<PAGE>
 
--------------------------------------------------------------------------------
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q

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


(Mark One)

[X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

                  For the quarterly period ended: JUNE 30, 1997

                                       or

[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

                         Commission file number: 1-7141

                             PS GROUP HOLDINGS, INC.
             (Exact name of registrant as specified in its charter)


         DELAWARE                               33-0692068
(State or other jurisdiction                   (IRS Employer
    of incorporation)                        Identification No.)

                     4370 LA JOLLA VILLAGE DRIVE, SUITE 1050
                           SAN DIEGO, CALIFORNIA 92122
                    (Address of principal executive offices)
                                   (Zip code)

                                 (619) 642-2999
              (Registrant's telephone number, including area code)

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 the number of shares outstanding of each of the issuer's classes of
common stock, as of August 11, 1997: 6,068,313 shares of common stock, $1 par
value.


--------------------------------------------------------------------------------
<PAGE>
 
                             PS GROUP HOLDINGS, INC.


CAUTION REGARDING FORWARD-LOOKING STATEMENTS

         The Private Securities Litigation Reform Act of 1996 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-Q for the second quarter of 1997 may be deemed forward-looking, such as
information relating to future prospects of aircraft leases of PS Group, Inc.
(PSG), PS Group Holdings, Inc.'s (the Company's) aircraft leasing subsidiary,
the consequences of any unscheduled return of aircraft under lease, the future
effect of possible sales of leased aircraft by US Airways, Inc. (US Airways),
potential liability for environmental contamination at the San Francisco
International Airport (SFO) and the cost of remediation, and the availability of
certain tax benefits. Investors are cautioned that all forward-looking
statements involve risks and uncertainties, including, but not limited to the
impact of the financial condition and results of operations of the lessees of
PSG's aircraft, uncertainty whether US Airways sells aircraft leased to them by
PSG, and the timing of such sales, uncertainties inherent in estimating the cost
of environmental remediation at SFO, the efficacy of the transfer restrictions
on the Company's common stock in preserving the Company's substantial tax
benefits and the Company's ability to realize such benefits, the impact of
economic conditions on each business segment, the impact of competition, the
impact of governmental legislation and regulation and possible future changes
therein, and other risks detailed is this Form 10-Q, the 1996 Annual Report to
Shareholders of the Company, and in other filings the Company has made with the
Securities and Exchange Commission. Should any of such risks or uncertainties
materialize or should other assumptions prove incorrect, actual results or
outcomes may vary materially from those contemplated in such forward-looking
statements. The Company does not undertake to publicly update or revise its
forward-looking statements on a current basis.




                         PART I - FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS.

         Included herein on pages F-1 to F-5.


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

         Included herein on pages F-5 to F-7.



                                        1
<PAGE>
 
                           PART II - OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS.

         The City and County of San Francisco, on July 11, 1997, filed a suit in
the Superior Court, State of California, County of San Francisco against various
present and former tenants who had operated fuel storage and other facilities at
SFO seeking to recover costs incurred in connection with the investigation and
cleanup of contamination in and around SFO. The lawsuit is captioned City and
County of San Francisco v Atlantic Richfield Company; Avis Rent A Car
System, Inc.; Qantas Airways, Limited; Signature Flight Support California,
Inc.; Unocal Corporation; and Does 1-50 (Case Number 988089.) The lawsuit
alleges claims based on the California Water Code, breach of contract, violation
of SFO rules and regulations, nuisance, waste, trespass, negligence, equitable
indemnity, and declaratory relief. Neither the Company nor any of its
subsidiaries is a named defendant in the lawsuit. PSG and PS Trading, Inc.
(PST), the Company's fuel trading and distribution subsidiary, along with the
majority of present and former tenants at SFO, have entered into a tolling
agreement with SFO which tolls the statute of limitations and other time-based
defenses that any of the parties to the tolling agreement have against another,
and permits the parties to attempt to resolve their disputes regarding
environmental cleanup at SFO without the necessity of litigation. None of the
parties to the tolling agreement were sued by the City and County of San
Francisco in the lawsuit, but the tolling agreement does not stop the future
filing of lawsuits against PST or PSG by SFO or others. The defendants in the
lawsuit are all present and former tenants who declined to sign the tolling
agreement. The tolling agreement tolls any claims by SFO and other participating
tenants against PST or PSG arising out of PST's fuel storage and distribution
facilities at SFO. It also tolls any claims PST or PSG may have against SFO or
any of the participating tenants relating to environmental investigatory and
cleanup costs at SFO. The Company is unable to determine whether the lawsuit
will ultimately have any material adverse consequences on it beyond the
expenditures PST contemplates incurring, the estimated amounts of which are
included in the second quarter 1997 environmental remediation charge referred to
in Note (b) of the Notes to Unaudited Condensed Consolidated Financial
Statements. Refer to Management's Discussion and Analysis of Financial Condition
and Results of Operations for additional information concerning environmental
remediation.


ITEM 2.  CHANGES IN SECURITIES.

         None.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

         None.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         The annual meeting of stockholders of the Company was held on May 30, 
         1997.  The

                                        2
<PAGE>
 
purpose of the meeting was to elect three directors with terms expiring in 2000
and to vote upon a single proposal to approve and adopt amendments (the "Board
Unclassification Amendments") to the Company's Restated Certificate of
Incorporation and the Company's Restated By-Laws which (i) would replace (x) the
provisions thereof which previously classified the Board into three classes,
with each director serving for a term ending on the date of the third annual
meeting following the annual meeting at which such director was elected, with
(y) provisions whereby every director would be elected at each annual meeting of
stockholders and would serve until such director's respective successor was
elected and qualified or until such director's earlier resignation or removal,
and (ii) would make certain related changes in the Company's Restated
Certificate of Incorporation and the Company's Restated By-Laws.

The votes cast for directors were as follows:
                                                For              Withheld
                                             ---------          ---------
J. P. Guerin                                 4,208,678          1,221,302
Christopher H. B. Mills                      5,402,360             27,620
Joseph S. Pirinea                            5,401,900             28,080


The votes cast for the Board Unclassification Amendments were as follows:

                                          For      Against     Abstain
                                      ---------    -------     -------
Board Unclassification Amendments     4,507,175    25,106      26,175


In addition to the above-named directors, the following persons continue to
serve as directors with terms expiring in 1998: William H. Borthwick, Robert M.
Fomon, and Gordon C. Luce; and the following persons serve as directors with
terms expiring in 1999: Steven D. Broidy, Donald W. Killian, Jr., and Charles E.
Rickershauser, Jr.

The three directors elected at the 1997 annual meeting (as well as all the other
members of the Board named above) have committed to resign immediately before
the vote on the election of directors is taken at the 1998 annual meeting of
stockholders.


ITEM 5.  OTHER INFORMATION.

         None.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

         (a)  Exhibits.

               10.  Letter Agreement entered into with Charles E. Rickershauser,
                    Jr. dated August 8, 1997. This Letter Agreement is
                    substantially identical in all material respects to the
                    Letter Agreements of the same date entered into with

                                        3
<PAGE>
 
                    Lawrence A. Guske and Johanna Unger.

               27.  Financial Data Schedule.

               99.1 Press release dated August 8, 1997 reporting a special cash
                    distribution of $1.50 per share payable on August 28, 1997
                    to shareholders of record on August 18, 1997.

         (b)  Reports on Form 8-K

               
              May 30,1997     Reported that the Board Unclassification
                              Amendments were approved and adopted by the
                              Company's stockholders and that certain other
                              By-Law amendments had been adopted by the
                              Company's Board of Directors.





                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.




                                    PS GROUP HOLDINGS, INC.
                                    -----------------------
                                        (Registrant)


Date: August 12, 1997


 /s/ L.A. Guske
-------------------------------
LAWRENCE A. GUSKE
Vice President - Finance and
Chief Financial Officer

                                        4
<PAGE>
 
PS GROUP HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(in thousands)
<TABLE>
<CAPTION>


                                                  1997       1996
                                              --------   --------
<S>                                           <C>        <C>     
ASSETS
Current assets:
   Cash and cash equivalents                  $  7,943   $  7,350
   U.S. Government securities                    6,721      6,799
   Accounts and notes receivable                23,183     26,932
   Current portion of aircraft leases            7,885     10,075
   Fuel inventory                                6,306     13,073
   Other current assets                          7,264      5,842
                                              --------   --------
      Total current assets                      59,302     70,071
Property and equipment, net                     23,256     22,604
Aircraft leased under operating leases, net     97,569    105,598
Investment in aircraft financing leases         84,909     88,669
Other assets                                     9,040     11,747
                                              --------   --------
                                              $274,076   $298,689
                                              ========   ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                            $  6,286   $ 10,231
  Accrued excise and sales tax                   1,742      7,866
  Environmental remediation liability            3,937        250
  Other current liabilities                      5,418      5,866
  Current portion of long-term obligations      22,442     23,890
                                              --------   --------
      Total current liabilities                 39,825     48,103
Long-term obligations                           70,017     81,895
Deferred income taxes                           35,416     37,572
Other liabilities                                7,988      7,528
Stockholders' equity:
   Common stock                                  6,068      6,068
   Additional paid-in capital                   98,420     98,420
   Retained earnings                            16,342     19,103
                                              --------   --------
      Total stockholders' equity               120,830    123,591
                                              --------   --------
                                              $274,076   $298,689
                                              ========   ========


</TABLE>

See accompanying notes.

                                      F - 1
<PAGE>
 
PS GROUP HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(in thousands, except per share amounts)

<TABLE> 
<CAPTION> 
                                                                 THREE MONTHS        SIX MONTHS
                                                                ENDED JUNE 30,     ENDED JUNE 30,
                                                              ----------------- -----------------
                                                                   1997    1996     1997     1996
                                                              ----------------- -----------------
<S>                                                           <C>       <C>     <C>      <C> 
Revenues:
   Fuel sales and distribution                                 $ 39,799 $60,738 $ 95,674 $ 99,915
   Oil and gas production                                         2,135   2,054    4,651    3,847
   Aircraft leasing                                               7,902   8,433   15,843   17,263
   Interest and other                                               372     391      767      708
                                                              ----------------- -----------------
                                                                 50,208  71,616  116,935  121,733
                                                              ----------------- -----------------
Costs and expenses:
   Cost of sales                                                 42,886  59,061   99,358   98,466
   Environmental remediation expenses                             3,729     524    3,729      697
   Depreciation, depletion and amortization                       5,572   4,038    9,441    8,018
   General and administrative expenses                            1,565   1,809    3,065    3,246
   Interest expense                                               2,902   3,498    6,004    7,130
                                                              ----------------- -----------------
                                                                 56,654  68,930  121,597  117,557
                                                              ----------------- -----------------
Income (loss) before taxes                                      (6,446)   2,686  (4,662)    4,176
Provision (credit) for taxes                                    (2,677)   1,119  (1,901)    1,738
                                                              ----------------- -----------------
      Net income (loss)                                       $ (3,769) $ 1,567 $(2,761) $  2,438
                                                              ================= =================


Net income (loss) per share                                   $   (.62) $   .26 $  (.46) $    .40
                                                              ================= =================
Shares used in determining
   net income (loss) per share                                   6,068    6,068   6,068     6,068
                                                              ================= =================
</TABLE>

See accompanying notes.

                                      F - 2
<PAGE>
 
PS GROUP HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE, 1997 AND 1996
(in thousands)
<TABLE>
<CAPTION>

                                                           1997        1996
                                                       --------    --------
<S>                                                    <C>         <C>     
Cash provided from operating activities                $  8,559    $  5,398
Cash flows from financing activities:
   Additions to long-term obligations                       300       1,700
   Reductions in long-term obligations                  (13,626)     (9,759)
                                                       --------    --------
        Net cash used in financing activities           (13,326)     (8,059)
                                                       --------    --------
Cash flows from investing activities:
   Proceeds from sales of U.S. Government securities        993       5,093
   Capital additions                                     (1,933)     (1,777)
   Financing leases and other                             6,300       1,902
                                                       --------    --------
        Net cash provided from investing activities       5,360       5,218
                                                       --------    --------
Net increase in cash and cash equivalents                   593       2,557
Cash and cash equivalents at beginning of period          7,350       3,999
                                                       --------    --------
Cash and cash equivalents at end of period             $  7,943    $  6,556
                                                       ========    ========

</TABLE>


See accompanying notes.

                                      F - 3
<PAGE>
 
PS GROUP HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(a)  In the opinion of management, the accompanying Unaudited Condensed
     Consolidated Financial Statements include all adjustments (consisting only
     of normal recurring adjustments, other than the adjustments for
     environmental remediation liabilities and depreciation on BAe 146 aircraft
     described in Notes (b) and (c) below) necessary for a fair statement of the
     consolidated financial position at June 30, 1997, and the results of
     operations for the three and six months ended June 30, 1997
     and 1996 and cash flows for the six months ended June 30, 1997 and 1996.
     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the amounts reported in the financial statements.
     Actual results could differ from those estimates. Certain reclassifications
     have been made to the 1996 financial statements to make them comparable to
     the 1997 presentation. These Unaudited Condensed Consolidated Financial
     Statements should be read in conjunction with the Consolidated Financial
     Statements and Notes thereto contained in the Company's 1996 Annual Report
     to Stockholders.

(b)  The Company applies Statement of Position 96-1, "Environmental Remediation
     Liabilities", issued by the American Institute of Certified Public
     Accountants. In accordance with that statement and, as more fully described
     in Management's Discussion and Analysis of Financial Condition and Results
     of Operations (MD&A), PST recorded an environmental remediation liability
     of $3.7 million in the second quarter of 1997.

(c)  In the second quarter of 1997, PSG recorded additional depreciation expense
     of $1.7 million ($1 million after tax - $.16 per share) on five of the ten
     BAe 146 aircraft leased to US Airways. With respect to these five aircraft
     the specified lease termination values were below the net book values of
     the aircraft. This additional depreciation was recorded to reflect
     notification received from US Airways that it may exercise its lease
     termination rights with respect to four of the ten BAe 146 aircraft
     (including three of these five aircraft on which additional depreciation is
     being recorded) at specified lease termination values. In light of this
     notification and the improved market for possible sales by US Airways, PSG
     adjusted its depreciation to reflect the lease termination values on these
     five aircraft. PSG was previously depreciating all ten aircraft to the
     final lease termination amounts on a straight-line basis. Starting in the
     second quarter of 1997, the US Airways' lease on these five BAe 146's
     reflects lower interim termination values which require PSG's depreciation
     to be increased. Refer to MD&A for additional information.

(d)  Restrictions on the transfer of common shares - Effective with the holding
     company reorganization on June 5, 1996, certain restrictions were imposed
     on the transfer of common shares of the Company. In general, and subject to
     an exemption for certain dispositions of shares by persons who were
     "pre-existing 5% shareholders" (as defined in the Company's Restated
     Certificate of Incorporation) on June 5, 1996, the transfer restrictions
     prohibit, without prior approval of the Board of Directors, the direct or
     indirect disposition or acquisition of any stock of the Company by or to
     any holder who owns, or would, as a result thereof, own (either directly or
     through the tax attribution rules) 5% or more of the stock upon such
     acquisition. These restrictions have been imposed in order to help preserve
     the Company's substantial net operating loss and

                                      F - 4
<PAGE>
 
     investment tax credit carryforwards and other tax benefits by decreasing
     the risk of an "ownership change" for federal income tax purposes.



MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

FINANCIAL CONDITION

      At June 30, 1997, the Company's principal sources of liquidity were cash,
cash equivalents, and U.S. Government securities totaling $14.7 million, a $.5
million increase from December 31, 1996. The major changes in cash and cash
equivalents are reported in the Unaudited Condensed Consolidated Statements of
Cash Flows. Working capital decreased by $2.5 million since December 31, 1996.
The Company's capitalization consisted of 43% long and short-term obligations
and 57% equity at June 30, 1997 compared to 46%/54% at December 31, 1996.

      At the end of 1997's second quarter, $5 million was outstanding under a
bank credit agreement, consisting entirely of letters of credit, all of which
were fully cash collateralized. No borrowings are permitted under the bank
credit agreement.

      Statex Petroleum, Inc. (Statex), the Company's oil and gas production and
development subsidiary, has a separate bank credit agreement collateralized by
its major oil properties. The total availability is $6 million but on approval
could be increased up to $11 million. During the first six months of 1997, $.3
million was borrowed under this agreement, bringing the total outstanding to
$3.3 million. This source of funding is intended for the acquisition and
development of properties which Statex may acquire in the future.

      The Company's assets include approximately $135 million for which
realization is substantially dependent upon the future performance of US Airways
under aircraft leases with PSG. All payments due from US Airways are current
through the date this Form 10-Q was filed. However, US Airway's long-term
financial future is uncertain. Should US Airways default on its leases with PSG,
or file bankruptcy and reject certain of such leases, there could be a material
decrease in the market value of the types of aircraft leased to US Airways due
to an increased availability of these aircraft for lease or sale. In such case,
PSG could suffer significant losses on the ultimate disposal of the related
aircraft or upon the ultimate repossession of the aircraft by the lenders. For a
more complete discussion of US Airway's relationships to PSG's financial
condition, refer to Exhibit 13 to the Company's 1996 Form 10-K. The Company
refers readers to public information regarding US Airways for further details
relating to its financial condition.

      The Company believes that, absent a failure by US Airways to meet its
lease obligations to PSG, the Company's cash, cash equivalents, U.S. Government
securities and the availability under Statex's bank credit agreement, plus
projected cash flow, are adequate to meet the operating and planned capital
needs of the Company in both the short and long-term.

RESULTS OF OPERATIONS - COMPARISON OF THE THREE AND SIX MONTHS ENDED JUNE 30,
1997 AND 1996

REVENUES - Second quarter 1997 revenues from fuel sales and distribution
(conducted by PST) were 34% lower than in the second quarter of 1996. This
reduction was primarily due to reduced volumes associated with the reassessment
of PST's Wholesale Division in March

                                      F - 5
<PAGE>
 
1997 and lower fuel prices in 1997. The reassessment resulted in a revised
operating plan which management believed would enhance the possibilities of
profitability by concentrating on higher margin, generally lower volume
customers. As a result of implementing this plan, PST's sales, inventories and
accounts receivable were reduced in the second quarter of 1997. Because of
higher sales levels in the first quarter of 1997, PST's total revenue for the
first half of 1997 was only 4% lower than the first half of 1996.

      Oil and gas production revenues for the second quarter of 1997 were
slightly higher compared to the second quarter of 1996 due to increased oil and
gas volumes partially offset by lower prices. Revenues for the first half of
1997 were up 21% compared to the first half of 1996 due primarily to increased
oil and gas volumes and higher prices in the first quarter of 1997.

      Aircraft leasing revenues were down in the second quarter and first half
of 1997 compared to the similar periods in 1996 due to declining revenues
associated with financing leases, lease rate resets on certain aircraft leases
(which were matched by lower interest rates on the related debt), the sale of
PSG's interest in six 737-300 aircraft in December 1996, and 1996 second quarter
and first half income from a Pan Am bankruptcy settlement and Pan Am 747 engine
parts sale.

      Interest and other revenues were higher during the first half of 1997
principally due to reduced investment losses on U.S. Government securities 
($41,000 loss in the first half of 1997 versus $161,000 loss in the first half
of 1996).

COSTS AND EXPENSES - The changes in cost of sales during the second quarter and
first half of 1997 compared to the similar 1996 periods primarily reflect the
changes in volumes of fuel sold by PST referred to previously.

      The $3.7 million of environmental remediation expenses in the second
quarter of 1997 relate to estimated costs for the investigation and remediation
(I&M) of potential soil and groundwater pollution at SFO where PST, as the
operator of various fuel storage and distribution facilities, has been named as
a potentially responsible party (PRP). The 1996 environmental remediation
expense relates to SFO pipeline removal charges.

      PST's estimate of the additional costs relate primarily to anticipated
expenditures to be incurred in response to claims by SFO for: 1) the removal or
cementing-in-place of a 3.6 mile underground pipeline which has not been used
since 1987, 2) PST's estimated portion of claims by SFO for both specific
projects and airport-wide I&M expenditures through December 31, 1996 (SFO is
seeking a total reimbursement in excess of $15.0 million from 26 tenants and has
to date, not asserted its definitive allocation among the tenants), 3) I&M
expenses incurred to settle a claim for a small fuel storage facility removed in
1993 in response to an SFO claim, and 4) additional estimated I&M claims related
to future SFO construction that will continue past the year 2000. There is a
substantial likelihood that PST's estimate of SFO expenditures may change in the
near and long term to reflect updated information concerning: 1) the level, area
and method of remediation of pollution, 2) possible changes in PST's allocation
of remediation expenses, 3) the possibility of potential future claims being
filed against PST by other PRPs, and 4) other PRPs not being able or willing to
fund their allocated portion of expenses. Refer to Item 1. Legal Proceedings for
a description of a suit filed in San Francisco Superior Court against various
present and former tenants who had operated fuel storage and other facilities at
SFO seeking to recover costs incurred in connection with the investigation and
cleanup of contamination in and around SFO. Neither the Company nor any of its
subsidiaries is a named defendant in the lawsuit.

      The Company is unable to determine the extent, if any, to which any
expenditures which PST incurs (including the second quarter 1997 charge) in
connection with environmental costs at SFO may be recoverable from third
parties, including the prior

                                      F - 6
<PAGE>
 
lessees of the facilities that PST took by way of assignment, other tenants at
SFO, or PST's insurers. Both the prior lessees and PST insurers have disputed
PST's claims for recovery of SFO environmental costs and both the prior lessees
have indicated that they will assert indemnification claims against PST. PST is
not able to estimate and therefore has not recorded an estimate of potential
recovery from or by the third parties.

      As described in Note (c) of the Notes to Unaudited Condensed Consolidated
Financial Statements, the increase in depreciation expense in the second quarter
and first half of 1997 relates to $1.7 million of additional depreciation
expense recorded on five BAe 146 aircraft leased to US Airways that may be sold
in accordance with lease termination provisions. Starting in the second quarter
of 1997, the US Airways' lease on those five BAe 146's reflects lower interim
termination values which require PSG's depreciation to be increased. If sales do
not occur, the additional depreciation expense (net of tax) to be recorded in
succeeding periods on those five BAe146's to match the future lease termination
values is as follows - $1.5 million ($.21 per share) in the last six months of
1997, $1.1 million ($.18 per share) in 1998, and $.4 million ($.07 per share) in
1999.

      If the leases on the four BAe 146 aircraft that US Airways has indicated
an interest in selling were terminated as of September 30, 1997 (which US
Airways has indicated is its target date), PSG would receive approximately $8.3
million in sales proceeds after debt pay-downs aggregating approximately $10.2
million. In addition, if the sales do occur, the additional depreciation shown
above for 1998 and 1999 would be significantly reduced and the tax gain on the
sale would utilize approximately $18.5 million of the available net operating
loss carryforward.

      PSG has no control over US Airways' possible sales of any of the ten
leased BAe 146 aircraft and there is no assurances such sales will occur.

      General and administrative expenses were lower in both the second quarter
and first half of 1997 compared to the 1996 periods primarily due to 1996
expenses related to the holding company reorganization approved by shareholders
in June 1996. In addition, the second quarter and first half of 1997 includes
the estimated settlement costs relating to a former employee.

      Interest expense decreased in the second quarter and first half of 1997
compared to the same periods in 1996 primarily due to lower levels of
outstanding debt.

INCOME TAXES - Taxes in both 1997 and 1996 differ from the corporate federal tax
rate primarily because of the effect of state taxes.

SEGMENT RESULTS - PSG recorded significantly reduced results in 1997 due to the
additional aircraft depreciation previously mentioned. As a holder of fuel
inventories, lower fuel prices resulted in significant operating and net losses
for PST in 1997 versus profits in 1996. Due to increased well maintenance cost
and weakening oil prices in 1997 versus strengthening oil prices in 1996, Statex
recorded lower net income in 1997 despite higher production levels.



                                      F - 7