<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, 1997         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)

           300 WEST SERVICE ROAD
  WASHINGTON DULLES INTERNATIONAL AIRPORT
              WASHINGTON, D.C.                              20041
 ----------------------------------------                ----------
 (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.  [x]

     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 June 30, 1997: $207,884,539.

<TABLE>
<CAPTION>
                                                            SHARES OUTSTANDING
        TITLE OF CLASS                                      AS OF JUNE 30, 1997
       ----------------                                   ---------------------
       <S>                                                    <C>
       Common Stock ......................................    23,423,610
</TABLE>

                                   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, 1997 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 1996
Annual Meeting of the stockholders and will serve until the 1997 Annual Meeting
of the stockholders and until their successors are elected and qualified.
Samuel Krasney, who was also elected at the 1996 Annual Meeting, resigned from
the Board of Directors on July 3, 1997 due to health reasons.  His vacancy has
not been filled as of this date.

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, 49, has served as a Director of the Company since
1990.  He served as Vice President of the Company from March 1990
through May 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)

     FREDERICK W. BRADLEY, JR., 70, has served as a Director of the
Company since 1995.  He has served as an advisor to the aerospace group of
Long-Term Credit Bank of Japan, Ltd. since 1992.  In addition, Mr. Bradley
is President of the International Airline Training Fund of the United States,
a fund set up by the International Air Transport Association to provide
professional training for airline personnel.  Prior thereto, Mr. Bradley was
a senior vice president of Citibank/Citicorp's Global Airline and
Aerospace business.  Mr. Bradley joined Citibank/Citicorp in 1958 and was
with them until he retired in 1992.  Mr. Bradley is the Chairman of the
Board of Aircraft Lease Portfolio Securitization 92-1 Ltd. and Aircraft Lease
Portfolio Securitization 94-1 Ltd., which are special purpose entities that
own aircraft and lease them to commercial airlines.  Mr. Bradley is also a
director of America West Airlines, Inc., First Citicorp Life Insurance
Company and the Institute of Air Transport, Paris, France. (2) (7)

     STEVEN L. GERARD, 52, has served as a Director of the Company since
1992.  Mr. Gerard has served as the Chairman and the Chief Executive Officer
of Ocean View Capital, Inc., the successor to Triangle Wire and Cable, Inc.,
a manufacturer of insulated wire and cable, since September 1992.  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) (4) (6)
(7)

     CHARLES M. HAAR, 76, 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) (4) (5) (6)

     PHILIPPE HERCOT, 30, has served as a Director of the Company since 1995.
He has served as a managing partner for Capital Industrie (an 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.  During his schooling, Mr.
Hercot was a consultant for McKinsey & Co. (a consulting firm) in Paris,
France.  Mr. Hercot is the son-in-law of Mr.  Jeffrey J. Steiner.  (4)

<PAGE>   3
     WARREN D. PERSAVICH, 44, has served as Senior Vice President and
Chief Financial Officer of the Company since June 1990 and a Director since
1990.  From March 1990 to June 1990, he served as Vice President of the
Company.  (1)

     DR. ERIC I. STEINER, 35, 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, 60, 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, RHI Holdings, Inc., The Copley Fund
and Shared Technologies Fairchild, Inc. 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 Aquitaine, its former chairman and various third parties.  In
connection with this inquiry, the magistrate has made inquiry into allegedly
improper transactions between Jeffrey Steiner and that petroleum company.  In
response to the magistrate's request that Mr. Steiner appear in France as a
witness, Mr. Steiner submitted a written statement concerning the transactions
and has offered to appear in person if certain arrangements were made.
According to the French press, the magistrate also requested permission to
commence an inquiry into transactions involving another French petroleum
company, but her request was not granted.  If the magistrate were to renew her
request, and if it were granted, inquiry into transactions between such company
and Mr. Steiner, could ensue.  The Board of Directors has formed a special
committee of outside directors to advise it with respect to these matters, and
the special committee has retained counsel.

     LEONARD TOBOROFF, 64, 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. (3) (4) (5)
(6) (7)

     JOHN C. WERTZ, 58, has served as Senior Vice President and Chief Operating
Officer of the Company since August 1993 and has served as a Director since
1993.  Prior thereto, he was employed by the Hamilton Standard Division
(manufacturer of aerospace equipment) of United Technologies Corporation as
Vice President of Commercial Aftermarket Business from October 1990 to July
1993; as Vice President of Manufacturing Planning and Support from March 1990
to October 1990; and as Vice President-Operations from February 1988 to March
1990.(1)

-------------------
(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 Bellyloading/Rights Offering Committee.
(7) Member of the Special Committee.





                                       2

<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, 39, has served as Vice President - Finance and Secretary
of the Company since September 1993.  Prior thereto, he served as the 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.

     No director or officer failed to file timely any Form 3, 4 or 5
required to be filed by him during fiscal 1997.

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 executive officers whose
salary and bonus exceeded $100,000 for fiscal 1997.

<TABLE>
<CAPTION>
                                                                                                Long-Term
                                                                                              Compensation
                                                Annual Compensation                               Awards            
                                 ---------------------------------------------------  ------------------------------
                                                                     Other Annual     Securities
                                 Fiscal                              Compensation     Underlying      All Other
  Name and Principal Position     Year      Salary       Bonus (1)        (2)           Options      Compensation  
  ------------------------------ -------  -----------   ----------- ----------------  ------------  ---------------
  <S>                             <C>       <C>           <C>          <C>                <C>               <C>
  Jeffrey J. Steiner,             1997      $300,000      $273,375     $     ---           80,000           $  720 (4)
     Chairman, President and      1996       262,500       157,500           ---          150,000              ---
     Chief Executive Officer      1995       250,000        75,000           ---           75,000              --- 
                                                                                    
  John C. Wertz, Senior Vice      1997       180,000       110,344           ---           25,000            5,311 (3) (4)
     President and Chief          1996       162,750        81,375           ---           35,000            5,841 (3)
     Operating Officer            1995       155,000        38,750         2,387           25,000            3,750 (3)
                                                                                    
  Warren D. Persavich, Senior     1997       180,000       110,344           ---           25,000            5,311 (3) (4)
     Vice President and Chief     1996       162,750        81,375           ---           46,000            5,841 (3)
     Financial Officer            1995       155,000        38,750        (1,623)          25,000            3,750 (3)
                                                                                    
  Eugene W. Juris, Vice           1997       130,000        80,094           ---           15,000            4,457 (3) (4)
     President - Finance and      1996       120,750        60,375         1,398           24,000            4,032 (3) 
     Secretary                    1995       115,000        28,750        13,440           20,000            3,450 (3)
</TABLE>

(1) Bonuses are shown for the year earned, but are primarily paid in the
    following year.
(2) Tax gross-up payments related to reimbursement of relocation costs and
    temporary living expenses.
(3) Company 401(k) matching contributions.
(4) Includes premiums paid for group term life insurance policies, as
    follows:

<TABLE>
         <S>                    <C>
         Jeffrey J. Steiner     $720
         John C. Wertz           432
         Warren D. Persavich     432
         Eugene W. Juris         312
</TABLE>





                                       3

<PAGE>   5
OPTIONS GRANTED IN FISCAL YEAR 1997

     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
                                                   Options
                               Securities        Granted to                                            Grant Date
                               Underlying       Employees in     Exercise Price                          Present
           Name              Options Granted     Fiscal 1997         ($/Sh)        Expiration Date      Value (4)    
---------------------------  ----------------  ----------------  ----------------  ----------------  ----------------
<S>                             <C>                  <C>              <C>              <C>               <C>
Jeffrey J. Steiner              80,000 (2)           23.0%            $6.875           5/29/01           $245,088
John C. Wertz (1)               25,000 (3)            7.2%             6.875           5/29/01             76,590
Warren D. Persavich (1)         25,000 (2)            7.2%             6.875           5/29/01             76,590
Eugene W. Juris (1)             15,000 (2)            4.3%             6.875           5/29/01             45,954
</TABLE>

(1)  Options granted to Messrs. Wertz, Persavich and Juris are subject to
     shareholder approval, as provided in Items 2 and 3 of this Proxy
     Statement.
(2)  Options granted vest ratably over three years.
(3)  Options granted vest 0% in year 1, 25% in year 2, 25% in year 3 and 50% in
     year 4.
(4)  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           Value of In-The-Money Unexercised
                                    Unexercised Options at 3/31/97                  Options at 3/31/97          
                                   ---------------------------------        ------------------------------------

               Name                Exercisable       Unexercisable           Exercisable        Unexercisable   
     -------------------------    ---------------   ----------------        ---------------    -----------------
     <S>                             <C>                <C>                    <C>                  <C>
     Jeffrey J. Steiner               100,000           205,000                $366,195             $744,336
     John C. Wertz                     58,334            56,666                 189,642              202,843
     Warren D. Persavich               62,000            64,000                 204,233              232,026
     Eugene W. Juris                   43,833            37,667                 142,034              135,239
</TABLE>

     No options were exercised by the executive officers during fiscal 1997.

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





                                       4

<PAGE>   6
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. Wertz has a letter agreement which provided for an initial term of
employment ending March 31, 1995; however, each year the term of Mr. Wertz'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 agreement provides for a base salary of not less
than $155,000 per annum, plus a bonus arrangement of 50% of base compensation
if certain performance targets are met.  If at any time during the term of
employment, the agreement shall be terminated by the Company for any reason
other than with cause, Mr. Wertz or his estate will receive a continuation of
his base salary, at its then current rate, through a period of six months from
the effective date of termination.

     Mr. Persavich has an employment agreement which was amended on September
1, 1993 to provide for a salary of not less than $155,000 per annum, plus a
bonus arrangement of 50% of base compensation if certain performance targets
are met.  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.
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 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.  All persons named in the Summary
Compensation Table are eligible for participation in this plan.  The estimated
annual benefits





                                       5

<PAGE>   7

payable upon retirement at normal retirement age for each of the named
executive officers is as follows: Jeffrey Steiner, $187,000; John Wertz,
$115,000; Warren Persavich, $184,000; and Eugene Juris, $155,000.


                             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 year 1997 were
$167,000 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.  Messrs. Alcox, Bradley, Gerard,
Haar, Hercot and Toboroff qualify as outside directors under the 1996 NED Plan.
Pursuant to the 1996 NED Plan on the date of 1996 Annual Meeting, the Company
granted options for 40,000 shares of Common Stock in the aggregate to outside
directors.

     Compensation for Special Committees.  In fiscal 1997, the Company had
two Special Committees.  Members of the first Special Committee were
compensated as follows: Mr. Gerard (Chairman of the first Special
Committee), $20,000; and Messrs. Haar and Toboroff, $10,000 each.  Members
of the second Special Committee were compensated as follows: Messrs.
Bradley, Gerard and Toboroff $5,000 each ($1,000 each per each meeting of the
second Special Committee).  Total outside director fees paid for Special
Committees during fiscal 1997 were $55,000 in the aggregate.

     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 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 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.





                                       6

<PAGE>   8

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 and was subsequently increased to $262,500 in
April 1995.  In April 1996, the Committee increased Mr. Steiner's annual salary
from $262,500 to $300,000, an increase of approximately fourteen percent.  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 only received one salary increase over the past six
years.  Mr. Steiner's employment arrangements also provide for an annual bonus
award of 60% of base compensation if certain performance targets, established
by the Committee and approved by the Board, are achieved.  Mr. Steiner may also
receive additional bonus awards if the performance targets are exceeded.

EMPLOYMENT AGREEMENTS - OTHER EXECUTIVE OFFICERS

     The other executive officers of the Company also have existing employment
agreements.  The employment agreements for Messrs. Persavich and Juris were
amended in fiscal 1994 to reflect the relocation of the corporate office from
Cleveland, Ohio to Washington, DC.  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 fiscal 1994, an employment agreement for Mr. Wertz
was established based on current market conditions for individuals in similar
capacities.  In April 1996, the Committee increased the base compensation of
Messrs. Wertz and Persavich by approximately ten percent and Mr. Juris by
approximately eight 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. Wertz, 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. Wertz, 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 1997,
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, such as: i) the completion of strategic
acquisitions to complement its existing businesses, ii) market penetration and
development, and iii) development of cost efficiencies.  The executive officers
were also provided incentives to relocate the Company's hardware inventory to
the new distribution center by a certain targeted date.  In the opinion of the
Committee, Mr. Steiner and the other executive officers achieved these
objectives and Mr. Steiner was awarded a bonus of $273,375 (representing a
bonus of 91.1% of base compensation) and the other executive officers were
awarded a bonus of $300,782, in the aggregate (representing a bonus of 61.4% of
base compensation).





                                       7

<PAGE>   9
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 1997, the Committee granted
options to Mr. Steiner of 80,000 shares and the other executive officers of
65,000 shares in the aggregate, in connection with the long-term goals
established by the Company.  The stock options awarded in fiscal 1997 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 the 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.

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.  No officer of the Company earns compensation in excess of
$1,000,000.  However, if this provision ever becomes applicable to the Company,
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





                                       8

<PAGE>   10
                               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,
1992.

     The Peer Group is weighted according to the respective issuer's stock
market capitalization on March 31, 1992, 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>
                     1992      1993      1994      1995      1996      1997
                    -------   -------   -------   -------   -------   -------
<S>                <C>       <C>       <C>       <C>       <C>       <C>
Banner Aerospace   $ 100.00  $  66.10  $  79.66  $  54.24  $  79.66  $ 101.69 
Peer Group         $ 100.00  $  85.49  $  91.72  $  99.52  $ 150.06  $ 162.27 
S&P 500 Index      $ 100.00  $ 111.89  $ 110.42  $ 124.03  $ 159.90  $ 187.55
</TABLE>





                                        9

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

     The table below sets forth as of May 31, 1997 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 address; (ii) each director; (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 May 31, 1997,
there were 23,423,610 shares of Common Stock issued and outstanding.


<TABLE>
<CAPTION>
                                                                           NUMBER OF SHARES OF         PERCENT
                             NAME                                             COMMON STOCK             OF CLASS
------------------------------------------------------------------------   -------------------         --------
<S>                                                                          <C>                        <C>
Michael T. Alcox.....................................................            45,000 (1)                * 
Frederick W. Bradley, Jr.............................................            15,000 (3)                * 
J.J. Cramer & Co.....................................................         2,473,400 (6)             10.6 %
    100 Wall Street                                                         
    8th Floor                                                               
    New York, New York 10005                                                
Dimensional Fund Advisors, Inc. .....................................         1,470,000 (13)             6.3 % 
    1299 Ocean Avenue                                                       
    11th Floor
    Santa Monica, CA 90401
The Fairchild Corporation ...........................................        13,886,477 (2)             59.3 %  
    Washington Dulles International Airport
    300 West Service Road
    Chantilly, Virginia 22021
Steven L. Gerard.....................................................            15,000 (3)                * 
Charles M. Haar......................................................            15,000 (3)                * 
Philippe Hercot......................................................            15,000 (3)                * 
Eugene W. Juris......................................................            69,500 (4)                * 
Samuel J. Krasney....................................................            96,000 (12)               * 
Warren D. Persavich..................................................           100,667 (5)                * 
Dr. Eric I. Steiner..................................................            17,500 (3)(7)             * 
Jeffrey J. Steiner...................................................        14,146,755 (8)(9)          60.0 %  
    The Fairchild Corporation
    Washington Dulles International Airport
    300 West Service Road
    Chantilly, Virginia 22021
Leonard Toboroff.....................................................            15,000 (3)                * 
John C. Wertz........................................................            96,667 (10)               * 
All directors and officers of the Company as a group (12 persons)            14,647,089 (11)            61.3 %
</TABLE>

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

(1)  Includes exercisable stock options for 12,000 shares.
(2)  Includes shares of Common Stock owned of record by Fairchild and its
     subsidiaries as of May 31, 1997, as follows: Fairchild Holding Corp.,
     5,386,477 shares; RHI Holdings, Inc., 8,488,194 shares; Banner Aerospace
     Holding Company II, Inc., 11,806 shares.  13,262,971 of such shares of
     Common Stock have been pledged by Fairchild or its subsidiaries as
     collateral for a loan facility with Citicorp N.A. and 611,700 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.  
     In connection with the Company's Rights Offering (described below
     under "Certain Transactions") Fairchild (through its subsidiaries) was
     issued 3,085,885 shares of Preferred Stock on June 25, 1997, which shares
     are convertible (at the election of the holder) into 3,085,885 shares of
     Common Stock.  By virtue of





                                        10

<PAGE>   12

     this transaction, Fairchild's beneficial ownership of the Company
     increased from 59.3% (as of May 31, 1997) to 62.6% (as of June 25,
     1997).
(3)  Includes exercisable stock options for 15,000 shares.
(4)  Includes exercisable stock options for 55,500 shares.
(5)  Includes exercisable stock options for 78,667 shares.
(6)  Stock ownership based on information provided by J.J. Cramer & Co. as
     of May 31, 1997.  
(7)  Includes 2,500 shares are held by Dr. Steiner as guardian for his minor 
     children, and he disclaims any beneficial interest therein.
(8)  Includes 105,000 shares of Common Stock owned of record by Mr. Steiner
     and 3,612 shares owned by Mr. Steiner through the Company's Profit
     Sharing/401(k) Plan.  Also includes 13,886,477 shares owned directly or
     indirectly by Fairchild; Mr. Steiner disclaims beneficial ownership of
     such shares except to the extent of his pecuniary interest therein.
(9)  Includes exercisable stock options for 151,667 shares.
(10) Includes exercisable stock options for 66,667 shares.
(11) Includes exercisable stock options for 459,500 shares.
(12) Includes exercisable stock options for 5,000 shares.
(13) Stock ownership based on information provided by Dimensional Fund
     Advisors, Inc. as of March 31, 1997.

*    Less than 1%

     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 TRANSACTIONS

RELATIONSHIPS BETWEEN THE COMPANY AND FAIRCHILD

     General Statement.  The Company may be subject to various conflicts of
interest arising out of the relationships among it, Fairchild and their
respective affiliates, such as the purchase and sale of products in the
ordinary course of business, the purchase and sale of a business between the
two companies and a business opportunity of interest to both companies.
Although no specific measures to resolve such conflicts of interest have been
formulated, management of the Company has a fiduciary obligation to deal fairly
and in good faith with the Company, and will exercise reasonable judgment and
take such steps as they may then, under all the circumstances, deem necessary
in resolving any specific conflict of interest which may occur and what, if
any, specific measures such as retention of an independent advisor, independent
counsel or special committee as they may determine to be necessary or
appropriate under the circumstances.  Fairchild is a substantial shareholder 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.

     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 also competes with them, in the sale to some end
users.  All transactions between the Company and Fairchild have been and will
continue to be 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 $122,000 and purchases
from Fairchild amounted to approximately $9,384,000 for the fiscal year ended
March 31, 1997.

     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 agreement terminates on September 30, 1997.  The annual fee
for the tax services rendered is $98,000.  The Company has a letter agreement
with Fairchild pursuant to which Fairchild's in-house attorneys





                                        11

<PAGE>   13
provide legal services to the Company.  This agreement is on a month-to-month
basis and the Company 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 pays the Company $15,500
per month.  In addition, an indirect 41% affiliate of Fairchild (Shared
Technologies Fairchild, Inc.), provides the Company with communication services
for the office space in the Fairchild building as well as at substantially all
subsidiary locations.  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, 1997, 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 IRS 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 October 17, 1996, the Company borrowed $5.0 million from
RHI Holdings, Inc. (a Fairchild subsidiary) ("RHI"); such amount was repaid on
March 27, 1997; interest expense pursuant to such indebtedness was $156,000.  In
addition, on December 20, 1996, the Company entered into a Subordinated Loan
Agreement with RHI, 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 Company (a specialty fastener 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.

     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 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 Fairchild Scandinavian Bellyloading Company AB 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.  Fairchild exercised
its option to terminate the Stock Exchange Agreement on July 1, 1997.





                                        12

<PAGE>   14

     Acquisition of Preferred Stock.  On May 23, 1997, the Company granted all
its stockholders certain rights to purchase Preferred Stock (Series A
Convertible Paid-in-Kind Preferred Stock, $.01 par value).  On June 18, 1997,
Fairchild exercised its rights to acquire 3,085,885 shares of Preferred Stock
for $28,390,142.

     Joint Insurance.  The Company and Fairchild have entered into 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 in the event that
both companies suffer damages from earthquakes aggregating in excess of the
$100 million limit.

OTHER TRANSACTIONS

     Mr. Samuel J. Krasney, a Director of the Company, entered into a sublease
agreement with the Company for 1,500 square feet of office space which is a
portion of what was formerly the corporate headquarters in Cleveland, Ohio.  The
lease term commenced on October 1, 1993 and expires on October 31, 1998.  The
annual rent is approximately $19,600 and is based on competitive market
conditions for similar office space.

     In fiscal 1995, Mr. Steiner had suggested to the management of the Company
that it should consider purchasing a certificate of deposit from a Turkish 
bank because he believed that by establishing a relationship with one of 
the Turkish banks, the Company might be provided additional opportunities 
to expand its business in Turkey.  Following Mr. Steiner's suggestion, the 
Company purchased a $750,000 certificate of deposit (the "Certificate") 
from Marmara Bankasi A.S., which was subsequently forced by governmental 
action to cease business.  Because he had suggested this involvement, 
Mr. Steiner agreed that he would attempt to effect collection of the 
Certificate and would have one of his affiliates purchase the Certificate 
from the Company for $750,000, payable over two years.  Mr. Steiner's affiliate
has paid the Company $500,000, but has received no payments from the issuer 
of the Certificate.  In May 1996, the Board of Directors decided that the 
entire loss on the Certificate should not be borne by Mr. Steiner's
affiliate; therefore, the Board agreed to make the last $250,000 payment
conditional upon the collection of any proceeds received by the affiliate from
the Certificate.  The Turkish bank subsequently filed for Bankruptcy;
accordingly, the Company has determined that the balance of the indebtedness
relating to the Certificate ($250,000) is uncollectible, and has fully reserved
for the debt.

     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 1997 were approximately $137,000.





                                        13

<PAGE>   15

                                   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/ WARREN D. PERSAVICH
                                           ------------------------------
                                                WARREN D. PERSAVICH 
                                             SENIOR VICE PRESIDENT AND 
                                              CHIEF FINANCIAL OFFICER
                                           (PRINCIPAL FINANCIAL OFFICER) 

Date:  July 29, 1997





                                        14