, 1996 and 1995, respectively.

    Net periodic pension cost was as follows:

<TABLE>
<CAPTION>
                                                     December 31,                  
                                      -----------------------------------------
                                             1997           1996          1995 
                                      -------------  ------------  ------------
<S>                                   <C>            <C>           <C>         
(In thousands)                                                                 

Service cost--benefits                                                         
  earned during the period.......     $    12,466    $    11,258    $    9,232 
Interest cost on projected                                              
 benefit obligation..............          16,743         14,966        13,158 
Actual return on                                                               
 plan assets.....................         (49,892)       (14,431)      (15,937)
Net amortization                                                               
 and deferral....................          33,974          1,794         5,570 
                                      -------------  ------------  ------------
                                      $    13,291    $    13,587    $   12,023 
                                      -------------  ------------  ------------
                                      -------------  ------------  ------------
</TABLE>

    Actuarial assumptions used were:

<TABLE>
<CAPTION>
                                                     December 31,                                
                                      ----------------------------------------- 
                                              1997           1996          1995 
                                      -------------  ------------  ------------ 
<S>                                   <C>            <C>           <C>          
Discount rate...................              7.50%          8.00%         8.00%
Rate of increase in future                                                      
 compensation levels............              4.75%          4.75%         4.75%
Expected long-term rate                                                         
 of return on plan assets.......              9.50%          9.50%         9.50%

</TABLE>

    The following table sets forth the funded status at September 30 and 
amounts recognized in the Company's balance sheet at December 31:

<TABLE>
<CAPTION>
                                                                1997       1996
                                                           --------- ----------
<S>                                                        <C>       <C>       
(In thousands)                                                                 
                                                                               
Actuarial present value of benefits:                                           
     Vested............................................      $177,399  $151,048 
     Nonvested.........................................        26,879    20,623 
                                                            --------- ----------
Accumulated benefit obligation.........................       204,278   171,671 
Projected benefit obligation...........................       255,074   213,080 
Plan assets at fair value..............................       239,001   163,598 
                                                            --------- ----------
Projected benefit obligation                                                   
     in excess of plan assets..........................        16,073    49,482 
Unrecognized prior service cost........................        (5,860)   (6,327)
Contributions paid in fourth quarter...................        (6,250)  (14,446)
Unamortized loss resulting from                                                
     changes in plan experience                                                
     and actuarial assumptions.........................         3,900    (9,137)
Adjustment required to recognize                                               
     additional minimum liability......................            --     3,612 
                                                            --------- ----------
Accrued pension cost...................................       $ 7,863   $ 23,184
                                                            --------- ----------
                                                            --------- ----------
</TABLE>


<PAGE>

     Other Postretirement Benefits

     In addition to pension benefits, the Company provides certain health 
care insurance benefits to retired Company employees and their 
dependents. The Company currently funds these plans on a pay-as-you-go 
basis. Substantially all of the Company s salaried employees and 
certain hourly employees become eligible for such benefits when they 
attain certain age and service requirements while employed by the 
Company.

     The status of the Company's unfunded postretirement benefit obligation 
is as follows at December 31:

<TABLE>
<CAPTION>
                                                                1997       1996
                                                           --------- ----------
<S>                                                        <C>       <C>       
(In thousands)                                                                 
                                                                               
Accumulated postretirement                                                     
     benefit obligation                                                        
     Retirees...........................................     $28,696    $29,577
     Fully eligible active                                                     
          plan participants.............................       3,371      1,645
     Other active plan participants.....................      59,672     51,394
                                                           --------- ----------
Accumulated postretirement                                                     
     benefit obligation in excess                                              
     of plan assets.....................................      91,739     82,616
Unrecognized prior service cost.........................       7,848      7,678
Unrecognized net loss...................................      15,818     18,411
                                                           --------- ----------
Accrued postretirement benefit cost.....................    $115,405   $108,705
                                                           --------- ----------
                                                           --------- ----------
</TABLE>

     Net postretirement benefit cost included the following components:

<TABLE>
<CAPTION>
                                               1997          1996          1995  
                                      -------------  ------------  ------------  
<S>                                   <C>            <C>           <C>           
(In thousands)                                                                   

Service cost-benefits                                                            
     attributed to service                                                       
     during the period...............        $4,091        $3,957        $3,795  
Interest cost of postretirement                                                  
     benefit obligation..............         6,467         6,237         6,268  
Other net amortization                                                           
     and deferral....................        (1,527)       (1,261)       (1,139) 
                                        -----------    ----------    ----------
                                             $9,031       $ 8,933       $ 8,924 
                                        -----------    ----------    ----------
                                        -----------    ----------    ----------
</TABLE>


     The weighted average discount rate used in determining the accumulated 
postretirement benefit obligation was 7.50% in 1997, 8.0% in 1996 and 
8.0% in 1995. The assumed health care cost trend rate used in measuring 
the accumulated postretirement benefit obligation pre-age 65 was 8.50% 
in 1997, 9.25% in 1996 and 10.0% in 1995, declining annually 0.75% to a 
rate of 5.5%; and for post-age 65 was 6.50% in 1997, 7.25% in 1996 and 
8.0% in 1995, declining annually 0.75% to a rate of 5.0%. If the health 
care cost trend rate assumptions were increased by 1.0%, the 
accumulated postretirement benefit obligation as of December 31, 1997 
would be increased by 14.9%. The effect of this change on the sum of 
the service cost and interest cost components would be an increase of 
16.2%.

     Investment Plan

     The Company sponsors two voluntary 401(k) investment plans which cover 
substantially all employees and are designed to enhance existing 
retirement plans. The Company generally matches between 37.5% to 50.0% 
of employee contributions up to a maximum of four percent. Total 
expense for the plans were $2.6 million, $2.2 million and $2.1 million 
for 1997, 1996 and 1995, respectively.

     Other Employee Benefits

     The Company has supplemental benefit plans covering certain key 
executives. These plans provide for benefits which supplement those 
provided by the Company s other retirement plans. The Supplemental 
Executive Retirement Plans are unfunded plans of deferred compensation 
for certain key executives. These supplemental plans are non-qualified 
and are being provided for by charges to operations sufficient to meet 
the projected benefit obligation. The Executive Insurance Plan provides 
additional death benefits to certain key executives. The Company 
acquired life insurance policies or annuity contracts to provide 
funding of the benefits. The costs for these plans are based on 
substantially the same actuarial methods and economic assumptions as 
those used for the defined benefit pension plans. The Company s expense 
for these plans was $0.9 million in 1997, $1.1 million in 1996 and $1.3 
million in 1995. The accumulated benefit obligation related to these 
plans totaled approximately $5.0 million and $4.5 million, at December 
31, 1997 and 1996, respectively, and is recorded in other long-term 
liabilities.

     The Company has an Incentive Compensation Plan administered by the 
Compensation Committee of the Board of Directors which provides for 
payment of cash awards to officers and key employees based upon 
achievement of specific goals by the Company and the participating 
employees. For the years ended 1997, 1996 and 1995 provisions of 
approximately $5.8 million, $5.5 million and $4.5 million, 
respectively, were charged against income related to the plan. Payouts 
are based entirely on achievement of financial and business objectives.

     NOTE 10 Stockholders' Equity

     On October 16, 1996, the Company issued 4,559,100 shares of common 
stock, and selling stockholders sold 37,940,900 shares of common stock, 
in an initial public offering pursuant to the Securities Act of 1933 
(the "Offering"). In connection and simultaneously with the closing of 
the Offering, the Company (a) effected a recapitalization plan (the 
"Recapitalization") which included (i) the repurchase of all of its 
outstanding 7% Series A Cumulative Preferred Stock for a purchase price 
of $450 million plus approximately $1.3 million of unpaid dividends, 
(ii) the exchange of all outstanding shares of Class A, Series A-2 and 
Class B common stock for Class A, Series A-1 common stock, (iii) the 
redesignation of all Class A, Series A-1 common stock into common 
stock, (iv) a 1.5-for-1 stock split of the common stock, and (v) the 
restatement of the Company s certificate of incorporation to provide 
that the authorized capital stock of the Company consists of 
300,000,000 shares of common stock, par value of $.01 per share, and 
20,000,000 shares of Preferred Stock, par value of $.01 per share, and 
(b) issued 3,949,346 shares of common stock to certain option holders 
pursuant to existing option agreements, who subsequently sold those 
shares in the Offering.


<PAGE>

     Stock Options

     Under the Amended and Restated 1990 Stock Option Plan approved by its 
stockholders effective March 28, 1997, the Company has granted options 
to purchase its common stock to certain Company employees, directors 
and advisors. Generally, options granted prior to July 1, 1994 vest 
25.0% on date of issuance, 25.0% on the first anniversary of the date 
of issuance and 25.0% annually thereafter. Generally, options granted 
on or after July 1, 1994 vest 33.3% on the first anniversary of the 
date of issuance, 33.3% on the second anniversary of the date of 
issuance and the last 33.3% on the third anniversary of the date of 
issuance. In addition, the Company has granted options to purchase its 
common stock to certain of its executive officers, directors and 
advisors outside the Stock Option Plan with vesting periods ranging 
from immediately up to three years. Generally, such options expire ten 
years from date of grant. The Company recorded compensation expense of 
$1.6 million and $7.2 million in 1997 and 1996, respectively, related 
to stock option grants. At December 31, 1997, approximately 7.8 million 
shares of common stock were reserved for issuance under the Stock 
Option Plan and non-plan options.

     The Company has adopted the disclosure-only provisions of SFAS No. 123. 
Had compensation cost for the Company s stock options granted been determined 
based on the fair value at the grant dates for awards under those plans 
consistent with a method prescribed in SFAS No. 123, the Company s net income 
and earnings per share would have been reduced to the pro forma amounts 
indicated below:

<TABLE>
<CAPTION>
                                                1997          1996          1995
                                       -------------  ------------  ------------
<S>                                    <C>            <C>           <C>
(In thousands, except per share amounts)

Net income--
     As reported......................        $243,011       $46,965       $28,894
     Pro forma........................         240,769        46,480        28,148

Net income per share--
     basic--As reported.................      $   3.28       $   .64       $   .39
     Pro forma..........................          3.25           .63           .38

Net income per share-
     diluted--As reported...............      $   3.12       $   .60       $   .37
     Pro forma..........................          3.09           .59           .36
</TABLE>

     The fair value of each option grant is estimated on the date of grant 
using the Black-Scholes option-pricing model with the following 
weighted average assumptions used for grants in 1997, 1996 and 1995, 
respectively: expected volatility of 32.01%, 36.02% and 36.02%, 
respectively; risk-free interest rate of 5.96%, 6.27% and 6.67%, 
respectively; expected lives of 3 years for all years; and no dividend 
yield.

     A summary of the status of the Company's stock option plans as of 
December 31, 1997, 1996 and 1995, and changes during the years ending 
on those dates is presented below:

<TABLE>
<CAPTION>
                                            1997                          1996                           1995
                                     -------------------            ------------------             --------------------
                                                  Weighted                     Weighted                         Weighted
                                                  Average                      Average                        Average
                                                   Exercise                    Exercise                       Exercise
Options                                 Shares     Price          Shares        Price          Shares         Price
-------                              ---------     --------      ---------     --------      ---------      --------
<S>                                  <C>           <C>           <C>           <C>            <C>           <C>
Outstanding at beginning of year..   5,673,029       $ 3.91      8,635,323        $3.88       7,918,691        $3.83
Granted...........................   1,566,000        26.72      1,020,000         4.10       1,740,000         4.10
Exercised.........................    (631,877)        4.01     (3,949,346)        3.88          (2,914)        3.51
Forfeited.........................    (168,424)        3.90        (32,948)        4.10      (1,020,454)        3.89
                                     ---------     --------      ---------     --------       ---------     --------
Outstanding at end of year........   6,438,728       $ 9.45      5,673,029        $3.91       8,635,323        $3.88
                                     ---------                   ---------                    --------- 
                                     ---------                   ---------                    --------- 
Options exercisable at year-end...   4,112,728         3.86      3,817,582         3.80       5,630,948         3.81
Weighted average fair value         
     of options granted during      
     the year.....................               $26.95                      $13.53               $4.10
</TABLE>


    Information with respect to stock options outstanding and exercisable 
at December 31, 1997, is as follows:

<TABLE>
<CAPTION>
                  Options Outstanding                     Options Exercisable
     ------------------------------------------------  ------------------------
                                     Weighted                              
                                      Average  Weighted                 Weighted
           Range of                 Remaining   Average                  Average
           Exercise       Number  Contractual  Exercise        Number   Exercise
             Prices  Outstanding         Life     Price   Exercisable      Price
     --------------  -----------  -----------  --------   -----------   --------
     <S>             <C>          <C>          <C>        <C>           <C>
     $ 3.11-$ 4.10     4,872,728          6.4    $ 3.90     4,112,728      $3.86
     $21.50-$22.75       202,000          9.2     22.09            --         --
     $26.93-$29.75     1,364,000          9.7     27.40            --         --
                     -----------  -----------  --------   -----------   --------
                       6,438,728          7.2    $ 9.45     4,112,728      $3.86
                     -----------  -----------  --------   -----------   --------
                     -----------  -----------  --------   -----------   --------
</TABLE>

<PAGE>

     The Company had granted stock appreciation rights (SARs) to certain 
officers and key employees. During 1996, the Company recorded 
compensation expense related to SARs of approximately $0.4 million and 
terminated its agreements with the holders of the SARs.

NOTE 11 Related Party Transactions

     At December 31, 1997 and 1996, certain partnerships formed by Forstmann 
Little & Co. ("Forstmann Little") owned approximately 42.1% and 42.5%, 
respectively, of the Company's common stock.

     During 1997, the Company purchased a pre-owned aircraft for $21.0 
million from a company controlled by a director of the Company.

     Under a usage agreement which ended in August 1996, the Company paid an 
affiliate of Forstmann Little for the use of a Gulfstream IV which was 
utilized as a demonstrator aircraft by the Company. Total expenses 
associated with this agreement were $1.6 million in 1996 and $2.3 
million in 1995. Beginning in August 1996, the Company engaged an 
affiliate of Forstmann Little to manage the operations of the 
Gulfstream IV aircraft discussed below. Total payments were $2.1 
million and $0.7 million in 1997 and 1996, respectively. The Company 
also procures certain inventory items from a former Forstmann Little 
affiliate engaged in the aircraft industry. Management believes all 
these transactions with related parties are on terms similar to those 
of other customers and vendors.

     In August 1996, the Company entered into agreements with the Company's 
Chairman pursuant to which the Company will provide the Chairman with the use 
of a Gulfstream V for a period of ten years. Until the Gulfstream V becomes 
available, the Company has made available to the Chairman a Gulfstream IV, 
which the Company received through an assumption of a lease from an affiliate 
of Forstmann Little. During January 1997, the Company exercised its early buy 
out option under the lease and purchased the aircraft from the lessor, an 
international financial institution. The Chairman paid $0.8 million in 1997 
and has agreed to pay the Company up to $1.0 million annually for non-company 
use of the aircraft. If the Chairman is no longer serving as a director or 
official of the Company, he has agreed to reimburse the Company $1,800 per 
hour for all use of the aircraft, or other such rate required so as not to 
exceed FAA regulatory requirements.

NOTE 12 Commitments and Contingencies

     In the normal course of business, lawsuits, claims and proceedings have 
been or may be instituted or asserted against the Company relating to 
various matters, including product liability. Although the outcome of 
litigation cannot be predicted with certainty and some lawsuits, claims 
or proceedings may be disposed of unfavorably to the Company, 
management has made provision for all known probable losses related to 
lawsuits and claims and believes that the disposition of all matters 
which are pending or asserted will not have a material adverse effect 
on the financial statements of the Company.

     The Company is currently engaged in the monitoring and cleanup of 
certain ground water at its Savannah facility under the 
oversight of the Georgia Department of Natural Resources. Expenses 
incurred for cleanup have not been significant. Liabilities are 
recorded when environmental assessments and/or remedial efforts are 
probable and the costs can be reasonably estimated. The Company 
believes the remainder of the Savannah facility, as well as other 
Gulfstream properties, are being carefully monitored and are in 
substantial compliance with current federal, state and local 
environmental regulations. The Company believes the liabilities, if 
any, that will result from the above environmental matters will not 
have a material adverse effect on its financial statements.

     The Company has agreements with certain of its suppliers to procure 
major aircraft components such as engines, wings and avionics. The 
agreements vary in length from three to five years and generally 
provide for price and quantity of components to be supplied. In 
connection with the Gulfstream V program, the Company has entered into 
revenue sharing agreements with two suppliers. The terms of such 
agreements require the suppliers to design, manufacture and supply 
certain aircraft components in exchange for a fixed percentage of the 
revenues of each Gulfstream V sold. Progress payments under the revenue 
sharing agreements are generally required to be made on a pro rata 
basis concurrent with the associated deposits received on Gulfstream V 
contracts.

     As of December 31, 1997, in connection with orders for 21 Gulfstream V 
aircraft in the backlog, the Company has offered customers trade-in 
options (which may or may not be exercised by the customer) under which 
the Company will accept trade-in aircraft (primarily Gulfstream IVs and 
IV-SPs) at a guaranteed minimum trade-in price. Additionally, in 
connection with recorded sales of new aircraft, at December 31, 1997 
the Company has agreed to accept pre-owned aircraft totaling $174.6 
million. Management believes that the fair market value of all such 
aircraft exceeds the specified trade-in value.

     The Company purchases its major aircraft components from a limited 
number of suppliers. Although the Company purchases from a limited 
number of suppliers, management believes that there are other suppliers 
who could provide similar components on comparable terms without 
significant disruption of its production.

NOTE 13 Export Sales and Major Customers

     Foreign sales by geographical area consisted of the following at:

<TABLE>
<CAPTION>
                                                            December 31,
                                                    ---------------------------
                                                        1997      1996     1995
                                                    -------- --------- --------
<S>                                                 <C>      <C>       <C>
(In thousands)                            
                                          
Europe..........................................    $186,560  $ 24,764 $ 51,330
Asia............................................     168,829    88,101  102,990
Latin America and Caribbean.....................     117,884   103,706   36,479
Africa..........................................       3,827    73,155    6,773
Other...........................................      30,515       736   19,460
                                                    -------- --------- --------
                                                    $507,615  $290,462 $217,032
                                                    -------- --------- --------
                                                    -------- --------- --------
</TABLE>

     During 1997 and 1996, aircraft sales and services provided to one 
customer comprised 8.3% and 11.7%, respectively, of the Company's net revenues.


<PAGE>

NOTE 14 Earnings Per Share

     Net income per share ("EPS") information for 1996 and 1995 is based on 
historical unadjusted net income divided by pro forma weighted average 
number of shares. Shares included for basic EPS give retroactive effect 
to the Recapitalization, the shares issued to option holders upon the 
exercise of options at the date of the Offering, and the shares issued 
pursuant to the Offering (all of which are described in Note 10) as if 
such transactions had occurred at the beginning of the period. Diluted 
EPS further includes the effects of options granted in 1996 and 1995 as 
if such options had been outstanding for all periods presented.

     The following table sets forth the reconciliation of per share data as 
of:

<TABLE>
<CAPTION>
                                                   Year ended December 31,
                                                 ---------------------------
                                                     1997     1996      1995
                                                 --------  -------   -------
<S>                                              <C>       <C>       <C>
(In thousands, except per share amount)

Net Income...................................    $243,011  $46,965   $28,894
                                                 --------  -------   -------
                                                 --------  -------   -------

Basic EPS

Average shares issued 
     and outstanding 
     (after giving effect to
     the Recapitalization)...................      74,095   67,530    65,403
Exercise of certain stock 
     options with 
     the Offering............................                2,962     3,949
Shares issued pursuant 
     to the Offering.........................                3,419     4,559
                                                 --------  -------   -------
Weighted average common 
     shares outstanding......................      74,095   73,911    73,911

Diluted EPS

Incremental shares 
     from stock options......................       3,800    4,624     4,624
                                                 --------  -------   -------
Weighted average 
     common and common 
     equivalent shares 
     outstanding.............................      77,895   78,535    78,535
                                                 --------  -------   -------
                                                 --------  -------   -------
Earnings Per Share:
     Net income 
          per share--basic...................      $ 3.28    $ .64   $   .39
                                                 --------  -------   -------
                                                 --------  -------   -------
     Net income 
          per share--diluted.................      $ 3.12    $ .60   $   .37
                                                 --------  -------   -------
                                                 --------  -------   -------
</TABLE>


NOTE 15 Subsequent Event

     During January 1998, the Company began the repurchase of up to $200 
million of its common stock. The repurchase will be funded from the 
Company's available cash. As of January 30, 1998, the Company had 
repurchased approximately 2.5 million shares, at an average price of $30.01 per
share, for an aggregate amount of $74.6 million.

<PAGE>

Report of Independent Accountants 

The Board of Directors and Stockholders of
Gulfstream Aerospace Corporation:

     We have audited the consolidated balance sheets of Gulfstream Aerospace 
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related 
consolidated statements of income, stockholders' equity and cash flows for 
each of the three years in the period ended December 31, 1997. These 
consolidated financial statements are the responsibility of the Company's 
management. Our responsibility is to express an opinion on these consolidated 
financial statements based on our audits.

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

     In our opinion, such consolidated financial statements present fairly, 
in all material respects, the financial position of Gulfstream 
Aerospace Corporation and subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of 
the three years in the period ended December 31, 1997, in conformity 
with generally accepted accounting principles.


/s/ Deloitte & Touche LLP
--------------------------
Deloitte & Touche LLP
Atlanta, Georgia
January 30, 1998


Report of Management's Responsibilities

     The management of Gulfstream Aerospace Corporation is responsible for 
the preparation and integrity of the consolidated financial statements 
of the Company. The financial statements and notes have been prepared 
by the Company in accordance with generally accepted accounting 
principles and, in the judgment of management, present fairly the 
Company s financial position and results of operations. The financial 
information contained elsewhere in this annual report is consistent 
with that in the financial statements. The financial statements and 
other financial information in this annual report include amounts that 
are based on management s best estimates and judgments and give due 
consideration to materiality.

     The Company maintains a system of internal accounting controls to 
provide reasonable assurance that assets are safeguarded and that 
transactions are executed in accordance with management's authorization 
and recorded properly to permit the preparation of financial statements 
in accordance with generally accepted accounting principles.

     The Company's independent auditors were engaged to perform an audit of 
the consolidated financial statements. This audit provides an objective 
outside review of management's responsibility to report operating 
results and financial condition. They review and perform tests, as 
appropriate, of the data included in the financial statements.

     The Board of Directors discharges its responsibility for the Company's 
financial statements primarily through its Audit Committee. The Audit 
Committee, comprised solely of outside directors, meets periodically 
and privately with the independent auditors and representatives from 
management to appraise the adequacy and effectiveness of control 
systems and quality of our financial accounting and reporting.


/s/ Chris A. Davis
----------------------
Chris A. Davis
Executive Vice President and
Chief Financial Officer
January 30, 1998

<PAGE>

Quarterly Financial Results (Unaudited)

    The following table sets forth the unaudited consolidated statement of 
operating data for each quarter of 1997 and 1996.

    The operating results for any quarter are not indicative of results for 
any future period.
 
<TABLE>
<CAPTION>
                                                                                     1997(1)
                                                                  -------------------------------------------------
                                                                       First      Second        Third        Fourth
                                                                  ----------  ----------  -----------    ----------
<S>                                                               <C>         <C>         <C>            <C>
(In thousands, except deliveries and per share amounts)

Net revenues....................................................  $  375,626    $  522,906    $ 464,036    $  540,926
Gross profit....................................................      70,474        76,010       91,053       108,437
Income from operations..........................................      47,037        45,445       60,668        75,546
Net income......................................................      40,030        39,504      119,088(2)     44,389(2)
Earnings per share:
 Earnings per share--basic......................................  $      .54    $      .53    $     1.61   $     .60
 Earnings per share--diluted....................................  $      .51    $      .50    $      1.54  $     .58

Pro forma (fully taxed) 
 Earnings per share--diluted(3).................................  $      .33  $      .32  $       .45      $     .58

Aircraft deliveries (in units):
 Gulfstream IV-SP (green).......................................           5           5            6              6
 Gulfstream V (green)...........................................           6           7            8              8
 Completion.....................................................           5           5            5             11
 Pre-owned aircraft.............................................           1           9            2              2
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                      1996(1)
                                                                   ------------------------------------------------
                                                                        First      Second       Third        Fourth
                                                                   ----------  ----------  ----------    ----------
<S>                                                                <C>         <C>         <C>           <C>
(In thousands, except deliveries and per share amounts)

Net revenues.....................................................  $  215,063  $  243,609  $  283,834      $    321,207
Gross profit.....................................................      46,791      57,040      61,339          59,289
Income from operations...........................................       6,317       8,615      16,819          18,518
Net income.......................................................       6,077       9,282      17,247          14,359
Earnings per share:
Earnings per share--basic........................................  $      .08  $      .13  $      .23      $      .20
Earnings per share--diluted......................................  $      .08  $      .12  $      .22      $      .18

Pro forma (fully taxed) 
 Earnings per share--diluted(3)..................................  $      .05  $      .07  $      .14      $      .11

Aircraft deliveries (in units):
 Gulfstream IV-SP (green)........................................           5           6           9               4
 Gulfstream V (green)............................................          --          --          --               3
 Completion......................................................           6           6           5              10
 Pre-owned aircraft..............................................           3           4           3               6
</TABLE>
 
------------------------
 
(1) Non-cash compensation expense of $0.5 million, $0.5 million, $0.3 million 
    and $0.3 million was recorded in each of the 1997 quarters, and $0.1 
    million, $5.1 million, $1.5 million and $0.5 million was recorded in each 
    of the 1996 quarters, respectively, related to the issuance of options to 
    purchase common stock. See Note 10 to the consolidated financial 
    statements.
 
(2) As described under the caption Income Taxes on page 21, the Company 
    recorded a net income tax benefit of $63.1 million during the third 
    quarter of 1997. During the fourth quarter of 1997, the Company recorded 
    an income tax provision of $26.6 million based on an estimated effective 
    tax rate of 37.5%.

(3) Pro forma (fully taxed) Earnings per sharediluted is presented for all 
    periods assuming an estimated effective tax rate of 37.5%. 


Quarterly Common Stock Price Range

<TABLE>
<CAPTION>
                                                                                      1997
                                                                   ------------------------------------------
                                                                       First     Second      Third     Fourth
                                                                   ---------  ---------  ---------  ---------
<S>                                                                <C>        <C>        <C>        <C>
High.............................................................  $   24.13  $   32.75  $   31.13  $   32.06
Low..............................................................      21.25      21.75      26.00      26.50

</TABLE>
 
<TABLE>
<CAPTION>
                                                                        1996 (Beginning October 10th)
                                                                   ------------------------------------------
                                                                       First     Second      Third     Fourth
                                                                   ---------  ---------  ---------  ---------
<S>                                                                <C>        <C>        <C>        <C> 
High.............................................................         --         --         --    $ 26.00
Low..............................................................         --         --         --      20.75
</TABLE>
 
    Gulfstream Aerospace Corporation's common stock is traded principally 
on the New York Stock Exchange under the symbol GAC. At March 5, 1998 there 
were approximately 220 holders of record. The Company has never paid cash 
dividends on the common stock and does not anticipate paying any cash 
dividends in the near future.

<PAGE>

Selected Financial Data
 
<TABLE>
<CAPTION>

Fiscal Year                                             1997          1996          1995        1994         1993
----------------------------------------------  ------------  ------------  ------------  ----------  -----------
(In thousands, except per share data)

<S>                                             <C>           <C>           <C>           <C>         <C>
Income Statement Data
Revenues......................................  $  1,903,494  $  1,063,713  $  1,041,514  $  901,638  $   887,113
Income (loss) from operations(1)..............       228,696        50,269        42,090      43,883  $  (226,773)
Net income (loss).............................       243,011        46,965        28,894      23,564     (275,227)
Earnings per share:
Earnings per share--basic(2)..................          3.28           .64           .39         N/A          N/A
                  --diluted(2)................          3.12           .60           .37         N/A          N/A
                                                ------------  ------------  ------------  ----------  -----------
Balance Sheet Data
Working capital...............................  $    295,811  $    138,091  $    356,976  $  301,913  $   302,369
Total assets..................................     1,473,667     1,313,215       981,253     745,761      799,470
Total debt(3)(4)..............................       380,000       400,000       146,331     178,145      206,145
Total stockholders' equity deficit(3).........        92,757      (188,811)      217,540     188,950      164,395
</TABLE>
 
------------------------
 
(1) In 1993, the Company recorded a charge for a restructuring plan based upon
    the Company's reassessment of its business plan and its products from
    which it has realized improved operating efficiencies, reduced costs and
    increased overall profitability.
 
(2) Earnings per share ("EPS") information for 1996 and 1995 is based on
    historical unadjusted net income divided by pro forma weighted average
    number of shares. Shares included for basic EPS give retroactive effect to
    the Recapitalization, the shares issued to option holders upon the exercise
    of options at the date of the Offering, and the shares issued pursuant to
    the Offering (all of which are described in Note 10 to the consolidated
    financial statements) as if such transactions had occurred at the beginning
    of the period. Diluted EPS further includes the effects of options granted
    in 1996 and 1995 as if such options had been outstanding for all periods
    presented. See also Note 14 to the consolidated financial statements for a
    reconciliation of per share data.
 
(3) Total stockholders'equity and total debt at December 31, 1996 gives effect
    to the Recapitalization and Offering which occurred during the fourth
    quarter 1996. See "Liquidity and Capital" Resources on page 22 of the 1997
    Annual Report.
 
(4) During November 1993, the Company converted $469 million of subordinated
    debentures (including accrued interest) to 7% Cumulative Preferred Stock in
    connection with the 1993 recapitalization.
 
                                       

<PAGE>

                                      GV flying

                                  [FULL PAGE PICTURE]

     Gulfstream Aerospace Corporation is a leading designer, developer, 
manufacturer and marketer of the world's most technologically advanced 
intercontinental business jet aircraft. Gulfstream has developed a range of 
products and services to meet the aviation needs of its customers, including 
the Gulfstream IV-SP, the Gulfstream V, Gulfstream Shares, Pre-owned 
Gulfstream Aircraft and Gulfstream Financial Services. In 1997, Gulfstream 
delivered its 1,000th aircraft, continuing a tradition of leadership in 
business aviation which spans forty years. Nearly two-thirds of all large 
cabin aircraft operated by Fortune 500 corporations bear the Gulfstream name. 
In addition, 38 governments around the world employ Gulfstream aircraft for a 
variety of special missions.


<PAGE>

Corporate Information


                                     Corporate Offices
                                     Gulfstream Aerospace Corporation
                                     500 Gulfstream Road
                                     Savannah, Georgia 31408
                                     (912) 965-3000

                                     Website
                                     www.gulfstreamaircraft.com

                                     Annual Meeting
                                     9:30 a.m.
                                     May 14, 1998
                                     St. Regis Hotel
                                     Two East 55th Street
                                     New York, New York 10022

                                     Transfer Agent and Registrar
                                     ChaseMellon Shareholder Services, L.L.C.
                                     Overpeck Centre
                                     85 Challenger Road
                                     Ridgefield Park, New Jersey 07660
                                     (800) 526-0801
                                     www.chasemellon.com

                                     Stock Listing
                                     New York Stock Exchange
                                     Symbol "GAC"

                                     Independent Accountants
                                     Deloitte & Touche LLP
                                     100 Peachtree Street
                                     Atlanta, Georgia 30303-1943

                                     Financial Information
                                     Copies of Gulfstream's annual 
                                     report and Form 10-K submitted 
                                     to the Securities and Exchange 
                                     Commission may be obtained 
                                     by visiting the Company's website 
                                     or by written request to:

                                     Investor Relations
                                     P.O. Box 2206, Mail Stop B-14
                                     Savannah, Georgia 31402-2206




<PAGE>

                           Robert J. Collier Trophy

                              [FULL PAGE PICTURE]

                  GULFSTREAM AND THE GULFSTREAM V INDUSTRY TEAM
                    ARE PROUD TO BE THE RECIPIENTS OF THE
                       1997 ROBERT J. COLLIER TROPHY.

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     Awarded annually by the National Aeronautic Association, the Collier 
Trophy is recognized as the aviation industry's most prestigious award and 
honors the year's top aeronautical achievement.

     Gulfstream and the Gulfstream V Industry Team were recognized "for 
successful application of advanced design and efficient manufacturing 
techniques, together with innovative international business partnerships, to 
place into customer service the Gulfstream V -- the world's first ultra-long 
range business jet."

     Gulfstream joins a distinguished list of past Collier Trophy recipients 
which includes Orville Wright, Chuck Yeager, John Glenn and Neil Armstrong. 
The Collier Trophy is on permanent display at the Smithsonian Institute's 
National Air and Space Museum in Washington, D.C.