<PAGE>   1
================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K/A

                     ANNUAL REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED MARCH 31, 1998         COMMISSION FILE NUMBER 1-10561

                             BANNER AEROSPACE, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

          DELAWARE                                     95-2039311
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)       

          45025 AVIATION DRIVE               
                SUITE 300
               DULLES, VA                                     20166-7556
(Address of principal executive offices)                      (Zip code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 478-5790

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                                    NAME OF EACH EXCHANGE
           TITLE OF CLASS                            ON WHICH REGISTERED
    Common Stock, $1.00 par value                 New York Stock Exchange

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                                      NONE

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                              Yes [x]     No [ ]

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

      Aggregate market value of the voting stock held by nonaffiliates of the
registrant based on the closing price at which stock was sold on the New York
Stock Exchange on July 22, 1998: $44.5 million.

                                                          SHARES OUTSTANDING
  TITLE OF CLASS                                         AS OF  JULY 22, 1998
 ---------------                                         --------------------
 Common Stock .........................................      21,445,002

                                    AMENDMENT

      The primary purpose of this Amendment is to amend the Registrant's Annual
Report on Form 10-K for the Fiscal Year Ended March 31, 1998 to include Part III
(Items 10, 11, 12 and 13).





<PAGE>   2

                                    PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

            (a)    DIRECTORS

      The directors of the Registrant named below, were elected at the 1997
Annual Meeting of the stockholders, with the exception of Mr. Herdman, who was
appointed in October 1997, and will serve until the 1998 Annual Meeting of the
stockholders and until their successors are elected and qualified.

INFORMATION AS TO DIRECTORS

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

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

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

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

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

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



                                    2 of 16
<PAGE>   3


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

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

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

           Articles have appeared in the French press reporting an inquiry by a
French magistrate into certain allegedly improper business transactions
involving Elf Acquitaine, a French petroleum company, its former chairman and
various third parties, including Maurice Bidermann. In connection with this
inquiry, the magistrate has made inquiry into allegedly improper transactions
between Mr. Steiner and that petroleum company. In response to the magistrate's
request that Mr. Steiner appear in France as a witness, Mr. Steiner submitted
written statements concerning the transactions and appeared in person before the
magistrate and others. Mr. Steiner, who has been put under examination (mis en
examen), by the magistrate, with respect to this matter, has not been charged.

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

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

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

(1)    Member of the Executive Committee.
(2)    Member of the Audit Committee.
(3)    Member of the Compensation and Stock Option Committee.
(4)    Member of the Nominating Committee.
(5)    Member of the Ethics Committee.
(6)    Member of the Special Committee.



                                    3 of 16
<PAGE>   4
      (b)   EXECUTIVE OFFICERS

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

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

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

           SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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



                                    4 of 16
<PAGE>   5
ITEM 11.    EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

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

<TABLE>
<CAPTION>
                                                                                                                     Long-Term
                                                                                                                   Compensation
                                                                 Annual Compensation                                  Awards
                                              ---------------------------------------------------------------     -------------
                                                                                   Other Annual    Securities        All Other
                                              Fiscal                    Bonus      Compensation    Underlying      Compensation
  Name and Principal Position                  Year     Salary ($)     ($)(1)        ($)(2)        Options (#)        ($)(3)
-----------------------------------           -----     ---------     ---------    ------------    ----------     -------------
<S>                                            <C>        <C>           <C>             <C>         <C>                 <C>  
  Jeffrey J. Steiner, Chairman                 1998       400,000       180,000           ---       130,000             1,792
    President and Chief                        1997       300,000       273,375           ---        80,000               720
    Executive Officer                          1996       262,500       157,500           ---       150,000               ---


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

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

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

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

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

                                    5 of 16
<PAGE>   6

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

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

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

OPTIONS GRANTED IN FISCAL YEAR 1998

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

<TABLE>
<CAPTION>                                                         
                                                % of Total   
                                Securities       Options 
                                Underlying      Granted to                                           Grant Date
                                 Options       Employees in     Exercise Price                        Present
               Name              Granted        Fiscal 1998         ($/Sh)        Expiration Date    Value (3)
-------------------------      ------------    -------------    --------------    ----------------   -------------
<S>                             <C>                    <C>           <C>               <C>               <C>         
Jeffrey J. Steiner              130,000 (1)            36.3%         $7.625            5/21/04           $912,080
Warren D. Persavich              40,000 (1)            11.2%          7.625            5/21/04            280,640
Eugene W. Juris                  30,000 (1)             8.4%          7.625            5/21/04            210,480
Eric I. Steiner                  30,000 (2)             8.4%          7.625            5/21/04            210,480
Bradley T. Lough                 10,000 (2)             2.8%          7.625            5/21/04             70,160
</TABLE>

(1) Options granted vest ratably over three years.

(2) Options granted vest 0% in year 1, 25% in year 2, 25% in year 3 and 50% in
year 4.

(3)   Value of Options using the Black-Scholes model.

OPTION YEAR END VALUES

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


<TABLE>
<CAPTION>
                           Number of Securities 
                          Underlying Unexercised       Value of In-The-Money 
                             Options at 3/31/98       Unexercised Options at 3/31/98
                       ----------------------------  -------------------------------
<S>                    <C>            <C>              <C>             <C>
       Name            Exercisable    Unexercisable    Exercisable     Unexercisable
-------------------    -----------    -------------    -----------     -------------
Jeffrey J. Steiner         201,667        233,333       $1,432,308        $1,621,197
Warren D. Persavich         94,000         72,000          650,209           500,055
Eugene W. Juris             63,500         48,000          435,992           333,142
Eric I. Steiner             15,000         30,000           96,785           210,480
Bradley T. Lough            14,667         18,333           99,555           126,498
</TABLE>

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

                                    6 of 16
<PAGE>   7

EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS

      Mr. Jeffrey J. Steiner has a three year employment agreement with the
Company which became effective September 9, 1992; however, each year the
remainder of the term of Mr. Steiner's employment is extended for an additional
one year period unless either party gives timely notice of its or his intention
not to extend further the term of the employment agreement. The employment
agreement provides for a base salary of not less than $250,000 per annum and
also provides for participation in the Company's bonus plan, retirement plan,
and other executive benefits. If Mr. Steiner dies during the term or any
extended term of the agreement, his legal representatives will receive monthly
or semi-monthly installments of his base salary up to and including the first
anniversary of the last day of the month in which Mr. Steiner's death occurs. In
addition, his legal representatives will receive benefits to which Mr. Steiner
would have been entitled, through the end of the fiscal year in which his death
occurs, under any additional compensation plan. For any fiscal year during which
the agreement is terminated due to Mr. Steiner's disability for more than nine
consecutive months, or shorter periods aggregating nine months during any twelve
month period, he will receive fifty percent of his base salary for two years,
plus all benefits to which he would have been entitled for the fiscal year
during which termination of his employment has occurred. The agreement also has
certain change in control provisions. Upon the occurrence of a change in control
or trigger event, Mr. Steiner is entitled to a cash payment equal to 2.99 times
the total of his then base salary plus bonus in the immediately preceding fiscal
year, less the portion of payments, under stock options vested solely due to a
change in control or trigger event, which is considered a parachute payment
under Section 280G of the Internal Revenue Code of 1986 ("Code"). A change in
control occurs if an event requires a response to Item 5(f) of Schedule 14A of
Regulation 14A under the Securities Exchange Act of 1934 as in effect January 1,
1986. There is a trigger event (i) if any person other than Jeffrey J. Steiner
or an affiliate of Jeffrey J. Steiner is or becomes the beneficial owner of
securities of the Company representing 20% of the then outstanding voting power
for the election of directors ("Voting Power"); (ii) if during a period of two
consecutive fiscal years individuals who at the beginning of such period
constitute the Board of Directors cease to be a majority of the Board unless the
election or nomination of each director was approved by a two-thirds vote of the
directors then still in office who were directors at the beginning of the
period; (iii) if the Company shall become a subsidiary of another corporation or
shall be reorganized, merged or consolidated into another corporation (unless it
is a reorganization under Section 368(a)(1)(f) of the Code) unless, in each
case, the holders of more than 80% of the Voting Power will retain similar
voting power of such other corporation's voting securities; (iv) if
substantially all the assets of the Company are sold to another company; (v) if
the Company is liquidated; or (vi) if the Company issues Common Stock
representing a majority of the Voting Power of the Company.

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

      Mr. Juris has an employment agreement which was amended on September 1,
1993 to provide for a salary of not less than $115,000 per annum, plus a bonus
arrangement of 50% of base compensation if certain performance targets are met.
Mr. Juris' current base salary under such employment agreement is $172,150.
The amended agreement was initially for a period of three years. Commencing on
the first anniversary of the amended agreement, the term will be extended each
day by one day so that the remaining term is always two years, until terminated
by either party. Termination without cause by the Company will result in a two
year severance payment to Mr. Juris, plus bonuses and certain other fringe
benefits.

RETIREMENT BENEFITS

      The Company has a Supplemental Executive Retirement Plan for certain key
executives which provides a retirement benefit based on final average earnings
and years of service. Benefits which may be payable under this plan are not
included in the Summary Compensation Table. This plan provides a maximum
retirement benefit equal to the difference between sixty percent of the
participant's average base salary for the last five years of employment and the
participant's primary Social Security benefit. This plan is unfunded,
unqualified and is not subject to the 

                                    7 of 16
<PAGE>   8
Employee Retirement Income Security Act of 1974, as amended. The plan was
adopted in September 1994 to provide for lump sum pre-retirement advances on an
actuarially reduced basis at the election of participants age sixty-five or
over, contingent upon approval of the Compensation and Stock Option Committee.
Messrs. Steiner, Persavich and Juris are eligible for participation in this
plan. The estimated annual benefit payable upon retirement at normal retirement
age for each of the named executive officers is as follows: Jeffrey Steiner,
$244,000; Warren Persavich, $175,000; and Eugene Juris, $199,000.

                             DIRECTORS COMPENSATION

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

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

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

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

                     COMPENSATION AND STOCK OPTION COMMITTEE
                        REPORT ON EXECUTIVE COMPENSATION

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

COMPENSATION PHILOSOPHY

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

                                    8 of 16
<PAGE>   9
Company's Common Stock. The Committee believes its approach to compensation
should be consistent over time and be fair to the Company, its officers and
stockholders.

EMPLOYMENT AGREEMENT - CEO

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

EMPLOYMENT AGREEMENTS - OTHER EXECUTIVE OFFICERS

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

BONUS PLAN

      The Committee believes that a substantial portion of the annual income of
executive officers should be based on the financial and operating performance of
the Company for that year through a goal-based incentive compensation program
("Bonus Plan"). The objective of the program is to provide total annual income
to officers that is competitive with compensation at other companies facing
similar challenges, while linking the payment of compensation to the Company's
achievement of certain financial and operating goals. In fiscal 1998, bonuses
awarded to the CEO and other executive officers were based on two components.
The first component was based on a goal for the Company to achieve certain
levels of earnings before interest and taxes. The second component was based on
qualitative and quantitative factors, including the achievement of a number of
key corporate objectives, including: i) the completion of strategic acquisitions
and divestitures designed to enhanced shareholder value; ii) market penetration
and development; and iii) continued development of cost efficiencies. The
executive officers were also provided incentives to successfully transition
Burbank Aircraft Supply, Inc. to a new management information system by a
certain targeted date. In the opinion of the Committee, Mr. Steiner and the
other executive officers achieved certain of these objectives and Mr. Steiner
was awarded a bonus of $180,000 (representing a bonus of 45.0% of base
compensation), and Messrs. Persavich, Juris and Lough were awarded a bonus of
$138,563, in the aggregate (representing a bonus of 32.6% of base compensation).
Dr. Eric Steiner did not participate in the Bonus Plan. In addition, the named
executive officers are eligible for other bonuses which may be related to the
success of particular transactions which are of exceptional importance to the
Company.


                                    9 of 16
<PAGE>   10
DEFERRED BONUS PLAN

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

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

STOCK OPTIONS

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

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

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

INTERNAL REVENUE CODE SECTION 162(m)

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

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


                                    10 of 16
<PAGE>   11

                                PERFORMANCE GRAPH

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

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





















<TABLE>
<CAPTION>
                          1993         1994         1995         1996         1997         1998
                     ------------ ------------ ------------ ------------ ------------ ------------
<S>                  <C>          <C>          <C>          <C>          <C>          <C>        
Banner Aerospace     $    100.00  $    120.51  $     82.05  $    120.51  $    153.85  $    239.74
Peer Group           $    100.00  $    107.40  $    116.91  $    176.11  $    189.75  $    294.73
S&P 500 Index        $    100.00  $     98.69  $    110.86  $    142.91  $    167.63  $    243.93
</TABLE>




                                    11 of 16
<PAGE>   12
ITEM 12.          SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT

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

<TABLE>
<CAPTION>
                                                                              NUMBER OF SHARES                   PERCENT 
                               NAME                                           OF COMMON STOCK                    OF CLASS
--------------------------------------------------------------------------    ------------------                 ---------
<S>                                                                                  <C>                            <C>     
Michael T. Alcox..........................................................               16,000 (1)                     *
The Fairchild Corporation ................................................           21,129,719 (2)                 85.43  %
    Washington Dulles International Airport
    45025 Aviation Drive, Suite 400
    Dulles, Virginia  20166                                                          
Steven L. Gerard..........................................................               16,000 (1)                     *
Charles M. Haar...........................................................               16,000 (1)                     *
Philippe Hercot...........................................................               16,000 (1)                     *
Michael D. Herdman........................................................                5,000 (1)                     *
Eugene W. Juris...........................................................               95,459 (1)                     *
Bradley T. Lough..........................................................               17,583 (1)                     *
Warren D. Persavich.......................................................              138,732 (1)                     *
Dr. Eric I. Steiner ......................................................                    0                         *
Jeffrey J. Steiner .......................................................           21,528,619 (1)                 86.03  %
    The Fairchild Corporation                                                                   (3)  
    Washington Dulles International Airport                                                     
    45025 Aviation Drive, Suite 400                                                  
    Dulles, Virginia  20166                                                                                      
Leonard Toboroff..........................................................               16,000 (1)                     *
All directors and officers of the Company as a group (11 persons)                    21,865,393 (1)                 86.35  %
</TABLE>
---------------
*     Represents less than one percent (1%).

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

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

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

                                    12 of 16
<PAGE>   13
            shares have been pledged by Fairchild or its subsidiaries as
            collateral under an escrow agreement with BTR Dunlop Holdings, Inc.,
            a wholly-owned subsidiary of BTR plc.

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

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

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

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

RELATIONSHIPS BETWEEN THE COMPANY AND FAIRCHILD

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

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

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

      Fasteners. The Fastener Group of Fairchild, particularly Screwcorp,
Voi-Shan, Tridair and Camloc, has historically been a supplier of fasteners to
the Company, and the Company has also competed with them, in the sale 

                                    13 of 16
<PAGE>   14
to some end users. All transactions between the Company and Fairchild have been
on terms that are no less favorable to the Company than those that might be
obtained in arms-length transactions with unaffiliated third parties. Sales to
Fairchild amounted to approximately $220,000 and purchases from Fairchild
amounted to approximately $13,200,000 for the fiscal year ended March 31, 1998.
Due to the disposition of the Company's hardware business in January 1998 to
AlliedSignal Inc., future sales to and purchases from Fairchild are expected to
decrease significantly. 

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

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

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

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

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

                                    14 of 16
<PAGE>   15

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

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

OTHER TRANSACTIONS

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


                                    15 of 16
<PAGE>   16

                                   SIGNATURES

      PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

                                               BANNER AEROSPACE, INC.       
                                                                            
                                               BY: /S/ EUGENE W. JURIS      
                                                   --------------------     
                                                       EUGENE W. JURIS      
                                                     VICE PRESIDENT AND     
                                                  CHIEF FINANCIAL OFFICER   
                                               (PRINCIPAL FINANCIAL OFFICER)
                                               
Date: July 29, 1998


                                    16 of 16