<PAGE>

================================================================================
                                        
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                        
                               ------------------
                                        
                                   FORM 10-Q
                                        
                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                                        
               For the quarterly period ended September 30, 1997
                                        
                         Commission File Number 0-22371
                                        
                               ------------------
                                        
                        DECRANE AIRCRAFT HOLDINGS, INC.
                                        
             (Exact name of registrant as specified in its charter)
                                        
                                        
           Delaware                                              34-1645569
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                              Identification No.)
                                        
                                        
             2361 Rosecrans Avenue, Suite 180, El Segundo, CA 90245
         (Address, including zip code, of principal executive offices)
                                        
                                        
                                 (310) 725-9123
              (Registrant's telephone number, including area code)
                                        
                               ------------------
                                        
             155 Montrose West Avenue, Suite 210, Copley, OH 44321
                                 (330) 668-3061
(Former address and telephone number of principal executive offices, if 
                          changed since last report)
                                        
                               ------------------
                                        
    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.              /X/ Yes     / / No
                                        
    The number of shares of Registrant's Common Stock, $.01 par value,
outstanding as of October 31, 1997 was 5,251,690 shares.
                                        

================================================================================
<PAGE>
                                        
                         DECRANE AIRCRAFT HOLDINGS, INC.
                                     INDEX
                                        
                                        
                                        
<TABLE>
<CAPTION>
                                                                                    PAGE
                                                                                    ----
                         PART I - FINANCIAL INFORMATION                                 
<S>                                                                                 <C> 
ITEM 1.   FINANCIAL STATEMENTS                                                          
                                                                                        
    Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996. . . .  3
    Consolidated Statements of Operations for the three months and                      
         nine months ended September 30, 1997 and 1996. . . . . . . . . . . . . . . .  4
    Consolidated Statements of Cash Flows for the nine months                           
         ended September 30, 1997 and 1996. . . . . . . . . . . . . . . . . . . . . .  5
    Condensed Notes to Consolidated Financial Statements. . . . . . . . . . . . . . .  6

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 13


                         PART II - OTHER INFORMATION

ITEM 5.   OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K
     Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
     Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>

                                        -2-


<PAGE>

                DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
                                                                              SEPTEMBER 30,  DECEMBER 31,
                                                                                  1997           1996    
                                                                              -------------  ------------
                                                                               (UNAUDITED)               
<S>                                                                           <C>            <C>         
ASSETS                                                                                                   
                                                                                                         
Current assets
  Cash and cash equivalents.................................................. $         339  $        320
  Accounts receivable, net...................................................        15,368        13,185
  Inventories................................................................        22,046        19,573
  Prepaid expenses and other current assets..................................           874           812
                                                                              -------------  ------------
    Total current assets.....................................................        38,627        33,890
                                                                                                         
Property and equipment, net..................................................        12,245        12,187
Other assets, principally intangibles, net...................................        19,773        23,189
                                                                              -------------  ------------
    Total assets............................................................. $      70,645  $     69,266
                                                                              -------------  ------------
                                                                              -------------  ------------
LIABILITIES AND STOCKHOLDERS' EQUITY                                                                     
                                                                                                         
Current liabilities
  Short-term borrowings...................................................... $         723  $      1,974
  Current portion of long-term obligations to unaffiliated lenders...........           946         3,004
  Convertible subordinated notes payable to related parties..................            --         2,922
  Accounts payable...........................................................         8,053         7,420
  Accrued expenses...........................................................         5,666         7,241
  Income taxes payable.......................................................           910           843
                                                                              -------------  ------------
    Total current liabilities................................................        16,298        23,404
                                                                              -------------  ------------
Long-term liabilities                                                                                    
  Long-term obligations                                                                                  
    Unaffiliated lenders.....................................................        12,667        28,323
    Related parties..........................................................            --         6,027
  Deferred income taxes......................................................         3,826         3,312
  Minority interest..........................................................            65            85
                                                                              -------------  ------------
    Total long-term liabilities..............................................        16,558        37,747
                                                                              -------------  ------------
Commitments and contingencies (Note 10)                                                                  
Mandatorily redeemable common stock warrants.................................            --         6,879
                                                                              -------------  ------------
Stockholders' equity                                                                                     
  Cumulative convertible preferred stock, $.01 par value (no par value prior                             
    to February 19, 1997), 8,314,018 shares authorized; 6,847,705 shares                                 
    issued and outstanding as of December 31, 1996 (none as of                                           
    September 30, 1997)......................................................            --        13,850
  Undesignated preferred stock, $.01 par value, 10,000,000 shares initially                              
    authorized as of February 19, 1997; none issued and outstanding..........            --            --
  Common stock, no par value, 4,253,550 shares authorized; 85,593                                        
    shares issued and outstanding prior to February 19, 1997.................            --           216
  Common stock, $.01 par value, 9,924,950 shares authorized as of                                        
    February 19, 1997; 5,251,690 shares issued and outstanding as of                                     
    September 30, 1997 (none as of December 31, 1996)........................            53            --
  Additional paid-in capital.................................................        50,390            --
  Accumulated deficit........................................................       (12,525)      (12,951)
  Foreign currency translation adjustment....................................          (129)          121
                                                                              -------------  ------------
    Total stockholders' equity...............................................        37,789         1,236
                                                                              -------------  ------------
      Total liabilities and stockholders' equity............................. $      70,645  $     69,266
                                                                              -------------  ------------
                                                                              -------------  ------------
</TABLE>

     The accompanying notes are an integral part of the consolidated 
financial statements.

                                        -3-
<PAGE>

                                        
                DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED     NINE MONTHS ENDED  
                                                           SEPTEMBER 30,         SEPTEMBER 30,   
                                                      --------------------  ---------------------
                                                         1997       1996       1997       1996   
                                                      ---------  ---------  ---------  --------- 
                                                           (UNAUDITED)           (UNAUDITED)     
<S>                                                   <C>        <C>        <C>        <C>       
Revenues............................................  $  26,639  $  16,105  $  80,887  $  43,059 
Cost of sales.......................................     19,797     11,539     60,518     33,277 
                                                      ---------  ---------  ---------  --------- 
  Gross profit......................................      6,842      4,566     20,369      9,782 
                                                      ---------  ---------  ---------  --------- 
                                                                                                 
Operating expenses                                                                               
  Selling, general and administrative expenses......      3,790      2,775     11,012      7,229 
  Amortization of intangible assets.................        206        120        616        538 
  Gain on litigation settlement, net................         --         --         --       (157)
                                                      ---------  ---------  ---------  --------- 
    Total operating expenses........................      3,996      2,895     11,628      7,610 
                                                      ---------  ---------  ---------  --------- 
                                                                                                 
Income from operations..............................      2,846      1,671      8,741      2,172 
                                                                                                 
Other expenses (income)                                                                             
  Interest expense..................................        314        973      2,598      2,821 
  Other (income) expenses...........................         (9)        31        307         33 
  Minority interests................................         26          7         81        150 
                                                      ---------  ---------  ---------  --------- 
                                                                                                 
Income (loss) before provision for income taxes and                                              
  extraordinary item................................      2,515        660      5,755       (832)
                                                                                                 
Provision for income taxes..........................      1,034          3      2,191        265 
                                                      ---------  ---------  ---------  --------- 
                                                                                                 
Income (loss) before extraordinary item.............      1,481        657      3,564     (1,097)
                                                                                                 
Extraordinary loss from debt refinancing, net                                                    
  of income tax benefit.............................         --         --     (2,078)        -- 
                                                      ---------  ---------  ---------  --------- 
                                                                                                 
Net income (loss)...................................      1,481        657      1,486     (1,097)
                                                                                                 
Adjustment to redemption value of mandatorily                                                    
  redeemable common stock warrants..................         --       (555)    (2,203)       505 
Cumulative convertible preferred stock dividends....         --       (318)      (442)      (844)
                                                      ---------  ---------  ---------  --------- 
                                                                                                 
Net income (loss) applicable to common stockholders.  $   1,481  $    (216) $  (1,159) $  (1,436)
                                                      ---------  ---------  ---------  --------- 
                                                      ---------  ---------  ---------  --------- 
                                                                                                 
Net income (loss) per common share                                                               
                                                                                                 
  Pro forma for the Recapitalization                                                             
    Income (loss) before extraordinary item.........  $     .26  $     .22  $     .77  $    (.41)
    Extraordinary loss from debt refinancing........         --         --       (.45)        -- 
                                                      ---------  ---------  ---------  --------- 
    Net income (loss)...............................  $     .26  $     .22  $     .32  $    (.41)
                                                      ---------  ---------  ---------  --------- 
                                                      ---------  ---------  ---------  --------- 
    Weighted average number of common and dilutive                                               
    common equivalent shares outstanding............      5,643      2,987      4,617      2,647 
                                                      ---------  ---------  ---------  --------- 
                                                      ---------  ---------  ---------  --------- 
  Pro forma for the Recapitalization, as adjusted for                                            
    acquisitions and the Offering                                                                
      Income, as adjusted before extraordinary item.  $   1,481  $   1,026  $   4,464  $   1,553 
                                                      ---------  ---------  ---------  --------- 
                                                      ---------  ---------  ---------  --------- 
      Income per common share.......................  $     .26  $     .18  $     .79  $     .28 
                                                      ---------  ---------  ---------  --------- 
                                                      ---------  ---------  ---------  --------- 
      Weighted average number of shares outstanding,                                             
        assuming full dilution......................      5,648      5,600      5,648      5,600 
                                                      ---------  ---------  ---------  --------- 
                                                      ---------  ---------  ---------  --------- 
</TABLE>

     The accompanying notes are an integral part of the consolidated 
financial statements.

                                        -4-
<PAGE>

                                        
                DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                     NINE MONTHS ENDED   
                                                                                        SEPTEMBER 30,    
                                                                                    -------------------- 
                                                                                       1997       1996   
                                                                                    ---------  --------- 
                                                                                         (UNAUDITED)     
<S>                                                                                 <C>        <C>       
Cash flows from operating activities                                                                     
  Net income (loss)..............................................................   $   1,486  $  (1,097)
  Adjustments to reconcile net income (loss) to                                                          
    net cash provided by operating activities                                                            
      Depreciation and amortization..............................................       3,722      2,806 
      Extraordinary loss from debt refinancing...................................       2,078         -- 
      Amortization of debt discount..............................................         134        259 
      Deferred income taxes......................................................         532         33 
      Minority interests in earnings of subsidiaries.............................          81        150 
      Loss on write-off of obsolete equipment....................................          41         -- 
      Changes in assets and liabilities
        Accounts receivable......................................................      (2,409)      (949)
        Inventories..............................................................      (2,418)     1,149 
        Prepaid expenses and other assets........................................       1,179        207 
        Accounts payable.........................................................         881       (536)
        Accrued expenses.........................................................      (1,443)       880 
        Income taxes payable.....................................................          86        184 
                                                                                    ---------  --------- 
          Net cash provided by operating activities..............................       3,950      3,086 
                                                                                    ---------  --------- 
Cash flows from investing activities                                                                     
  Purchase of net assets of Aerospace Display Systems............................          --    (11,401)
  Purchase of minority shareholder's interest....................................          --     (5,207)
  Capital expenditures...........................................................      (2,842)      (748)
  Other, net.....................................................................          --        (29)
                                                                                    ---------  --------- 
          Net cash used for investing activities.................................      (2,842)   (17,385)
                                                                                    ---------  --------- 
Cash flows from financing activities                                                                     
  The Offering and application of the net proceeds                                                       
    Proceeds from sale of common stock in the Offering, net of $3,180 for                                
      underwriting discounts, commissions and expenses paid in 1997...............     28,770         -- 
    Borrowings under new credit facility, net of deferred financing costs of $441.     12,334         -- 
    Repayment of debt, including $273 in prepayment penalties and expenses........    (42,160)        -- 
  Financing of acquisitions                                                                              
    Proceeds from issuance of cumulative convertible preferred stock, net.........         --      8,806 
    Revolving line of credit borrowings...........................................         --      5,000 
    Convertible subordinated note borrowings from related parties.................         --      3,000 
  Proceeds from issuance of cumulative convertible preferred shares and                                  
    mandatorily redeemable common stock warrants, net.............................         --        112 
  Net borrowings (payments) under revolving line of credit agreements.............      2,387       (481)
  Promissory note principal payments..............................................     (1,095)        -- 
  Principal payments on capitalized lease and other long-term obligations.........     (1,356)    (1,416)
  Payment of deferred financing costs.............................................         --       (648)
  Other, net......................................................................         74       (249)
                                                                                    ---------  --------- 
          Net cash (used for) provided by financing activities....................     (1,046)    14,124 
                                                                                    ---------  --------- 
                                                                                                         
Effect of foreign currency translation on cash....................................        (43)       (49)
                                                                                    ---------  --------- 
                                                                                                         
Net increase (decrease) in cash and cash equivalents..............................         19       (224)
Cash and cash equivalents at beginning of period..................................        320        305 
                                                                                    ---------  --------- 
Cash and cash equivalents at end of period........................................  $     339  $      81 
                                                                                    ---------  --------- 
                                                                                    ---------  --------- 
</TABLE>

     The accompanying notes are an integral part of the consolidated 
financial statements.

                                        -5-
<PAGE>

                                        
               DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

             CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS

     The consolidated financial information as of September 30, 1997 and for 
the three months and nine months ended September 30, 1997 and 1996 is 
unaudited. In the opinion of the Company, the unaudited financial information 
is presented on a basis consistent with the audited financial statements and 
contains all adjustments, consisting only of normal recurring adjustments, 
necessary for a fair statement of the results for such interim periods. The 
results of operations for interim periods are not necessarily indicative of 
results of operations for the full year. The interim financial statements 
should be read in conjunction with the audited financial statements and notes 
thereto included in the Company's Prospectus dated April 16, 1997 which is a 
part of the Company's Form S-1 Registration Statement filed with the 
Securities and Exchange Commission on January 17, 1997, as amended.

NOTE 2 - REORGANIZATION AND REVERSE STOCK SPLIT

     On February 19, 1997, the Company reorganized as a Delaware corporation. 
In conjunction with the reorganization, the Company established a $.01 par 
value for its cumulative convertible preferred stock and common stock and 
increased the number of common shares and preferred shares authorized to 
9,924,950 and 18,314,018 shares (which includes 10,000,000 shares of a newly 
designated series of preferred stock), respectively.

     Effective March 25, 1997, the Company effected a 3.53-for-1 reverse 
stock split. All common share information set forth in the consolidated 
financial statements and notes thereto has been restated to reflect the 
reverse stock split.

NOTE 3 - RECAPITALIZATION AND CONSUMMATION OF INITIAL PUBLIC OFFERING

     In January and March 1997, the holders of certain securities agreed to a 
plan for the recapitalization of the Company (the "Recapitalization"). 
Completion of the Recapitalization was a condition to the consummation of the 
Company's initial public offering (the "Offering") and, was effective 
concurrent therewith. The Offering was consummated on April 16, 1997.

     The Recapitalization provided for: (i) the conversion of all 6,847,705 
shares of issued and outstanding cumulative convertible preferred stock 
("Preferred Stock") into 1,941,804 shares of common stock; (ii) the cashless 
exercise and conversion of all 52,784 and 9,355 issued and outstanding Series 
B Preferred Stock warrants and common stock warrants, respectively, into a 
total of 16,585 shares of common stock; (iii) the cashless exercise of 
508,497 mandatorily redeemable common stock warrants (the "Redeemable 
Warrants") into a total of 507,708 shares of common stock; and (iv) the 
cancellation of 95,368 Redeemable Warrants.

     Redeemable Warrants exercisable into 208,968 common shares remained 
after the Recapitalization. Of this amount, 138,075 Redeemable Warrants were 
cancelled upon the consummation of the Offering and repayment of the 
Company's senior subordinated debt and convertible notes in accordance with 
the terms of the respective warrant agreements. Redeemable Warrants 
exercisable into 70,893 common shares remained after the Recapitalization. 
Concurrent with the consummation of the Offering, the mandatory redemption 
feature of these warrants was terminated and, as a result, the value ascribed 
thereto was reclassified to stockholders' equity as additional paid-in 
capital.

                                        -6-


<PAGE>

     On April 16, 1997, the Company completed the Offering and sold 2,700,000 
shares of common stock for $12.00 per share. Proceeds from the Offering of 
$30,132,000, net of $2,268,000 for underwriting discounts and commissions, 
together with approximately $12,775,000 of proceeds from borrowings under a 
new credit facility were used to repay amounts due under the Company's senior 
revolving line of credit, senior term notes, senior subordinated notes and 
convertible notes. In conjunction with the debt repayment, the Company 
incurred an extraordinary charge aggregating $2,078,000, net of a $1,358,000 
income tax benefit (Note 7).

     The table below summarizes the changes in Redeemable Warrants and 
stockholders' equity for the nine months ended September 30, 1997 (amounts in 
thousands):

<TABLE>
<CAPTION>
                                                                          STOCKHOLDERS' EQUITY                                   
                             MANDATORILY  ---------------------------------------------------------------------------------------
                             REDEEMABLE   CUMULATIVE     COMMON      COMMON                                 FOREIGN              
                               COMMON     CONVERTIBLE    STOCK,      STOCK,     ADDITIONAL                  CURRENCY             
                               STOCK       PREFERRED     NO PAR     $.01 PAR     PAID-IN    ACCUMULATED    TRANSLATION           
                              WARRANTS       STOCK       VALUE       VALUE       CAPITAL      DEFICIT       ADJUSTMENT    TOTAL  
                             -----------  -----------    ------     --------    ----------  -----------    -----------   ------- 
<S>                          <C>          <C>            <C>        <C>         <C>         <C>            <C>           <C>     
Balance,                                                                                                                         
  December 31, 1996          $     6,879  $    13,850    $  216     $     --    $       --  $   (12,951)   $       121   $ 1,236 
                                                                                                                                 
Delaware reorganization and                                                                                                      
  reverse stock split........         --           --      (216)           1           215           --             --        -- 
Adjustment to redemption                                                                                                         
  value of Redeemable                                                                                                            
  Warrants (A)...............      2,203           --        --           --            --       (2,203)            --    (2,203)
                                                                                                                                 
The Recapitalization                                                                                                             
  Conversion of preferred                                                                                                        
    stock into common                                                                                                            
    stock....................         --      (13,850)       --           19        13,831           --             --        -- 
  Cashless exercise and                                                                                                          
    conversion of                                                                                                                
    warrants (B).............     (6,103)          --        --            6         6,097           --             --     6,103 
    Cancellation of Redeem-                                                                                                      
      able Warrants..........     (1,143)          --        --           --            --        1,143             --     1,143 
                                                                                                                                 
The Offering                                                                                                                     
  Proceeds from the                                                                                                              
    Offering, net (C)........         --           --        --           27        28,236           --             --    28,263 
  Cancellation of Redeem-                                                                                                        
    able warrants upon                                                                                                           
    debt repayment...........     (1,657)          --        --           --         1,657           --             --     1,657 
  Reclassification of                                                                                                            
    warrants no longer                                                                                                           
    redeemable...............       (179)          --        --           --           179           --             --       179 
                                                                                                                                 
Net income (D)...............         --           --        --           --            --        1,486             --     1,486 
Stock option compensation                                                                                                        
  expense....................         --           --        --           --           175           --             --       175 
Translation adjustment.......         --           --        --           --            --           --           (250)     (250)
                             -----------  -----------    ------     --------    ----------  -----------    -----------   ------- 
Balance,                                                                                                                         
  September 30, 1997.........$        --  $        --    $   --     $     53    $   50,390    $ (12,525)   $      (129)  $37,789 
                             -----------  -----------    ------     --------    ----------  -----------    -----------   ------- 
                             -----------  -----------    ------     --------    ----------  -----------    -----------   ------- 
</TABLE>
-----------------------
(A)  Reflects the increase in Redeemable Warrant redemption value to the 
     $12.00 per share Offering price concurrent with the consummation of the 
     Recapitalization and the Offering.
(B)  Includes Series B cumulative convertible preferred stock warrants, 
     common stock warrants not subject to redemption and Redeemable Warrants.
(C)  Proceeds from the sale of 2,700,000 shares of common stock in the 
     Offering, net of underwriting discounts and commissions of $2,268,000 
     and an estimated $1,569,000 in expenses attributable to the Offering.
(D)  Net of extraordinary loss from the debt refinancing (Note 7).

                                        -7-
<PAGE>

                                        
NOTE 4 - PRO FORMA INCOME (LOSS) PER COMMON SHARE

     The Company's historical capital structure is not indicative of its 
structure as of April 16, 1997 due to the Recapitalization, which occurred 
concurrent with the closing of the Offering (Note 3). Accordingly, historical 
loss per common share is not considered meaningful and has not been presented 
herein.

     Pro forma net income (loss) per common share for the Recapitalization 
reflects the Recapitalization (as if it had occurred January 1, 1996) and the 
Offering (as of April 16, 1997) and is computed using the weighted average 
number of common shares assumed to have been outstanding during the periods. 
For the three months and nine months ended September 30, 1997 and the three 
months ended September 30, 1996, the dilutive effect of common equivalent 
shares has been included in computing net income per common share. For the 
nine months ended September 30, 1996, the dilutive effect of common 
equivalent shares, other than for certain stock options granted in 1996 and 
Redeemable Warrants and Preferred Stock sold in 1996, has not been included 
because their inclusion would have decreased the net loss per share. 
Redeemable Warrants and Preferred Stock sold in 1996 at prices less than the 
initial public offering price have been included for all periods presented 
using the treasury stock method.

     Pro forma as adjusted income (loss) per common share reflects the 
Recapitalization, as described above, and the Offering as if it had occurred 
as of the beginning of each year presented. The income (loss) amount used to 
compute 1996 pro forma income (loss) per common share for the Offering is 
also adjusted to reflect the pro forma operating results for acquisitions 
consummated during 1996 (Note 5). The pro forma results exclude an 
extraordinary charge incurred in April 1997 as a result of the repayment of 
debt with the net offering proceeds.

     See Note 11 regarding a new accounting pronouncement affecting the 
computation of earnings per share.


NOTE 5 - ACQUISITIONS

     During 1996, the Company completed the following acquisitions: (i) on 
February 20, 1996, the purchase of the remaining 25% of a subsidiary's stock 
it did not already own from the subsidiary's minority shareholder (the 
"Minority Interest Acquisition"); (ii) on September 18, 1996, the purchase of 
substantially all of the assets, subject to certain liabilities assumed, of 
Aerospace Display Systems (the "ADS Acquisition"); and (iii) on December 5, 
1996, the purchase of the stock of Elsinore Aerospace Services, Inc. and the 
certain assets, subject to certain liabilities, of Elsinore Engineering 
(collectively, the "Elsinore Acquisition"). Pro forma consolidated results of 
operations for the three months and nine months ended September 30, 1996, 
assuming the Minority Interest and ADS Acquisitions had been consummated on 
January 1, 1996, are as follows (amounts in thousands):

<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED        NINE MONTHS ENDED    
                                                         SEPTEMBER 30, 1996        SEPTEMBER 30, 1996   
                                                      -----------------------   ----------------------- 
                                                                  PRO FORMA                 PRO FORMA   
                                                         AS          FOR           AS          FOR      
                                                      REPORTED   ACQUISITIONS   REPORTED   ACQUISITIONS 
                                                      --------   ------------   --------   ------------ 
<S>                                                   <C>        <C>            <C>        <C>          
Revenues............................................. $ 16,105   $     18,502   $ 43,059   $     50,765 
Net income (loss)....................................      657          1,006     (1,097)          (763)
Net income (loss) applicable to common stockholders..     (216)           133     (1,436)        (1,102)
</TABLE>

     The above information reflects adjustments for depreciation, 
amortization, minority interest and interest expense based on the new cost 
basis and debt structure of the Company. The pro forma effect of the Elsinore 
Acquisition is not material and, accordingly, is not reflected in the above 
information. In addition, pro forma per share information is not considered 
meaningful and has not been presented above due to the Recapitalization which 
occurred concurrent with the consummation of the Offering (Note 3).

                                        -8-


<PAGE>

NOTE 5 - ACQUISITIONS (CONTINUED)

     In conjunction with the 1996 Elsinore acquisition, the Company acquired, 
among other intangible assets, the ability to issue certain Federal Aviation 
Administration (the "FAA") design approvals for modifications to designated 
aircraft through Elsinore's FAA-issued Designated Alteration Station ("DAS") 
approval status. In July 1997, the FAA notified the Company that its 
facilities did not fully comply with certain regulations governing such DAS 
status. The FAA granted the Company until September 10, 1997 to bring the 
facilities into full compliance and curtailed the operations of the 
facilities as a DAS until they achieved full compliance. On August 28, 1997 
the FAA inspected the Company's facilities and determined they were in full 
compliance. The Company's DAS approval status was fully restored on September 
5, 1997.

NOTE 6 - SIGNIFICANT CUSTOMERS

     Three customers each accounted for more than 10% of the Company's 
consolidated revenues during the periods presented, as follows:

                        THREE MONTHS          NINE MONTHS                 
                     ENDED SEPTEMBER 30,   ENDED SEPTEMBER 30,  YEAR ENDED
                     -------------------   -------------------   DECEMBER 
                       1997       1996       1997       1996     31, 1996 
                     --------   --------   --------   --------   -------- 
                         (UNAUDITED)           (UNAUDITED)                

Customer A.........     19.3%      15.3%      19.7%      13.9%      15.8% 
Customer B.........      1.5%       8.4%       1.9%      10.5%       7.7% 
Customer C.........     10.7%      11.7%      12.2%      10.0%       7.2% 
                     --------   --------   --------   --------   -------- 
  Total............     31.5%      35.4%      33.8%      34.4%      30.7% 
                     --------   --------   --------   --------   -------- 
                     --------   --------   --------   --------   -------- 

     Complete loss of either Customer A or C could have a significant adverse 
impact on the results of operations expected in future periods. During the 
three months ended September 30, 1997, Customer A acquired a customer of the 
Company. The above amounts for Customer A include the Company's revenue from 
the acquired customer subsequent to its acquisition.
    
NOTE 7 - CONVERTIBLE NOTES AND LONG-TERM OBLIGATIONS

     In April 1997, the Company used the net proceeds from the Offering (Note 
3), together with approximately $12,775,000 of proceeds from borrowings under 
a new credit facility, to repay the following: (i) senior revolving line of 
credit borrowings of $15,356,000; (ii) senior term notes aggregating 
$16,531,000; (iii) senior subordinated notes payable to related parties 
aggregating $7,000,000; and (iv) convertible subordinated notes payable to 
related parties aggregating $3,000,000. In conjunction with the debt 
repayment, the Company incurred a $2,078,000 extraordinary charge, net of an 
estimated $1,358,000 income tax benefit, which is comprised of: (i) a 
$1,943,000 write-off of deferred financing costs; (ii) a $1,149,000 write-off 
of unamortized original issued discounts; (iii) a $273,000 charge for a 
prepayment penalty and expenses; and (iv) a $71,000 write-off of the 
unamortized portion of an interest rate cap agreement.

     Prior to completion of the Offering, the Company entered into a new 
credit agreement with a group of banks for a $40 million senior revolving 
line of credit, expiring in April 2002 (the "Credit Facility"). The interest 
rate under the Credit Facility is, at the Company's option, either the Base 
Rate, as defined in the credit agreement, plus a defined Base Rate Margin, or 
the IBOR Rate, as defined, plus a defined IBOR Rate Margin. The Base Rate is 
the higher of the Federal Funds rate plus 0.50% or the prime rate. Initially, 
the Base Rate Margin and IBOR Rate Margin are zero and 1.00%, respectively. 
The Company is required to pay a commitment fee on the unused portion of the 
Credit Facility. The commitment fee initially will be 0.25% per year.

     The interest and commitment fee rates are reset quarterly, based upon 
the ratio of debt to the Company's earnings before interest, taxes, 
depreciation and amortization ("EBITDA"), pro forma for acquisitions for the 
twelve month period ending on such date. The maximum interest rate under the 
Credit Facility is either 0.75% above the prime rate or 2.00% above the IBOR 
rate. The maximum commitment fee rate is 0.375% per year.

                                        -9-
<PAGE>

                                        
NOTE 7 - CONVERTIBLE NOTES AND LONG-TERM OBLIGATIONS (CONTINUED)

     The Credit Facility contains certain restrictive covenants which require 
the Company to: (i) maintain certain defined financial ratios such as 
interest coverage, leverage and working capital, and minimum levels of net 
worth; and (ii) limit capital expenditures, including capital lease 
obligations, and additional indebtedness which may be incurred. The Credit 
Facility also prohibits the Company from paying any dividends on its common 
stock in cash.

NOTE 8 - INCOME TAXES

     During the three months and nine months ended September 30, 1997, the 
Company reduced its deferred tax asset valuation allowance by $92,000 and 
$348,000, respectively, to reflect the book benefit of federal and state net 
operating loss carryforwards not previously recognized. Approximately 
$2,564,000 and $604,000 of the Company's loss carryforwards remained at 
September 30, 1997 for federal and state income tax purposes, respectively. 
No benefit for the remaining loss carryforwards has been recognized in the 
consolidated financial statements.

     The amount of loss carryforwards that may be utilized in the future are 
subject to limitations due to the occurrence of a change in control of the 
Company, as defined in the Internal Revenue Code. A change in control 
occurred as a result of certain equity transactions that occurred during 1996 
and the Offering. The amount of loss carryforwards that may be utilized is 
limited to approximately $800,000 per year for both federal and state income 
tax purposes.

NOTE 9 - FORWARD EXCHANGE CONTRACTS

     The Company enters into Swiss franc ("CHF") forward foreign exchange 
contracts to purchase Swiss francs as a general economic hedge against 
foreign inventory procurement and manufacturing costs. In January 1997, the 
Company entered into twelve forward foreign exchange contracts to purchase a 
total of CHF 7,800,000 for $5,885,000 at rates ranging between 1.3021 and 
1.3492 CHF per U.S. dollar. Settlement of the contracts occurs in equal 
monthly amounts of CHF 650,000 through December 15, 1997. As of September 30, 
1997, three forward foreign exchange contracts to purchase a total of CHF 
1,950,000 for $1,493,000 at rates ranging between 1.3021 and 1.3062 CHF per 
U.S. dollar remained open.

     Gains and losses on forward foreign exchange contracts are recognized 
currently in the consolidated statements of operations. During the three 
months ended September 30, 1997 and 1996, the Company realized losses of 
$156,000 and $79,000, respectively, on contracts settled during the periods. 
During the nine months ended September 30, 1997 and 1996, the Company 
realized losses of $357,000 and $161,000, respectively, on contracts settled 
during the periods. In addition, the Company recorded unrealized market value 
losses aggregating $146,000 and $79,000 on the remaining open contracts as of 
September 30, 1997 and 1996, respectively.

NOTE 10 - COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENT

     The Company has entered into an operating lease for larger manufacturing 
and engineering facilities for one of its subsidiaries. The lease commences 
November 1, 1997 and is for a seven-year period. The aggregate future minimum 
lease commitment is $2,902,000, payable monthly.

                                        -10-
<PAGE>

                                        
NOTE 10 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

     In April 1997, two stockholders asserted the claim that they were 
entitled to more shares of common stock than they received in connection with 
the Offering based upon their interpretation of the anti-dilution provisions 
contained in certain Redeemable Warrant agreements. The Redeemable Warrants 
were exercised as part of the Recapitalization concurrent with the Offering. 
The stockholders claimed they were entitled to the additional shares since 
the $12.00 Offering price per share was below a threshold amount set in the 
Redeemable Warrant agreements. In October 1997, the Company reached a 
settlement with the stockholders and agreed to issue them an additional 
50,743 common shares. The additional shares, when issued, will result in a 
reclassification from accumulated deficit to common stock and additional 
paid-in capital for an amount equal to the number of shares issued to the 
stockholders at the $12.00 per share Offering price.

     Management believes the resolution of the foregoing matter does not have 
a material adverse effect on the Company's consolidated financial position, 
results of operations or cash flows. The inclusion of the additional common 
shares, had they been issued at the date of the Offering, would not change 
the amounts reported as pro forma income (loss) per share for the three 
months and nine months ended September 30, 1997 and 1996.

NOTE 11 - RECENT ACCOUNTING PRONOUNCEMENTS

EARNINGS PER SHARE

     In February 1997, the Financial Accounting Standards Board ("FASB") 
issued Statement of Financial Accounting Standards No. 128, Earnings Per 
Share ("SFAS 128"). SFAS 128 specifies the computation, presentation and 
disclosure requirements for earnings per share. The Company is required to 
adopt SFAS 128 as of December 31, 1997; earlier application is not permitted. 
Pro forma earnings (loss) per share, assuming the adoption of SFAS 128 as of 
the beginning of the reporting periods, would be as follows:

<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED     NINE MONTHS ENDED  
                                                                     SEPTEMBER 30,         SEPTEMBER 30,   
                                                                 -------------------   ------------------- 
                                                                   1997       1996       1997       1996   
                                                                 --------   --------   --------   -------- 
                                                                     (UNAUDITED)           (UNAUDITED)     
<S>                                                              <C>        <C>        <C>        <C>      
Basic earnings (loss) per share                                                                            
  Pro forma for the Recapitalization                                                                       
    Income (loss) before extraordinary item...................   $    .28   $    .26   $    .84   $   (.43)
    Extraordinary loss from debt refinancing..................         --         --       (.49)        -- 
                                                                 --------   --------   --------   -------- 
    Net income (loss).........................................   $    .28   $    .26   $    .35   $   (.43)
                                                                 --------   --------   --------   -------- 
                                                                 --------   --------   --------   -------- 
                                                                                                           
  Pro forma for the Recapitalization, as adjusted for                                                      
    acquisitions and the Offering -- before extraordinary 
    item......................................................   $    .28   $    .19   $    .84   $    .29 
                                                                 --------   --------   --------   -------- 
                                                                 --------   --------   --------   -------- 
                                                                                                           
Diluted earnings (loss) per share                                                                          
  Pro forma for the Recapitalization                                                                       
    Income (loss) before extraordinary item...................   $    .26   $    .22   $    .77   $   (.41)
    Extraordinary loss from debt refinancing..................         --         --       (.45)        -- 
                                                                 --------   --------   --------   -------- 
    Net income (loss).........................................   $    .26   $    .22   $    .32   $   (.41)
                                                                 --------   --------   --------   -------- 
                                                                 --------   --------   --------   -------- 
                                                                                                           
  Pro forma for the Recapitalization, as adjusted for                                                      
    acquisitions and the Offering -- before extraordinary 
    item......................................................   $    .26   $    .18   $    .79   $    .28 
                                                                 --------   --------   --------   -------- 
                                                                 --------   --------   --------   -------- 
</TABLE>

                                        -11-
<PAGE>

                                        
NOTE 11 - RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

REPORTING COMPREHENSIVE INCOME

     In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive 
Income ("SFAS 130"). SFAS 130 establishes standards for the reporting and 
display of comprehensive income and its components in a full set of 
general-purpose financial statements. Comprehensive income is defined as the 
change in equity of a business enterprise during a period from transactions 
and other events and circumstances from non-owner sources. The Company is 
required to adopt SFAS 130 for its fiscal year beginning January 1, 1998; to 
enhance comparability, reclassification of financial statements for earlier 
periods is required.

DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

     In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments 
of an Enterprise and Related Information Reporting ("SFAS 131"). SFAS 131 
establishes standards for disclosure about operating in segments in annual 
financial statements and selected information in interim financial reports. 
It also establishes standards for related disclosures about products and 
services, geographic areas and major customers. This statement supersedes 
SFAS No. 14, Financial Reporting for Segments of a Business Enterprise. The 
Company is required to adopt SFAS 131 for its fiscal year ending December 31, 
1998, and requires that comparative information from earlier years be 
restated to conform to the requirements of this standard.

NOTE 12 - AGREEMENT TO ACQUIRE AUDIO INTERNATIONAL, INC.

     On November 3, 1997, the Company announced that it signed a definitive 
agreement to purchase all of the outstanding stock of Audio International, 
Inc. ("Audio International"). The acquisition is expected to close by 
mid-November. Audio International, located in Little Rock, Arkansas, provides 
premium, customized aircraft entertainment and cabin management products and 
systems for the high-end corporate jet market.

     The purchase price consists of $24,000,000 in cash at closing plus 
contingent consideration aggregating a maximum of $6,000,000 payable over two 
years based on future attainment of defined performance criteria. The 
acquisition will be funded with borrowings under the Company's Credit 
Facility. The Credit Facility has been amended to increase the permitted 
maximum borrowings by $20 million to $60 million, effective with the closing 
of the acquisition.

     The transaction will be accounted for as a purchase and the difference 
between the purchase price and the fair value of the net assets acquired will 
be recorded as goodwill and amortized on a straight-line basis over thirty 
years.

                                        -12-


<PAGE>

                                        
               DECRANE AIRCRAFT HOLDINGS, INC. AND SUBSIDIARIES

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

     The following discussion and analysis should be read in conjunction with 
the Condensed Notes to Consolidated Financial Statements beginning on page 6, 
and with the section entitled "Management's Discussion and Analysis of 
Financial Condition and Results of Operations" and the audited consolidated 
financial statements and notes thereto included in the Company's Prospectus.
                                        
                           FORWARD-LOOKING STATEMENTS

     Management's discussion and analysis of financial condition and results 
of operations that are not historical facts are forward-looking statements. 
Such forward-looking statements in this document are made pursuant to the 
safe harbor provisions of the Securities Act of 1933 and the Securities 
Exchange Act of 1994. Forward-looking statements involve a number of risks 
and uncertainties. For a discussion of certain risks and uncertainties that 
may affect the actual results of any forward-looking information contained 
herein, refer to the sections in the Company's Prospectus entitled "Risk 
Factors" and "Management's Discussion and Analysis of Financial Condition and 
Results of Operations."
                                        
                             RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED 
SEPTEMBER 30, 1996

     REVENUES.  Revenues increased $10.5 million, or 65.4%, to $26.6 million 
for the three months ended September 30, 1997 from $16.1 million for the 
three months ended September 30, 1996. Revenues increased primarily due to 
the following: (i) growth in contact sales driven by new aircraft production 
rate increases of $2.1 million; (ii) growth in the Company's private labeling 
programs of $.8 million; (iii) an increase of sales to Interactive Flight 
Technologies, Inc. of $.8 million relating to a major systems integration 
program for Swissair; (iv) the inclusion of $3.4 million of revenues from 
Aerospace Display Systems which was acquired on September 18, 1996; (v) an 
increase in sales of specialty connectors for cabin management and in-flight 
entertainment systems principally on Boeing's 777 aircraft of $.4 million; 
(vi) the inclusion of $.9 million of revenues from Elsinore which was 
acquired on December 5, 1996; (vii) new major systems integration programs 
for United Parcel Service and The Network Connection for $.6 million; and 
(viii) the overall growth in the commercial aircraft market. 

     GROSS PROFIT.  Gross profit increased $2.3 million, or 49.8%, to $6.8 
million for the three months ended September 30, 1997 from $4.6 million for 
the three months ended September 30, 1996. Gross profit as a percent of 
revenues decreased to 25.7% for the three months ended September 30, 1997 
from 28.4% for the three months ended September 30, 1996. Gross profit 
increased from the increased sales volume. The decrease in gross profit as a 
percent of revenue was attributable to a change in mix in the systems 
integration business. Gross profit as a percent of revenue increased to 25.7% 
for the three months ended September 30, 1997 from 25.3% for the three months 
ended June 30, 1997.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and 
administrative ("SG&A") expenses increased $1.0 million, or 36.6%, to $3.8 
million for the three months ended September 30, 1997 from $2.8 million for 
the three months ended September 30, 1996. SG&A expenses as a percent of 
revenues decreased to 14.2% for the three months ended September 30, 1997 
from 17.2% for the three months ended September 30, 1996. SG&A expenses 
increased primarily due to the following: (i) the Company added staff to 
pursue higher sales to original equipment manufacturers and to develop 
capabilities for in-flight entertainment, navigation and satellite 
communication and safety systems integration services; and (ii) the inclusion 
of SG&A expenses from Aerospace Display Systems which was acquired in 1996.

                                        -13-


<PAGE>

                                        
     OPERATING PROFIT.  Operating profit increased $1.2 million to $2.8 
million for the three months ended September 30, 1997 from $1.7 million for 
the three months ended September 30, 1996. Operating profit as a percent of 
revenues increased to 10.7% for the three months ended September 30, 1997 
from 10.4% for the three months ended September 30, 1996. The increase in 
operating income resulted from the factors described above.

     INTEREST EXPENSE.  Interest expense decreased $.7 million, or 67.7%, to 
$.3 million for the three months ended September 30, 1997 from $1.0 million 
for the three months ended September 30, 1996. This decrease resulted from 
completion of the Offering on April 16, 1997 and the repayment of a 
substantial portion of the Company's debt with the proceeds. 

     PROVISION FOR INCOME TAXES.  During the three months ended September 30, 
1997, the Company reduced its deferred tax asset valuation allowance by $.1 
million to reflect the book benefit of federal and state net operating loss 
carryforwards not previously recognized. 

     NET INCOME.  The net income increased $.8 million to $1.5 million for 
the three months ended September 30, 1997 from $.7 million for the three 
months ended September 30, 1996. The increase is a result of the factors 
described above.

     NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS.  Net income 
applicable to common stockholders increased $1.7 million to $1.5 million for 
the three months ended September 30, 1997 from a net loss applicable to 
common stockholders of $.2 million for the three months ended September 30, 
1996. The increase resulted from the factors described above and a $.6 
million increase during 1996 in the redemption value of mandatorily 
redeemable common stock warrants. The increase also resulted from a $.3 
million decrease in cumulative preferred stock dividends attributable to the 
preferred stock that was converted into common stock as part of the 
Recapitalization.

     PRO FORMA INCOME, AS ADJUSTED.  Pro forma income, as adjusted before 
extraordinary item, increased $.5 million to $1.5 million for the three 
months ended September 30, 1997 from $1.0 million for the three months ended 
September 30, 1996 as a result of the factors described above.

     BOOKINGS.  Bookings increased $.7 million or 2.7%, to $26.8 million for 
the three months ended September 30, 1997 compared to $26.1 million for the 
same period in 1996.

NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 
30, 1996

     REVENUES.  Revenues increased $37.8 million, or 87.9%, to $80.9 million 
for the nine months ended September 30, 1997 from $43.1 million for the nine 
months ended September 30, 1996. Revenues increased primarily due to the 
following: (i) growth in contact sales driven by new aircraft production rate 
increases of $6.4 million; (ii) growth in the Company's private labeling 
programs of $5.1 million; (iii) an increase of sales to Interactive Flight 
Technologies, Inc. of $3.4 million relating to a major systems integration 
program for Swissair; (iv) the inclusion of $10.0 million of revenues from 
Aerospace Display Systems which was acquired on September 18, 1996; (v) an 
increase in sales of specialty connectors for cabin management and in-flight 
entertainment systems principally on Boeing's 777 aircraft of $4.0 million; 
(vi) an increase in sales of harness assemblies for in-flight entertainment 
systems of $4.6 million; (vii) the inclusion of $2.2 million of revenue from 
Elsinore which was acquired on December 5, 1996; (viii) new major systems 
integration programs for United Parcel Service and The Network Connection for 
$1.8 million; and (ix) the overall growth in the commercial aircraft market. 
Partially offsetting this increase was a decline in sales to AT&T Wireless 
Services, Inc. of $3.4 million, reflecting the completion in late 1995 and 
early 1996 of a major systems integration program.

                                        -14-


<PAGE>

                                        
     GROSS PROFIT.  Gross profit increased $10.6 million, or 108.2%, to $20.4 
million for the nine months ended September 30, 1997 from $9.8 million for 
the nine months ended September 30, 1996. Gross profit as a percent of 
revenues increased to 25.2% for the nine months ended September 30, 1997 from 
22.7% for the nine months ended September 30, 1996. This increase was 
attributable to an improvement in gross profit as a percent of revenues from 
increased sales volume, sustained price increases, favorable mix, and lower 
material costs.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and 
administrative ("SG&A") expenses increased $3.8 million, or 52.3%, to $11.0 
million for the nine months ended September 30, 1997 from $7.2 million for 
the nine months ended September 30, 1996. SG&A expenses as a percent of 
revenues decreased to 13.6% for the nine months ended September 30, 1997 from 
16.8% for the nine months ended September 30, 1996. SG&A expenses increased 
primarily due to the following: (i) the Company added staff to pursue higher 
sales to original equipment manufacturers and to develop capabilities for 
in-flight entertainment, navigation and satellite communication and safety 
systems integration services; and (ii) the inclusion of SG&A expenses from 
Aerospace Display Systems which was acquired in 1996.

     OPERATING PROFIT.  Operating profit increased $6.6 million to $8.7 
million for the nine months ended September 30, 1997 from $2.2 million for 
the nine months ended September 30, 1996. Operating income as a percent of 
revenues increased to 10.8% for the nine months ended September 30, 1997 from 
5.0% for the nine months ended September 30, 1996. The increase in operating 
income resulted from the factors described above.

     INTEREST EXPENSE.  Interest expense decreased $.2 million, or 7.9%, to 
$2.6 million for the nine months ended September 30, 1997 from $2.8 million 
for the nine months ended September 30, 1996. The decrease resulted from the 
completion of the Offering on April 16, 1997 and the repayment of a 
substantial portion of the Company's debt with the proceeds.

     PROVISION FOR INCOME TAXES.  During the nine months ended September 30, 
1997, the Company reduced its deferred tax asset valuation allowance by $.3 
million to reflect the book benefit of federal and state net operating loss 
carryforwards not previously recognized. Approximately $2.6 million and $.6 
million of the Company's loss carryforwards remained at September 30, 1997 
for federal and state income tax purposes, respectively.

     EXTRAORDINARY LOSS FROM DEBT REFINANCING.  During the nine months ended 
September 30, 1997, the Company incurred a $2.1 million extraordinary charge, 
net of an estimated $1.4 million income tax benefit, as a result of 
refinancing the Company's debt with the proceeds from the Offering.

     NET INCOME (LOSS).  Net income increased $2.6 million to $1.5 million 
for the nine months ended September 30, 1997 from a net loss of $1.1 million 
for the nine months ended September 30, 1996. The increase is a result of the 
factors described above.

     NET LOSS APPLICABLE TO COMMON STOCKHOLDERS.  Net loss applicable to 
common stockholders decreased $.3 million to a net loss of $1.2 million for 
the nine months ended September 30, 1997 from a net loss applicable to common 
stockholders of $1.4 million for the nine months ended September 30, 1996. 
The decrease resulted from the factors described above partially offset by a 
$2.7 million increase in the redemption value of mandatorily redeemable 
common stock warrants between the two periods. In addition, the decrease was 
also partially offset by a $.4 million decrease in cumulative preferred stock 
dividends attributable to the preferred stock that was converted into common 
stock as part of the Recapitalization which occurred concurrent with the 
consummation of the Offering.

     PRO FORMA INCOME, AS ADJUSTED.  Pro forma income, as adjusted before 
extraordinary item, increased $2.9 million to $4.5 million for the nine 
months ended September 30, 1997 from $1.6 million for the nine months ended 
September 30, 1996 as a result of the factors described above.

                                        -15-


<PAGE>

                                        
     
BOOKINGS AND BACKLOG.  Bookings increased $28.6 million, or 53.0%, to $82.4 
million for the nine months ended September 30, 1997 compared to $53.9 for 
the same period in 1996. The increase in bookings for 1997 includes a net 
$11.3 million attributable to Aerospace Display Systems, which was acquired 
in September 1996. As of September 30, 1997, the Company had a sales order 
backlog of $44.8 million compared to $44.5 million as of December 31, 1996. 
                                        
                         LIQUIDITY AND CAPITAL RESOURCES

     For the nine months ended September 30, 1997, the Company generated cash 
from operating activities of $4.0 million. The Company used $4.1 million in 
cash for working capital. The Company's accounts receivable consist of trade 
receivables and unbilled receivables, which are recognized pursuant to the 
percentage of completion method of accounting for long-term contracts. 
Accounts receivables increased $2.4 million for the nine months ended 
September 30, 1997 due to higher sales offset by lower average days 
outstanding. Inventories increased by $2.4 million for the nine months ended 
September 30, 1997 in support of sales growth. Accounts payable increased by 
$.9 million for the nine months ended September 30, 1997 as a result of 
higher purchases in support of sales and backlog growth.

     Capital expenditures of $2.8 million were made during the nine months 
ended September 30, 1997. The capital expenditures were for projects to: (i) 
increase manufacturing capacity in support of revenue growth; (ii) improve 
plating controls; and (iii) construct three additional selective plating 
machines. The Company anticipates capital expenditures of approximately $3.2 
million in 1997.

     Net cash used for financing activities was $1.0 million for the nine 
months ended September 30, 1997. On April 16, 1997, the Company completed the 
Offering and sold 2,700,000 shares of common stock for $12.00 per share. Net 
proceeds from the Offering of $28.8 million, together with approximately 
$12.3 million of net proceeds from borrowings under a new credit facility 
were used to repay amounts due of $42.2 million under the Company's senior 
revolving line of credit, senior term notes, senior subordinated notes and 
convertible subordinated notes.

     Cash was essentially unchanged for the nine months ended September 30, 
1997 due to the factors described above. Concurrent with the Offering, the 
Company entered into a new $40 million revolving Credit Facility which 
expires in 2002 (See Note 7 to the consolidated financial statements). 
Availability under the Credit Facility was $28.3 million and working capital 
aggregated $22.2 million as of September 30, 1997. As described in Note 12 to 
the consolidated financial statements, availability under the Credit Facility 
will increase by $20 million to $60 million concurrent with the closing of an 
acquisition. The Company believes that the current levels of working capital 
and amounts available under its Credit Facility will enable it to meet its 
foreseeable short-term and long-term liquidity requirements.
                                        
                               OTHER INFORMATION

BOEING'S ANNOUNCED PRODUCTION AND DELIVERY RATE CUTBACKS

     The Boeing Company ("Boeing") is the Company's largest customer, 
representing 19.7% of total revenue for the nine months ended September 30, 
1997. In addition, significant portions of the Company's components are 
indirectly sold to Boeing through sales to Boeing's avionics and in-flight 
entertainment system suppliers. During the quarter ended September 30, 1997, 
Boeing announced that parts shortages caused by its supplier network and 
production chain disrupted their production schedules and adversely affected 
their production and delivery rates. Boeing has also announced that it will 
immediately shut down its 737 and 747 production lines for twenty working 
days and will not resume normal production rates until the end of November.

                                        -16-


<PAGE>

                                        
     While Boeing's production problems adversely effected the Company's 
revenue for the three months ended September 30, 1997, the Company has been 
able to partially offset the shortfall with sales to other customers. Direct 
sales to Boeing, excluding the Company's indirect sales to other Boeing 
suppliers, decreased 21.4% or $1.2 million to $4.4 million for the three 
months ended September 30, 1997 compared to $5.6 million for the three months 
ended June 30, 1997 (excluding the effect of Boeing's acquisition of 
McDonnell Douglas Corporation). While the Company's sales to other Boeing 
suppliers also decreased, the impact cannot be reasonably quantified due to 
the Company's uncertainty as to the dollar amount of components the suppliers 
in turn ship directly to Boeing versus other customers for retrofit, 
maintenance and aftermarket applications.

     The Company expects to be able to continue to partially offset the 
Boeing shortfall for the immediate foreseeable future. The Company believes 
it has substantially fulfilled Boeing's delivery requirements on a timely 
basis and recently Boeing instructed the Company to continue its production 
and delivery of components during the shut down. Management does not believe 
the Boeing production schedule disruption will have a material adverse effect 
on the Company's consolidated financial position, results of operations or 
cash flows.

SEASONALITY

     Traditionally, demand for the Company's products and services is lowest 
during the third quarter of each year, particularly in the Company's systems 
integration business. Commercial passenger airlines are reluctant to remove 
aircraft from service during the peak summer travel months for voluntary 
system installations or upgrades.

AFFECT OF THE YEAR 2000 ON COMPUTER SOFTWARE

     In 1996, the Company performed an evaluation of all of its information 
systems to determine if the existing hardware and software would meet the 
Company's long-term requirements. Because of numerous acquisitions made over 
the past several years, the Company operates several stand-alone systems 
using different, and in some cases internally customized, software purchased 
during the early 1980's. The Company concluded that essentially all existing 
software should be upgraded to newer, off-the-shelf, integrated manufacturing 
and business application software. In 1997, the Company commenced the 
implementation of this strategy. One of the criteria to be used in selecting 
the software is that it be Year 2000 compliant.

     The Company believes the migration to the new integrated software will 
be completed prior to the Year 2000. Accordingly, management does not 
anticipate encountering any significant Year 2000 computer software issues 
that would have a material adverse effect on the Company's consolidated 
financial position, results of operations or cash flows.

                                        -17-


<PAGE>

                                        
                          PART II - OTHER INFORMATION

ITEM 5.   OTHER INFORMATION

STOCKHOLDER DISPUTE REGARDING ISSUANCE OF ADDITIONAL COMMON SHARES

     In April 1997, two stockholders asserted the claim that they were 
entitled to more shares of common stock than they received in connection with 
the Offering based upon their interpretation of the anti-dilution provisions 
contained in certain Redeemable Warrant agreements. The Redeemable Warrants 
were exercised as part of the Recapitalization concurrent with the Offering. 
The stockholders claimed they were entitled to the additional shares since 
the $12.00 Offering price per share was below a threshold amount set in the 
Redeemable Warrant agreements. In October 1997, the Company reached a 
settlement with the stockholders and agreed to issue them an additional 
50,743 common shares. The additional shares, when issued, will result in a 
reclassification from accumulated deficit to common stock and additional 
paid-in capital for an amount equal to the number of shares issued to the 
stockholders at the $12.00 per share Offering price.

     Management believes the resolution of the foregoing matter does not have 
a material adverse effect on the Company's consolidated financial position, 
results of operations or cash flows. The inclusion of the additional common 
shares, had they been issued at the date of the Offering, would not change 
the amounts reported as pro forma income (loss) per share for the three 
months and nine months ended September 30, 1997 and 1996.

DESIGNATED ALTERATION STATION APPROVAL STATUS

     In conjunction with the 1996 acquisition of the stock of Elsinore 
Aerospace Services, Inc. and certain assets of Elsinore Engineering 
(collectively "Elsinore"), the Company acquired, among other intangible 
assets, the ability to issue certain Federal Aviation Administration (the 
"FAA") design approvals for modifications to designated aircraft through 
Elsinore's FAA-issued Designated Alteration Station ("DAS") approval status. 
In July 1997, the FAA notified the Company that its facilities did not fully 
comply with certain regulations governing such DAS status. The FAA granted 
the Company until September 10, 1997 to bring the facilities into full 
compliance and curtailed the operations of the facilities as a DAS until they 
achieved full compliance. On August 28, 1997 the FAA inspected the Company's 
facilities and determined they were in full compliance. The Company's DAS 
approval status was fully restored on September 5, 1997.

RELOCATION OF PRINCIPAL EXECUTIVE OFFICES

     The Company has relocated its principal executive offices from Ohio to 
California. The relocation places the executive offices in closer proximity 
to a majority of the Company's customers and manufacturing operations which 
are based in the western United States, principally southern California.

     Management believes the relocation will not have a material adverse 
effect on the Company's consolidated financial position, results of 
operations or cash flows.

                                        -18-


<PAGE>

                                        
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

a.  Exhibits

    11.1 Statement regarding computation of per share earnings of the Company
    20.1 Filed Final Prospectus of the Company dated April 16, 1997 *
-------------------
    * Previously filed

b.  Reports on Form 8-K

    There were no reports filed on Form 8-K for the three months ended 
September 30, 1997.


                                        
                                    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.



                                        DECRANE AIRCRAFT HOLDINGS, INC.
                                                 (Registrant)





November 10, 1997                       By:  /s/ ROBERT A. RANKIN
                                           ----------------------
                                           Name:     Robert A. Rankin
                                           Title:    Chief Financial Officer and
                                                     Secretary


                                        -19-