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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 September 28, 2008

Or



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

For the transition period from  to

Commission File Number 333-147828





Hawker Beechcraft Acquisition Company, LLC

Hawker Beechcraft Notes Company

(Exact name of registrant as specified in its charter)







|                         |  |                                        
|------------------------ |  | ---------------------------------------
|Delaware                 |  | 71-1018770, 20-8650498                 
|(State of Incorporation) |  | (I.R.S. Employer Identification Number)

10511 East Central, Wichita, Kansas 67206

(Address of Principal Executive Offices) (Zip Code)

(316) 676-7111

(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 by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of accelerated filer, large accelerated filer and smaller reporting company in
Rule 12b-2 of the Exchange Act.

Large accelerated filer   ̈    Accelerated filer   ̈    Non-accelerated filer  x    Smaller
reporting company   ̈

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).    Yes   ̈    No  x

No membership interests in Hawker Beechcraft Acquisition Company, LLC, and no common shares of Hawker Beechcraft Notes Company are held by non-affiliates.









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##### Table of Contents

Table of Contents



|                               |  |            |  |                                                                                       |  |   
|------------------------------ |  | ---------- |  | ------------------------------------------------------------------------------------- |  | --
|Part I  Financial Information |  |           
|                               |  |            | 
|                               |  | Item 1.    |  | Financial Statements (Unaudited)                                                      |  |   
|                               |  |            |  | Condensed Consolidated Statements of Financial Position (Unaudited)                   |  | 3 
|                               |  |            |  | Condensed Consolidated Statements of Operations (Unaudited)                           |  | 4 
|                               |  |            |  | Condensed Consolidated Statements of Equity and Comprehensive Income (Unaudited)      |  | 5 
|                               |  |            |  | Condensed Consolidated Statements of Cash Flows (Unaudited)                           |  | 6 
|                               |  |            |  | Notes to Condensed Consolidated Financial Statements (Unaudited)                      |  | 7 
|                               |  |            | 
|                               |  | Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 29
|                               |  |            | 
|                               |  | Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 40
|                               |  |            | 
|                               |  | Item 4.    |  | Controls and Procedures                                                               |  | 40
|                               | 
|Part II  Other Information    |  |           
|                               |  |            | 
|                               |  | Item 1.    |  | Legal Proceedings                                                                     |  | 41
|                               |  |            | 
|                               |  | Item 1A.   |  | Risk Factors                                                                          |  | 41
|                               |  |            | 
|                               |  | Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 42
|                               |  |            | 
|                               |  | Item 3.    |  | Defaults Upon Senior Securities                                                       |  | 42
|                               |  |            | 
|                               |  | Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 42
|                               |  |            | 
|                               |  | Item 5.    |  | Other Information                                                                     |  | 42
|                               |  |            | 
|                               |  | Item 6.    |  | Exhibits                                                                              |  | 43
|                               |  |           
|                               |  | Signatures |  | 44                                                                                   



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##### Table of Contents

PART I  FINANCIAL INFORMATION



|Item 1. | Financial Statements (Unaudited)
|------- | --------------------------------

Hawker Beechcraft Acquisition Company, LLC

Condensed Consolidated
Statements of Financial Position (Unaudited)

(In millions)



|                                                          |  |                   |         |   |                  |   |        
|--------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | -------
|                                                          |  | September 28,2008 |         |   | December 31,2007
|Assets                                                    |  |                   |         |   |                  |   |        
|Current assets                                            |  |                   |         |   |                  |   |        
|Cash and cash equivalents                                 |  | $                 | 319.0   |   |                  | $ | 569.5  
|Accounts and notes receivable, net                        |  |                   | 98.4    |   |                  |   | 80.3   
|Unbilled revenue                                          |  |                   | 42.8    |   |                  |   | 24.1   
|Inventories, net                                          |  |                   | 1,923.2 |   |                  |   | 1,289.3
|Current deferred income tax asset                         |  |                   | 35.9    |   |                  |   | 47.9   
|Assets held for sale                                      |  |                   | 21.6    |   |                  |   |       
|Prepaid expenses and other current assets                 |  |                   | 29.1    |   |                  |   | 60.5   
|                                                          |  |                   |         |   |                  |   |        
|Total current assets                                      |  |                   | 2,470.0 |   |                  |   | 2,071.6
|                                                          |  |                  
|Property, plant and equipment, net                        |  |                   | 639.3   |   |                  |   | 655.7  
|Goodwill                                                  |  |                   | 599.6   |   |                  |   | 716.0  
|Intangible assets, net                                    |  |                   | 1,066.4 |   |                  |   | 1,118.2
|Non-current deferred income tax asset                     |  |                   | 47.5    |   |                  |   |       
|Other assets, net                                         |  |                   | 103.8   |   |                  |   | 113.7  
|                                                          |  |                   |         |   |                  |   |        
|Total assets                                              |  | $                 | 4,926.6 |   |                  | $ | 4,675.2
|                                                          |  |                   |         |   |                  |   |        
|                                                          |  |                  
|Liabilities and Equity                                    |  |                   |         |   |                  |   |        
|Current liabilities                                       |  |                   |         |   |                  |   |        
|Notes payable and current portion of long-term debt       |  | $                 | 102.7   |   |                  | $ | 69.6   
|Advance payments and billings in excess of costs incurred |  |                   | 613.7   |   |                  |   | 541.2  
|Accounts payable                                          |  |                   | 397.0   |   |                  |   | 323.6  
|Accrued salaries and wages                                |  |                   | 60.1    |   |                  |   | 60.5   
|Accrued interest payable                                  |  |                   | 70.4    |   |                  |   | 25.4   
|Other accrued expenses                                    |  |                   | 233.1   |   |                  |   | 168.7  
|                                                          |  |                   |         |   |                  |   |        
|Total current liabilities                                 |  |                   | 1,477.0 |   |                  |   | 1,189.0
|                                                          |  |                  
|Long-term debt                                            |  |                   | 2,370.8 |   |                  |   | 2,377.3
|Accrued retiree benefits and other long-term liabilities  |  |                   | 115.8   |   |                  |   | 103.0  
|Non-current deferred income tax liability                 |  |                   |        |   |                  |   | 1.5    
|                                                          |  |                   |         |   |                  |   |        
|Total liabilities                                         |  |                   | 3,963.6 |   |                  |   | 3,670.8
|                                                          |  |                  
|Paid-in capital                                           |  |                   | 996.1   |   |                  |   | 989.2  
|Accumulated other comprehensive (loss) income             |  |                   | (6.3    | ) |                  |   | 14.4   
|Retained (deficit) earnings                               |  |                   | (26.8   | ) |                  |   | 0.8    
|                                                          |  |                   |         |   |                  |   |        
|Total equity                                              |  |                   | 963.0   |   |                  |   | 1,004.4
|                                                          |  |                   |         |   |                  |   |        
|Total liabilities and equity                              |  | $                 | 4,926.6 |   |                  | $ | 4,675.2
|                                                          |  |                   |         |   |                  |   |        

The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.



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Hawker Beechcraft Acquisition Company, LLC

Condensed Consolidated Statements of Operations (Unaudited)

(In millions)



|                                             |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|-------------------------------------------- |  | ---------------------------------- | ----- | - | ---------------------------------- | - | ----- | --------------------------------- |  | ----------- | -------------------------------- | - |  | - | ------- | ------------------------------ |  |  |  | - | ----- | -
|                                             |  | Successor                          |       |   | Successor                          |   |       |                                   |  | Predecessor |                                 
|                                             |  | Three MonthsEndedSeptember 28,2008 |       |   | Three MonthsEndedSeptember 30,2007 |   |       | Nine MonthsEndedSeptember 28,2008 |  |             | Six MonthsEndedSeptember 30,2007 |   |  |   |         | Three MonthsEndedMarch 25,2007 | 
|Sales:                                       |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|Aircraft and parts                           |  | $                                  | 728.4 |   |                                    | $ | 815.4 |                                   |  | $           | 2,201.8                          |   |  | $ | 1,457.1 |                                |  |  |  | $ | 603.9 |  
|Services                                     |  |                                    | 54.9  |   |                                    |   | 55.6  |                                   |  |             | 186.7                            |   |  |   | 115.0   |                                |  |  |  |   | 46.4  |  
|Sales to related parties                     |  |                                    |      |   |                                    |   |      |                                   |  |             |                                 |   |  |   |        |                                |  |  |  |   | 20.5  |  
|                                             |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|Total sales                                  |  |                                    | 783.3 |   |                                    |   | 871.0 |                                   |  |             | 2,388.5                          |   |  |   | 1,572.1 |                                |  |  |  |   | 670.8 |  
|                                             |  |                                    |       |   |                                    |  
|Cost of sales:                               |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|Aircraft and parts                           |  |                                    | 621.9 |   |                                    |   | 660.7 |                                   |  |             | 1,838.4                          |   |  |   | 1,261.1 |                                |  |  |  |   | 486.4 |  
|Services                                     |  |                                    | 52.4  |   |                                    |   | 61.0  |                                   |  |             | 171.0                            |   |  |   | 119.1   |                                |  |  |  |   | 51.7  |  
|Sales to related parties                     |  |                                    |      |   |                                    |   |      |                                   |  |             |                                 |   |  |   |        |                                |  |  |  |   | 20.5  |  
|                                             |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|Cost of sales                                |  |                                    | 674.3 |   |                                    |   | 721.7 |                                   |  |             | 2,009.4                          |   |  |   | 1,380.2 |                                |  |  |  |   | 558.6 |  
|                                             |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|Gross margin                                 |  |                                    | 109.0 |   |                                    |   | 149.3 |                                   |  |             | 379.1                            |   |  |   | 191.9   |                                |  |  |  |   | 112.2 |  
|                                             |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|Selling, general and administrative expenses |  |                                    | 65.9  |   |                                    |   | 66.4  |                                   |  |             | 198.6                            |   |  |   | 121.6   |                                |  |  |  |   | 59.5  |  
|Research and development expenses            |  |                                    | 27.8  |   |                                    |   | 20.8  |                                   |  |             | 80.3                             |   |  |   | 44.8    |                                |  |  |  |   | 21.3  |  
|                                             |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|Operating income                             |  |                                    | 15.3  |   |                                    |   | 62.1  |                                   |  |             | 100.2                            |   |  |   | 25.5    |                                |  |  |  |   | 31.4  |  
|                                             |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|Intercompany interest expense, net           |  |                                    |      |   |                                    |   |      |                                   |  |             |                                 |   |  |   |        |                                |  |  |  |   | 15.8  |  
|Interest expense (income), net               |  |                                    | 48.0  |   |                                    |   | 56.3  |                                   |  |             | 142.5                            |   |  |   | 107.5   |                                |  |  |  |   | (0.9  | )
|Other income, net                            |  |                                    | (1.1  | ) |                                    |   | (1.7  | )                                 |  |             | (0.7                             | ) |  |   | (2.8    | )                              |  |  |  |   | (0.1  | )
|                                             |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|Non-operating expense, net                   |  |                                    | 46.9  |   |                                    |   | 54.6  |                                   |  |             | 141.8                            |   |  |   | 104.7   |                                |  |  |  |   | 14.8  |  
|                                             |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|(Loss) income before taxes                   |  |                                    | (31.6 | ) |                                    |   | 7.5   |                                   |  |             | (41.6                            | ) |  |   | (79.2   | )                              |  |  |  |   | 16.6  |  
|                                             |  |                                    |       |   |                                    |  
|(Benefit from) provision for income taxes    |  |                                    | (10.4 | ) |                                    |   | (13.8 | )                                 |  |             | (14.0                            | ) |  |   | (23.4   | )                              |  |  |  |   | 6.4   |  
|                                             |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|Net (loss) income                            |  | $                                  | (21.2 | ) |                                    | $ | 21.3  |                                   |  | $           | (27.6                            | ) |  | $ | (55.8   | )                              |  |  |  | $ | 10.2  |  
|                                             |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  

The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.



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Hawker Beechcraft Acquisition Company, LLC

Condensed Consolidated Statements of Equity and Comprehensive Income (Unaudited)

(In millions)

Condensed Consolidated Statements of Equity:

For the Period January 1, 2007-March 25, 2007 (Predecessor)



|                                               |  |                         |         |                                     |   |       |                     |  |   |         |  
|---------------------------------------------- |  | ----------------------- | ------- | ----------------------------------- | - | ----- | ------------------- |  | - | ------- | -
|                                               |  | Raytheon'sNetInvestment |         | AccumulatedOtherComprehensive(Loss) |   |       | TotalInvestedEquity | 
|Balance at January 1, 2007                     |  | $                       | 1,330.0 |                                     | $ | (85.9 | )                   |  | $ | 1,244.1 |  
|Net transfers from Raytheon                    |  |                         | 117.4   |                                     |   |       |                     |  |   | 117.4   |  
|Stock-based compensation                       |  |                         | 1.2     |                                     |   |       |                     |  |   | 1.2     |  
|Net income                                     |  |                         | 10.2    |                                     |   |       |                     |  |   | 10.2    |  
|Other comprehensive income (loss), net of tax: |  |                         |         |                                     |   |       |                     |  |   |         |  
|Amortization of pension and other benefits     |  |                         |         |                                     |   | 5.5   |                     |  |   | 5.5     |  
|Unrealized loss on cash flow hedges            |  |                         |         |                                     |   | (1.1  | )                   |  |   | (1.1    | )
|Foreign currency translation adjustments       |  |                         |         |                                     |   | (1.7  | )                   |  |   | (1.7    | )
|Unrealized losses on investments               |  |                         |         |                                     |   | (0.3  | )                   |  |   | (0.3    | )
|                                               |  |                         |         |                                     |   |       |                     |  |   |         |  
|Balance at March 25, 2007                      |  | $                       | 1,458.8 |                                     | $ | (83.5 | )                   |  | $ | 1,375.3 |  
|                                               |  |                         |         |                                     |   |       |                     |  |   |         |  

For the Period March 26, 2007-September 28, 2008 (Successor)



|                                               |  |                |       |                           |   |       |                                            |  |   |             |   |  |   |         |  
|---------------------------------------------- |  | -------------- | ----- | ------------------------- | - | ----- | ------------------------------------------ |  | - | ----------- | - |  | - | ------- | -
|                                               |  | Paid-inCapital |       | RetainedEarnings(Deficit) |   |       | AccumulatedOtherComprehensiveIncome (Loss) |  |   | TotalEquity |  
|Balance at March 26, 2007                      |  |                |       |                           |   |       |                                            |  |   |             |   |  |   |         |  
|Net contribution from Hawker Beechcraft, Inc.  |  | $              | 976.7 |                           | $ |      |                                            |  | $ |            |   |  | $ | 976.7   |  
|Stock-based compensation                       |  |                | 12.5  |                           |   |       |                                            |  |   |             |   |  |   | 12.5    |  
|Net income                                     |  |                |       |                           |   | 0.8   |                                            |  |   |             |   |  |   | 0.8     |  
|Other comprehensive income (loss), net of tax: |  |                |       |                           |   |       |                                            |  |   |             |   |  |   |         |  
|Net gain on pension and other benefits         |  |                |       |                           |   |       |                                            |  |   | 27.0        |   |  |   | 27.0    |  
|Unrealized loss on cash flow hedges            |  |                |       |                           |   |       |                                            |  |   | (12.3       | ) |  |   | (12.3   | )
|Foreign currency translation adjustments       |  |                |       |                           |   |       |                                            |  |   | (0.3        | ) |  |   | (0.3    | )
|                                               |  |                |       |                           |   |       |                                            |  |   |             |   |  |   |         |  
|Balance at December 31, 2007                   |  | $              | 989.2 |                           | $ | 0.8   |                                            |  | $ | 14.4        |   |  | $ | 1,004.4 |  
|Stock-based compensation                       |  |                | 6.9   |                           |   |       |                                            |  |   |             |   |  |   | 6.9     |  
|Net loss                                       |  |                |       |                           |   | (27.6 | )                                          |  |   |             |   |  |   | (27.6   | )
|Other comprehensive income (loss), net of tax: |  |                |       |                           |   |       |                                            |  |   |             |   |  |   |         |  
|Net gain on pension and other benefits         |  |                |       |                           |   |       |                                            |  |   | 0.4         |   |  |   | 0.4     |  
|Unrealized loss on cash flow hedges            |  |                |       |                           |   |       |                                            |  |   | (20.5       | ) |  |   | (20.5   | )
|Foreign currency translation adjustments       |  |                |       |                           |   |       |                                            |  |   | (0.6        | ) |  |   | (0.6    | )
|                                               |  |                |       |                           |   |       |                                            |  |   |             |   |  |   |         |  
|Balance at September 28, 2008                  |  | $              | 996.1 |                           | $ | (26.8 | )                                          |  | $ | (6.3        | ) |  | $ | 963.0   |  
|                                               |  |                |       |                           |   |       |                                            |  |   |             |   |  |   |         |  



Comprehensive (Loss) Income:



|                                         |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |       |                                |  |  |  |   |      |  
|---------------------------------------- |  | ---------------------------------- | ----- | - | ---------------------------------- | - | ----- | --------------------------------- |  | ----------- | -------------------------------- | - |  | - | ----- | ------------------------------ |  |  |  | - | ---- | -
|                                         |  | Successor                          |       |   | Successor                          |   |       |                                   |  | Predecessor |                                 
|(In millions)                            |  | Three MonthsEndedSeptember 28,2008 |       |   | Three MonthsEndedSeptember 30,2007 |   |       | Nine MonthsEndedSeptember 28,2008 |  |             | Six MonthsEndedSeptember 30,2007 |   |  |   |       | Three MonthsEndedMarch 25,2007 | 
|Net (loss) income                        |  | $                                  | (21.2 | ) |                                    | $ | 21.3  |                                   |  | $           | (27.6                            | ) |  | $ | (55.8 | )                              |  |  |  | $ | 10.2 |  
|Foreign currency translation adjustments |  |                                    | (1.4  | ) |                                    |   | 0.5   |                                   |  |             | (0.6                             | ) |  |   | (0.5  | )                              |  |  |  |   | (1.7 | )
|Unrealized loss on cash flow hedges      |  |                                    | (23.4 | ) |                                    |   | (11.7 | )                                 |  |             | (20.5                            | ) |  |   | (5.2  | )                              |  |  |  |   | (1.1 | )
|Unrealized loss on investments           |  |                                    |      |   |                                    |   |      |                                   |  |             |                                 |   |  |   |      |                                |  |  |  |   | (0.3 | )
|Net gain on pension and other benefits   |  |                                    | 0.1   |   |                                    |   |      |                                   |  |             | 0.4                              |   |  |   |      |                                |  |  |  |   | 5.5  |  
|                                         |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |       |                                |  |  |  |   |      |  
|Total comprehensive (loss) income        |  | $                                  | (46.0 | ) |                                    | $ | 10.1  |                                   |  | $           | (48.3                            | ) |  | $ | (61.5 | )                              |  |  |  | $ | 12.6 |  
|                                         |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |       |                                |  |  |  |   |      |  

The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.



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##### Table of Contents

Hawker Beechcraft Acquisition Company, LLC

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)



|                                                                                                   |  |                                   |        |   |                                  |   |             |   |  |                                |  |   |        |  
|-------------------------------------------------------------------------------------------------- |  | --------------------------------- | ------ | - | -------------------------------- | - | ----------- | - |  | ------------------------------ |  | - | ------ | -
|                                                                                                   |  | Successor                         |        |   |                                  |   | Predecessor |  
|                                                                                                   |  | Nine MonthsEndedSeptember 28,2008 |        |   | Six MonthsEndedSeptember 30,2007 |   |             |   |  | Three MonthsEndedMarch 25,2007 | 
|Cash flows from operating activities:                                                              |  |                                   |        |   |                                  |   |             |   |  |                                |  |   |        |  
|Net (loss) income                                                                                  |  | $                                 | (27.6  | ) |                                  | $ | (55.8       | ) |  |                                |  | $ | 10.2   |  
|Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: |  |                                   |        |   |                                  |   |             |   |  |                                |  |   |        |  
|Depreciation                                                                                       |  |                                   | 63.0   |   |                                  |   | 37.5        |   |  |                                |  |   | 18.6   |  
|Amortization of intangible assets                                                                  |  |                                   | 54.9   |   |                                  |   | 37.5        |   |  |                                |  |   | 3.3    |  
|Amortization of debt issuance costs                                                                |  |                                   | 7.2    |   |                                  |   | 4.8         |   |  |                                |  |   |       |  
|Amortization of deferred compensation                                                              |  |                                   | 3.0    |   |                                  |   | 4.8         |   |  |                                |  |   |       |  
|Stock-based compensation                                                                           |  |                                   | 6.9    |   |                                  |   | 7.5         |   |  |                                |  |   | 1.2    |  
|Current and deferred income taxes                                                                  |  |                                   | (14.5  | ) |                                  |   | (12.9       | ) |  |                                |  |   | (10.3  | )
|                                                                                                   |  |                                   |        |  
|Changes in assets and liabilities:                                                                 |  |                                   |        |   |                                  |   |             |   |  |                                |  |   |        |  
|Accounts receivable, net                                                                           |  |                                   | (18.5  | ) |                                  |   | 16.1        |   |  |                                |  |   | 8.6    |  
|Unbilled revenue, advanced payments and billings in excess of costs incurred                       |  |                                   | 53.8   |   |                                  |   | 160.8       |   |  |                                |  |   | (81.0  | )
|Inventories, net                                                                                   |  |                                   | (464.3 | ) |                                  |   | (106.2      | ) |  |                                |  |   | (87.9  | )
|Prepaid expenses and other current assets                                                          |  |                                   | 12.4   |   |                                  |   | (60.8       | ) |  |                                |  |   | 33.2   |  
|Accounts payable                                                                                   |  |                                   | 73.4   |   |                                  |   | 0.6         |   |  |                                |  |   | (6.7   | )
|Accrued salaries and wages                                                                         |  |                                   | (0.4   | ) |                                  |   | 9.8         |   |  |                                |  |   | 0.3    |  
|Other accrued expenses                                                                             |  |                                   | 114.9  |   |                                  |   | 106.0       |   |  |                                |  |   | (15.9  | )
|Pension and other changes, net                                                                     |  |                                   | (18.0  | ) |                                  |   | 6.3         |   |  |                                |  |   | 3.5    |  
|Income taxes paid                                                                                  |  |                                   | (6.3   | ) |                                  |   |            |   |  |                                |  |   |       |  
|Origination of financing receivables                                                               |  |                                   |       |   |                                  |   |            |   |  |                                |  |   | (20.6  | )
|Collection of financing receivables not sold                                                       |  |                                   | 0.4    |   |                                  |   | 40.4        |   |  |                                |  |   | 36.2   |  
|                                                                                                   |  |                                   |        |   |                                  |   |             |   |  |                                |  |   |        |  
|Net cash (used in) provided by operating activities                                                |  |                                   | (159.7 | ) |                                  |   | 196.4       |   |  |                                |  |   | (107.3 | )
|                                                                                                   |  |                                   |        |   |                                  |   |             |   |  |                                |  |   |        |  
|                                                                                                   |  |                                   |        |  
|Cash flows from investing activities:                                                              |  |                                   |        |   |                                  |   |             |   |  |                                |  |   |        |  
|Expenditures for property, plant and equipment                                                     |  |                                   | (46.2  | ) |                                  |   | (30.7       | ) |  |                                |  |   | (26.2  | )
|Additions to computer software                                                                     |  |                                   | (3.1   | ) |                                  |   |            |   |  |                                |  |   | (1.1   | )
|Proceeds from sale of fuel and line operations, net                                                |  |                                   | 101.7  |   |                                  |   |            |   |  |                                |  |   |       |  
|Acquisition of business, net of cash acquired                                                      |  |                                   |       |   |                                  |   | (3,218.0    | ) |  |                                |  |   |       |  
|                                                                                                   |  |                                   |        |   |                                  |   |             |   |  |                                |  |   |        |  
|Net cash provided by (used in) investing activities                                                |  |                                   | 52.4   |   |                                  |   | (3,248.7    | ) |  |                                |  |   | (27.3  | )
|                                                                                                   |  |                                   |        |   |                                  |   |             |   |  |                                |  |   |        |  
|                                                                                                   |  |                                   |        |  
|Cash flows from financing activities:                                                              |  |                                   |        |   |                                  |   |             |   |  |                                |  |   |        |  
|Payment of notes payable                                                                           |  |                                   | (136.0 | ) |                                  |   |            |   |  |                                |  |   |       |  
|Payment of term loan                                                                               |  |                                   | (6.5   | ) |                                  |   | (6.5        | ) |  |                                |  |   |       |  
|Equity contributions                                                                               |  |                                   |       |   |                                  |   | 976.7       |   |  |                                |  |   |       |  
|Issuance of long-term debt                                                                         |  |                                   |       |   |                                  |   | 2,400.0     |   |  |                                |  |   |       |  
|Debt issuance costs                                                                                |  |                                   |       |   |                                  |   | (72.0       | ) |  |                                |  |   |       |  
|Net transfers from Raytheon                                                                        |  |                                   |       |   |                                  |   |            |   |  |                                |  |   | 117.4  |  
|                                                                                                   |  |                                   |        |   |                                  |   |             |   |  |                                |  |   |        |  
|Net cash (used in) provided by financing activities                                                |  |                                   | (142.5 | ) |                                  |   | 3,298.2     |   |  |                                |  |   | 117.4  |  
|                                                                                                   |  |                                   |        |   |                                  |   |             |   |  |                                |  |   |        |  
|Effect of exchange rates on cash and cash equivalents                                              |  |                                   | (0.7   | ) |                                  |   |            |   |  |                                |  |   |       |  
|                                                                                                   |  |                                   |        |  
|Net (decrease) increase in cash and cash equivalents                                               |  |                                   | (250.5 | ) |                                  |   | 245.9       |   |  |                                |  |   | (17.2  | )
|Cash and cash equivalents at beginning of period                                                   |  |                                   | 569.5  |   |                                  |   |            |   |  |                                |  |   | 25.9   |  
|                                                                                                   |  |                                   |        |   |                                  |   |             |   |  |                                |  |   |        |  
|Cash and cash equivalents at end of period                                                         |  | $                                 | 319.0  |   |                                  | $ | 245.9       |   |  |                                |  | $ | 8.7    |  
|                                                                                                   |  |                                   |        |   |                                  |   |             |   |  |                                |  |   |        |  
|                                                                                                   |  |                                   |        |  
|Supplemental Disclosures:                                                                          |  |                                   |        |   |                                  |   |             |   |  |                                |  |   |        |  
|Net non-cash transfers to (from) property, plant and equipment                                     |  | $                                 | 12.8   |   |                                  | $ | (27.7       | ) |  |                                |  | $ |       |  
|Inventories acquired through issuance of notes                                                     |  | $                                 | 169.1  |   |                                  | $ | 41.6        |   |  |                                |  | $ |       |  

The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.



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##### Table of Contents

Hawker Beechcraft Acquisition Company, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Background and Basis of Interim Presentation

Hawker Beechcraft, Inc. (HBI) was formed in late 2006 by
GS Capital Partners VI, L.P., an affiliate of The Goldman Sachs Group, Inc., and Onex Partners II LP, an affiliate of Onex Corporation, for the purpose of purchasing the Raytheon Aircraft business (RA or the Predecessor) from
Raytheon Company (Raytheon) (the Acquisition). The Acquisition was completed on March 26, 2007. HBI acquired all of the outstanding membership interests of Raytheon Aircraft Acquisition Company, LLC, which was renamed
Hawker Beechcraft Acquisition Company, LLC (HBAC), and substantially all of the assets of Raytheon Aircraft Services Limited. Following the Acquisition, HBI contributed the equity interest of the entity purchasing the assets of Raytheon
Aircraft Services Limited to HBAC. HBAC is engaged in the design, development, manufacturing, marketing, selling and servicing of business and general aviation, training and special mission aircraft.

Predecessor

The accompanying unaudited
condensed consolidated financial statements of RA include allocations of certain Raytheon corporate expenses, including legal, human resources, payroll, accounting, employee benefits, real estate, insurance, information technology,
telecommunications, treasury and other Raytheon corporate and infrastructure costs. The expense and cost allocations were determined on bases that were considered reasonable by RA management in order to reflect the utilization of services provided
or the benefit received by RA during the periods presented. The unaudited condensed consolidated financial statements included herein do not necessarily reflect the results of operations, financial position, changes in owners net investment
and cash flows of HBAC in the future or what RAs financial condition or results of operations would have been had it operated as a separate, stand-alone entity during the periods presented.

Successor

The accompanying unaudited
condensed consolidated financial statements include the accounts of HBAC and its subsidiaries subsequent to the Acquisition.

Certain
information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) have been condensed or omitted. In
the opinion of HBAC management, these unaudited condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of financial statements for the interim periods in
accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission (SEC). All intercompany balances and transactions have been eliminated in consolidation.

Certain reclassifications have been made to prior period financial statements and notes to conform to the current period presentation. The unaudited
condensed consolidated statement of financial position as of December 31, 2007 was derived from audited financial statements but does not include all disclosures required by GAAP. The interim financial statements should be read in conjunction
with the audited consolidated financial statements, including the notes thereto, included in our 2007 Annual Report on Form 10-K for the year ended December 31, 2007.

2. Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value and
requires expanded disclosures regarding fair value measurements. As discussed in Note 4, we adopted SFAS 157 for financial assets and financial liabilities on January 1, 2008, and the adoption did not have a material impact on our consolidated
financial position or results of operations. Relative to SFAS 157, the FASB issued FASB Staff Positions (FSP) 157-1 and 157-2 in February 2008. FSP 157-1 amends SFAS 157 to exclude SFAS No. 13, Accounting for Leases, and its
related interpretive accounting pronouncements that address leasing transactions, while FSP 157-2 delays the effective date of the application of SFAS 157 to fiscal years beginning after November 15, 2008 for all nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. We are currently evaluating the potential impact that the application of SFAS 157 to our nonfinancial assets and
nonfinancial liabilities will have on our financial position and results of operations.

In February 2007, the FASB issued SFAS
No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 permits entities to choose, at specified election dates, to measure
eligible items at fair value (the fair value option). SFAS 159 requires business entities to report unrealized gains and



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##### Table of Contents

Hawker Beechcraft Acquisition Company, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)



losses on items for which the fair value option has been elected in earnings at each subsequent reporting period. We adopted SFAS 159 on January 1, 2008
and did not elect the fair value option for eligible items that existed at the date of adoption.

In December 2007, the FASB issued SFAS
No. 141(R), Business Combinations(SFAS 141(R)). SFAS 141(R) establishes a framework for principles and requirements for how an acquirer of a business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree. This accounting standard is effective for financial statements issued for fiscal years beginning on or after December 15, 2008. We will apply SFAS 141(R)
prospectively for business combinations occurring after the effective date.

In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements- an amendment of ARB No. 51(SFAS 160). SFAS 160 amends Accounting Research Bulletin No. 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. This accounting standard is effective for financial statements issued for fiscal years beginning on or after December 15, 2008. We are evaluating the impact the adoption of SFAS 160 will have on our financial
position and results of operations.

In December 2007, the Emerging Issues Task Force (EITF) concluded on Issue No. 07-1,
Accounting for Collaborative Arrangements (EITF 07-1). EITF 07-1 requires that transactions with third parties (i.e., revenue generated and costs incurred by the partners) should be reported in the appropriate line item in each
companys financial statement pursuant to the guidance in EITF Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. EITF 07-1 also includes enhanced disclosure requirements regarding the nature and purpose
of the arrangement, rights and obligations under the arrangement, accounting policy, amount, and income statement classification of collaboration transactions between the parties. EITF 07-1 is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those fiscal years, and shall be applied retrospectively to all prior periods presented for all collaborative arrangements existing as of the effective date. We are evaluating
the impact the adoption of EITF 07-1 will have on our financial position and results of operations.

In December 2007, the SEC issued Staff
Accounting Bulletin (SAB) No. 110 (SAB 110). SAB 110 allows companies which do not have historically sufficient experience to continue using the simplified method, initially allowed under SAB No. 107,
for estimating the expected term of plain vanilla stock options granted after December 31, 2007. HBAC uses the simplified method to estimate the expected term for stock option grants as it does not have enough historical
experience to provide a more refined estimate. The effect of adopting SAB 110 on our financial position and results of operations was not material.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities(SFAS 161). SFAS 161 requires disclosure of the fair values of derivative instruments and their gains
and losses in a tabular format. It also requires disclosure of derivative features that are credit risk related. Finally, it requires cross-referencing within footnotes. This accounting standard is effective for financial statements issued for
fiscal years and interim periods beginning on or after November 15, 2008. Since SFAS 161 requires only additional disclosures concerning derivatives and hedging activities, adoption of SFAS 161 will not impact our financial position or results
of operations.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles(SFAS 162). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in
conformity with GAAP. This accounting standard is effective 60 days following the SECs approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles. We do not expect the adoption of SFAS 162 will have a material impact on our financial position or results of operations.

Other new pronouncements issued but not effective until after September 28, 2008 are not expected to have a material effect on our financial position or results of operations.



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##### Table of Contents

Hawker Beechcraft Acquisition Company, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)



3. Sale of Fuel and Line Operations

On February 21, 2008, HBAC signed a definitive agreement to sell its wholly-owned fuel and line operations to BBA Aviation plc for $128.5 million.
The transaction includes fuel and line operations at seven domestic U.S. locations in: Atlanta, Georgia; Houston and San Antonio, Texas; Indianapolis, Indiana; Tampa, Florida; Van Nuys, California; and Wichita, Kansas. Sales for the fuel and line
operations, which are included in the Customer Support segment, were $7.0 million and $48.4 million, respectively, for the three and nine months ended September 28, 2008. HBAC will retain its factory-owned maintenance and customer support
facilities at these locations.

On July 24, 2008, the sale closed for six of the seven facilities, and HBAC received gross cash
proceeds of $105.8 million. On October 3, 2008, after the end of the third quarter, the sale closed for the final facility in Van Nuys, California. We recorded an insignificant loss on the sale of the fuel and line operations.

The fuel and line operations did not qualify as a discontinued operation as defined in SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS 144). However, the assets of the Van Nuys facility are presented as held for sale on the statement of financial position as of September 28, 2008. The liabilities of the Van Nuys facility were
less than $0.1 million. The assets of the Van Nuys facility were as follows:



|                                   |  |                   |     
|---------------------------------- |  | ----------------- | ----
|(In millions)                      |  | September 28,2008
|Inventories, net                   |  | $                 | 0.1 
|Property, plant and equipment, net |  |                   | 4.5 
|Goodwill                           |  |                   | 17.0
|                                   |  |                   |     
|Total assets                       |  | $                 | 21.6
|                                   |  |                   |     

4. Fair Value Measurements

Effective January 1, 2008, HBAC adopted the provisions of SFAS 157, except as it applies to those nonfinancial assets and nonfinancial liabilities
affected by the one year delay identified in FSP 157-2. SFAS 157 defines fair value, establishes a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. SFAS 157 does not require any new fair value
measurements; it only applies to accounting pronouncements that already require or permit fair value measures.

To implement SFAS 157, HBAC
performed an analysis of all existing financial assets and financial liabilities measured at fair value on a recurring basis to determine the significance and character of all inputs used to determine their fair value. Based on this assessment, the
adoption of SFAS 157 did not have a material effect on HBACs net asset value. However, adoption of SFAS 157 does require HBAC to provide additional disclosures about the inputs used to develop the fair value measurements and the effect of
certain measurements on changes in net assets for the reportable periods as contained in HBACs periodic filings.

SFAS 157
establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into the following three broad categories:

Level 1 Inputs Quoted prices for identical assets and liabilities in active markets.

Level 2 Inputs Quoted prices for
similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; observable inputs other than quoted prices; and inputs that are derived principally from or corroborated
by other observable market data.

Level 3 Inputs Unobservable inputs reflecting the entitys own assumptions about the assumptions
market participants would use in pricing the asset or liability.



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##### Table of Contents

Hawker Beechcraft Acquisition Company, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)



The following table presents financial assets and liabilities measured at fair value on a recurring
basis at September 28, 2008:



|                                   |  |                                                           |       |                                           |   |                                        |  |                               |   |  |   |      
|---------------------------------- |  | --------------------------------------------------------- | ----- | ----------------------------------------- | - | -------------------------------------- |  | ----------------------------- | - |  | - | -----
|                                   |  | Fair Value Measurements at Reporting Date Using:          |       |                                          
|(In millions)                      |  | Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1) |       | SignificantOtherObservableInputs(Level
2) |   | SignificantUnobservableInputs(Level 3) |  | Balanceas ofSeptember 28,2008
|Assets                             |  |                                                           |       |                                           |   |                                        |  |                               |   |  |   |      
|Cash equivalents                   |  | $                                                         | 305.9 |                                           | $ |                                       |  | $                             |  |  | $ | 305.9
|Foreign currency forward contracts |  |                                                           |      |                                           |   | 0.6                                    |  |                               |  |  |   | 0.6  
|                                   |  |                                                           |       |                                           |   |                                        |  |                               |   |  |   |      
|Total assets at fair value         |  | $                                                         | 305.9 |                                           | $ | 0.6                                    |  | $                             |  |  | $ | 306.5
|                                   |  |                                                           |       |                                           |   |                                        |  |                               |   |  |   |      
|                                   |  |                                                           |       |                                          
|Liabilities                        |  |                                                           |       |                                           |   |                                        |  |                               |   |  |   |      
|Foreign currency forward contracts |  | $                                                         |      |                                           | $ | 40.4                                   |  | $                             |  |  | $ | 40.4 
|Interest rate swap                 |  |                                                           |      |                                           |   | 13.3                                   |  |                               |  |  |   | 13.3 
|                                   |  |                                                           |       |                                           |   |                                        |  |                               |   |  |   |      
|Total liabilities at fair value    |  | $                                                         |      |                                           | $ | 53.7                                   |  | $                             |  |  | $ | 53.7 
|                                   |  |                                                           |       |                                           |   |                                        |  |                               |   |  |   |      

The fair value of cash equivalents approximates its carrying value due to the short-term nature of
the instruments. Derivative financial instruments are valued using an income valuation approach. The fair value of the foreign currency forward contracts is calculated as the present value of the forward rate less the contract rate multiplied by the
notional amount. The fair value of the interest rate swap is derived from a discounted cash flow analysis based on the terms of the contract and the interest rate yield curve. Significant inputs to these valuation models include forward rates and
interest rate yield curves, which are obtained from a third-party leading financial news and data provider.

As of September 28, 2008,
HBAC had not made any fair value elections as permitted under SFAS 159.

5. Product Warranty

Warranty provisions related to commercial aircraft and parts sales are determined based upon an estimate of costs that may be incurred for warranty
services over the period of coverage from 1 to 10 years. HBAC estimates its warranty costs based on historical warranty claim experience. The warranty accrual is reviewed quarterly to verify that it appropriately reflects the estimated remaining
obligation based on the anticipated expenditures over the balance of the obligation period. Adjustments are made when actual warranty claim experience causes management to revise its estimates. The effects of changes in estimates are reflected in
the period the estimates are revised.

Activity related to commercial aircraft and part warranty provisions was as follows:



|                                                        |  |                                    |      |   |                                    |   |      |                                   |  |             |                                  |   |  |   |       |                                |  |  |  |   |      |  
|------------------------------------------------------- |  | ---------------------------------- | ---- | - | ---------------------------------- | - | ---- | --------------------------------- |  | ----------- | -------------------------------- | - |  | - | ----- | ------------------------------ |  |  |  | - | ---- | -
|                                                        |  | Successor                          |      |   | Successor                          |   |      |                                   |  | Predecessor |                                 
|(In millions)                                           |  | Three MonthsEndedSeptember 28,2008 |      |   | Three MonthsEndedSeptember 30,2007 |   |      | Nine MonthsEndedSeptember 28,2008 |  |             | Six MonthsEndedSeptember 30,2007 |   |  |   |       | Three MonthsEndedMarch 25,2007 | 
|Beginning balance                                       |  | $                                  | 64.0 |   |                                    | $ | 50.6 |                                   |  | $           | 60.8                             |   |  | $ | 48.1  |                                |  |  |  | $ | 57.5 |  
|Accrual for aircraft and part deliveries                |  |                                    | 6.4  |   |                                    |   | 6.4  |                                   |  |             | 20.6                             |   |  |   | 14.3  |                                |  |  |  |   | 8.1  |  
|(Reversals) accruals related to prior period deliveries |  |                                    | (5.5 | ) |                                    |   | 0.4  |                                   |  |             | (7.3                             | ) |  |   | 1.0   |                                |  |  |  |   | (9.7 | )
|Warranty services provided                              |  |                                    | (4.5 | ) |                                    |   | (5.6 | )                                 |  |             | (13.7                            | ) |  |   | (11.6 | )                              |  |  |  |   | (4.2 | )
|                                                        |  |                                    |      |   |                                    |   |      |                                   |  |             |                                  |   |  |   |       |                                |  |  |  |   |      |  
|Ending balance                                          |  | $                                  | 60.4 |   |                                    | $ | 51.8 |                                   |  | $           | 60.4                             |   |  | $ | 51.8  |                                |  |  |  | $ | 51.7 |  
|                                                        |  |                                    |      |   |                                    |   |      |                                   |  |             |                                  |   |  |   |       |                                |  |  |  |   |      |  

Warranty provisions related to aircraft deliveries on contracts accounted for under American
Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts (SOP 81-1), using the cost-to-cost
method to measure progress towards completion are recorded as contract costs as the warranty work is performed. The estimation of these costs is an integral part of the revenue recognition process for these contracts. The change from the Predecessor
ending balance as of March 25, 2007 to the Successor beginning balance for the six months ended September 30, 2007 relates to adjustments resulting from the application of purchase accounting.



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##### Table of Contents

Hawker Beechcraft Acquisition Company, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)



6. Inventories, net

Inventories consisted of the following:



|                              |  |                   |         |                  |   |        
|----------------------------- |  | ----------------- | ------- | ---------------- | - | -------
|(In millions)                 |  | September 28,2008 |         | December 31,2007
|Finished goods                |  | $                 | 235.1   |                  | $ | 180.0  
|Work in process               |  |                   | 1,211.9 |                  |   | 805.5  
|Materials and purchased parts |  |                   | 476.2   |                  |   | 303.8  
|                              |  |                   |         |                  |   |        
|Inventories, net              |  | $                 | 1,923.2 |                  | $ | 1,289.3
|                              |  |                   |         |                  |   |        

Net non-cash transfers of $1.8 million and $27.7 million for the nine months ended
September 28, 2008 and the six months ended September 30, 2007, respectively, were excluded from changes in inventories in the statement of cash flows for aircraft physically transferred from property, plant and equipment to inventory.

7. Goodwill

Changes in the
carrying amount of goodwill by reportable segment for the nine months ended September 28, 2008 were as follows:



|                                      |  |                             |       |   |                 |   |                 |  |   |       |   |  |   |       |  
|------------------------------------- |  | --------------------------- | ----- | - | --------------- | - | --------------- |  | - | ----- | - |  | - | ----- | -
|(In millions)                         |  | Business andGeneralAviation |       |   | TrainerAircraft |   | CustomerSupport |  |   | Total |  
|Balance at December 31, 2007          |  | $                           | 353.4 |   |                 | $ | 222.0           |  | $ | 140.6 |   |  | $ | 716.0 |  
|Purchase price allocation adjustments |  |                             | (13.3 | ) |                 |   |                |  |   | 4.2   |   |  |   | (9.1  | )
|Sale of fuel and line operations      |  |                             |      |   |                 |   |                |  |   | (90.3 | ) |  |   | (90.3 | )
|Reclassified to assets held for sale  |  |                             |      |   |                 |   |                |  |   | (17.0 | ) |  |   | (17.0 | )
|                                      |  |                             |       |   |                 |   |                 |  |   |       |   |  |   |       |  
|Balance at September 28, 2008         |  | $                           | 340.1 |   |                 | $ | 222.0           |  | $ | 37.5  |   |  | $ | 599.6 |  
|                                      |  |                             |       |   |                 |   |                 |  |   |       |   |  |   |       |  

During the nine months ended September 28, 2008, HBAC finalized the purchase price allocation
of the Acquisition, which resulted in a net decrease in goodwill of $9.1 million. The decrease is due to a $9.6 million adjustment to deferred tax assets in the Business and General Aviation segment coupled with purchase price adjustments of $0.5
million in the Customer Support segment. The deferred tax adjustment is due to the differing book and tax treatment of certain transaction costs related to the Acquisition that were identified during preparation of the Companys initial U.S.
federal tax return, which was filed in September 2008. The final purchase price allocation also resulted in a shift of $3.7 million of goodwill from the Business and General Aviation segment to the Customer Support segment.

As discussed in Note 3, HBAC completed the sale of six of the seven fuel and line operations facilities during the three months ended September 28,
2008. Goodwill allocated to the Van Nuys facility is included in assets held for sale on the statement of financial position in accordance with SFAS 144.



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Notes to Condensed Consolidated Financial Statements (Unaudited)



8. Debt and Notes Payable

Long-term debt consisted of the following:



|                                   |  |                   |         |                  |   |        
|---------------------------------- |  | ----------------- | ------- | ---------------- | - | -------
|(In millions)                      |  | September 28,2008 |         | December 31,2007
|Senior secured term loan due 2014  |  | $                 | 1,283.8 |                  | $ | 1,290.3
|Senior fixed rate notes due 2015   |  |                   | 400.0   |                  |   | 400.0  
|Senior PIK-election notes due 2015 |  |                   | 400.0   |                  |   | 400.0  
|Senior subordinated notes due 2017 |  |                   | 300.0   |                  |   | 300.0  
|                                   |  |                   |         |                  |   |        
|Total debt                         |  |                   | 2,383.8 |                  |   | 2,390.3
|Less current portion               |  |                   | 13.0    |                  |   | 13.0   
|                                   |  |                   |         |                  |   |        
|Long-term debt                     |  | $                 | 2,370.8 |                  | $ | 2,377.3
|                                   |  |                   |         |                  |   |        

The floating interest rate on the senior secured term loan was 4.80% and 6.83% at
September 28, 2008 and December 31, 2007, respectively.

HBAC entered into an interest rate swap agreement in April 2007 to
convert a portion of its floating rate debt to fixed rate debt. The swap was accounted for as a cash flow hedge in accordance with SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities, as amended. Our counterparty
syndicated 40% of the swap by entering into risk participation agreements with a subsidiary of Lehman Brothers Holding, Inc. (Lehman) and another financial institution. On September 15, 2008, Lehman filed for Chapter 11 bankruptcy,
which triggered termination of its risk participation agreement with our counterparty. As agreed with our counterparty, the swap was amended to increase the fixed rate by four basis points to 4.95% to compensate our counterparty for assuming the
additional credit risk. We de-designated the hedging relationship under the original terms of the swap and re-designated the amended swap in a new cash flow hedging relationship.

Notes payable represents a deferred payment obligation to a supplier under which the supplier is paid by a lender upon HBACs receipt of goods, and
HBAC pays the lender within 155 days under the terms of the underlying short-term promissory notes, with interest determined at the five month LIBOR plus 1.85%. At September 28, 2008, HBAC had $89.7 million of outstanding notes payable at a
weighted-average interest rate of 4.97%. At December 31, 2007, HBAC had $56.6 million of outstanding notes payable at a weighted-average interest rate of 6.83%. The issuance of these notes is treated as a non-cash financing transaction. During
the nine months ended September 28, 2008 and the six months ended September 30, 2007, $169.1 million and $41.6 million, respectively, of notes were issued.

9. Income Taxes

HBAC utilizes the asset and liability method of accounting for income taxes,
which requires that deferred tax assets and liabilities be recorded to reflect the future tax consequences of temporary differences between the book and tax basis of various assets and liabilities. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of changes in tax rates on deferred tax assets and liabilities is recognized as income
or expense in the period in which the rate change occurs. A valuation allowance is established to offset any deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not
be realized.

HBAC is included in the consolidated U.S. federal tax return of HBI. HBI, or one of its subsidiaries, files income tax
returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. Despite our belief that our tax return positions are consistent with applicable tax laws, we believe that certain positions are likely to be challenged by
taxing authorities. HBACs tax reserves reflect the difference between the tax benefit claimed on tax returns and the amount recognized in the financial statements in accordance with FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (FIN 48). These reserves have been established based on managements assessment as to potential exposure attributable to permanent differences and interest applicable to both permanent and temporary
differences. The tax reserves are reviewed periodically and adjusted in light of changing facts and circumstances, such as progress of tax audits, lapse of applicable statutes of limitations and changes in tax law. We do not anticipate any material
changes to our existing tax reserves to occur within the next twelve months.



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Notes to Condensed Consolidated Financial Statements (Unaudited)



The provision for income taxes for interim periods is based on estimated annual effective income tax
rates. HBACs effective tax rate was 33.7% for the nine months ended September 28, 2008, and the income tax benefit for this period consisted of $19.9 million for federal income taxes offset by a $2.9 million provision for state income
taxes and a $3.0 million provision for foreign income taxes. HBACs effective tax rate was 29.6% for the six months ended September 30, 2007, and the income tax benefit for this period consisted of $18.8 million for federal income taxes
and $4.8 million for state income taxes offset by a $0.2 million provision for foreign income taxes. The increase in the 33.7% effective tax rate for the nine months ended September 28, 2008 compared to 29.6% for the six months ended
September 30, 2007 was due to the expiration of the U.S. federal research and development tax credit as of December 31, 2007. In the fourth quarter of 2008, the Emergency Economic Stabilization Act reinstated the U.S. federal research and
development tax credit retroactive to January 1, 2008. The reinstatement will be a discrete event in the fourth quarter which is expected to reduce our 2008 annual effective tax rate by 11%. RAs effective tax rate was 38.6% for the three
months ended March 25, 2007.

10. Pension and Other Employee Benefits

HBAC has defined benefit pension and retirement plans covering the majority of its employees hired prior to January 1, 2007 (Pension
Benefits). In addition to providing Pension Benefits, HBAC provides certain health care and life insurance benefits to retired employees through other postretirement defined benefit plans (Other Benefits).

The following table outlines the components of net periodic benefit cost for Pension Benefits:



|                                   |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |       |                                |  |  |  |   |       |  
|---------------------------------- |  | ---------------------------------- | ----- | - | ---------------------------------- | - | ----- | --------------------------------- |  | ----------- | -------------------------------- | - |  | - | ----- | ------------------------------ |  |  |  | - | ----- | -
|                                   |  | Successor                          |       |   | Successor                          |   |       |                                   |  | Predecessor |                                 
|(In millions)                      |  | Three MonthsEndedSeptember 28,2008 |       |   | Three MonthsEndedSeptember 30,2007 |   |       | Nine MonthsEndedSeptember 28,2008 |  |             | Six MonthsEndedSeptember 30,2007 |   |  |   |       | Three MonthsEndedMarch 25,2007 | 
|Service cost                       |  | $                                  | 5.9   |   |                                    | $ | 7.3   |                                   |  | $           | 17.8                             |   |  | $ | 14.3  |                                |  |  |  | $ | 6.6   |  
|Interest cost                      |  |                                    | 13.1  |   |                                    |   | 13.1  |                                   |  |             | 39.4                             |   |  |   | 25.9  |                                |  |  |  |   | 13.8  |  
|Expected return on plan assets     |  |                                    | (16.3 | ) |                                    |   | (16.7 | )                                 |  |             | (48.9                            | ) |  |   | (33.1 | )                              |  |  |  |   | (17.1 | )
|Amortization of prior service cost |  |                                    |      |   |                                    |   |      |                                   |  |             |                                 |   |  |   |      |                                |  |  |  |   | 0.9   |  
|Amortization of net (gain) loss    |  |                                    | (1.2  | ) |                                    |   |      |                                   |  |             | (3.7                             | ) |  |   |      |                                |  |  |  |   | 4.2   |  
|                                   |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |       |                                |  |  |  |   |       |  
|Net amount recognized              |  | $                                  | 1.5   |   |                                    | $ | 3.7   |                                   |  | $           | 4.6                              |   |  | $ | 7.1   |                                |  |  |  | $ | 8.4   |  
|                                   |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |       |                                |  |  |  |   |       |  

The net periodic benefit cost for the Predecessor includes expense from the United Kingdom Pension
Benefits plans of $0.8 million for the three months ended March 25, 2007. As a result of the Acquisition, Raytheon retained the United Kingdom Pension Benefits plans and their associated assets and liabilities. HBAC implemented a defined
contribution plan for its employees in the United Kingdom, and, for the three and nine months ended September 28, 2008, recognized expense of $0.3 million and $0.9 million, respectively, associated with this plan. For the three and six months
ended September 30, 2007, HBAC recognized expense of $0.3 million and $0.5 million, respectively, for this plan.

The following table
outlines the components of net periodic benefit cost for Other Benefits:



|                                      |  |                                    |     |                                    |   |                                   |  |                                  |     |  |   |                                |  |  |  |   |    
|------------------------------------- |  | ---------------------------------- | --- | ---------------------------------- | - | --------------------------------- |  | -------------------------------- | --- |  | - | ------------------------------ |  |  |  | - | ---
|                                      |  | Successor                          |     | Successor                          |   |                                   |  | Predecessor                     
|(In millions)                         |  | Three MonthsEndedSeptember 28,2008 |     | Three MonthsEndedSeptember 30,2007 |   | Nine MonthsEndedSeptember 28,2008 |  | Six MonthsEndedSeptember 30,2007 |     |  |   | Three MonthsEndedMarch 25,2007
|Service cost                          |  | $                                  | 0.1 |                                    | $ | 0.2                               |  | $                                | 0.4 |  | $ | 0.4                            |  |  |  | $ | 0.2
|Interest cost                         |  |                                    | 0.3 |                                    |   | 0.3                               |  |                                  | 0.8 |  |   | 0.6                            |  |  |  |   | 0.2
|Amortization of transition obligation |  |                                    |    |                                    |   |                                  |  |                                  |    |  |   |                               |  |  |  |   | 0.2
|                                      |  |                                    |     |                                    |   |                                   |  |                                  |     |  |   |                                |  |  |  |   |    
|Net amount recognized                 |  | $                                  | 0.4 |                                    | $ | 0.5                               |  | $                                | 1.2 |  | $ | 1.0                            |  |  |  | $ | 0.6
|                                      |  |                                    |     |                                    |   |                                   |  |                                  |     |  |   |                                |  |  |  |   |    

We expect total contributions, both required and discretionary, to the Pension Benefits and Other
Benefits plans to be approximately $0.7 million and $1.0 million, respectively, in 2008.



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Notes to Condensed Consolidated Financial Statements (Unaudited)



HBAC maintains a 401(k) defined contribution plan under which covered employees are allowed to
contribute up to a specific percentage of their eligible compensation. HBAC matches (HBAC Match) employee contributions up to a maximum of four percent of eligible compensation. Total HBAC Match expense was $4.1 million and $13.8
million, respectively, for the three and nine months ended September 28, 2008. For the three and six months ended September 30, 2007, HBACs match expense was $4.3 million and $7.9 million, respectively. The Predecessor had a similar
plan for which the expense was $4.1 million for the three months ended March 25, 2007.

HBAC maintains a retirement income savings
program (RISP), which is a defined contribution plan, for certain employees who were hired on or after January 1, 2007. These employees will participate in the RISP in place of the Pension Benefits described above. HBAC contributes
to the covered employees participant account up to a maximum of 9% of the employees pay based on the employees age and tenure. The funds can be invested among several investment options as directed by the employee. Total expense
for the RISP was $1.0 million and $2.3 million, respectively, for the three and nine months ended September 28, 2008. For the three and six months ended September 30, 2007, total expense for the RISP was $0.3 million and $0.4 million,
respectively. The Predecessor had a similar retirement income savings program for which the expense was less than $0.1 million for the three months ended March 25, 2007.

11. Stock-Based Compensation

During the nine months ended September 28, 2008, HBI
granted nonqualified employee stock options with vesting based on future service or financial performance. HBAC applied the fair value provisions of SFAS No. 123(R), Share-Based Payment, to value the stock option awards. The fair value
of the stock options at the date of grant was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions:



|                        |  |                |   |  |                    |  
|----------------------- |  | -------------- | - |  | ------------------ | -
|                        |  | ServiceVesting |   |  | PerformanceVesting |  
|Expected term in years  |  | 6.4            |   |  | 6.4                |  
|Expected volatility     |  | 37.0           | % |  | 37.6               | %
|Expected dividend yield |  | 0.0            | % |  | 0.0                | %
|Risk-free interest rate |  | 3.4            | % |  | 3.3                | %

The expected term represents the period of time the options are expected to be outstanding and was
determined for new grants using the simplified method as prescribed in SAB 110. The expected term assumption incorporates the contractual term of an option grant, which is ten years, as well as the vesting period of the award. The expected
volatility assumption was calculated by averaging the historical volatility of a peer group of publicly-traded aerospace and defense companies over a term equal to the expected term of the option granted. The risk-free interest rate reflects the
yield on a zero-coupon U.S. Treasury bond over a period that approximates the expected term of the option granted.



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Notes to Condensed Consolidated Financial Statements (Unaudited)



Stock option activity for the nine months ended September 28, 2008 was as follows:



|                                  |  |                  |  
|--------------------------------- |  | ---------------- | -
|Service-Vesting                   |  | Number ofOptions |  
|Outstanding at December 31, 2007  |  | 3,710,678        |  
|Granted                           |  | 379,980          |  
|Exercised                         |  | (98,416          | )
|Forefeited or expired             |  | (185,291         | )
|                                  |  |                  |  
|Outstanding at September 28, 2008 |  | 3,806,951        |  
|                                  |  |                  |  
|                                  | 
|Performance-Vesting               |  | Number ofOptions |  
|Outstanding at December 31, 2007  |  | 4,131,604        |  
|Granted                           |  | 400,460          |  
|Exercised                         |  | (57,496          | )
|Forefeited or expired             |  | (204,024         | )
|                                  |  |                  |  
|Outstanding at September 28, 2008 |  | 4,270,544        |  
|                                  |  |                  |  

Restricted share activity for the nine months ended September 28, 2008 was as follows:



|                                |  |                 |  
|------------------------------- |  | --------------- | -
|                                |  | Number ofShares |  
|Nonvested at December 31, 2007  |  | 464,505         |  
|Granted                         |  | 1,940           |  
|Vested                          |  | (219,160        | )
|Forfeited                       |  |                |  
|                                |  |                 |  
|Nonvested at September 28, 2008 |  | 247,285         |  
|                                |  |                 |  

HBAC recognized stock-based compensation expense of $6.9 million for the nine months ended
September 28, 2008.

12. Related Party Transactions

Onex Partners II LP and its affiliated entities own approximately 49% of the issued and outstanding common stock of HBI. Affiliates of Onex Partners II LP currently own a controlling interest in Spirit AeroSystems
Holdings, Inc. (Spirit), one of our suppliers. Spirit supplies certain components for our Hawker aircraft, and we believe that purchases of components from Spirit are based on standard market terms. We received components from Spirit of
approximately $22.3 million and $10.0 million for the nine months ended September 28, 2008 and the six months ended September 30, 2007, respectively. The Predecessor received components from Spirit of approximately $6.0 million for the
three months ended March 25, 2007. Advance payments to Spirit for goods not yet received were $6.6 million and $2.4 million at September 28, 2008 and December 31, 2007, respectively.

GS Capital Partners VI, L.P. and other private equity funds affiliated with Goldman, Sachs & Co. own approximately 49% of the issued and
outstanding common stock of HBI. Goldman, Sachs & Co. acted as an Initial Purchaser in the 2007 offering of the notes that were later exchanged for our outstanding publicly held notes in a registered exchange offer. In connection with the
registration rights agreement we entered into at the time of the issuance of the notes, we also agreed to maintain a market making shelf registration for the benefit of Goldman, Sachs & Co. Goldman Sachs Credit Partners L.P., an affiliate
of GS Capital Partners VI, L.P. and its related investment funds, acted as the joint lead arranger and a lender under our senior secured credit facilities. In addition, Goldman, Sachs & Co., Goldman Sachs Credit Partners L.P. and its
affiliates may occasionally engage in commercial banking, investment banking or other financial advisory transactions with us and our affiliates under terms we believe to be standard market based. Currently, Goldman Sachs Credit Partners L.P. is a
participating lender in the Companys credit agreement and Goldman Sachs Capital Markets, L. P. has entered into an interest rate swap with the Company.

We entered into a management services arrangement with the investment managers of GS Capital Partners VI, L.P., and its related funds, and Onex Partners II LP, effective upon the closing of the Acquisition. Under the
arrangement, we pay these parties an



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Notes to Condensed Consolidated Financial Statements (Unaudited)



annual aggregate fee of $2.0 million, plus reasonable out-of-pocket expenses, as compensation for various advisory services. This fee is shared equally by
the two sets of investment managers. We also agreed to indemnify these parties and their affiliates for liabilities arising from their actions under the management services arrangement.

A member of the Board of Directors of HBI is also a member of the Board of Directors of Spirit.

Related party transactions for the Predecessor refer to transactions with Raytheon and its affiliates.

13. Commitments and Contingencies

In the
normal course of business, HBAC leases equipment, office buildings and other facilities under leases that include standard escalation clauses to reflect changes in price indices, as well as renewal options. Rent expense for HBAC was $3.6 million and
$8.5 million, respectively, for the three and nine months ended September 28, 2008. Rent expense for HBAC was $2.3 million and $4.3 for the three and six months ended September 30, 2007, respectively, and rent expense for RA was $6.3
million for the three months ended March 25, 2007. As a result of the Acquisition, Raytheon retained certain lease obligations that were previously held by RA.

HBAC has assigned certain leasehold interests to third parties but remains liable to the lessor to the extent the assignee defaults on future lease payments amounting to $13.8 million and $10.9 million at
September 28, 2008 and December 31, 2007, respectively, extending through 2021.

HBAC has committed to construct facilities and
purchase equipment under contracts with various third parties. Future payments of $42.7 million and $6.8 million are required under these contracts at September 28, 2008 and December 31, 2007, respectively. The increase in commitments is
driven primarily by plans to expand our existing service center in Indianapolis, Indiana, to open a new service center in Mesa, Arizona and to purchase new tooling and machinery.

HBAC retains liability for losses and expenses for aircraft product liability up to a maximum of $5 million per occurrence and $20 million per fiscal
year. Insurance purchased from third parties is expected to cover excess aggregate liability exposure from $20 million to $750 million. This coverage also includes the excess liability over $5 million per occurrence. Raytheon retained the liability
for claims relating to occurrences after April 1, 2001 through March 25, 2007. We retain liability for claims relating to occurrences prior to April 1, 2001, subject to limited exceptions covering specific liabilities retained by
Raytheon. The aircraft product liability reserve was $8.8 million and $7.4 million at September 28, 2008 and December 31, 2007, respectively, and was based on managements estimate of its expected losses not covered by third party
insurers. HBAC currently has no offsetting receivable for insurance recovery associated with this estimate.

HBAC issues guarantees and has
banks and surety companies issue, on its behalf, letters of credit and surety bonds to meet various administrative, bid, performance, warranty, retention and advance payment obligations of HBAC or its affiliates. Approximately $154.6 million, $85.7
million and $1.1 million of these guarantees, letters of credit and surety bonds, for which there were stated values, were outstanding at September 28, 2008, respectively, and $101.0 million, $68.8 million and $3.8 million were outstanding at
December 31, 2007, respectively. These instruments expire on various dates through 2016.

HBAC is subject to oversight by the Federal
Aviation Administration (FAA). The FAA routinely evaluates aircraft operational and safety requirements and is responsible for certification of new and modified aircraft. Future action by the FAA may adversely affect HBACs
financial position or results of operations, including recovery of its investment in new aircraft.

As a defense contractor, HBAC is
subject to many levels of audit and investigation. Agencies that oversee contract performance include: the Defense Contract Audit Agency, the U.S. Department of Defense Inspector General, the Government Accountability Office, the U.S. Department of
Justice and Congressional committees. Future action by these agencies and legislative committees may adversely affect HBACs financial position or results of operations.

On October 12, 2007, an action was filed by Paragon & Co. and Charles A. Lubash in the Superior Court of the State of California, County of
Los Angeles against The Goldman Sachs Group, Inc. (GS Group), Sanjeev Mehra (an employee of GS Group and one of our directors), Hawker Beechcraft Corporation, Hawker Beechcraft Charter & Management, Inc. and Hawker Beechcraft
Services, Inc. The complaint alleged that defendants breached an oral agreement with the plaintiffs whereby the plaintiffs would be compensated in connection with the arrangement and structuring of the acquisition of Raytheon Aircraft and,
alternatively, that defendants defrauded plaintiffs in connection with such an arrangement. On September 24, 2008, the court granted our motion to dismiss all claims against the Hawker Beechcraft defendants.



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Notes to Condensed Consolidated Financial Statements (Unaudited)



In July 2007, the FAA informed us that it had initiated an investigation concerning compliance by one
of our suppliers with part specifications involving our T-6A trainers and certain special mission King Air aircraft sold to the U.S. Government. HBAC cooperated with the FAA investigation and conducted its own supplier quality audits. HBAC believes
that the alleged non-compliance condition does not impact safety of flight. On June 17, 2008, the U.S. Attorneys Office for the District of Kansas notified us that the FAA had referred a civil penalty matter arising out of its
investigation to the U.S. Attorneys Office for enforcement. According to the U.S. Attorneys Office, the FAA had recommended fines against HBAC of at least $2.5 million arising out of the alleged supplier nonconformance and HBACs
alleged quality oversight of the supplier. We do not believe any resulting civil penalty would be material to our financial position or results of operations.

On June 28, 2008, the U.S. Attorneys Office sent notice to us that it was investigating whether HBACs (and its predecessors) alleged conduct violated the civil False Claims Act (FCA)
arising from the same facts as the FAA proceeding described above. The investigation is focused on the alleged supplier non-conformance with specifications and HBACs alleged inadequate quality control over the suppliers manufacturing
process on certain T-6A and King-Air aircraft delivered to the government. Under the FCA, the government can recover treble damages suffered by the government plus civil penalties of up to $11,000 for each false claim. An adverse judgment under the
FCA can also subject HBAC to suspension or debarment of future government business. HBAC is cooperating with the investigation. At this time, HBAC cannot determine whether the government will proceed with any case and, if so, whether HBAC will be
liable for any damages or penalties or the amount if liability is found.

Similar to other companies in our industry, we receive requests
for information from government agencies in connection with their regulatory or investigational authority in the ordinary course of business. Such requests can include subpoenas or demand letters for documents to assist the government in audits or
investigations. We review such requests and notices and take appropriate action.

14. Business Segment Information

Reportable segments include the following: Business and General Aviation, Trainer Aircraft and Customer Support. Business and General Aviation designs,
develops, manufactures, markets and sells commercial and specially modified general aviation aircraft and related service contracts. Trainer Aircraft designs, develops, manufactures, markets and sells military training aircraft to the U.S.
Government and foreign governments. Customer Support provides parts and service support for in-service aircraft worldwide. For Predecessor periods, the Business and General Aviation and Customer Support segments net sales included sales to
parties affiliated with Raytheon as well as intersegment sales recorded at cost plus a specified fee, which may have differed from what the selling entity would have been able to obtain on external sales. Subsequent to the Acquisition, any sales to
parties affiliated with Raytheon are reported as external sales. The Trainer Aircraft segment does not have related party or intersegment sales.

While some working capital accounts are maintained on a segment basis, much of HBACs assets are not managed or maintained on a segment basis. Certain property, plant and equipment, including tooling, is used in the design and
production of products for each of the segments and, therefore, is not allocated to any individual segment. In addition, cash, prepaid expenses, other assets and deferred taxes are maintained and managed on a consolidated basis and generally do not
pertain to any particular segment. Raw materials and certain component parts are used in production across all segments. Work in process inventory is identifiable by segment but is managed and evaluated at the program level. As there is no
segmentation of HBACs productive assets, no allocation of these amounts has been made for purposes of segment disclosure.



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Notes to Condensed Consolidated Financial Statements (Unaudited)



Segment financial results were as follows:



|                              |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|----------------------------- |  | ---------------------------------- | ----- | - | ---------------------------------- | - | ----- | --------------------------------- |  | ----------- | -------------------------------- | - |  | - | ------- | ------------------------------ |  |  |  | - | ----- | -
|                              |  | Successor                          |       |   | Successor                          |   |       |                                   |  | Predecessor |                                 
|(In millions)                 |  | Three MonthsEndedSeptember 28,2008 |       |   | Three MonthsEndedSeptember 30,2007 |   |       | Nine MonthsEndedSeptember 28,2008 |  |             | Six MonthsEndedSeptember 30,2007 |   |  |   |         | Three MonthsEndedMarch 25,2007 | 
|Sales                         |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|Business and General Aviation |  | $                                  | 603.0 |   |                                    | $ | 665.0 |                                   |  | $           | 1,844.6                          |   |  | $ | 1,170.2 |                                |  |  |  | $ | 490.6 |  
|Trainer Aircraft              |  |                                    | 77.4  |   |                                    |   | 99.0  |                                   |  |             | 248.1                            |   |  |   | 194.2   |                                |  |  |  |   | 91.2  |  
|Customer Support              |  |                                    | 125.7 |   |                                    |   | 145.6 |                                   |  |             | 407.1                            |   |  |   | 271.9   |                                |  |  |  |   | 116.4 |  
|Eliminations                  |  |                                    | (22.8 | ) |                                    |   | (38.6 | )                                 |  |             | (111.3                           | ) |  |   | (64.2   | )                              |  |  |  |   | (27.4 | )
|                              |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|Total                         |  | $                                  | 783.3 |   |                                    | $ | 871.0 |                                   |  | $           | 2,388.5                          |   |  | $ | 1,572.1 |                                |  |  |  | $ | 670.8 |  
|                              |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|                              |  |                                    |       |   |                                    |  
|Operating Income (Loss)       |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|Business and General Aviation |  | $                                  | (5.1  | ) |                                    | $ | 33.5  |                                   |  | $           | 24.0                             |   |  | $ | (14.9   | )                              |  |  |  | $ | 8.9   |  
|Trainer Aircraft              |  |                                    | 1.6   |   |                                    |   | 11.3  |                                   |  |             | 13.2                             |   |  |   | 22.6    |                                |  |  |  |   | 12.2  |  
|Customer Support              |  |                                    | 18.8  |   |                                    |   | 16.7  |                                   |  |             | 63.0                             |   |  |   | 17.3    |                                |  |  |  |   | 9.6   |  
|Eliminations                  |  |                                    |      |   |                                    |   | 0.6   |                                   |  |             |                                 |   |  |   | 0.5     |                                |  |  |  |   | 0.7   |  
|                              |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|Total                         |  | $                                  | 15.3  |   |                                    | $ | 62.1  |                                   |  | $           | 100.2                            |   |  | $ | 25.5    |                                |  |  |  | $ | 31.4  |  
|                              |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  

Intersegment sales for the three and nine months ended September 28, 2008 were $13.4 million
and $79.8 million, respectively, for Business and General Aviation and $9.4 million and $31.5 million, respectively, for Customer Support. Intersegment sales for the three and six months ended September 30, 2007 were $15.0 million and $31.6,
respectively, for Business and General Aviation and $23.6 million and $32.6, respectively, for Customer Support. Intersegment sales for RA for the three months ended March 25, 2007 were $13.5 million for Business and General Aviation and $13.9
million for Customer Support.

Sales to affiliated parties for the three months ended March 25, 2007 were $17.4 million and $3.1
million for Business and General Aviation and Customer Support, respectively.

15. Guarantor Subsidiary Financial Information

HBACs obligation to pay principal and interest under certain debt instruments is guaranteed on a joint and several basis by certain guarantor
subsidiaries. The guarantees are full and unconditional, and the guarantor subsidiaries are 100% owned by HBAC. Non-guarantor subsidiaries consist primarily of foreign subsidiaries of HBAC, which are organized outside the United States of America.

The following unaudited condensed consolidating financial information presents Condensed Consolidating Statements of Financial Position as
of September 28, 2008 and December 31, 2007 for the Successor; Condensed Consolidating Statements of Operations for the three months ended September 28, 2008, the three months ended September 30, 2007, the nine months ended
September 28, 2008 and the six months ended September 30, 2007 for the Successor; Condensed Consolidating Statements of Operations for the three months ended March 25, 2007 for the Predecessor; Condensed Consolidating Statements of
Cash Flows for the nine months ended September 28, 2008 and the six months ended September 30, 2007 for the Successor; and Condensed Consolidating Statements of Cash Flows for the three months ended March 25, 2007 for the Predecessor.

Elimination entries necessary to consolidate the Successor and Predecessor with their respective guarantor and non-guarantor subsidiaries
have been included in the eliminations columns. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions.



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Hawker Beechcraft Acquisition Company, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)



HAWKER BEECHCRAFT ACQUISITION COMPANY, LLCSUCCESSOR

CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION (Unaudited)

AS OF SEPTEMBER 28, 2008

(In millions)



|                                                          |  |               |         |   |                       |   |                           |  |   |              |   |  |                   |          |   |  |   |        
|--------------------------------------------------------- |  | ------------- | ------- | - | --------------------- | - | ------------------------- |  | - | ------------ | - |  | ----------------- | -------- | - |  | - | -------
|                                                          |  | ParentCompany |         |   | GuarantorSubsidiaries |   | Non-GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedTotal
|Assets                                                    |  |               |         |   |                       |   |                           |  |   |              |   |  |                   |          |   |  |   |        
|Current assets                                            |  |               |         |   |                       |   |                           |  |   |              |   |  |                   |          |   |  |   |        
|Cash and cash equivalents                                 |  | $             | 307.0   |   |                       | $ | 0.1                       |  | $ | 11.9         |   |  | $                 |         |   |  | $ | 319.0  
|Accounts and notes receivable, net                        |  |               | 0.5     |   |                       |   | 91.7                      |  |   | 6.2          |   |  |                   |         |   |  |   | 98.4   
|Intercompany receivables                                  |  |               |        |   |                       |   | 3.5                       |  |   | 1.5          |   |  |                   | (5.0     | ) |  |   |       
|Unbilled revenue                                          |  |               |        |   |                       |   | 37.7                      |  |   | 5.1          |   |  |                   |         |   |  |   | 42.8   
|Inventories, net                                          |  |               |        |   |                       |   | 1,912.2                   |  |   | 11.0         |   |  |                   |         |   |  |   | 1,923.2
|Current deferred income tax asset                         |  |               | (9.8    | ) |                       |   | 44.7                      |  |   | 1.0          |   |  |                   |         |   |  |   | 35.9   
|Assets held for sale                                      |  |               |        |   |                       |   | 21.6                      |  |   |             |   |  |                   |         |   |  |   | 21.6   
|Prepaid expenses and other current assets                 |  |               | 3.6     |   |                       |   | 23.9                      |  |   | 1.6          |   |  |                   |         |   |  |   | 29.1   
|                                                          |  |               |         |   |                       |   |                           |  |   |              |   |  |                   |          |   |  |   |        
|Total current assets                                      |  |               | 301.3   |   |                       |   | 2,135.4                   |  |   | 38.3         |   |  |                   | (5.0     | ) |  |   | 2,470.0
|                                                          |  |               |         |   |                      
|Property, plant and equipment, net                        |  |               | 1.2     |   |                       |   | 634.2                     |  |   | 3.9          |   |  |                   |         |   |  |   | 639.3  
|Goodwill                                                  |  |               |        |   |                       |   | 599.6                     |  |   |             |   |  |                   |         |   |  |   | 599.6  
|Intangible assets, net                                    |  |               |        |   |                       |   | 1,066.4                   |  |   |             |   |  |                   |         |   |  |   | 1,066.4
|Non-current deferred income tax asset                     |  |               | 25.3    |   |                       |   | 21.5                      |  |   | 0.7          |   |  |                   |         |   |  |   | 47.5   
|Investment in subsidiaries                                |  |               | 2,578.9 |   |                       |   |                          |  |   |             |   |  |                   | (2,578.9 | ) |  |   |       
|Other assets, net                                         |  |               | 57.6    |   |                       |   | 46.2                      |  |   |             |   |  |                   |         |   |  |   | 103.8  
|                                                          |  |               |         |   |                       |   |                           |  |   |              |   |  |                   |          |   |  |   |        
|Total assets                                              |  | $             | 2,964.3 |   |                       | $ | 4,503.3                   |  | $ | 42.9         |   |  | $                 | (2,583.9 | ) |  | $ | 4,926.6
|                                                          |  |               |         |   |                       |   |                           |  |   |              |   |  |                   |          |   |  |   |        
|                                                          |  |               |         |   |                      
|Liabilities and Equity                                    |  |               |         |   |                       |   |                           |  |   |              |   |  |                   |          |   |  |   |        
|Current liabilities                                       |  |               |         |   |                       |   |                           |  |   |              |   |  |                   |          |   |  |   |        
|Notes payable and current portion of long-term debt       |  | $             | 23.0    |   |                       | $ | 79.7                      |  | $ |             |   |  | $                 |         |   |  | $ | 102.7  
|Advance payments and billings in excess of costs incurred |  |               |        |   |                       |   | 613.0                     |  |   | 0.7          |   |  |                   |         |   |  |   | 613.7  
|Accounts payable                                          |  |               | 64.8    |   |                       |   | 327.4                     |  |   | 4.8          |   |  |                   |         |   |  |   | 397.0  
|Accrued salaries and wages                                |  |               |        |   |                       |   | 61.1                      |  |   | (1.0         | ) |  |                   |         |   |  |   | 60.1   
|Accrued interest payable                                  |  |               | 66.4    |   |                       |   | 4.0                       |  |   |             |   |  |                   |         |   |  |   | 70.4   
|Other accrued expenses                                    |  |               | (43.4   | ) |                       |   | 258.4                     |  |   | 18.1         |   |  |                   |         |   |  |   | 233.1  
|                                                          |  |               |         |   |                       |   |                           |  |   |              |   |  |                   |          |   |  |   |        
|Total current liabilities                                 |  |               | 110.8   |   |                       |   | 1,343.6                   |  |   | 22.6         |   |  |                   |         |   |  |   | 1,477.0
|                                                          |  |               |         |   |                      
|Long-term debt                                            |  |               | 2,078.8 |   |                       |   | 292.0                     |  |   |             |   |  |                   |         |   |  |   | 2,370.8
|Intercompany loan                                         |  |               | (194.5  | ) |                       |   | 195.1                     |  |   | 4.4          |   |  |                   | (5.0     | ) |  |   |       
|Accrued retiree benefits and other long-term liabilities  |  |               | 13.2    |   |                       |   | 102.6                     |  |   |             |   |  |                   |         |   |  |   | 115.8  
|Non-current deferred income tax liability                 |  |               | (7.0    | ) |                       |   | 7.0                       |  |   |             |   |  |                   |         |   |  |   |       
|                                                          |  |               |         |   |                       |   |                           |  |   |              |   |  |                   |          |   |  |   |        
|Total liabilities                                         |  |               | 2,001.3 |   |                       |   | 1,940.3                   |  |   | 27.0         |   |  |                   | (5.0     | ) |  |   | 3,963.6
|                                                          |  |               |         |   |                      
|Total equity                                              |  |               | 963.0   |   |                       |   | 2,563.0                   |  |   | 15.9         |   |  |                   | (2,578.9 | ) |  |   | 963.0  
|                                                          |  |               |         |   |                       |   |                           |  |   |              |   |  |                   |          |   |  |   |        
|Total liabilities and equity                              |  | $             | 2,964.3 |   |                       | $ | 4,503.3                   |  | $ | 42.9         |   |  | $                 | (2,583.9 | ) |  | $ | 4,926.6
|                                                          |  |               |         |   |                       |   |                           |  |   |              |   |  |                   |          |   |  |   |        



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Hawker Beechcraft Acquisition Company, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)



HAWKER BEECHCRAFT ACQUISITION COMPANY, LLCSUCCESSOR

CONDENSED CONSOLIDATING STATEMENT OF FINANCIAL POSITION (Unaudited)

AS OF DECEMBER 31, 2007

(In millions)



|                                                          |  |               |         |   |                       |   |         |                           |  |              |      |  |                   |          |   |  |   |        
|--------------------------------------------------------- |  | ------------- | ------- | - | --------------------- | - | ------- | ------------------------- |  | ------------ | ---- |  | ----------------- | -------- | - |  | - | -------
|                                                          |  | ParentCompany |         |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  | Eliminations |      |  | ConsolidatedTotal
|Assets                                                    |  |               |         |   |                       |   |         |                           |  |              |      |  |                   |          |   |  |   |        
|Current assets                                            |  |               |         |   |                       |   |         |                           |  |              |      |  |                   |          |   |  |   |        
|Cash and cash equivalents                                 |  | $             | 558.1   |   |                       | $ | 0.7     |                           |  | $            | 10.7 |  | $                 |         |   |  | $ | 569.5  
|Intercompany receivables                                  |  |               | 0.5     |   |                       |   | 2.1     |                           |  |              | 4.0  |  |                   | (6.6     | ) |  |   |       
|Accounts and notes receivable, net                        |  |               | 1.1     |   |                       |   | 73.6    |                           |  |              | 5.6  |  |                   |         |   |  |   | 80.3   
|Unbilled revenue                                          |  |               |        |   |                       |   | 19.8    |                           |  |              | 4.3  |  |                   |         |   |  |   | 24.1   
|Inventories, net                                          |  |               |        |   |                       |   | 1,282.2 |                           |  |              | 7.1  |  |                   |         |   |  |   | 1,289.3
|Current deferred income tax asset                         |  |               | 4.2     |   |                       |   | 42.7    |                           |  |              | 1.0  |  |                   |         |   |  |   | 47.9   
|Prepaid expenses and other current assets                 |  |               |        |   |                       |   | 59.5    |                           |  |              | 1.0  |  |                   |         |   |  |   | 60.5   
|                                                          |  |               |         |   |                       |   |         |                           |  |              |      |  |                   |          |   |  |   |        
|Total current assets                                      |  |               | 563.9   |   |                       |   | 1,480.6 |                           |  |              | 33.7 |  |                   | (6.6     | ) |  |   | 2,071.6
|                                                          |  |               |         |   |                      
|Property, plant and equipment, net                        |  |               | 15.9    |   |                       |   | 636.9   |                           |  |              | 2.9  |  |                   |         |   |  |   | 655.7  
|Investment in subsidiaries                                |  |               | 2,901.9 |   |                       |   |        |                           |  |              |     |  |                   | (2,901.9 | ) |  |   |       
|Goodwill                                                  |  |               |        |   |                       |   | 716.0   |                           |  |              |     |  |                   |         |   |  |   | 716.0  
|Intangible assets, net                                    |  |               |        |   |                       |   | 1,118.2 |                           |  |              |     |  |                   |         |   |  |   | 1,118.2
|Other assets, net                                         |  |               | 64.8    |   |                       |   | 48.8    |                           |  |              | 0.1  |  |                   |         |   |  |   | 113.7  
|                                                          |  |               |         |   |                       |   |         |                           |  |              |      |  |                   |          |   |  |   |        
|Total assets                                              |  | $             | 3,546.5 |   |                       | $ | 4,000.5 |                           |  | $            | 36.7 |  | $                 | (2,908.5 | ) |  | $ | 4,675.2
|                                                          |  |               |         |   |                       |   |         |                           |  |              |      |  |                   |          |   |  |   |        
|                                                          |  |               |         |   |                      
|Liabilities and Equity                                    |  |               |         |   |                       |   |         |                           |  |              |      |  |                   |          |   |  |   |        
|Current liabilities                                       |  |               |         |   |                       |   |         |                           |  |              |      |  |                   |          |   |  |   |        
|Notes payable and current portion of long-term debt       |  | $             | (17.4   | ) |                       | $ | 87.0    |                           |  | $            |     |  | $                 |         |   |  | $ | 69.6   
|Advance payments and billings in excess of costs incurred |  |               |        |   |                       |   | 540.0   |                           |  |              | 1.2  |  |                   |         |   |  |   | 541.2  
|Accounts payable                                          |  |               | 58.8    |   |                       |   | 286.8   |                           |  |              | 4.9  |  |                   | (26.8    | ) |  |   | 323.6  
|Accrued salaries and wages                                |  |               | 4.3     |   |                       |   | 55.9    |                           |  |              | 0.3  |  |                   |         |   |  |   | 60.5   
|Accrued interest payable                                  |  |               | 23.5    |   |                       |   | 1.9     |                           |  |              |     |  |                   |         |   |  |   | 25.4   
|Other accrued expenses                                    |  |               | (44.3   | ) |                       |   | 203.9   |                           |  |              | 9.1  |  |                   |         |   |  |   | 168.7  
|                                                          |  |               |         |   |                       |   |         |                           |  |              |      |  |                   |          |   |  |   |        
|Total current liabilities                                 |  |               | 24.9    |   |                       |   | 1,175.5 |                           |  |              | 15.5 |  |                   | (26.8    | ) |  |   | 1,189.0
|                                                          |  |               |         |   |                      
|Long-term debt                                            |  |               | 2,043.9 |   |                       |   | 333.4   |                           |  |              |     |  |                   |         |   |  |   | 2,377.3
|Intercompany loan                                         |  |               | 462.2   |   |                       |   | (484.3  | )                         |  |              | 1.9  |  |                   | 20.2     |   |  |   |       
|Accrued retiree benefits and other long-term liabilities  |  |               | 15.7    |   |                       |   | 87.3    |                           |  |              |     |  |                   |         |   |  |   | 103.0  
|Non-current deferred income tax liability                 |  |               | (4.6    | ) |                       |   | 6.1     |                           |  |              |     |  |                   |         |   |  |   | 1.5    
|                                                          |  |               |         |   |                       |   |         |                           |  |              |      |  |                   |          |   |  |   |        
|Total liabilities                                         |  |               | 2,542.1 |   |                       |   | 1,118.0 |                           |  |              | 17.4 |  |                   | (6.6     | ) |  |   | 3,670.8
|                                                          |  |               |         |   |                      
|Total equity                                              |  |               | 1,004.4 |   |                       |   | 2,882.6 |                           |  |              | 19.3 |  |                   | (2,901.9 | ) |  |   | 1,004.4
|                                                          |  |               |         |   |                       |   |         |                           |  |              |      |  |                   |          |   |  |   |        
|Total liabilities and equity                              |  | $             | 3,546.5 |   |                       | $ | 4,000.5 |                           |  | $            | 36.7 |  | $                 | (2,908.5 | ) |  | $ | 4,675.2
|                                                          |  |               |         |   |                       |   |         |                           |  |              |      |  |                   |          |   |  |   |        



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Hawker Beechcraft Acquisition Company, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)



HAWKER BEECHCRAFT ACQUISITION COMPANY, LLCSUCCESSOR

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

FOR
THE THREE MONTHS ENDED SEPTEMBER 28, 2008

(In millions)



|                                             |  |               |       |   |                       |   |       |                           |  |   |              |   |  |                   |       |   |  |   |       |  
|-------------------------------------------- |  | ------------- | ----- | - | --------------------- | - | ----- | ------------------------- |  | - | ------------ | - |  | ----------------- | ----- | - |  | - | ----- | -
|                                             |  | ParentCompany |       |   | GuarantorSubsidiaries |   |       | Non-GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedTotal |      
|Sales                                        |  | $             |      |   |                       | $ | 768.1 |                           |  | $ | 21.4         |   |  | $                 | (6.2  | ) |  | $ | 783.3 |  
|Cost of sales                                |  |               |      |   |                       |   | 661.7 |                           |  |   | 18.8         |   |  |                   | (6.2  | ) |  |   | 674.3 |  
|                                             |  |               |       |   |                       |   |       |                           |  |   |              |   |  |                   |       |   |  |   |       |  
|Gross margin                                 |  |               |      |   |                       |   | 106.4 |                           |  |   | 2.6          |   |  |                   |      |   |  |   | 109.0 |  
|                                             |  |               |       |   |                       |   |       |                           |  |   |              |   |  |                   |       |   |  |   |       |  
|Selling, general and administrative expenses |  |               | 0.2   |   |                       |   | 64.7  |                           |  |   | 1.0          |   |  |                   |      |   |  |   | 65.9  |  
|                                             |  |               |       |   |                      
|Research and development expenses            |  |               |      |   |                       |   | 27.8  |                           |  |   |             |   |  |                   |      |   |  |   | 27.8  |  
|                                             |  |               |       |   |                       |   |       |                           |  |   |              |   |  |                   |       |   |  |   |       |  
|Operating (loss) income                      |  |               | (0.2  | ) |                       |   | 13.9  |                           |  |   | 1.6          |   |  |                   |      |   |  |   | 15.3  |  
|                                             |  |               |       |   |                       |   |       |                           |  |   |              |   |  |                   |       |   |  |   |       |  
|Intercompany interest (income) expense, net  |  |               | (0.1  | ) |                       |   | 0.1   |                           |  |   |             |   |  |                   |      |   |  |   |      |  
|Interest expense (income) , net              |  |               | 45.4  |   |                       |   | 2.7   |                           |  |   | (0.1         | ) |  |                   |      |   |  |   | 48.0  |  
|Other income, net                            |  |               |      |   |                       |   | (0.5  | )                         |  |   | (0.6         | ) |  |                   |      |   |  |   | (1.1  | )
|Equity (income) loss in subsidiaries         |  |               | (13.0 | ) |                       |   |      |                           |  |   |             |   |  |                   | 13.0  |   |  |   |      |  
|                                             |  |               |       |   |                       |   |       |                           |  |   |              |   |  |                   |       |   |  |   |       |  
|Non-operating expense (income), net          |  |               | 32.3  |   |                       |   | 2.3   |                           |  |   | (0.7         | ) |  |                   | 13.0  |   |  |   | 46.9  |  
|                                             |  |               |       |   |                       |   |       |                           |  |   |              |   |  |                   |       |   |  |   |       |  
|(Loss) income before taxes                   |  |               | (32.5 | ) |                       |   | 11.6  |                           |  |   | 2.3          |   |  |                   | (13.0 | ) |  |   | (31.6 | )
|                                             |  |               |       |   |                      
|(Benefit from) provision for income taxes    |  |               | (11.3 | ) |                       |   |      |                           |  |   | 0.9          |   |  |                   |      |   |  |   | (10.4 | )
|                                             |  |               |       |   |                       |   |       |                           |  |   |              |   |  |                   |       |   |  |   |       |  
|Net (loss) income                            |  | $             | (21.2 | ) |                       | $ | 11.6  |                           |  | $ | 1.4          |   |  | $                 | (13.0 | ) |  | $ | (21.2 | )
|                                             |  |               |       |   |                       |   |       |                           |  |   |              |   |  |                   |       |   |  |   |       |  



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Hawker Beechcraft Acquisition Company, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)



HAWKER BEECHCRAFT ACQUISITION COMPANY, LLCSUCCESSOR

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2007

(In millions)



|                                             |  |               |       |   |                       |   |       |                           |  |              |      |  |                   |       |   |  |   |       |  
|-------------------------------------------- |  | ------------- | ----- | - | --------------------- | - | ----- | ------------------------- |  | ------------ | ---- |  | ----------------- | ----- | - |  | - | ----- | -
|                                             |  | ParentCompany |       |   | GuarantorSubsidiaries |   |       | Non-GuarantorSubsidiaries |  | Eliminations |      |  | ConsolidatedTotal |      
|Sales                                        |  | $             |      |   |                       | $ | 848.5 |                           |  | $            | 18.2 |  | $                 | 4.3   |   |  | $ | 871.0 |  
|Cost of sales                                |  |               | (6.6  | ) |                       |   | 709.4 |                           |  |              | 14.6 |  |                   | 4.3   |   |  |   | 721.7 |  
|                                             |  |               |       |   |                       |   |       |                           |  |              |      |  |                   |       |   |  |   |       |  
|Gross margin                                 |  |               | 6.6   |   |                       |   | 139.1 |                           |  |              | 3.6  |  |                   |      |   |  |   | 149.3 |  
|                                             |  |               |       |   |                       |   |       |                           |  |              |      |  |                   |       |   |  |   |       |  
|Selling, general and administrative expenses |  |               | 0.6   |   |                       |   | 64.7  |                           |  |              | 1.1  |  |                   |      |   |  |   | 66.4  |  
|                                             |  |               |       |   |                      
|Research and development expenses            |  |               |      |   |                       |   | 20.8  |                           |  |              |     |  |                   |      |   |  |   | 20.8  |  
|                                             |  |               |       |   |                       |   |       |                           |  |              |      |  |                   |       |   |  |   |       |  
|Operating income                             |  |               | 6.0   |   |                       |   | 53.6  |                           |  |              | 2.5  |  |                   |      |   |  |   | 62.1  |  
|                                             |  |               |       |   |                       |   |       |                           |  |              |      |  |                   |       |   |  |   |       |  
|Intercompany interest expense (income), net  |  |               | 0.1   |   |                       |   | (0.1  | )                         |  |              |     |  |                   |      |   |  |   |      |  
|Interest expense, net                        |  |               | 49.2  |   |                       |   | 7.1   |                           |  |              |     |  |                   |      |   |  |   | 56.3  |  
|Other (income) expense, net                  |  |               | (1.8  | ) |                       |   | (0.2  | )                         |  |              | 0.3  |  |                   |      |   |  |   | (1.7  | )
|Equity (income) loss in subsidiaries         |  |               | (45.4 | ) |                       |   |      |                           |  |              |     |  |                   | 45.4  |   |  |   |      |  
|                                             |  |               |       |   |                       |   |       |                           |  |              |      |  |                   |       |   |  |   |       |  
|Non-operating expense, net                   |  |               | 2.1   |   |                       |   | 6.8   |                           |  |              | 0.3  |  |                   | 45.4  |   |  |   | 54.6  |  
|                                             |  |               |       |   |                       |   |       |                           |  |              |      |  |                   |       |   |  |   |       |  
|Income (loss) before taxes                   |  |               | 3.9   |   |                       |   | 46.8  |                           |  |              | 2.2  |  |                   | (45.4 | ) |  |   | 7.5   |  
|                                             |  |               |       |   |                      
|(Benefit from) provision for income taxes    |  |               | (17.4 | ) |                       |   | 3.6   |                           |  |              |     |  |                   |      |   |  |   | (13.8 | )
|                                             |  |               |       |   |                       |   |       |                           |  |              |      |  |                   |       |   |  |   |       |  
|Net income (loss)                            |  | $             | 21.3  |   |                       | $ | 43.2  |                           |  | $            | 2.2  |  | $                 | (45.4 | ) |  | $ | 21.3  |  
|                                             |  |               |       |   |                       |   |       |                           |  |              |      |  |                   |       |   |  |   |       |  



22



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##### Table of Contents

Hawker Beechcraft Acquisition Company, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)



HAWKER BEECHCRAFT ACQUISITION COMPANY, LLCSUCCESSOR

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

FOR
THE NINE MONTHS ENDED SEPTEMBER 28, 2008

(In millions)



|                                             |  |               |       |   |                       |   |         |                           |  |   |              |   |  |                   |       |   |  |   |         |  
|-------------------------------------------- |  | ------------- | ----- | - | --------------------- | - | ------- | ------------------------- |  | - | ------------ | - |  | ----------------- | ----- | - |  | - | ------- | -
|                                             |  | ParentCompany |       |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedTotal |      
|Sales                                        |  | $             |      |   |                       | $ | 2,338.0 |                           |  | $ | 64.1         |   |  | $                 | (13.6 | ) |  | $ | 2,388.5 |  
|Cost of sales                                |  |               |      |   |                       |   | 1,969.9 |                           |  |   | 53.1         |   |  |                   | (13.6 | ) |  |   | 2,009.4 |  
|                                             |  |               |       |   |                       |   |         |                           |  |   |              |   |  |                   |       |   |  |   |         |  
|Gross margin                                 |  |               |      |   |                       |   | 368.1   |                           |  |   | 11.0         |   |  |                   |      |   |  |   | 379.1   |  
|                                             |  |               |       |   |                       |   |         |                           |  |   |              |   |  |                   |       |   |  |   |         |  
|Selling, general and administrative expenses |  |               | 0.3   |   |                       |   | 195.5   |                           |  |   | 2.8          |   |  |                   |      |   |  |   | 198.6   |  
|                                             |  |               |       |   |                      
|Research and development expenses            |  |               |      |   |                       |   | 80.3    |                           |  |   |             |   |  |                   |      |   |  |   | 80.3    |  
|                                             |  |               |       |   |                       |   |         |                           |  |   |              |   |  |                   |       |   |  |   |         |  
|Operating (loss) income                      |  |               | (0.3  | ) |                       |   | 92.3    |                           |  |   | 8.2          |   |  |                   |      |   |  |   | 100.2   |  
|                                             |  |               |       |   |                       |   |         |                           |  |   |              |   |  |                   |       |   |  |   |         |  
|Intercompany interest (income) expense, net  |  |               | (0.3  | ) |                       |   | 0.3     |                           |  |   |             |   |  |                   |      |   |  |   |        |  
|Interest expense (income), net               |  |               | 131.9 |   |                       |   | 10.9    |                           |  |   | (0.3         | ) |  |                   |      |   |  |   | 142.5   |  
|Other income, net                            |  |               |      |   |                       |   | (0.5    | )                         |  |   | (0.2         | ) |  |                   |      |   |  |   | (0.7    | )
|Equity (income) loss in subsidiaries         |  |               | (87.1 | ) |                       |   |        |                           |  |   |             |   |  |                   | 87.1  |   |  |   |        |  
|                                             |  |               |       |   |                       |   |         |                           |  |   |              |   |  |                   |       |   |  |   |         |  
|Non-operating expense (income), net          |  |               | 44.5  |   |                       |   | 10.7    |                           |  |   | (0.5         | ) |  |                   | 87.1  |   |  |   | 141.8   |  
|                                             |  |               |       |   |                       |   |         |                           |  |   |              |   |  |                   |       |   |  |   |         |  
|(Loss) income before taxes                   |  |               | (44.8 | ) |                       |   | 81.6    |                           |  |   | 8.7          |   |  |                   | (87.1 | ) |  |   | (41.6   | )
|                                             |  |               |       |   |                      
|(Benefit from) provision for income taxes    |  |               | (17.2 | ) |                       |   | 0.2     |                           |  |   | 3.0          |   |  |                   |      |   |  |   | (14.0   | )
|                                             |  |               |       |   |                       |   |         |                           |  |   |              |   |  |                   |       |   |  |   |         |  
|Net (loss) income                            |  | $             | (27.6 | ) |                       | $ | 81.4    |                           |  | $ | 5.7          |   |  | $                 | (87.1 | ) |  | $ | (27.6   | )
|                                             |  |               |       |   |                       |   |         |                           |  |   |              |   |  |                   |       |   |  |   |         |  



23



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##### Table of Contents

Hawker Beechcraft Acquisition Company, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)



HAWKER BEECHCRAFT ACQUISITION COMPANY, LLCSUCCESSOR

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2007

(In millions)



|                                             |  |               |       |   |                       |   |         |                           |  |              |      |  |                   |      |   |  |   |         |  
|-------------------------------------------- |  | ------------- | ----- | - | --------------------- | - | ------- | ------------------------- |  | ------------ | ---- |  | ----------------- | ---- | - |  | - | ------- | -
|                                             |  | ParentCompany |       |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  | Eliminations |      |  | ConsolidatedTotal |     
|Sales                                        |  | $             |      |   |                       | $ | 1,539.9 |                           |  | $            | 32.2 |  | $                 |     |   |  | $ | 1,572.1 |  
|Cost of sales                                |  |               | 0.2   |   |                       |   | 1,351.0 |                           |  |              | 29.0 |  |                   |     |   |  |   | 1,380.2 |  
|                                             |  |               |       |   |                       |   |         |                           |  |              |      |  |                   |      |   |  |   |         |  
|Gross margin                                 |  |               | (0.2  | ) |                       |   | 188.9   |                           |  |              | 3.2  |  |                   |     |   |  |   | 191.9   |  
|                                             |  |               |       |   |                       |   |         |                           |  |              |      |  |                   |      |   |  |   |         |  
|Selling, general and administrative expenses |  |               | 0.6   |   |                       |   | 119.0   |                           |  |              | 2.0  |  |                   |     |   |  |   | 121.6   |  
|                                             |  |               |       |   |                      
|Research and development expenses            |  |               |      |   |                       |   | 44.8    |                           |  |              |     |  |                   |     |   |  |   | 44.8    |  
|                                             |  |               |       |   |                       |   |         |                           |  |              |      |  |                   |      |   |  |   |         |  
|Operating (loss) income                      |  |               | (0.8  | ) |                       |   | 25.1    |                           |  |              | 1.2  |  |                   |     |   |  |   | 25.5    |  
|                                             |  |               |       |   |                       |   |         |                           |  |              |      |  |                   |      |   |  |   |         |  
|Interest expense, net                        |  |               | 93.8  |   |                       |   | 13.7    |                           |  |              |     |  |                   |     |   |  |   | 107.5   |  
|Other (income) expense, net                  |  |               | (2.5  | ) |                       |   | (0.9    | )                         |  |              | 0.6  |  |                   |     |   |  |   | (2.8    | )
|Equity (income) loss in subsidiaries         |  |               | (9.1  | ) |                       |   |        |                           |  |              |     |  |                   | 9.1  |   |  |   |        |  
|                                             |  |               |       |   |                       |   |         |                           |  |              |      |  |                   |      |   |  |   |         |  
|Non-operating expense, net                   |  |               | 82.2  |   |                       |   | 12.8    |                           |  |              | 0.6  |  |                   | 9.1  |   |  |   | 104.7   |  
|                                             |  |               |       |   |                       |   |         |                           |  |              |      |  |                   |      |   |  |   |         |  
|(Loss) income before taxes                   |  |               | (83.0 | ) |                       |   | 12.3    |                           |  |              | 0.6  |  |                   | (9.1 | ) |  |   | (79.2   | )
|                                             |  |               |       |   |                      
|(Benefit from) provision for income taxes    |  |               | (27.2 | ) |                       |   | 3.6     |                           |  |              | 0.2  |  |                   |     |   |  |   | (23.4   | )
|                                             |  |               |       |   |                       |   |         |                           |  |              |      |  |                   |      |   |  |   |         |  
|Net (loss) income                            |  | $             | (55.8 | ) |                       | $ | 8.7     |                           |  | $            | 0.4  |  | $                 | (9.1 | ) |  | $ | (55.8   | )
|                                             |  |               |       |   |                       |   |         |                           |  |              |      |  |                   |      |   |  |   |         |  



24



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##### Table of Contents

Hawker Beechcraft Acquisition Company, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)



RAYTHEON AIRCRAFTPREDECESSOR

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

FOR THE THREE MONTHS ENDED MARCH 25, 2007

(In millions)



|                                             |  |               |       |   |                       |   |       |                           |  |   |              |   |  |                   |      |   |  |   |       |  
|-------------------------------------------- |  | ------------- | ----- | - | --------------------- | - | ----- | ------------------------- |  | - | ------------ | - |  | ----------------- | ---- | - |  | - | ----- | -
|                                             |  | ParentCompany |       |   | GuarantorSubsidiaries |   |       | Non-GuarantorSubsidiaries |  |   | Eliminations |   |  | ConsolidatedTotal |     
|Sales                                        |  | $             |      |   |                       | $ | 657.0 |                           |  | $ | 13.8         |   |  | $                 |     |   |  | $ | 670.8 |  
|Cost of sales                                |  |               |      |   |                       |   | 544.0 |                           |  |   | 14.6         |   |  |                   |     |   |  |   | 558.6 |  
|                                             |  |               |       |   |                       |   |       |                           |  |   |              |   |  |                   |      |   |  |   |       |  
|Gross Margin                                 |  |               |      |   |                       |   | 113.0 |                           |  |   | (0.8         | ) |  |                   |     |   |  |   | 112.2 |  
|                                             |  |               |       |   |                       |   |       |                           |  |   |              |   |  |                   |      |   |  |   |       |  
|Selling, general and administrative expenses |  |               | 0.4   |   |                       |   | 58.2  |                           |  |   | 0.9          |   |  |                   |     |   |  |   | 59.5  |  
|                                             |  |               |       |   |                      
|Research and development expenses            |  |               |      |   |                       |   | 21.3  |                           |  |   |             |   |  |                   |     |   |  |   | 21.3  |  
|                                             |  |               |       |   |                       |   |       |                           |  |   |              |   |  |                   |      |   |  |   |       |  
|Operating (loss) income                      |  |               | (0.4  | ) |                       |   | 33.5  |                           |  |   | (1.7         | ) |  |                   |     |   |  |   | 31.4  |  
|                                             |  |               |       |   |                       |   |       |                           |  |   |              |   |  |                   |      |   |  |   |       |  
|Intercompany interest (income) expense, net  |  |               | (6.4  | ) |                       |   | 22.2  |                           |  |   |             |   |  |                   |     |   |  |   | 15.8  |  
|Interest (income) expense , net              |  |               | (7.5  | ) |                       |   | 6.6   |                           |  |   |             |   |  |                   |     |   |  |   | (0.9  | )
|Other (income) expense, net                  |  |               |      |   |                       |   | (0.2  | )                         |  |   | 0.1          |   |  |                   |     |   |  |   | (0.1  | )
|Equity (income) loss in subsidiaries         |  |               | (1.2  | ) |                       |   |      |                           |  |   |             |   |  |                   | 1.2  |   |  |   |      |  
|                                             |  |               |       |   |                       |   |       |                           |  |   |              |   |  |                   |      |   |  |   |       |  
|Non-operating (income) expense, net          |  |               | (15.1 | ) |                       |   | 28.6  |                           |  |   | 0.1          |   |  |                   | 1.2  |   |  |   | 14.8  |  
|                                             |  |               |       |   |                       |   |       |                           |  |   |              |   |  |                   |      |   |  |   |       |  
|Income (loss) before taxes                   |  |               | 14.7  |   |                       |   | 4.9   |                           |  |   | (1.8         | ) |  |                   | (1.2 | ) |  |   | 16.6  |  
|                                             |  |               |       |   |                      
|Provision for income taxes                   |  |               | 4.5   |   |                       |   | 1.9   |                           |  |   |             |   |  |                   |     |   |  |   | 6.4   |  
|                                             |  |               |       |   |                       |   |       |                           |  |   |              |   |  |                   |      |   |  |   |       |  
|Net income (loss)                            |  | $             | 10.2  |   |                       | $ | 3.0   |                           |  | $ | (1.8         | ) |  | $                 | (1.2 | ) |  | $ | 10.2  |  
|                                             |  |               |       |   |                       |   |       |                           |  |   |              |   |  |                   |      |   |  |   |       |  



25



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##### Table of Contents

Hawker Beechcraft Acquisition Company, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)



HAWKER BEECHCRAFT ACQUISITION COMPANY, LLCSUCCESSOR

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)

FOR
THE NINE MONTHS ENDED SEPTEMBER 28, 2008

(In millions)



|                                                      |  |               |        |   |                       |   |       |                           |  |   |              |   |                   |   |   |  |   |        |  
|----------------------------------------------------- |  | ------------- | ------ | - | --------------------- | - | ----- | ------------------------- |  | - | ------------ | - | ----------------- | - | - |  | - | ------ | -
|                                                      |  | ParentCompany |        |   | GuarantorSubsidiaries |   |       | Non-GuarantorSubsidiaries |  |   | Eliminations |   | ConsolidatedTotal |  
|Net cash (used in) provided by operating activities   |  | $             | (106.7 | ) |                       | $ | (56.0 | )                         |  | $ | 3.0          |   |                   | $ |  |  | $ | (159.7 | )
|                                                      |  |               |        |   |                       |   |       |                           |  |   |              |   |                   |   |   |  |   |        |  
|Cash flows from investing activities:                 |  |               |        |   |                       |   |       |                           |  |   |              |   |                   |   |   |  |   |        |  
|Expenditures for property, plant and equipment        |  |               | (1.2   | ) |                       |   | (43.2 | )                         |  |   | (1.8         | ) |                   |   |  |  |   | (46.2  | )
|Additions to computer software                        |  |               |       |   |                       |   | (3.1  | )                         |  |   |             |   |                   |   |  |  |   | (3.1   | )
|Sale of fuel and line operations, net of cost of sale |  |               |       |   |                       |   | 101.7 |                           |  |   |             |   |                   |   |  |  |   | 101.7  |  
|                                                      |  |               |        |   |                       |   |       |                           |  |   |              |   |                   |   |   |  |   |        |  
|Net cash (used in) provided by investing activities   |  |               | (1.2   | ) |                       |   | 55.4  |                           |  |   | (1.8         | ) |                   |   |  |  |   | 52.4   |  
|                                                      |  |               |        |   |                       |   |       |                           |  |   |              |   |                   |   |   |  |   |        |  
|Cash flows from financing activities:                 |  |               |        |   |                       |   |       |                           |  |   |              |   |                   |   |   |  |   |        |  
|Payment of term loan                                  |  |               | (6.5   | ) |                       |   |      |                           |  |   |             |   |                   |   |  |  |   | (6.5   | )
|Payment of notes payable                              |  |               | (136.0 | ) |                       |   |      |                           |  |   |             |   |                   |   |  |  |   | (136.0 | )
|                                                      |  |               |        |   |                       |   |       |                           |  |   |              |   |                   |   |   |  |   |        |  
|Net cash used in financing activities                 |  |               | (142.5 | ) |                       |   |      |                           |  |   |             |   |                   |   |  |  |   | (142.5 | )
|                                                      |  |               |        |   |                       |   |       |                           |  |   |              |   |                   |   |   |  |   |        |  
|Effect of exchange rates on cash and cash equivalents |  |               | (0.7   | ) |                       |   |       |                           |  |   |             |   |                   |   |  |  |   | (0.7   | )
|                                                      |  |               |        |   |                      
|Net (decrease) increase in cash and cash equivalents  |  |               | (251.1 | ) |                       |   | (0.6  | )                         |  |   | 1.2          |   |                   |   |  |  |   | (250.5 | )
|Cash and cash equivalents at beginning of period      |  |               | 558.1  |   |                       |   | 0.7   |                           |  |   | 10.7         |   |                   |   |  |  |   | 569.5  |  
|                                                      |  |               |        |   |                       |   |       |                           |  |   |              |   |                   |   |   |  |   |        |  
|Cash and cash equivalents at end of period            |  | $             | 307.0  |   |                       | $ | 0.1   |                           |  | $ | 11.9         |   |                   | $ |  |  | $ | 319.0  |  
|                                                      |  |               |        |   |                       |   |       |                           |  |   |              |   |                   |   |   |  |   |        |  



26



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##### Table of Contents

Hawker Beechcraft Acquisition Company, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)



HAWKER BEECHCRAFT ACQUISITION COMPANY, LLCSUCCESSOR

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)

FOR
THE SIX MONTHS ENDED SEPTEMBER 30, 2007

(In millions)



|                                                    |  |               |          |   |                       |   |       |                           |  |              |     |                   |   |   |  |   |          |  
|--------------------------------------------------- |  | ------------- | -------- | - | --------------------- | - | ----- | ------------------------- |  | ------------ | --- | ----------------- | - | - |  | - | -------- | -
|                                                    |  | ParentCompany |          |   | GuarantorSubsidiaries |   |       | Non-GuarantorSubsidiaries |  | Eliminations |     | ConsolidatedTotal |  
|Net cash provided by operating activities           |  | $             | 112.4    |   |                       | $ | 77.1  |                           |  | $            | 6.9 |                   | $ |  |  | $ | 196.4    |  
|                                                    |  |               |          |   |                       |   |       |                           |  |              |     |                   |   |   |  |   |          |  
|Cash flows from investing activities:               |  |               |          |   |                       |   |       |                           |  |              |     |                   |   |   |  |   |          |  
|Expenditures for property, plant, and equipment     |  |               |         |   |                       |   | (30.7 | )                         |  |              |    |                   |   |  |  |   | (30.7    | )
|Acquisition of business, net of cash acquired       |  |               | (3,218.0 | ) |                       |   |      |                           |  |              |    |                   |   |  |  |   | (3,218.0 | )
|                                                    |  |               |          |   |                       |   |       |                           |  |              |     |                   |   |   |  |   |          |  
|Net cash used in investing activities               |  |               | (3,218.0 | ) |                       |   | (30.7 | )                         |  |              |    |                   |   |  |  |   | (3,248.7 | )
|                                                    |  |               |          |   |                       |   |       |                           |  |              |     |                   |   |   |  |   |          |  
|Cash flows from financing activities:               |  |               |          |   |                       |   |       |                           |  |              |     |                   |   |   |  |   |          |  
|Equity contributions                                |  |               | 976.7    |   |                       |   |      |                           |  |              |    |                   |   |  |  |   | 976.7    |  
|Issuance of long-term debt                          |  |               | 2,400.0  |   |                       |   |      |                           |  |              |    |                   |   |  |  |   | 2,400.0  |  
|Debt issuance costs                                 |  |               | (72.0    | ) |                       |   |      |                           |  |              |    |                   |   |  |  |   | (72.0    | )
|Payment of term loan                                |  |               | (6.5     | ) |                       |   |      |                           |  |              |    |                   |   |  |  |   | (6.5     | )
|Change in notes payable and long term debt          |  |               | 45.3     |   |                       |   | (45.3 | )                         |  |              |    |                   |   |  |  |   |         |  
|                                                    |  |               |          |   |                       |   |       |                           |  |              |     |                   |   |   |  |   |          |  
|Net cash provided by (used in) financing activities |  |               | 3,343.5  |   |                       |   | (45.3 | )                         |  |              |    |                   |   |  |  |   | 3,298.2  |  
|                                                    |  |               |          |   |                       |   |       |                           |  |              |     |                   |   |   |  |   |          |  
|Net increase in cash and cash equivalents           |  |               | 237.9    |   |                       |   | 1.1   |                           |  |              | 6.9 |                   |   |  |  |   | 245.9    |  
|Cash and cash equivalents at beginning of period    |  |               |         |   |                       |   |      |                           |  |              |    |                   |   |  |  |   |         |  
|                                                    |  |               |          |   |                       |   |       |                           |  |              |     |                   |   |   |  |   |          |  
|Cash and cash equivalents at end of period          |  | $             | 237.9    |   |                       | $ | 1.1   |                           |  | $            | 6.9 |                   | $ |  |  | $ | 245.9    |  
|                                                    |  |               |          |   |                       |   |       |                           |  |              |     |                   |   |   |  |   |          |  



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Hawker Beechcraft Acquisition Company, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)



RAYTHEON AIRCRAFTPREDECESSOR

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)

FOR THE THREE MONTHS ENDED MARCH 25, 2007

(In millions)



|                                                      |  |               |        |   |                       |   |       |                           |  |   |              |   |                   |   |   |  |   |        |  
|----------------------------------------------------- |  | ------------- | ------ | - | --------------------- | - | ----- | ------------------------- |  | - | ------------ | - | ----------------- | - | - |  | - | ------ | -
|                                                      |  | ParentCompany |        |   | GuarantorSubsidiaries |   |       | Non-GuarantorSubsidiaries |  |   | Eliminations |   | ConsolidatedTotal |  
|Net cash (used in) provided by operating activities   |  | $             | (133.2 | ) |                       | $ | 28.8  |                           |  | $ | (2.9         | ) |                   | $ |  |  | $ | (107.3 | )
|                                                      |  |               |        |   |                       |   |       |                           |  |   |              |   |                   |   |   |  |   |        |  
|Cash flows from investing activities:                 |  |               |        |   |                       |   |       |                           |  |   |              |   |                   |   |   |  |   |        |  
|Expenditures for property, plant and equipment        |  |               |       |   |                       |   | (26.2 | )                         |  |   |             |   |                   |   |  |  |   | (26.2  | )
|Additions to computer software                        |  |               |       |   |                       |   | (1.1  | )                         |  |   |             |   |                   |   |  |  |   | (1.1   | )
|                                                      |  |               |        |   |                       |   |       |                           |  |   |              |   |                   |   |   |  |   |        |  
|Net cash used in investing activities                 |  |               |       |   |                       |   | (27.3 | )                         |  |   |             |   |                   |   |  |  |   | (27.3  | )
|                                                      |  |               |        |   |                       |   |       |                           |  |   |              |   |                   |   |   |  |   |        |  
|Cash flows from financing activities:                 |  |               |        |   |                       |   |       |                           |  |   |              |   |                   |   |   |  |   |        |  
|Net transfers from Raytheon                           |  |               | 117.4  |   |                       |   |      |                           |  |   |             |   |                   |   |  |  |   | 117.4  |  
|                                                      |  |               |        |   |                       |   |       |                           |  |   |              |   |                   |   |   |  |   |        |  
|Net cash provided by financing activities             |  |               | 117.4  |   |                       |   |      |                           |  |   |             |   |                   |   |  |  |   | 117.4  |  
|                                                      |  |               |        |   |                       |   |       |                           |  |   |              |   |                   |   |   |  |   |        |  
|Effect of exchange rates on cash and cash equivalents |  |               |       |   |                       |   |      |                           |  |   |             |   |                   |   |  |  |   |       |  
|                                                      |  |               |        |   |                      
|Net (decrease) increase in cash and cash equivalents  |  |               | (15.8  | ) |                       |   | 1.5   |                           |  |   | (2.9         | ) |                   |   |  |  |   | (17.2  | )
|Cash and cash equivalents at beginning of period      |  |               | 18.5   |   |                       |   | 1.6   |                           |  |   | 5.8          |   |                   |   |  |  |   | 25.9   |  
|                                                      |  |               |        |   |                       |   |       |                           |  |   |              |   |                   |   |   |  |   |        |  
|Cash and cash equivalents at end of period            |  | $             | 2.7    |   |                       | $ | 3.1   |                           |  | $ | 2.9          |   |                   | $ |  |  | $ | 8.7    |  
|                                                      |  |               |        |   |                       |   |       |                           |  |   |              |   |                   |   |   |  |   |        |  



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

The following discussion and analysis of financial condition and results of operations for the three and nine months ended September 28, 2008 and
the three and six months ended September 30, 2007 reflects the business of Hawker Beechcraft Acquisition Company, LLC (HBAC), the successor business (Successor) to Raytheon Aircraft (RA). The discussion and
analysis of financial condition and results of operations for the three months ended March 25, 2007 reflects the business of RA, the predecessor business (Predecessor) acquired by Hawker Beechcraft, Inc. (HBI), the
parent company of HBAC (the Acquisition). Unless otherwise indicated, the discussion and analysis of the Predecessor does not give effect to the Acquisition or include pro forma adjustments.

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements, including the
notes thereto, included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements, including the notes thereto, in the Annual Report on Form 10-K for the year ended December 31, 2007.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other
than statements of historical fact, including statements that address activities, events or developments that we or our management intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements.
Forward-looking statements are based on managements assumptions and assessments in light of past experience and trends, current conditions, expected future developments and other relevant factors. They are not guarantees of future performance,
and actual results may differ significantly from those envisaged by our forward-looking statements. Among the factors that could cause actual results to differ materially from those described or implied in the forward-looking statements are general
business and economic conditions, production delays resulting from lack of regulatory certifications and other factors, competition in our existing and future markets, lack of market acceptance of our products and services, the substantial leverage
and debt service resulting from our indebtedness, loss or retirement of key executives and other risks disclosed in our filings with the Securities and Exchange Commission.

Our Company

We operate in the global general aviation industry and are a leading designer and
manufacturer of business jet, turboprop and piston aircraft. We are also the sole source provider of the primary military trainer aircraft to the U.S. Air Force and the U.S. Navy. We deliver our products to a diverse customer base, including
corporations, fractional and charter operators, governments and individuals throughout the world. We provide parts, maintenance and flight support services through an extensive network of service centers to an estimated installed fleet of more than
36,000 aircraft. We believe that our backlog, which was $7.9 billion at September 28, 2008, demonstrates strong market acceptance of our existing products and derivative models.

We have three operating segmentsBusiness and General Aviation, Trainer Aircraft and Customer Support. The Business and General Aviation segment
designs, develops, manufactures, markets and sells commercial and specially modified general aviation aircraft as well as manufactures and provides aircraft parts to our Trainer Aircraft and Customer Support segments. The Business and General
Aviation segment also sells used general aviation aircraft which may be received as a trade-in during a new aircraft sales transaction. The Trainer Aircraft segment designs, develops, manufactures, markets and sells military training aircraft. The
Customer Support segment provides aftermarket parts and service support for our installed fleet of aircraft worldwide.

Recent Events

In response to the weakness in the global economy and overall economic outlook, we informed employees on October 31, 2008 that reductions in workforce
would be required as adjustments are made to aircraft production rates. The change in aircraft production reflects anticipation of reduced demand for new aircraft, spares and maintenance services. The financial impact of the planned reductions is
not anticipated to be material to our financial condition.

On August 2, 2008, our union work force failed to ratify a new collective
bargaining agreement and voted to engage in a strike. The strike started August 4, 2008 and affected our Wichita and Salina, Kansas operations. The strike lasted approximately four weeks with employees returning to work during the week of
September 1, 2008. The strike disrupted our manufacturing and assembly operations, which will significantly impact our production schedule and planned deliveries for the balance of 2008. The strike impacted our results for the three months
ended September 28, 2008 significantly. During this period, we delivered fewer aircraft than expected, which adversely impacted revenue, operating income and operating cash flow.

On June 12, 2008, the Hawker 4000, our new composite, super-midsize business jet, received FAA type and production certification enabling us to
commence customer deliveries. The initial customer delivery of the Hawker 4000 occurred on June 18, 2008. We delivered two additional units during the three months ended September 28, 2008. However, the timing of several early production
deliveries has been impacted by the strike and by certain product enhancements to be incorporated in the aircraft type design later in the year. In addition, we recorded a charge of $25.3 million during the three months ended September 28, 2008
to



29



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##### Table of Contents

reflect expected cost growth on early production units with anticipated cost in excess of selling price. The primary driver for the cost growth was the
complexity encountered to conform these units to the final aircraft type design and to establish standard production processes.

Our
previously announced definitive agreement to sell our wholly-owned fuel and line operations to BBA Aviation plc for $128.5 million closed for six of the seven facilities on July 24, 2008, resulting in gross cash proceeds of $105.8 million.
Sales for the fuel and line operations, which are included in the Customer Support segment, were $7.0 million and $48.4 million, respectively, for the three and nine months ended September 28, 2008. During the three months ended
September 28, 2008, we recorded an insignificant loss on the sale of the fuel and line operations. The sale of the remaining facility closed on October 3, 2008.

On June 6, 2008, we suspended deliveries of the T-6A Texan II (T-6A) military trainer to the U.S. Government pending resolution of quality issues with a suppliers component. We continue to work
closely with the vendor and the U.S. Government and anticipate resuming deliveries later this year.

Results of Operations



|                                             |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|-------------------------------------------- |  | ---------------------------------- | ----- | - | ---------------------------------- | - | ----- | --------------------------------- |  | ----------- | -------------------------------- | - |  | - | ------- | ------------------------------ |  |  |  | - | ----- | -
|                                             |  | Successor                          |       |   | Successor                          |   |       |                                   |  | Predecessor |                                 
|(In millions)                                |  | Three MonthsEndedSeptember 28,2008 |       |   | Three MonthsEndedSeptember 30,2007 |   |       | Nine MonthsEndedSeptember 28,2008 |  |             | Six MonthsEndedSeptember 30,2007 |   |  |   |         | Three MonthsEndedMarch 25,2007 | 
|Sales                                        |  | $                                  | 783.3 |   |                                    | $ | 871.0 |                                   |  | $           | 2,388.5                          |   |  | $ | 1,572.1 |                                |  |  |  | $ | 670.8 |  
|Cost of sales                                |  |                                    | 674.3 |   |                                    |   | 721.7 |                                   |  |             | 2,009.4                          |   |  |   | 1,380.2 |                                |  |  |  |   | 558.6 |  
|                                             |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|Gross margin                                 |  |                                    | 109.0 |   |                                    |   | 149.3 |                                   |  |             | 379.1                            |   |  |   | 191.9   |                                |  |  |  |   | 112.2 |  
|                                             |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|Selling, general and administrative expenses |  |                                    | 65.9  |   |                                    |   | 66.4  |                                   |  |             | 198.6                            |   |  |   | 121.6   |                                |  |  |  |   | 59.5  |  
|Research and development expenses            |  |                                    | 27.8  |   |                                    |   | 20.8  |                                   |  |             | 80.3                             |   |  |   | 44.8    |                                |  |  |  |   | 21.3  |  
|                                             |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|Operating income                             |  |                                    | 15.3  |   |                                    |   | 62.1  |                                   |  |             | 100.2                            |   |  |   | 25.5    |                                |  |  |  |   | 31.4  |  
|                                             |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|Inter-company interest expense, net          |  |                                    |      |   |                                    |   |      |                                   |  |             |                                 |   |  |   |        |                                |  |  |  |   | 15.8  |  
|Interest expense (income), net               |  |                                    | 48.0  |   |                                    |   | 56.3  |                                   |  |             | 142.5                            |   |  |   | 107.5   |                                |  |  |  |   | (0.9  | )
|Other income, net                            |  |                                    | (1.1  | ) |                                    |   | (1.7  | )                                 |  |             | (0.7                             | ) |  |   | (2.8    | )                              |  |  |  |   | (0.1  | )
|                                             |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|Non-operating expense, net                   |  |                                    | 46.9  |   |                                    |   | 54.6  |                                   |  |             | 141.8                            |   |  |   | 104.7   |                                |  |  |  |   | 14.8  |  
|                                             |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|(Loss) income before taxes                   |  |                                    | (31.6 | ) |                                    |   | 7.5   |                                   |  |             | (41.6                            | ) |  |   | (79.2   | )                              |  |  |  |   | 16.6  |  
|                                             |  |                                    |       |   |                                    |  
|(Benefit from) provision for income taxes    |  |                                    | (10.4 | ) |                                    |   | (13.8 | )                                 |  |             | (14.0                            | ) |  |   | (23.4   | )                              |  |  |  |   | 6.4   |  
|                                             |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  
|Net (loss) income                            |  | $                                  | (21.2 | ) |                                    | $ | 21.3  |                                   |  | $           | (27.6                            | ) |  | $ | (55.8   | )                              |  |  |  | $ | 10.2  |  
|                                             |  |                                    |       |   |                                    |   |       |                                   |  |             |                                  |   |  |   |         |                                |  |  |  |   |       |  

Three Months Ended September 28, 2008 as Compared to the Three Months Ended September 30, 2007

Sales.As detailed in the table below, sales were $783.3 million for the three months ended September 28, 2008
compared to $871.0 million during the three months ended September 30, 2007.



|                              |  |                                    |       |   |                                    |   |       |  
|----------------------------- |  | ---------------------------------- | ----- | - | ---------------------------------- | - | ----- | -
|                              |  | Successor                          |      
|Sales (In
millions)           |  | Three MonthsEndedSeptember 28,2008 |       |   | Three MonthsEndedSeptember 30,2007 |  
|Business and General Aviation |  | $                                  | 603.0 |   |                                    | $ | 665.0 |  
|Trainer Aircraft              |  |                                    | 77.4  |   |                                    |   | 99.0  |  
|Customer Support              |  |                                    | 125.7 |   |                                    |   | 145.6 |  
|Eliminations                  |  |                                    | (22.8 | ) |                                    |   | (38.6 | )
|                              |  |                                    |       |   |                                    |   |       |  
|Total                         |  | $                                  | 783.3 |   |                                    | $ | 871.0 |  
|                              |  |                                    |       |   |                                    |   |       |  



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The $62.0 million decrease in Business and General Aviation sales is principally attributable to changes
in the volume and mix of new aircraft deliveries as reflected in the aircraft unit delivery table below. When comparing period performance, changes in the volume, mix and distribution channel of aircraft deliveries can have a significant impact on
our financial results. As previously discussed, the overall volume of new aircraft delivered was adversely impacted by the strike.



|                                                      |  |                                    |  |                                   
|----------------------------------------------------- |  | ---------------------------------- |  | ----------------------------------
|                                                      |  | Successor                         
|Business and General Aviation New Aircraft Deliveries |  | Three MonthsEndedSeptember 28,2008 |  | Three MonthsEndedSeptember 30,2007
|Hawker 4000                                           |  | 2                                  |  |                                  
|Hawker 900XP                                          |  | 10                                 |  | 8                                 
|Hawker 800XP/850XP                                    |  | 6                                  |  | 10                                
|Hawker 750                                            |  | 9                                  |  |                                  
|Hawker 400XP                                          |  | 5                                  |  | 12                                
|Premier                                               |  | 2                                  |  | 5                                 
|King Airs                                             |  | 33                                 |  | 40                                
|Pistons                                               |  | 19                                 |  | 31                                
|                                                      |  |                                    |  |                                   
|Total                                                 |  | 86                                 |  | 106                               
|                                                      |  |                                    |  |                                   

Sales in the Trainer Aircraft segment are principally comprised of revenue on the Joint Primary
Aircraft Training System (JPATS) contract with the U.S. Government. Revenue is recognized on this contract using the cost-to-cost method to measure progress towards completion. Accordingly, the majority of Trainer Aircraft segment sales,
including estimated earned gross margin, are recognized as costs are incurred. Program cost in any period is impacted by the number of aircraft in production as well as support provided for the Contractor Operated and Maintained Base Supply
(COMBS) and Ground Based Training Systems (GBTS) elements of our contracts with the U.S. Government. The $21.6 million decrease in segment revenue is due to declining GBTS revenues as well as reduced aircraft production due
to the strike and the pending resolution of the supplier quality issue previously discussed. GBTS revenues will continue to decline in the coming years as activation of the U.S. Air Force and Navy Training Bases is nearing an end.

Customer Support segment sales are principally comprised of the sale of spare parts and maintenance services to existing aircraft owners. The $19.9
million decrease in segment sales was primarily driven by a reduction in sales from the fuel and line business as six of the facilities were sold during the quarter.

Operating Income. As detailed in the table below, operating income was $15.3 million for the three months ended September 28, 2008 compared to $62.1 million for three months ended
September 30, 2007. Decreased sales volume in the Business and General Aviation and Trainer segments, as well as the charge on the Hawker 4000, offset by the effects of purchase accounting on our 2007 results are the primary reasons for
the decreased operating income.



|                                      |  |                                    |      |   |                                    |   |     
|------------------------------------- |  | ---------------------------------- | ---- | - | ---------------------------------- | - | ----
|                                      |  | Successor                         
|Operating Income (Loss) (In millions) |  | Three MonthsEndedSeptember 28,2008 |      |   | Three MonthsEndedSeptember 30,2007
|Business and General Aviation         |  | $                                  | (5.1 | ) |                                    | $ | 33.5
|Trainer Aircraft                      |  |                                    | 1.6  |   |                                    |   | 11.3
|Customer Support                      |  |                                    | 18.8 |   |                                    |   | 16.7
|Eliminations                          |  |                                    |     |   |                                    |   | 0.6 
|                                      |  |                                    |      |   |                                    |   |     
|Total                                 |  | $                                  | 15.3 |   |                                    | $ | 62.1
|                                      |  |                                    |      |   |                                    |   |     

Business and General Aviation segment operating loss was $5.1 million for the three months ended
September 28, 2008 compared to operating income of $33.5 million for the three months ended September 30, 2007. The decrease in operating income is attributable to the reduced delivery volume as a result of the strike and changes in
the product mix and distribution channel of new aircraft delivered as well as the $25.3 million charge recorded during the three months ended September 28, 2008 associated with specific early-production Hawker 4000 units with estimated product
cost in excess of estimated net sales price. Operating income for the three months ended September 30, 2007 included $19.4 million of non-recurring, non-cash charges associated with the step-up in finished goods and work in process inventory in
accordance with purchase accounting as a result of the Acquisition.



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Trainer Aircraft segment operating income was $1.6 million for the three months ended September 28,
2008 compared to $11.3 million for the three months ended September 30, 2007. The decrease was primarily due to decreased production and GBTS volume as well as increased depreciation and amortization charges for the three months ended
September 28, 2008 related to the finalization of purchase accounting as a result of the Acquisition. These impacts were offset slightly by a favorable adjustment to JPATS contract estimates. The use of the cost-to-cost method of revenue
recognition for this contract causes gross margin to be recognized based on managements estimate of total contract revenue and total contract cost at completion. As estimates are updated, any impact on revenue and gross margin as a result of
the change in estimate is reflected in current earnings on a cumulative catch-up basis. Favorable cumulative catch-up adjustments totaling $1.8 million were recorded for the three months ended September 28, 2008 compared to $0.9 million for the
three months ended September 30, 2007.

Customer Support segment operating income was $18.8 million for the three months ended
September 28, 2008 compared to $16.7 million for the three months ended September 30, 2007. The improvement in operating income is primarily due to ongoing operational and strategic pricing initiatives.

Selling, general, and administrative expense totaled $65.9 million, or 8.4% of sales, for the three months ended September 28, 2008 compared to
$66.4 million, or 7.6% of sales, for the three months ended September 30, 2007. The increase in selling, general and administrative expenses as a percentage of sales is driven primarily by the relatively fixed nature of the expenses and
the overall decrease in sales as discussed above. In addition, the three months ended September 30, 2007 included charges of $1.6 million for non-recurring, initial set-up costs to replace various services previously provided by Raytheon.

Research and development expense was $27.8 million for the three months ended September 28, 2008 compared to $20.8 million for the
three months ended September 30, 2007. This expense is principally related to upgrading our product offerings in both the general aviation and trainer aircraft markets as well as continuing certification activities for the Hawker 4000.

Depreciation and amortization expense is a significant component of operating income and has been impacted by the step-up in property,
plant and equipment and intangible assets in accordance with purchase accounting as a result of the Acquisition. Depreciation and amortization expense was $39.7 million and $37.4 million for the three months ended September 28, 2008 and
September 30, 2007, respectively. Included within these amounts were $17.6 million and $15.3 million for the three months ended September 28, 2008 and September 30, 2007, respectively, related to the purchase accounting step-up.

Non-operating Expense, net. Non-operating expense, net, was $46.9 million for the three months ended September 28, 2008
compared to $54.6 million for the three months ended September 30, 2007. During both periods, this expense was essentially comprised of interest expense associated with the debt incurred to finance the Acquisition offset by interest income
generated from our cash equivalents. The overall reduction is driven by lower interest cost on our floating rate debt due to decreases in the applicable LIBOR rate.

Benefit from Income Taxes. The effective tax rate for the three months ended September 28, 2008 was 32.9% and excluded the expired U.S. federal research and development credit.

Nine Months Ended September 28, 2008

Sales. As detailed in the table below, sales were $2,388.5 million for the nine months ended September 28, 2008 and were principally influenced by the volume, mix and distribution channel of new aircraft deliveries
in the Business and General Aviation segment.



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|                              |  |                                   |         |  
|----------------------------- |  | --------------------------------- | ------- | -
|                              |  | Successor                         |        
|Sales (In
millions)           |  | Nine MonthsEndedSeptember 28,2008 |        
|Business and General Aviation |  | $                                 | 1,844.6 |  
|Trainer Aircraft              |  |                                   | 248.1   |  
|Customer Support              |  |                                   | 407.1   |  
|Eliminations                  |  |                                   | (111.3  | )
|                              |  |                                   |         |  
|Total                         |  | $                                 | 2,388.5 |  
|                              |  |                                   |         |  

Sales in the Business and General Aviation segment during the nine months ended September 28,
2008 totaled $1,844.6 million, reflecting the volume and mix of new aircraft deliveries shown in the table below, and were negatively impacted by the strike.



|                                                      |  |                                  
|----------------------------------------------------- |  | ---------------------------------
|                                                      |  | Successor                        
|Business and General Aviation New Aircraft Deliveries |  | Nine MonthsEndedSeptember 28,2008
|Hawker 4000                                           |  | 3                                
|Hawker 900XP                                          |  | 33                               
|Hawker 800XP/850XP                                    |  | 11                               
|Hawker 750                                            |  | 15                               
|Hawker 400XP                                          |  | 19                               
|Premier                                               |  | 23                               
|King Airs                                             |  | 112                              
|Pistons                                               |  | 71                               
|                                                      |  |                                  
|Total                                                 |  | 287                              
|                                                      |  |                                  

Sales in the Trainer Aircraft segment are principally comprised of revenue on the JPATS contract
and totaled $248.1 million for the nine months ended September 28, 2008. Revenue is recognized on this contract using the cost-to-cost method to measure progress towards completion. Accordingly, the majority of Trainer Aircraft segment sales,
including estimated earned gross margin, are recognized as costs are incurred. Program cost in any period is impacted by the number of aircraft in production as well as support provided for the COMBS and GBTS elements of our contract with the U.S.
Government. Sales for the nine months ended September 28, 2008 were adversely impacted by declining GBTS revenues as activation of the U.S. Air Force and Navy Training Bases is nearing an end as well as reduced aircraft production due to the
strike and the pending resolution of the supplier quality issue previously discussed.

Customer Support segment sales are principally
comprised of the sale of spare parts and maintenance services to existing aircraft owners. Segment sales were impacted by strategic pricing initiatives and improved maintenance volume.

Operating Income. As detailed in the table below, operating income was $100.2 million for the nine months ended September 28,
2008.



|                               |  |                                   |      
|------------------------------ |  | --------------------------------- | -----
|                               |  | Successor                        
|Operating Income (In millions) |  | Nine MonthsEndedSeptember 28,2008
|Business and General Aviation  |  | $                                 | 24.0 
|Trainer Aircraft               |  |                                   | 13.2 
|Customer Support               |  |                                   | 63.0 
|Eliminations                   |  |                                   |     
|                               |  |                                   |      
|Total                          |  | $                                 | 100.2
|                               |  |                                   |      

Business and General Aviation segment operating income was $24.0 million for the nine months ended
September 28, 2008 and reflects the adverse impacts of the strike. Included in the results were charges totaling $60.0 million to reflect the expected increase in cost associated with specific early-production Hawker 4000 units that have
estimated product cost in excess of estimated net sales price.



33



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Trainer Aircraft segment operating income was $13.2 million for the nine months ended September 28,
2008 reflecting the reduced sales volumes discussed above and favorable cumulative catch-up adjustments totaling $8.0 million as a result of updates to U.S. Government and foreign contract estimates. Operating income was negatively impacted by
non-cash charges totaling $16.0 million of increased depreciation and amortization expense as a result of the step-up in property, plant and equipment and intangibles in accordance with purchase accounting as a result of the Acquisition.

Customer Support operating income was $63.0 million for the nine months ended September 28, 2008 and was favorably impacted by increased sales
volume and ongoing operational and strategic pricing initiatives.

Selling, general, and administrative expense totaled $198.6 million, or
8.3% of sales, for the nine months ended September 28, 2008 and reflects increased sales and marketing activity to support Business and General Aviation deliveries and new order volume.

Research and development expense was $80.3 million for the nine months ended September 28, 2008. This expense is principally related to
upgrading our product offerings in both the general aviation and trainer aircraft markets as well as continuing certification activities for the Hawker 4000.

Depreciation and amortization expense is a significant component of operating income and has been impacted by the step-up in property, plant and equipment and intangible assets in accordance with purchase accounting
as a result of the Acquisition. Depreciation and amortization expense was $117.9 million for the nine months ended September 28, 2008 and included $52.6 million related to the purchase accounting step-up.

Non-operating Expense, net. Non-operating expense, net, was $141.8 million for the nine months ended September 28, 2008 and was
essentially comprised of interest expense associated with the debt incurred to finance the Acquisition offset by interest income generated from our cash equivalents.

Benefit from Income Taxes. The effective tax rate was 33.7% for the nine months ended September 28, 2008 and excluded the expired U.S. federal research and development credit.



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##### Table of Contents

Six Months Ended September 30, 2007

Sales. As detailed in the table below, sales were $1,572.1 million for the six months ended September 30, 2007 and were
principally influenced by the volume, mix and distribution channel of new aircraft deliveries in the Business and General Aviation segment.



|                              |  |                                  |         |  
|----------------------------- |  | -------------------------------- | ------- | -
|                              |  | Successor                        |        
|Sales (In
millions)           |  | Six MonthsEndedSeptember 30,2007 |        
|Business and General Aviation |  | $                                | 1,170.2 |  
|Trainer Aircraft              |  |                                  | 194.2   |  
|Customer Support              |  |                                  | 271.9   |  
|Eliminations                  |  |                                  | (64.2   | )
|                              |  |                                  |         |  
|Total                         |  | $                                | 1,572.1 |  
|                              |  |                                  |         |  

Sales in the Business and General Aviation segment for the six months ended September 30,
2007 totaled $1,170.2 million, reflecting the volume and mix of new aircraft deliveries shown in the table below.



|                                                      |  |                                 
|----------------------------------------------------- |  | --------------------------------
|                                                      |  | Successor                       
|Business and General Aviation New Aircraft Deliveries |  | Six MonthsEndedSeptember 30,2007
|Hawker 4000                                           |  |                                
|Hawker 900XP                                          |  | 8                               
|Hawker 800XP/850XP                                    |  | 20                              
|Hawker 750                                            |  |                                
|Hawker 400XP                                          |  | 20                              
|Premier                                               |  | 17                              
|King Airs                                             |  | 74                              
|Pistons                                               |  | 62                              
|                                                      |  |                                 
|Total                                                 |  | 201                             
|                                                      |  |                                 

Sales in the Trainer Aircraft segment are principally comprised of program revenue on the JPATS
contract and totaled $194.2 for the six months ended September 30, 2007. Revenue is recognized on this contract using the cost-to-cost method to measure progress towards completion. Accordingly, the majority of Trainer Aircraft segment sales,
including estimated earned gross margin, is recognized as costs are incurred. Program cost in any period is impacted by the number of aircraft in production as well as support provided for the COMBS and GBTS elements of our contract with the U.S.
Government. GBTS revenues will continue to decline in the coming years as activation of the U.S. Air Force and Navy Training Bases is nearing an end.

Sales in the Customer Support segment are principally comprised of the sale of spare parts and maintenance services to existing aircraft owners and totaled $271.9 million for the six months ended September 30,
2007.



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##### Table of Contents

Operating Income. As detailed in the table below, operating income was $25.5 million
for the six months ended September 30, 2007.



|                                      |  |                                  |       |  
|------------------------------------- |  | -------------------------------- | ----- | -
|                                      |  | Successor                        |      
|Operating Income (Loss) (In
millions) |  | Six MonthsEndedSeptember 30,2007 |      
|Business and General Aviation         |  | $                                | (14.9 | )
|Trainer Aircraft                      |  |                                  | 22.6  |  
|Customer Support                      |  |                                  | 17.3  |  
|Eliminations                          |  |                                  | 0.5   |  
|                                      |  |                                  |       |  
|Total                                 |  | $                                | 25.5  |  
|                                      |  |                                  |       |  

Business and General Aviation segment operating loss was $14.9 million for the six months ended
September 30, 2007. Operating results were impacted by $68.4 million of expenses related to the step-up in the cost basis of inventory; property, plant and equipment; and intangible assets in accordance with purchase accounting as a result of
the Acquisition.

Trainer Aircraft segment operating income was $22.6 million for the six months ended September 30, 2007 and included
$1.5 million of favorable adjustments due to revised JPATS contract estimates.

Customer Support segment operating income was $17.3 million
for the six months ended September 30, 2007 and was impacted by $20.4 million of increased expenses due to the step-up on the cost basis of inventory; property, plant and equipment; and intangibles in accordance with purchase accounting as a
result of the Acquisition.

Selling, general and administrative expense for the six months ended September 30, 2007 included $5.9
million of non-recurring costs to replace various services previously provided by Raytheon and to communicate our new company name. In addition, for the six months ended September 30, 2007, selling, general and administrative expense included
$2.5 million of increased depreciation and amortization expense related to the step-up in the cost basis of property, plant and equipment and intangible assets in accordance with purchase accounting as a result of the Acquisition.

Research and development expense was $44.8 million for the six months ended September 30, 2007. This expense reflects the upgrade of our product
offerings in the general aviation marketplace through a product derivative strategy and certification activities associated with the Hawker 4000.

Non-operating expense, net. Non-operating expense, net was $104.7 million for the six months ended September 30, 2007 and is essentially comprised of interest expense associated with the debt incurred to finance the
Acquisition.

Benefit from Income Taxes.The effective tax rate for the six months ended September 30, 2007 was
29.6% and was favorably impacted by the U.S. federal research and development credit.

Three Months Ended March 25, 2007

Sales.As reflected in the table below, sales for the Predecessor were $670.8 million for the three months ended March 25, 2007.



|                              |  |                                |       |  
|----------------------------- |  | ------------------------------ | ----- | -
|                              |  | Predecessor                    |      
|Sales (In millions)           |  | Three MonthsEndedMarch 25,2007 |      
|Business and General Aviation |  | $                              | 490.6 |  
|Trainer Aircraft              |  |                                | 91.2  |  
|Customer Support              |  |                                | 116.4 |  
|Eliminations                  |  |                                | (27.4 | )
|                              |  |                                |       |  
|Total                         |  | $                              | 670.8 |  
|                              |  |                                |       |  

Sales in the Business and General Aviation segment for the three months ended March 25, 2007
totaled $490.6 million. As detailed in the table below, 79 new aircraft were delivered, including 14 Premier 1A aircraft which were delayed from 2006 as a result of pending FAA approval of revisions to required operating manuals. Approval was
received in January and deliveries resumed in February 2007.



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##### Table of Contents

|                                                      |  |                               
|----------------------------------------------------- |  | ------------------------------
|                                                      |  | Predecessor                   
|Business and General Aviation New Aircraft Deliveries |  | Three MonthsEndedMarch 25,2007
|Hawker 800XP/850XP                                    |  | 10                            
|Hawker 400XP                                          |  | 7                             
|Premier                                               |  | 15                            
|King Airs                                             |  | 28                            
|Pistons                                               |  | 19                            
|                                                      |  |                               
|Total                                                 |  | 79                            
|                                                      |  |                               

Sales in the Trainer Aircraft segment are principally comprised of program revenue on the JPATS
contract and totaled $91.2 million for the three months ended March 25, 2007. This program recognizes revenue using the cost-to-cost method to measure progress towards completion. Accordingly, sales are recognized as costs are incurred.

Sales in the Customer Support segment are principally comprised of the sale of spare parts and maintenance services to existing aircraft
owners and totaled $116.4 million for the three months ended March 25, 2007.

Operating Income.As reflected in the
table below, operating income for the Predecessor was $31.4 million for the three months ended March 25, 2007.



|                               |  |                                |     
|------------------------------ |  | ------------------------------ | ----
|                               |  | Predecessor                   
|Operating Income (In millions) |  | Three MonthsEndedMarch 25,2007
|Business and General Aviation  |  | $                              | 8.9 
|Trainer Aircraft               |  |                                | 12.2
|Customer Support               |  |                                | 9.6 
|Eliminations                   |  |                                | 0.7 
|                               |  |                                |     
|Total                          |  | $                              | 31.4
|                               |  |                                |     

Business and General Aviation segment operating income reflected the volume, mix and distribution
channel of new aircraft delivered during the quarter. Trainer Aircraft segment operating income included favorable cumulative catch-up adjustments of $3.4 million as a result of updates to contract estimates during the quarter. Customer Support
segment operating income was favorably impacted by the termination of an unprofitable contract with Flight Options, LLC, a former related party of the Predecessor.

Selling, general and administrative expense was $59.5 million for the three months ended March 25, 2007 and was impacted by increased sales and marketing costs and additional staffing levels in customer service
operations.

Research and development expense was $21.3 million for the three months ended March 25, 2007. This expense reflects the
upgrade of our product offerings in the general aviation marketplace through a product derivative strategy and certification activities associated with the Hawker 4000.

Non-operating Expense, net.Non-operating expense, net, under the Predecessor was $14.8 million for the three months ended March 25, 2007 and was essentially comprised of intercompany
interest expense payable to Raytheon.

Provision for Income Taxes.The effective tax rate for the three months
ended March 25, 2007 was 38.6% and reflected the pre-acquisition tax structure of the Predecessor.



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##### Table of Contents

Cash Flow Analysis

The following table illustrates sources and uses of funds:



|                                                      |  |                                   |        |   |                                  |   |             |   |  |                                |  |   |        |  
|----------------------------------------------------- |  | --------------------------------- | ------ | - | -------------------------------- | - | ----------- | - |  | ------------------------------ |  | - | ------ | -
|                                                      |  | Successor                         |        |   |                                  |   | Predecessor |  
|(In millions)                                         |  | Nine MonthsEndedSeptember 28,2008 |        |   | Six MonthsEndedSeptember 30,2007 |   |             |   |  | Three MonthsEndedMarch 25,2007 | 
|Net cash (used in) provided by operating activities   |  | $                                 | (159.7 | ) |                                  | $ | 196.4       |   |  |                                |  | $ | (107.3 | )
|Net cash provided by (used in) investing activities   |  |                                   | 52.4   |   |                                  |   | (3,248.7    | ) |  |                                |  |   | (27.3  | )
|Net cash (used in) provided by financing activities   |  |                                   | (142.5 | ) |                                  |   | 3,298.2     |   |  |                                |  |   | 117.4  |  
|Effect of exchange rates on cash and cash equivalents |  |                                   | (0.7   | ) |                                  |   |            |   |  |                                |  |   |       |  
|                                                      |  |                                   |        |   |                                  |   |             |   |  |                                |  |   |        |  
|Net (decrease) increase in cash and cash equivalents  |  | $                                 | (250.5 | ) |                                  | $ | 245.9       |   |  |                                |  | $ | (17.2  | )
|                                                      |  |                                   |        |   |                                  |   |             |   |  |                                |  |   |        |  

Nine Months Ended September 28, 2008. Net cash used in operating activities was
$159.7 million. The net cash consumed was primarily due to an increase in inventory in connection with increased build rates for the Hawker 4000 and other aircraft models as well as the reduced delivery volume as a result of the strike. These
impacts were partially offset by a financing arrangement with a third party that extends payment terms for engine purchases in exchange for short-term promissory notes, increased commercial aircraft deposits received and increases in accounts
payable and other accrued expenses. The seasonality of our aircraft deliveries coupled with a more linear aircraft production schedule also contributed to net operating cash consumption for the nine months ended September 28, 2008.

Net cash provided by investing activities of $52.4 million included net cash proceeds of $101.7 million from completing the sale of six of the seven
fuel and line operations facilities offset by capital expenditures of $46.2 million primarily related to tooling, facilities improvements and equipment used in the manufacturing process and additions to computer software of $3.1 million.

Net cash used in financing activities of $142.5 million represents payments on notes payable used to finance engine purchases and mandatory principal
payments of the senior secured term loan.

Six Months Ended September 30, 2007. Net cash provided by operating
activities was $196.4 million. The net cash generated was primarily due to customer deposits received on new commercial aircraft and collections of general aviation financing receivables, partially offset by cash used in building commercial aircraft
inventory on a more linear timeline compared to aircraft deliveries, which are more heavily weighted to occur during the second half of the year, as well as the reduction of JPATS advance payments.

Net cash used in investing activities of $3,248.7 million included capital expenditures of $30.7 million primarily related to company-manufactured
tooling and modernizing equipment used in the manufacturing process. The balance of investing cash used relates to the Acquisition consideration.

Net cash provided by financing activities of $3,298.2 million primarily represents the equity and debt financing received to fund the Acquisition.

Three Months Ended March 25, 2007. Net cash used in operating activities was $107.3 million and was primarily due to the more linear build of commercial aircraft compared to aircraft sales, which
generally increase during the second half of the year, as well as the reduction of JPATS advance payments. Partially offsetting these factors was collection of general aviation financing receivables.

Net cash used in investing activities of $27.3 million included capital expenditures of $26.2 million primarily related to company-manufactured tooling
and modernizing equipment used in the manufacturing process and $1.1 million of additions to computer software.

Cash provided by financing
activities of $117.4 million represents net transfers from Raytheon.

Liquidity and Capital Resources

Our principal sources of liquidity consist of cash generated by operations and borrowings under our revolving credit facility.



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##### Table of Contents

In connection with the Acquisition, we issued $1,100.0 million of notes, including $400.0 million of 8.5%
Senior Fixed Rate Notes due April 1, 2015, $400.0 million of 8.875%/9.625% Senior PIK-Election Notes due April 1, 2015 and $300.0 million of 9.75% Senior Subordinated Notes due April 1, 2017. In February 2008, we exchanged these notes
for new notes with identical terms, except that the new notes have been registered under the Securities Act of 1933 (the Securities Act) and do not bear restrictions on transferability mandated by the Securities Act or certain penalties
for failure to file a registration statement relating to the exchange. In addition, in connection with the Acquisition, we entered into senior secured credit facilities totaling $1,810.0 million, consisting of a $1,300.0 million term loan drawn at
the close of the Acquisition, an undrawn $400.0 million revolving credit facility and a $110.0 million synthetic letter of credit facility. In March 2008, we reduced the synthetic letter of credit facility to $75.0 million based on our expected
needs in the future.

On September 15, 2008, Lehman Brothers Holdings, Inc. (Lehman) filed for bankruptcy. One of
Lehmans subsidiaries, Lehman Brothers Commercial Bank, has a $35.0 million commitment in the Companys $400.0 million revolving credit facility. Accordingly, we do not expect Lehman Brothers Commercial Bank to fulfill its funding
obligations under the Companys revolving credit facility. As of September 28, 2008, there were no amounts outstanding under the revolving credit facility.

The indentures governing the notes and the credit agreement governing our senior secured credit facilities contain a number of covenants imposing significant restrictions on our business. These restrictions may affect
our ability to operate our business and may limit our ability to take advantage of potential business opportunities as they arise. The restrictions these covenants place on us include limitations on our ability to:



| |  |  | incur indebtedness or issue disqualified stock or preferred stock;
| | - |  | ------------------------------------------------------------------



| |  |  | pay dividends on, redeem or repurchase our capital stock;
| | - |  | ---------------------------------------------------------



| |  |  | make investments or acquisitions;
| | - |  | ---------------------------------



| |  |  | create liens;
| | - |  | -------------



| |  |  | sell assets;
| | - |  | ------------



| |  |  | engage in sale and leaseback transactions;
| | - |  | ------------------------------------------



| |  |  | restrict dividends or other payments to us;
| | - |  | -------------------------------------------



| |  |  | guarantee indebtedness;
| | - |  | -----------------------



| |  |  | engage in transactions with affiliates; and
| | - |  | -------------------------------------------



| |  |  | consolidate, merge or transfer all or substantially all of our assets.
| | - |  | ----------------------------------------------------------------------

We have substantial indebtedness. As of September 28, 2008, our total indebtedness was $2,473.5 million, including $89.7 million of short-term
obligations payable to a third party under a financing arrangement. We also had an additional $400.0 million available for borrowing under our revolving credit facility, subject to the expected $35.0 million reduction in availability due to the
Lehman bankruptcy discussed above, as well as up to $75.0 million of available letter of credit issuances under a synthetic letter of credit facility. In addition, our senior PIK-election notes permit us to pay interest by increasing the principal
amount thereunder (PIK-interest) rather than paying cash interest through April 1, 2011. If we were to elect to pay PIK-interest for all periods in which we have the option, we will incur indebtedness in an amount equal to the
PIK-interest.

As of September 28, 2008, we continue to be in full compliance with all covenants contained in our debt agreements.

As of September 28, 2008, we had $319.0 million of cash and cash equivalents. Our future cash deployment plans may include any
combination of prepayment of our term loan, repurchase of notes, strategic acquisitions or other investments in our business. Our management believes that our cash on hand, together with cash from operations and, if required, borrowings under our
available revolving credit facility will be sufficient to meet our cash requirements for the next twelve months.

Seasonality

In recent years, a significant portion of our Business and General Aviation aircraft deliveries have occurred during the second half of the year. Given
the long lead time involved in the production of aircraft, it is necessary to build aircraft throughout the year in support of the higher second half delivery volume. As a result, our working capital levels typically rise during the first three
quarters of the year and are reduced significantly during the fourth quarter. Any disruptions to our business or delivery schedule during the second half of the year could have a disproportionate effect on our full-year financial operating results.



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##### Table of Contents

Backlog

Orders for general aviation aircraft are included in backlog upon receipt of an executed contract.
Orders from the U.S. and foreign governments are included in backlog upon receipt of an executed contract up to the authorized funding limit. Our backlog was $7.9 billion at September 28, 2008 and includes significant orders with NetJets® Inc. and the U.S. Government.

Off-Balance Sheet Arrangements

We use customary off-balance sheet arrangements, such as operating leases and letters of credit, in the normal course of our business. We may, from time
to time, instruct banks to issue letters of credit on our behalf to support cash deposits and to guarantee the performance of our contractual obligations. None of the arrangements has or is likely to have a material effect on our financial
condition, results of operations or liquidity. See Note 13 to the unaudited condensed consolidated financial statements for additional information.

Summary of Critical Accounting Policies

For a discussion of our critical accounting policies, refer to Summary of
Critical Accounting Policies in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2007.

Recent Accounting Pronouncements

See
Note 2 to the unaudited condensed consolidated financial statements for a discussion of Recent Accounting Pronouncements.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

There has been no material change in our exposure to market risk during the nine months ended September 28, 2008. For a discussion of our
exposure to market risk, refer to Item 7A, Quantitative and Qualitative Disclosures About Market Risk contained in our Annual Report on Form 10-K for the year ended December 31,2007.



|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation
of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial
Officer, has evaluated our disclosure controls and procedures as of September 28, 2008. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to
provide reasonable assurance that the information required to be disclosed by us in the reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time period specified in the
SECs rules and forms, and (ii) accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

Not applicable. Because our management was not required to, and did not, file an annual report on internal control over financial reporting pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 for the prior fiscal
year, it did not perform an evaluation, pursuant to Rule 13(a) or 15(d), of any change in our internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.



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##### Table of Contents

PART II  OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

We
are from time to time subject to, and are presently involved in, litigation or other legal proceedings arising in the ordinary course of business. We are a defendant in a number of product liability lawsuits with respect to accidents involving our
aircraft that allege personal injury and property damage and seek substantial recoveries, including, in some cases, punitive and exemplary damages. We maintain partial insurance coverage against such claims at a level determined by management to be
prudent (see Note 13 to the unaudited condensed consolidated financial statements). In addition, Raytheon retained all product liability claims arising from incidents occurring after April 1, 2001 until March 26, 2007. We cannot predict
the outcome of these matters or whether Raytheon will uphold its indemnity obligations (see Item 1A, Risk Factors contained in our Annual Report on Form 10-K for the year ended December 31, 2007). We are at risk of losses and
adverse publicity stemming from any accident involving aircraft for which we hold design authority. The outcome of litigation in which we have been named as a defendant is unpredictable and an adverse decision in any such matter could have a
material adverse effect on our financial position, results of operations and liquidity.

On October 12, 2007, an action was filed by
Paragon & Co. and Charles A. Lubash in the Superior Court of the State of California, County of Los Angeles against The Goldman Sachs Group, Inc. (GS Group), Sanjeev Mehra (an employee of GS Group and one of our directors),
Hawker Beechcraft Corporation, Hawker Beechcraft Charter & Management, Inc. and Hawker Beechcraft Services, Inc. The complaint alleged that defendants breached an oral agreement with the plaintiffs whereby the plaintiffs would be
compensated in connection with the arrangement and structuring of the acquisition of Raytheon Aircraft and, alternatively, that defendants defrauded plaintiffs in connection with such an arrangement. On September 24, 2008, the court granted our
motion to dismiss all claims against the Hawker Beechcraft defendants.

In July 2007, the FAA informed us that it had initiated an
investigation concerning compliance by one of our suppliers with part specifications involving our T-6A trainers and certain special mission King Air aircraft sold to the U.S. Government. HBAC cooperated with the FAA investigation and conducted its
own supplier quality audits. HBAC believes that the alleged non-compliance condition does not impact safety of flight. On June 17, 2008, the U.S. Attorneys Office for the District of Kansas notified us that the FAA had referred a civil
penalty matter arising out of its investigation to the U.S. Attorneys Office for enforcement. According to the U.S. Attorneys Office, the FAA had recommended fines against HBAC of at least $2.5 million arising out of the alleged supplier
nonconformance and HBACs alleged quality oversight of the supplier. We do not believe any resulting civil penalty would be material to our financial condition.

On June 28, 2008, the U.S. Attorneys Office sent notice to us that it was investigating whether HBACs (and its predecessors) alleged conduct violated the civil False Claims Act (FCA)
arising from the same facts as the FAA proceeding described above. The investigation is focused on the alleged supplier non-conformance with specifications and HBACs alleged inadequate quality control over the suppliers manufacturing
process on certain T-6A and King-Air aircraft delivered to the government. Under the FCA, the government can recover treble damages suffered by the government plus civil penalties of up to $11,000 for each false claim. An adverse judgment under the
FCA can also subject HBAC to suspension or debarment of future government business. HBAC is cooperating with the investigation. At this time, HBAC cannot determine whether the government will proceed with any case and, if so, whether HBAC will be
liable for any damages or penalties or the amount if liability is found.

Similar to other companies in our industry, we receive requests
for information from government agencies in connection with their regulatory or investigational authority in the ordinary course of business. Such requests can include subpoenas or demand letters for documents to assist the government in audits or
investigations. We review such requests and notices and take appropriate action.



|Item 1A. | Risk Factors
|-------- | ------------

In
addition to the risk factors below and other information set forth in this report, you should carefully consider the risk factors discussed in Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended
December 31, 2007, which could materially affect our business, financial position or results of operations.

The conditions of the U.S. and
international capital markets may adversely affect our financial condition or liquidity.

On September 15, 2008, Lehman
Brothers Holdings, Inc. (Lehman) filed for bankruptcy. One of Lehmans subsidiaries, Lehman Brothers Commercial Bank, has a $35.0 million commitment in the Companys $400.0 million revolving credit facility. Accordingly, we do
not expect Lehman Brothers Commercial Bank to fulfill its funding obligations under the Companys revolving credit facility.



41



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##### Table of Contents

If other financial institutions that have extended credit commitments to the Company are adversely
affected by the conditions of the U.S. and international capital markets, they may become unable to fulfill their credit commitments to the Company, which could have an adverse impact on the Companys financial condition and its ability to
access its revolving credit or to borrow additional funds, if needed, for working capital, capital expenditures, acquisitions, research and development and other corporate purposes. As of September 28, 2008, there were no amounts outstanding
under our revolving credit facility.

Our results of operations and financial condition could be adversely impacted by some of our customers
inability to obtain financing.

Our customers rely on the financial credit markets to obtain financing for new and used aircraft
purchases. The recent unprecedented turmoil in the credit markets may reduce the number of lenders willing to finance aircraft or cause lenders to impose stricter lending requirements. The inability of a portion of our customers to obtain financing
could lead to reduced demand for our products, delayed deliveries or order cancellations, which could adversely affect the number of aircraft deliveries we make or reduce the prices we can charge for our aircraft, either of which could have an
adverse impact on our financial condition and results of operations.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

Not applicable.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

Not applicable.



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

Not applicable.



|Item 5. | Other Information
|------- | -----------------

On
October 31, 2008, the Compensation Committee (the Committee) of the Board of Directors of Hawker Beechcraft, Inc. adopted the 2008 Management Incentive Plan. The plan provides an award target amount for each of our named executive
officers based on a percentage of their salary. The target award levels for Mr. Schuster and Mr. Sanders are as specifically set forth in their employment agreements. Individual award targets are based on the executives position
within the organization and are approved by the Board of Directors. The individual award targets for 2008 are:



|                   |  |                                                   |  
|------------------ |  | ------------------------------------------------- | -
|Name               |  | Percentage of SalaryPayable at Target Award Level |  
|James E. Schuster  |  | 100                                               | %
|James K. Sanders   |  | 75                                                | %
|Bradley A. Hatt    |  | 50                                                | %
|Sharad B. Jiwanlal |  | 50                                                | %



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##### Table of Contents

For executive officers, the plan provides for award payments based on the achievement of certain
corporate financial performance measures and certain non-financial results. The corporate financial performance measures that will be utilized in 2008 are the following (the weighting of the measure is indicated in parentheses): (i) Net
Bookings (15%), (ii) Pro Forma Adjusted EBITDA (35%), (iii) Free Cash Flow (20%), (iv) Pre-tax Return on Invested Capital (ROIC) (15%), (v) Commercial Aircraft Net Pricing Achieved versus Plan (8%) and (vi) 2009
Commercial Aircraft Sales in 2008 year-end backlog (7%). These six financial metrics determine the level of funding of the available pool under the Management Incentive Plan. Even if such financial metrics are achieved, 25% of the funding for the
pool is considered at risk depending upon the achievement of a separate set of non-financial measures. The corporate non-financial measures that will be utilized in 2008 are the following (the weighting of the measure is indicated in
parentheses): (i) Deliver 40 Hawker 4000 aircraft during 2008 (17.6%), (ii) Develop and implement an initial Safety Management System reporting and process variation review process (17.6%), (iii) Complete Product Development Program
No. 427, Gate 9 test readiness (17.6%), (iv) Complete Product Development Program No. 396, Gate 8 critical design review (17.6%), (v) Obtain reauthorization of the FAA Delegation of Authority (17.6%), and (vi) Finalize one
international T-6 contract award (11.8%). For each such financial measure, the value assigned to the measure ranges from 50% to 150% of the target weighting, with no value assigned if the threshold goal for the measure is not met. If the threshold
is met, a value equivalent to 50% of the target amount is assigned.

With the exception of Mr. Schuster and Mr. Sanders, whose
maximum bonus payouts are equivalent to 200% of their target awards under the terms of their Employment Agreements, the maximum payout for each individual under the Management Incentive Plan is equivalent to 150% of their target award. The actual
percentage amount of target bonus earned by each individual is determined by applying the same percentage, calculated by achievement of the financial and non-financial metrics, used to determine the size of the available bonus pool. For each
executive officer, with the exception of Mr. Schuster, the percentage fixed by achievement of these financial and non-financial measures will make up 100% of the individuals final bonus payout under the Management Incentive Plan. For
Mr. Schuster, the stated financial and non-financial measures will make up 70% of his final payout and the remaining 30% will be based on the attainment of three personal goals established by the Committee. The three personal goals, each of
which will be measured independently and weighted at 10%, consist of the following: (i) improved productivity and capability in the Product Development/Engineering/Program Management function, (ii) achievement of production stability and
tangible progress on key value capture production metrics, and (iii) achievement of key quality metrics on selected turboprop and jet aircraft models. Specific performance metrics have been established to measure achievement in each of these
areas. Payment under the Management Incentive Plan on any of Mr. Schusters personal goals is to be contingent on HBAC achieving at least 90% of 2008 target EBITDA (adjusted for sale of the fuel and line operations).



|Item 6. | Exhibits
|------- | --------



|               |  |                                                                                                 
|-------------- |  | ------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                     
|31.1.1         |  | Certifications of the Principal Executive Officer of Hawker Beechcraft Acquisition Company, LLC.
|               | 
|31.1.2         |  | Certifications of the Principal Executive Officer of Hawker Beechcraft Notes Company.           
|               | 
|31.1.3         |  | Certifications of the Principal Financial Officer of Hawker Beechcraft Acquisition Company, LLC.
|               | 
|31.1.4         |  | Certifications of the Principal Financial Officer of Hawker Beechcraft Notes Company.           
|               | 
|32.1.1         |  | Certification of the Principal Executive Officer of Hawker Beechcraft Acquisition Company, LLC. 
|               | 
|32.1.2         |  | Certification of the Principal Executive Officer of Hawker Beechcraft Notes Company.            
|               | 
|32.1.3         |  | Certification of the Principal Financial Officer of Hawker Beechcraft Acquisition Company, LLC. 
|               | 
|32.1.4         |  | Certification of the Principal Financial Officer of Hawker Beechcraft Notes Company.            



43



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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.



HAWKER BEECHCRAFT ACQUISITION COMPANY, LLCBy:

Hawker Beechcraft, Inc., its Sole MemberBy:

/s/ James K. SandersJames K. Sanders, Vice President and Chief Financial Officer(Principal Financial Officer)By:

/s/ James D. KnightJames D. Knight, Vice President and Controller(Principal Accounting Officer)


Date: November 4, 2008



44



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##### Table of Contents

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.



HAWKER BEECHCRAFT NOTES COMPANYBy:

/s/ James K. SandersJames K. Sanders, Vice President and Chief Financial Officer(Principal Financial Officer)By:

/s/ James D. KnightJames D. Knight(Principal Accounting Officer)


Date: November 4, 2008



45



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##### Table of Contents

EXHIBIT INDEX



|               |  |                                                                                                 
|-------------- |  | ------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                     
|               | 
|31.1.1         |  | Certifications of the Principal Executive Officer of Hawker Beechcraft Acquisition Company, LLC.
|               | 
|31.1.2         |  | Certifications of the Principal Executive Officer of Hawker Beechcraft Notes Company.           
|               | 
|31.1.3         |  | Certifications of the Principal Financial Officer of Hawker Beechcraft Acquisition Company, LLC.
|               | 
|31.1.4         |  | Certifications of the Principal Financial Officer of Hawker Beechcraft Notes Company.           
|               | 
|32.1.1         |  | Certification of the Principal Executive Officer of Hawker Beechcraft Acquisition Company, LLC. 
|               | 
|32.1.2         |  | Certification of the Principal Executive Officer of Hawker Beechcraft Notes Company.            
|               | 
|32.1.3         |  | Certification of the Principal Financial Officer of Hawker Beechcraft Acquisition Company, LLC. 
|               | 
|32.1.4         |  | Certification of the Principal Financial Officer of Hawker Beechcraft Notes Company.