UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
 (Mark One)

__X__ ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES  EXCHANGE ACT OF
1934 (No Fee Required) 
For the fiscal year ended January 31, 1999

_____ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 (No Fee Required) 
For the transition period from__________ to___________

Commission File Number  0-2199

                          First Aviation Services Inc.
             (Exact name of registrant as specified in its charter)

           Delaware                                    06-1419064
           (State or other jurisdiction                (I.R.S. Employer
           of incorporation or organization)           Identification No.)

           15 Riverside Avenue
           Westport, Connecticut                       06880-4214
           (Address of principal executive offices)    (Zip Code)

                    Issuer's telephone number (203) 291-3300
                            (Office of the Secretary)

           Securities registered pursuant to Section 12(b) of the Act:

                                                       Name of each exchange
                  Title of each class                  on which registered
                  -------------------                  -------------------
                  None                                 None

           Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, $0.01 par value

Indicate by check mark whether the issuer (1) has filed all reports  required to
be filed by Section 13 or 15(d) of the  Securities  Exchange Act during the past
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 or for such short period that the  registrant was subject to such filing
requirements. Yes X No __

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

The  aggregate  market  value of the voting stock held by  non-affiliates  as of
April 23, 1999 was approximately $39,383,295

The number of shares  outstanding of the  registrant's  common stock as of April
23, 1999 was 9,001,896 shares.

                    Documents incorporated by reference: None

<PAGE>


                                     PART I

Item 1.  Business

General

      First Aviation  Services,  Inc.  ("First  Aviation" or the "Company") is a
worldwide leader in providing services to aircraft operators of some of the most
widely used military,  commercial,  and general aviation aircraft engines in the
world, including the Lockheed Martin C-130 Hercules and P3C Orion aircraft and a
large variety of aircraft and helicopters powered by light turbine engines.  The
Company's  operations  include  repair and  overhaul of gas turbine  engines and
accessories,   remanufacturing   of  engine  components  and  accessories,   and
redistribution of new and remanufactured  parts and components.  The Company has
become one of the leading  suppliers of aircraft engine parts and other aircraft
parts and components to the general aviation  industry  worldwide,  while at the
same time extending its third party logistics and inventory  management services
to the commercial airline market.

      On April 29, 1999,  the Company  announced  that it would  explore ways of
enhancing  shareholder  value,  including  the  potential  sale of the Company's
subsidiary, NAC.

      First  Aviation  was formed in March  1995 to acquire  all of the stock of
National  Airmotive  Corporation (NAC). The acquisition was completed on June 1,
1995,  and was accounted for under the purchase  method of  accounting.  Through
NAC,  the Company  provides  repair and overhaul  services for several  aircraft
engine types, including:  (i) engines manufactured by the Allison Engine Company
("Allison"),  a subsidiary  of Rolls Royce USA,  that power the Lockheed  Martin
C-130 "Hercules"  cargo aircraft,  the most popular cargo aircraft in the world,
(ii) the  engines  employed  on most  light  helicopters,  and (iii)  industrial
turbine engines used primarily for power co-generation and gas transmission. NAC
is an industry  leader in the  remanufacture  of  serviceable  engine  parts and
components for use in engine overhauls.

      On March 5, 1997,  Aircraft Parts  International  Combs,  Inc., a majority
owned  subsidiary of the Company ("API  Combs"),  completed the  acquisition  of
Aircraft Parts  International  ("API") from AMR Combs,  Inc. ("AMR Combs").  The
acquisition  was  accounted  for under the purchase  method of  accounting.  API
distributes  more than 100 major product lines of aircraft parts and components.
API  Technologies,  API's  licensed  repair  station,  offers  brake and starter
generator  overhaul services,  and is an authorized hose assembly  manufacturing
facility.  Through API, the Company  distributes  and supplies  aircraft  engine
parts and components to the aviation industry worldwide.

      The API  acquisition  was an initial step in meeting the Company's goal of
participating  in the  consolidation  of the  aviation  services  industry.  API
expanded the  Company's  services to the general  aviation  and airline  market,
thereby   allowing   the  Company  to  leverage   its   repair,   overhaul   and
remanufacturing expertise to a new customer base.

     The  Company  has  benefited  from  certain   industry  trends  that  favor
independent repair and overhaul and aircraft providers including:  (i) increased
outsourcing of repair and overhaul  services by engine operators as they seek to
reduce operating costs and turnaround time, (ii) increasing  consolidation among
repair and overhaul and parts providers as engine operators reduce the number of
providers used for these services,  (iii) increased emphasis on the traceability
of aircraft parts which has, in turn,  increased the required  sophistication of
information  systems used by parts distributors and engine overhaul shops,  (iv)
growing demand for remanufactured  parts as engine operators seek to lower costs
of repair and overhaul  services,  (v) increasing  aviation  activity  which, in
turn, increases the demand for repair and overhaul services;  and (vi) increased
demand by aircraft  operators for third parties to manage and maintain parts and
component  inventories  so that  aircraft  operators  may reduce their parts and
components inventories and the costs associated with managing inventory.

The Company's executive officers are located at 15 Riverside Avenue in Westport,
Connecticut and can be reached via e-mail at first@firstaviation.com.

Safe Harbor  Statement  Under the Private  Securities  Litigation  Reform Act of
1995.

         Statements  which are not  historical  facts in this report  constitute
forward  looking  statements,  within  the  meaning  of the  Private  Securities
Litigation Reform Act of 1995. Such forward looking statements,  including those
concerning the Company's expectations, all involve risk and uncertainties, which
may cause the actual  results,  performance or achievements of the Company to be
materially  different  from  any  future  results,  performance  or  achievement
expressed or implied by such forward looking  statements.  Such factors include,
among others,  the Company's ability to obtain parts from its principal supplier
on a timely basis, the ability to consummate suitable acquisitions,  the ability
to expand its remanufacturing capabilities,  and other items that are beyond the
Company's  control  and may cause  actual  results to differ  from  management's
expectations.


                                       2
<PAGE>

Industry Overview

      The Company  believes that the current annual worldwide market for new and
used spare engine parts and spare aircraft parts is approximately $20.0 billion,
of which $1.3 billion is supplied to the general aviation  market.  The aviation
parts and component market is highly-fragmented  with a limited number of large,
well-capitalized  companies  selling a broad range of aircraft spare parts,  and
numerous smaller  competitors serving niche markets.  The Company,  through API,
serves  the  general  aviation  sector  of this  market,  airlines,  fixed  base
operators (FBOs), business aviation, helicopter and recreational operators.

      Aviation Parts Sales and Logistics. The Company,  principally through API,
sells more than 100 product lines and 80,000 new and factory reconditioned parts
and components to  professional  aircraft  maintenance  organizations,  aircraft
operators,  including fleet operators,  and FBOs. The parts are FAA approved and
are acquired from small,  specialized  manufacturers  as well as major  original
equipment manufacturers such as Allison,  Champion Aviation Products,  Goodyear,
Michelin,   B.F.  Goodrich,   General  Electric,   Textron  Lycoming,   Teledyne
Continental,  Parker  Hannifin,  AlliedSignal,  Piper  and  Cessna.  Most of the
aforementioned suppliers are committed to servicing aftermarket customers solely
through wholesale  distributors such as API.  Distributors add value to commonly
available  products by offering  immediate  availability,  broad product  lines,
technical  assistance  and other  value  added  services.  API does not have any
long-term  agreements or commitments from the original  equipment  manufacturers
from whom it purchases parts and is dependent on these  manufacturers for access
to parts for resale. API also provides logistic services to aircraft operators.

     Competition  in the parts and components  distribution  market is generally
based on price, availability of product and quality, including traceability. NAC
is an Allison  Authorized  Maintenance  Center (an "AMC").  The Company's  major
competitors   include  Allison,   Rolls  Royce  and  other  AMC's.  API's  major
competitors include Aviall, Inc., AAR Corporation and Cessna Aircraft Company (a
subsidiary of Textron). There also is substantial competition, both domestically
and overseas,  from companies who focus on regional/niche  markets, or on market
segments of secondary interest.  Examples of these companies include Satair A/S,
Superior Air Parts, Inc., Avteam and Omaha Aircraft Supply.

      NAC  Sales  of   Remanufactured   Engine   Components   and   Accessories.
Traditionally,  overhaul  companies  remanufactured  select  components  from  a
particular  engine  for  reinsertion  into the same  engine.  In  recent  years,
however, a market for rotable remanufactured parts has emerged, due primarily to
engine  owners  becoming  more  value-sensitive  and more  willing to purchase a
remanufactured  part at a  substantial  discount to the cost of a new part.  The
Company  has  increased  its  focus  on  the  remanufacture  of  components  and
accessories  as a separate  segment  of its  business,  apart from its  overhaul
business.

     NAC's  significant  competitors  in this market  include  Standard Aero and
Dallas Airmotive.  The Company believes that the primary  competitive factors in
this marketplace are price, quality,  engineering and availability.  The Company
has  engineered and developed a significant  number of Engineering  Authorities,
which are  proprietary  in  nature.  An  Engineering  Authority  is an  approved
procedure  for  repairing  a  particular  part.  Due  to its  advanced  systems,
technology  and years of expertise  in Allison  component  remanufacturing,  the
Company believes its competes favorably with regard to such factors.

      Engine Repair and Overhaul.  The Company  believes that the current annual
worldwide  market for gas  turbine  engine  repair and  overhaul  services is in
excess of $6.5  billion.  Gas  turbine  engines are used to power  aircraft  and
marine vessels, and to generate electricity for industrial applications.  Repair
and overhaul services are performed by engine operators,  engine  manufacturers,
and  independent  operators such as the Company.  The engine repair and overhaul
market is highly fragmented with numerous service providers, competing primarily
on the basis of price,  quality and turnaround  time. The repair and overhaul of
aircraft  engines and engine  components is regulated by  governmental  agencies
throughout the world,  including the U.S. Federal Aviation  Administration  (the
"FAA"),  the  Joint  Airworthiness  Administration  (the  "JAA")  and  the  U.S.
Department of Defense (the "DOD"), and is supplemented by engine  manufacturers'
guidelines which generally require that engines be overhauled and certain engine
components  be replaced  after a certain  number of flight hours  and/or  cycles
(take-offs  and  landings).   Many  aircraft   operators  have  recognized  that
outsourcing  of engine repair and overhaul  services is an opportunity to reduce
operating costs and lower  turnaround  times.  Outsourcing  allows  operators to
benefit from the expertise of service providers,  such as the Company,  who have
developed proprietary repair schemes and achieved economies of scale unavailable
to  individual  operators.  As operators  continue to become more cost and value
conscious,   and  as  modern   aircraft   engines   become   increasingly   more
sophisticated, the Company expects the trend to outsourcing to continue.

     Engine  Repair  and  Overhaul.  NAC is an AMC for  Allison  Models  250 and
T56/501.  In the repair and overhaul  market for Allison Models 250 and T56/501,
NAC competes primarily with other independent  operators,  including other AMC's
located  throughout  the world.  Management  believes that its most  significant
competitors in this market include:  Standard Aero of Winnipeg,  Canada;  Dallas
Airmotive in the United States; Hunting in the


                                       3
<PAGE>

United Kingdom; and Singapore Aerospace of Singapore, each of which is an AMC in
one or more product lines.  In addition,  OEM's may establish  joint ventures to
compete  for large  contracts  that are  subject to bid.  Certain  international
competitors  of the Company have the advantage of a monopoly on their  country's
military  contracts  for repair and  overhaul  of the  engines  serviced  by the
Company.  In the market for repair and  overhaul of other lines  serviced by the
Company,  including  Pratt & Whitney Canada and McDonnell  Douglas,  the Company
competes  against  the  original  equipment   manufacturers  as  well  as  other
independent  operators.   Many  of  the  Company's  competitors  have  financial
resources substantially greater than those of the Company, and have a longer and
more  extensive  record of repair  and  overhaul  work  relative  to that of the
Company  on the Pratt & Whitney  Canada  engine  lines,  and  McDonnell  Douglas
helicopter lines.

      Increasing   Consolidation.   The  Company  believes  that  customers  are
increasingly   seeking  the   services  of  larger,   more   sophisticated   and
better-capitalized   service  providers.  In  order  to  reduce  costs,  satisfy
increased  governmental  regulatory  scrutiny,  streamline  buying decisions and
assure quality,  engine  operators are seeking to reduce the number of providers
that are used both for repair and overhaul and parts supply services.  As modern
aircraft  engines  become  more  sophisticated,  so do the  repairs,  parts  and
component requirements for such engines. At the same time, operators have become
more sensitive to quick turnaround times. As a result, the Company believes that
engine operators  increasingly  select those service  providers that have made a
significant capital commitment toward developing  proprietary repair schemes and
acquiring  remanufacturing equipment and inventories and, therefore, are capable
of providing  higher  quality and more timely  services  than  under-capitalized
competitors  can offer.  Additionally,  the  increasing  costs of technology and
inventory  levels  required  to  compete  effectively  has made  entry  into and
continued  success in the industry  more  difficult and  expensive.  The Company
believes that well-capitalized,  technologically sophisticated providers capable
of offering a wide range of services will benefit from this consolidation trend.
During  the past  year,  a number of  service  providers  have  consolidated  or
combined  their  operations.  This is a trend  that the  Company  believes  will
continue.

Computer-based Advanced Remanufacturing System (CARS)

      The Company has made  substantial  expenditures  to develop CARS. CARS has
been in use for  approximately  four years. The system consists of two parts; an
automated  inspection and routing system and a remanufacturing  variable control
system. The Company has copyrighted its self-developed object-oriented software.

      CARS enables NAC to shorten turnaround times,  increase output and improve
inventory  management  by  allowing  NAC to manage and  control  the  process of
detailed parts inspection,  material  requisitioning,  and work order scheduling
and release,  and reduce costs by eliminating  duplication of work and errors in
the ordering of parts.  The system's  database  contains much of the information
required to perform engine inspection  activities,  including  illustrated parts
catalogues.  This has largely  eliminated  the need to update  parts  catalogues
manually and allows an engine inspector using a personal computer located at his
workstation  to (i) refer to computer  based parts  manuals  and  catalogues  to
identify needed parts, (ii) access and check on the availability in inventory of
needed parts,  (iii)  requisition  needed parts from  inventory and schedule the
time for delivery of the parts to repair and overhaul  mechanics and (iv) create
and record an audit trail for all inspected parts and processes.  These features
of the system have  substantially  reduced total detailed engine inspection time
required in the overhaul process.

Principal Supplier

      NAC principally  services gas turbine engines manufactured by Allison. For
the year  ended  January  31,  1999 the  Company  derived  more  than 53% of its
revenues from the repair and overhaul of Allison engines and Allison part sales.
For the year ended  January 31, 1998,  the Company  derived more than 66% of its
revenues from the repair and overhaul of Allison engines and Allison part sales.
Prior to that, the Company derived greater than 90% of its revenues from Allison
related  services  and parts  sales.  The decrease in reliance on Allison is due
principally to the acquisition  and growth of API and the use of  remanufactured
materials.

Sales and Marketing

      Overhauls and Repairs.  NAC uses direct sales personnel and agents for all
product lines.  The Vice Presidents of each of the product lines supervise their
sales professionals,  whose sales efforts are supported by the quality assurance
and engineering  departments to aid in customer support. Senior management plays
an active  role in  marketing  several of the  Company's  product  lines.  NAC's
professionals provide cost effective solutions to maintaining engines, stressing
NAC's repair and overhaul engineering expertise,  turnaround times and component
remanufacturing  capabilities.  The Company actively participates in many of the
major industry  gatherings and air shows globally,  and serves as host to groups
of engine operators at technical and other meetings.


                                       4
<PAGE>

      Parts  Distribution.  New and  serviceable  parts  are  sold  to  overhaul
customers,  parts resellers,  regional  airlines,  FBO's, and business aviation,
helicopter and recreational operators. The Company uses regional sales managers,
inside  salespersons,  outbound  telephone  salespersons,  independent  contract
representatives, and associated distributors in its sales and marketing efforts.

      ISO/9001and 9002  Certification.  During the fiscal year ended January 31,
1998, the Company's  Oakland,  California  facility became the first independent
repair and overhaul facility in the world to receive ISO/9001 certification. NAC
has also been certified by the DOD to the ISO/9001  Standard for  performance of
work on DOD contracts. In March 1999, the Company's Memphis,  Tennessee facility
obtained ISO/9002 certification.

Customers

      The Company provides repair and overhaul  services and sells parts to more
than 300 customers,  which include both foreign and U.S.  militaries,  air cargo
carriers, major industrial corporations and others.

      During the quarter ended  October 31, 1998,  NAC was awarded a contract by
the United States Navy for the repair and overhaul of the majority of the Navy's
Allison T-56 engine fleet that  previously had been  overhauled at the Kelly Air
Force Base.  After the expiration of the initial  one-year term of the contract,
the Navy may  exercise  options  to  extend  the  contract  for four  additional
one-year  periods,  depending  upon its needs and NAC's  performance  under this
contract. Revenues over the first twelve months of the contract are estimated to
be approximately $11 million, and may be as high as $35 million. The total value
of the contract,  assuming all options are exercised, is estimated to range from
approximately $65 million to $189 million.  The Company commenced work under the
contract during the fourth quarter of the fiscal year ended January 31, 1999.

      During the years ended January 31, 1999, 1998 and 1997, respectively,  the
Company's  top 10  customers  accounted  for  approximately  26%, 31% and 45% of
revenues.  During  the  year  ended  January  31,  1999,  purchases  by the U.S.
Government  accounted for approximately 11.7% of the Company's revenues.  During
the year ended January 31, 1998, no single customer's  purchases exceeded 10% of
the Company's  revenues.  During the year ended January 31, 1997,  revenues from
System Control Technologies represented 12.3% of Company's operating revenues.

Backlog

      As of January 31, 1999 and 1998,  the total  contract price of the backlog
of orders for repair and overhaul services was  approximately  $31.0 million and
$20.3 million  respectively.  Backlog is measured by reference to the open sales
orders for engines and modules  located on the Company's  premises.  The Company
does not include engines and modules under contract or in shipment to NAC.

Regulation

      Through regulatory bodies such as the FAA and DOD,  governments around the
world require all aircraft and engines to follow defined maintenance programs to
ensure  airworthiness  and safety.  Such  programs are developed by the original
equipment  manufacturer  in  coordination  with the  regulatory  body. The DOD's
regulatory  program for engines used by the armed services is separate and apart
from the FAA  procedures.  The  maintenance of industrial  engines used in power
plants is relatively unregulated,  except when such maintenance is performed for
the government. The Company has certifications from the FAA and the JAA covering
its repair and overhaul facilities. Under the authority of these certifications,
the  Company is  permitted  to service  all Allison  engine  lines,  the Pratt &
Whitney  Canada PT6 and its other product  lines.  The DOD requires that parties
servicing  aircraft  engines for branches of the U.S. armed services comply with
applicable  government   regulations,   and  the  DOD  continually  reviews  the
operations for compliance with applicable regulations.

      All aircraft  must be maintained  under a continuous  condition-monitoring
program and periodically must undergo thorough  inspection and maintenance.  The
inspection,  maintenance and repair procedures for the various types of aircraft
and equipment are prescribed by regulatory authorities and can be performed only
by certified repair facilities and/or certified  technicians.  Certification and
conformance  is  required  prior to  installation  of any  part on an  aircraft.
Presently,  whenever  necessary  with respect to a particular  part, the Company
utilizes FAA  certified  repair  stations to repair and certify  parts to ensure
marketability. The operations of the Company may in the future be subject to new
and more  stringent  regulatory  requirements.  The  Company  believes  it is in
material   compliance   with   applicable   regulations.   See  Item  3,  "Legal
Proceedings".

Environmental Matters and Proceedings


                                       5
<PAGE>


      The Company's operations are subject to extensive federal, state and local
environmental laws and related regulation by government agencies,  including the
United  States  Environmental  Protection  Agency (the  "EPA"),  the  California
Environmental  Protection Agency and the United States  Occupational  Safety and
Health Administration.  Among other matters, these regulatory authorities impose
requirements that regulate the operation, handling,  transportation and disposal
of  hazardous  materials,  the health and safety of  workers,  and  require  the
Company to obtain and  maintain  licenses  and  permits in  connection  with its
operations.  This extensive regulatory framework imposes significant  compliance
burdens and risks on the Company.  The Company  believes  that it is in material
compliance with all federal, state, and local laws and regulations governing its
operations.   The  Company  does  not  anticipate  that  any  material   capital
expenditures  will be  required  during  fiscal  year 2000 in order to  maintain
compliance with the federal, state and local laws and regulations.

      In  October  1995,  a  committee  comprised  of a group of  companies  and
individuals  responsible for the cleanup of the Petroleum  Products  Corporation
Superfund Site in Pembroke Park,  Florida (the "Superfund  Site")  contacted NAC
and alleged that NAC was  responsible  for a share of the cleanup costs pursuant
to Comprehensive Environmental Response, Compensation and Liability Act of 1980.
NAC has been designated as a potentially  responsible party by the EPA for costs
associated  with cleanup of the Superfund Site, and as such, as with each of the
other  potentially  responsible  parties,  is potentially  liable on a joint and
several basis for the entire cleanup cost for the Superfund  Site. The committee
demanded that NAC pay approximately  $70,000 to join the committee  handling the
cleanup  and  threatened  to  add  NAC as a  defendant  to an  existing  lawsuit
regarding  the site if NAC  declined to pay. The  Committee  alleges that NAC is
responsible  to pay a portion  of the  cleanup  costs  due to its  status as the
successor of Design  Engineering  Company ("DEC"),  which the committee  alleges
sent waste oil from property located in Miami, Florida (the "Miami Property") to
the Superfund Site between  approximately  1969 and 1973. The Committee  alleges
that DEC sent  approximately  194,500 gallons of waste oil to the Superfund Site
and has estimated  that the total cleanup costs for the Superfund Site allocable
to the Company could range from $0.75 to $1.25,  per gallon.  At this time,  the
Company is unable to  determine  the  accuracy of the  Committee's  cleanup cost
estimates or the likelihood that NAC will be required to contribute a portion of
such cleanup costs.  In mid 1997 the Company advised the committee that it would
not join in funding cleanup of the site. Since then, neither the Company nor NAC
have received any communication from the committee.  The Company will vigorously
contest the committee's  allegations regarding the amount of waste oil allegedly
shipped by DEC to the Superfund Site.

      In February 1996, NAC and several other past and present  owners/operators
of the Miami Property were served with a complaint filed in the Florida District
Court of the 11th Judicial Circuit in and for Dade County, Florida,  wherein the
owners  of  certain  property   adjacent  to  the  Miami  Property  allege  that
contamination  at the Miami  Property  has  migrated  to and/or  impacted  their
adjacent  property.  The complaint seeks unspecified  damages for cleanup costs,
loss of property value and  attorneys'  fees. NAC has answered the complaint and
continues to contest the plaintiffs' allegations.

Employees

      As of January  31,  1999,  approximately  510 persons  were  employed on a
full-time basis by the Company.  None of the Company's  employees are covered by
collective bargaining  agreements.  The Company believes that its relations with
its employees are good.


                                       6
<PAGE>

Item 2.  Properties

      The Company operates within the following facilities:

<TABLE>
<CAPTION>
                                                                         Square     Lease
Location             Entity             Description                      Footage    Expiration
--------             ------             -----------                      -------    ----------

<S>                  <C>                <C>                                <C>        <C> 
Westport, CT         First Aviation     Executive offices                  2,000      2007

Oakland, CA (1)      NAC                Allison engine repair and
                                        overhaul shop and offices        157,000      2015

Long Beach, CA       NAC                Allison engine and Pratt
                                        & Whitney PT6 repair and
                                        overhaul, maintenance of
                                        McDonnell Douglas helicopter
                                        components                        28,500      1999

San Leandro, CA      NAC                Warehouse                          8,900      1999

Houston, TX (2)      NAC                Repair of industrial engines      15,000     Owned

Memphis, TN          API                Distribution/sales                88,000      2013

Calgary, Canada      API, Ltd.          Sales                              3,200      2003
</TABLE>

(1)   NAC owns the  buildings at this  location but leases the land on which the
      structures are located.

(2)   In  November  1997,  the Company  purchased a 15,000 sq. foot  facility in
      Houston Texas. The property  includes a two bay test cell that the Company
      is in the process of outfitting with the appropriate  test equipment.  The
      facility will support the Company's  capabilities in the industrial engine
      market.  The test cell is expected to be fully  operational  in June 1999.
      The Company is presently  using the  facility to support  staff in Houston
      who provide  field and overhaul  services to gas turbine users for engines
      manufactured by Allison Engine Co.


                                       7
<PAGE>

Item 3.  Legal Proceedings

      In March  1999,  the jury  decided in favor of the  Company in  litigation
brought by John F. Risko, a former director and manager,  initiated in June 1997
against the Company, National Airmotive Corporation, Aaron P. Hollander, Michael
C.  Culver,  First  Equity  Development  Inc.  and First  Equity  Group Inc. The
Plaintiff's allegations of wrongful termination, breach of contract, and various
actions of fraud, deceit and misrepresentation were dismissed. The plaintiff had
sought  various  damages as well as common shares of the Company.  On a separate
count,  the jury,  in a split  decision,  awarded the  plaintiff a cash bonus of
$200,000.  During the quarter ended January 31, 1999, the Company,  accrued $3.1
million  for the costs of  defending  itself  and its  Directors  against  these
claims.  The accrual  includes  legal fees  incurred  through  January 31, 1999,
completion of the trial, expert testimony, out-of-pocket costs, and the costs of
an appeal.  The Company is pursuing  recovery of these costs in accordance  with
the terms of a Directors and Officers  Insurance Policy. The amount of recovery,
if any, is not  ascertainable  at this time.  Any recovery  will be reflected in
future periods.

      The Company's  business exposes it to possible claims for personal injury,
death or property damage which may result from a failure of engines  serviced by
the Company or spare parts sold by it. The Company  takes what it believes to be
adequate  precautions  to ensure  the  quality of the work it  performs  and the
traceability of the aircraft spare parts which it sells.  The Company  maintains
what it believes is adequate liability insurance to protect it from such claims.

      The Company is also  involved in various  matters  relating to  compliance
with regulations  governing  services  performed for U.S.  military aircraft and
environmental  regulations.  Among the  agencies  which  oversee  the  Company's
business activities are the Federal Aviation  Administration,  the Department of
Defense,  the  Environmental  Protection  Agency and the Defense  Contract Audit
Agency. See also Item 1, "Business-Environmental Matters and Proceedings."

      The Company is involved in certain  other claims and lawsuits  relating to
personnel  matters which are incidental to its  operations.  Management does not
believe that the ultimate  resolution of any of the foregoing claims will have a
material  adverse  effect on the  Company's  business,  financial  condition  or
results of operations.

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

None


                                       8
<PAGE>

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

      Market Information.  The Company's common stock trades on The NASDAQ Stock
Market under the symbol FAVS.  The table below sets forth the quarterly high and
low sales  prices  for the  Company's  common  stock as  reported  on the NASDAQ
Composite Tape since March 5, 1997, the date public trading commenced.

          Fiscal Year Ended                            Fiscal Year Ended
           January 31, 1999                             January 31, 1998
--------------------------------------        ----------------------------------
                     High       Low                             High       Low
First Quarter        7 1/4      5 1/2         First Quarter     11 3/4     8
Second Quarter       6 1/62     4 7/32        Second Quarter    11 1/8     8 1/4
Third Quarter        5 7/8      4 1/8         Third Quarter     11         7 5/8
Fourth Quarter       5          4 1/16        Fourth Quarter    8 3/4      5 7/8

      Holders.  As of April 23, 1999, there were approximately  eighteen holders
of record of the Company's common stock.

      Dividends.  The Company has not  declared  or paid any cash  dividends  or
distributions on its common stock since its inception.  The Company  anticipates
that, for the foreseeable  future,  all earnings will be retained for use in the
Company's  business and no cash dividends will be paid on the common stock.  Any
payment of cash  dividends  in the future on the common  stock will be dependent
upon the  Company's  financial  condition,  results of  operations,  current and
anticipated  cash  requirements,  plans  for  expansions,  the  ability  of  its
subsidiaries to pay dividends or otherwise make cash payments or advances to it,
and restrictions,  if any, under any current or future debt obligations, as well
as other factors that the Board of Directors deems relevant. In addition,  API's
and NAC's credit  facilities  prohibit the payment of cash dividends except with
the applicable lender's consent.


                                       9
<PAGE>

Item 6.  Selected Financial Data

      The selected  financial data set forth below should be read in conjunction
with the  Consolidated  Financial  Statements and related  Notes,  "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  and
other financial information included herein.

<TABLE>
<CAPTION>                                                                                                            
                                                                                        Twelve
(All amounts in thousands, except per          Fiscal Year  Fiscal Year  Fiscal Year    Months
 share amounts)                                   Ended        Ended        Ended        Ended
                                               January 31,  January 31,  January 31,   January 31,
                                                  1999        1998 (1)       1997       1996 (2)
                                               -----------  -----------  -----------   -----------
<S>                                             <C>          <C>          <C>          <C>      
Statement of Operations Data:
   Net sales                                    $ 153,740    $ 153,642    $ 104,236    $  92,857
   Cost of sales                                  126,456      130,433       89,426       81,199
                                                ---------    ---------    ---------    ---------
   Gross profit                                    27,284       23,209       14,810       11,658
   Selling, general and administrative             21,662       14,827        9,881        8,578
      expenses
   Non-recurring charges (3)                        6,178         --           --           --
                                                ---------    ---------    ---------    ---------
   Income (loss) from operations                     (556)       8,382        4,929        3,080
   Interest expense                                 1,830        1,842        3,470        3,249
   Interest Income                                    (15)        (357)        --           --
   Other expense                                       42           38         --            801
                                                ---------    ---------    ---------    ---------
   Income (loss) before taxes and
      extraordinary items                          (2,413)       6,859        1,459         (970)
   Income tax expense (benefit)                      (699)       1,500         --             90
                                                ---------    ---------    ---------    ---------
   Income (loss) before extraordinary item         (1,714)       5,359        1,459       (1,060)
   Extraordinary item (4)                            --           (108)        (864)        --
                                                ---------    ---------    ---------    ---------
   Net income (loss)                            $  (1,714)   $   5,251    $     595    $  (1,060)
                                                =========    =========    =========    =========

Dividends on preferred stock (5)                     --             11          132
                                                ---------    ---------    ---------
Net income available to common stockholders     $  (1,714)   $   5,240    $     463
                                                =========    =========    =========

Net income (loss) per common share:
   Basic net income per common share before
     extraordinary item                         $   (0.19)   $    0.63    $    0.37
   Extraordinary item                                --          (0.01)       (0.24)
                                                ---------    ---------    ---------
   Basic net income per common share            $   (0.19)   $    0.62    $    0.13
                                                =========    =========    =========

Weighted average shares outstanding                 8,973        8,432        3,557

   Net income (loss) per common share -
     assuming dilution - before extraordinary   $   (0.19)   $    0.61    $    0.26
     item
   Extraordinary item                                --          (0.01)       (0.17)
                                                ---------    ---------    ---------
Adjusted net income per common share -
     assuming dilution                          $   (0.19)   $    0.60    $    0.09
                                                =========    =========    =========
Weighted average shares outstanding and
     assumed conversions                            8,973        8,698        5,194

Balance Sheet Data:
   Working capital                              $  47,093    $  53,735    $  37,487    $  31,413
   Total assets                                    97,089       82,523       62,372       60,384
   Short-term line of credit                        8,850         --           --           --
   Current portion of long-term debt                 --           --          1,100        1,970
   Long-term debt, less current portion            13,907       13,866       32,794       27,005
   Other long-term liabilities                      1,443        1,041        2,119        3,601
   Series A Preferred Stock                          --           --          1,650        1,650
   Total stockholders' equity                   $  44,381    $  45,957    $   6,281    $   4,186
</TABLE>

                                       10
<PAGE>

Notes to Selected Financial Data

(1)  The financial  information for the year ended January 31, 1998 includes the
     results of API,  which was  acquired  on March 5, 1997.  See  "Management's
     Discussion  and Analysis of Financial  Condition  and Liquidity and Capital
     Resources".

(2)  The  historical  data of NAC  and the  Company  are not  comparable  in all
     respects.  The financial  information presented for the twelve months ended
     January 31, 1996  includes  four months  during  which NAC was owned by its
     former shareholder (the "Predecessor").  This information also includes the
     eight  months  during  which NAC was owned by the  Company.  The results of
     operations for this period are as follows:

                                   Predecessor  First Aviation  Twelve-months
                                     2/1/95 -       6/1/95 -         Ended
                                      5/31/95       1/31/96     January 31, 1996
                                   ------------  -------------- ----------------

Net sales                            $ 24,338       $ 68,519       $ 92,857
Cost of sales                          23,809         57,390         81,199
                                     --------       --------       --------
Gross profit                              529         11,129         11,658
Selling general and administrative                              
  expenses                              3,229          5,349          8,578
                                     --------       --------       --------
Income (loss) from operations          (2,700)         5,780          3,080
Interest expense                          644          2,605          3,249
Other expense                             801           --              801
                                     --------       --------       --------
Income (loss) before tax and                                    
  extraordinary                        (4,145)         3,175           (970)
item                                                            
Income tax expense (benefit)           (1,210)         1,300             90
                                     --------       --------       --------
Net income (loss)                    $ (2,935)      $  1,875       $ (1,060)
                                     ========       ========       ========
                                                                 
     Due to the change in  ownership  and equity  structure,  income  (loss) per
     share data for these periods cannot be presented meaningfully.

(3)  During  fiscal year ended  January 31,  1999 the Company  incurred  certain
     non-recurring charges for (i) legal defense and related costs, $3,100; (ii)
     severance  and  termination  costs,  $1,168;  (iii)  facility exit costs of
     $1,110; (iv) fees and expenses of terminated acquisitions, $800.

(4)  Represents   extraordinary  charges  of  $108,  or  $0.01  per  share,  for
     prepayment  penalties  for the year ended  January 31, 1998,  and $864,  or
     $0.24 per share,  for the  write-off of prepaid  financing  costs and early
     extinguishment  charges  for the  year  ended  January  31,  1997,  both in
     connection with early extinguishments of debt. See "Management's Discussion
     and Analysis of Financial  Condition  and Results of Operations - Liquidity
     and Capital Resources".

(5)  The  calculation of net income per common share requires the deduction from
     net  income  of  undeclared  preferred  stock  dividends.  Accumulated  but
     undeclared  preferred  stock  dividends were $132 for the fiscal year ended
     January 31, 1997.  Net income per common  share for all periods,  except as
     shown, cannot be presented  meaningfully due to the change in ownership and
     equity structure.

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

      The  following  analysis  of  the  financial   condition  and  results  of
operations  of the  Company  should be read in  conjunction  with the  Company's
Consolidated  Financial  Statements,  including the Notes thereto,  and selected
financial data of the Company  included  elsewhere in this Annual Report on Form
10-K.

General

      On April 29, 1999,  the Company  announced  that it would  explore ways of
enhancing  shareholder  value,  including  the  potential  sale of the Company's
subsidiary, NAC.

      Net sales  consist of revenues  derived  from the  overhaul  and repair of
aircraft engines, engine components and industrial turbines as well as the sales
of parts and  components.  Net sales  generally  are recorded  when  repaired or
overhauled engines and components are completed,  tested and shipped.  Net sales
of spare parts and components are recorded when parts are shipped. In 


                                       11
<PAGE>

the fiscal  years  ended  January 31,  1999,  1998 and 1997,  revenues  from the
servicing,  repair and overhaul of gas turbine  engines and aircraft  components
accounted for approximately  54.4%, 59.8% and 81.8% of net sales,  respectively,
with  revenue  from the sale of spare parts and  components  accounting  for the
remaining 45.6%,  40.2%,  and 18.2%,  respectively of net sales. The decrease in
the percentage of revenues from servicing, repair and overhaul, and the increase
in  percentage  of revenues  from the sale of spare parts and  components in the
years ended  January 31, 1999 and 1998 is due to the  acquisition  and growth of
API, which sells principally parts and components.

      During the fiscal year ended January 31, 1999, the Company  announced that
it had  initiated a plan to streamline  operations at NAC, and recorded  pre-tax
non-recurring  charges of approximately  $2.8 million in the first quarter.  The
economic impact of the  restructuring  positively  affected results beginning in
the third quarter.  Annual savings from the plan  approximated $3.0 million on a
pretax basis.

      In March 1997, the Company  completed the acquisition of API. The adjusted
purchase  price  for API was  $10.6  million  in  cash,  including  expenses  of
approximately   $0.5  million  which  were  incurred  in  connection   with  the
acquisition.  The  acquisition  was accounted  for under the purchase  method of
accounting as of the closing date.  The purchase  price,  including  acquisition
costs,  was  allocated  to the  assets and  liabilities  of API based upon their
relative  fair values.  The excess of purchase  price paid over the value of the
net assets  acquired was included in goodwill in the  accompanying  consolidated
balance sheets. The consolidated financial statements of the Company since March
5, 1997  reflect the impact of the results of  operations  of API as well as the
purchase price allocation.

      In conjunction with the acquisition,  AMR Combs purchased 10,407 shares of
API Combs Series A Cumulative  Convertible Preferred Stock, $0.001 par value, at
a price of $100 per share.  Total proceeds to the Company were $1,041,000.  This
transaction is accounted for as a minority interest in the consolidated  balance
sheets.  Dividends  of $4.00 per share are payable  quarterly  on the  preferred
stock.  Dividends  of $42,000 and $38,000  have been paid during the years ended
January 31, 1999 and 1998,  respectively,  and have been  reflected  in minority
interest  in  equity  of  its  subsidiary  in  the  consolidated  statements  of
operations.

Results of Operations

      The following table sets forth, for the periods indicated, the percentages
of the Company's net sales that certain income and expense items represent.  The
results of API are included in the  financial  information  for the fiscal years
ended January 31, 1999 and 1998 that is presented and discussed below.

<TABLE>
<CAPTION>
                                                Fiscal Year          Fiscal Year           Fiscal Year
                                                   Ended                Ended                 Ended
                                             January 31, 1999     January 31, 1998      January 31, 1997
                                             -----------------    -----------------     -----------------

<S>                                               <C>                   <C>                    <C>   
Net sales                                         100.0%                100.0%                 100.0%
Cost of sales                                      82.3                  84.9                   85.8
                                                  -----                 -----                  -----
Gross profit                                       17.7                  15.1                   14.2
Selling general and administrative expenses        14.1                   9.7                    9.5
Non-recurring charge                                4.0                    --                     --
                                                  -----                 -----                  -----
Income (loss) from operations                      (0.4)                  5.4                    4.7
Interest expense                                   (1.2)                  1.2                    3.3
Interest income                                      --                  (0.2)                    --
                                                  -----                 -----                  -----
Income (loss) before tax and extraordinary         (1.6)                  4.4                    1.4
   item                                                                                        
Income tax expense (benefit)                       (0.5)                  1.0                     --
                                                  -----                 -----                  -----
Net income (loss) before extraordinary item        (1.1)%                 3.4%                   1.4%
                                                  =====                 =====                  =====
</TABLE>


                                       12
<PAGE>

Fiscal year ended  January 31,  1999  compared to fiscal year ended  January 31,
1998

Net sales for the fiscal year ended January 31, 1999 increased to $153.7 million
from $ 153.6 million  during the fiscal year ended  January 31, 1998.  Net sales
growth of $15.7  million  at API was  offset by a decline  in net sales of $15.6
million at NAC. The decrease in net sales at NAC was due to a decline of 9.8% in
sales from engine  overhaul and repair and a 32.8% decline in the sale of parts.
NAC continued to be adversely affected by the financial deterioration in several
countries in Asia and the Pacific Rim.  During the fourth  quarter of the fiscal
year ended January 31, 1999,  NAC's revenues from repair and overhaul  increased
by 1.2% as compared to the fourth  quarter of the fiscal year ended  January 31,
1998 as the Company commenced performance under a contract with the U.S. Navy.

Costs of sales  decreased by $3.9 million,  or 3.0%, to $ 126.5 million from the
$130.4  million for the fiscal year ended  January 31, 1998.  As a percentage of
net sales, cost of sales decreased to 82.3% from 84.9% for the fiscal year ended
January 31, 1998.  The decrease in the  percentage of cost of sales to net sales
was due to the positive impact of the  restructuring and improvements in margins
at both API and NAC.

Total gross  profits  increased by $4.1 million to $27.3  million as compared to
$23.2  million  recorded  during the fiscal year ended  January 31, 1998.  Total
gross  profits  increased  to 17.7% of net sales,  as  compared to 15.1% for the
fiscal year ended January 31, 1998. The increase was due to the positive  impact
of the  restructuring  and an increase in the  proportion  of the  Company's net
sales of parts and  components  relative to net sales from  repair and  overhaul
activities.

Selling,  general and administration expenses increased $6.9 million or 47%. The
increase  is due  to the  costs  associated  with  API's  growth  including  the
operation  of API's new  facility,  additional  marketing  costs to  pursue  new
business   opportunities,   legal  and  other  costs.  In  addition,  API  is  a
distribution  and  logistics  business  and,  as is typical in such  businesses,
incurs less direct labor costs and greater selling,  general and  administrative
costs than a company  such as NAC,  which  requires  a larger  portion of direct
labor in the performance of engine repair and overhaul.

During the year, the Company recorded certain  non-recurring  charges.  Included
are the costs of  employee  severance  and  termination  at NAC,  $1.2  million,
facility exit costs,  $1.1 million,  the costs  incurred in connection  with the
terminated acquisitions, $0.8 million, and the costs recorded in connection with
the  defense of the Company and its  Directors  against  claims made by a former
director and manager, $3.1 million.

Interest  expense of $1.8 million for the fiscal year ended  January 31, 1999 is
equal to the $1.8  million  recorded  during the fiscal  year ended  January 31,
1998. The Company sweeps all cash proceeds nightly in order to minimize interest
expense.

Interest  income  decreased  by $0.4  million as interest  was  received  from a
customer in the prior year.

Income taxes  decreased by $2.2 million to a benefit of $0.7 million as compared
to a charge of $1.5  million in the fiscal  year ended  January  31,  1998.  The
decline in the tax expense reflects the tax benefit associated with the net loss
of the Company.

Net loss of $1.7 million represents a decline in income of $7.0 million from the
$5.3 million reported for the fiscal year ended January 31, 1998.

Fiscal year ended  January 31,  1998  compared to fiscal year ended  January 31,
1997

      Net sales for the fiscal  year ended  January  31,  1998  increased  $49.4
million,  or 47.4%, to $153.6 million from $104.2 million during the fiscal year
ended January 31, 1997.  The growth in net sales was due to the  acquisition  of
API and a 5.2%  increase in net sales at NAC.  The  increase in net sales at NAC
was due to a 4.2%  increase in sales from the  performance  of engine repair and
overhauls,  and a 9.8%  increase in parts  sales.  During the fourth  quarter of
fiscal 1998, the Company was adversely  impacted by the financial  downturn that
affected several  countries in Asia and the Pacific Rim. As a result of economic
conditions in these countries,  especially  Thailand,  Malaysia,  and Japan, the
Company has  experienced  a  reduction  in the level of  anticipated  inputs for
engine overhauls and sales of parts and components.  It is management's  opinion
that the situation will continue for the foreseeable future.

      Cost of sales  increased  $41.0 million,  or 45.9%, to $130.4 million from
$89.4 million  during the year ended  January 31, 1988.  The increase in cost of
sales was due  principally to the  acquisition of API, and the increase in sales
at NAC.

      Total gross profit increased to 15.1% of net sales,  compared to 14.2% for
the last  fiscal  year.  A  significant  portion of the  increase  is due to the
acquisition  of API. API is a  distribution  business and, as is typical in such
businesses,  incurs  less  direct  


                                       13
<PAGE>

labor costs than a company such as NAC that performs  engine repair and overhaul
services, which require a substantial amount of direct labor cost. Consequently,
gross profits at API are higher than those at NAC, and the addition of API gross
profits increased the Company's overall gross profit percentage.

      Selling,  general and administration  expenses increased $4.9 million,  or
50.1%. This was due to the inclusion of API, offset by a reduction in expense at
NAC during the fiscal year ended  January 31, 1998  compared to the prior fiscal
year.  NAC's results for the fiscal year ended January 31, 1997 were  negatively
impacted by a non-cash charge of $1.5 million for compensatory stock options and
a $0.2 million  charge for bonus.  These  charges  were not incurred  during the
fiscal year ended January 31, 1998.

      Interest  expense  decreased from the prior fiscal year by $1.6 million or
46.9%.  The  decrease  was due  principally  to the $22.6  million  reduction in
outstanding debt that was paid down from the proceeds of the Offering.

      Interest  income  increased  $0.4  million  from the prior  fiscal year as
interest was received from one of the Company's customers.

      During the fiscal year ended  January 31,  1998,  the Company  incurred an
extraordinary charge, net of associated income tax benefits, of $0.1 million for
prepayment  penalties  associated  with the early  extinguishment  of debt. This
compares to a net extraordinary charge of $0.9 million in the fiscal year ending
January 31, 1997 which also was due to an early extinguishment of debt.

      Income taxes for the year ended January 31, 1998  increased  $1.5 million.
The increase  reflects the profitability of the Company offset by a reduction in
the valuation allowance.

      Net income  increased  $4.7  million to $5.3  million  for the fiscal year
ended  January 31,  1998,  compared to net income of $0.6 million for the fiscal
year ended January 31, 1997.

Liquidity and Capital Resources

      The Company's  cash used in operations  for the fiscal years ended January
31, 1999, 1998 and 1997 was $(3.0) million,  $(2.2) million, and $(3.7) million,
respectively.  Cash used for  investing  during  these same  periods,  including
acquisitions,   was  $(6.0)  million,   $(13.0)  million,  and  $(1.3)  million,
respectively,  while cash  generated by financing  activities  was $8.9 million,
$15.4 million, and $5.1 million, respectively.

      First Aviation's aggregate capital expenditures for the fiscal years ended
January  31,  1999,  1998 and 1997 were $6.0  million,  $2.4  million,  and $1.0
million,  respectively,  exclusive  of  acquisition  costs  of  API.  Management
anticipates  that  capital  expenditures  for  fiscal  year 2000 will  aggregate
approximately  $5.7  million,  exclusive  of any  costs of  acquisitions.  These
expenditures will be used to fund the purchases of tooling, test equipment,  and
data processing equipment, the construction of a test cell and the expansion and
modernizations  of  the  Company's  distribution  and  logistics   capabilities.
Management  expects  to fund  these  capital  expenditures  from cash flows from
operations and from borrowings.

     On April 23, 1998, API entered into a one year $10 million revolving credit
facility  with Fleet  National  Bank.  Advances  under the credit  facility bear
interest based upon certain market rates plus a premium.  Borrowings are limited
to specific  percentages of eligible accounts receivable and inventories at API.
The credit agreement contains a number of covenants,  including  restrictions on
mergers,  consolidations  and  acquisitions,  the  incurrence  of  indebtedness,
transactions with affiliates,  the creation of liens, and limitations on capital
expenditures.  The credit agreement also requires API to maintain minimum levels
of net worth and  specified  interest  expense  coverage  ratios,  and currently
restricts   the  payment  of  dividends.   Substantially   all  of  API's  trade
receivables,  inventory  and  equipment  are  pledged  as  collateral  under the
revolving  credit  facility.  Borrowings  under this  facility  amounted to $8.9
million at January  31,  1999 at an interest  rate of 6.4%.  On April 28,  1999,
Fleet  National Bank extended the term of the revolving  credit  facility  until
July 22, 1999 under the prevailing  terms and conditions and committed to extend
the line through February 1, 1999.

      On March 5, 1997,  the Company  completed  an initial  public  offering of
3,900,000  shares of common stock,  $0.01 par value per share (the  "Offering").
The Company received net proceeds of approximately $34.5 million after deducting
expenses of  approximately  $4.5 million.  The Company utilized the net proceeds
from the Offering to complete the  acquisition of API for $10.6 million in cash,
to pay down $22.6 million of the credit  facility and term loans of NAC, and for
general  working  capital  needs.  The Company also retired the $1.8 million 15%
subordinated note due to Canpartners  Investments IV, LLC  


                                       14
<PAGE>

("Canpartners"),  and paid $231,000 of accumulated  and unpaid  dividends on the
Company's  Series A Preferred  Stock.  The preferred  was converted  into common
stock  as part  of the  Offering.  In  connection  with  the  retirement  of the
subordinated  note, the Company  recorded an  extraordinary  after tax charge of
$108,000 for prepayment penalties.

      In  June  1996,  NAC  entered  into  a  $40.0  million  credit  agreement.
Borrowings  under this credit facility were used to retire the outstanding  debt
under NAC's  then-existing  $30.0 million  revolving  credit line and term loan.
Additionally,  the new facility  provided  funds needed to finance the Company's
expansion  plans by  enabling  the  Company  to acquire  an  adequate  supply of
inventory,  and to finance  receivables.  Borrowings  are  limited  to  specific
percentages  of  eligible  accounts   receivable  and  inventories  at  NAC.  In
connection with the refinancing, the Company recorded an extraordinary after tax
charge of $864,000 for prepayment penalties and the write-off of the unamortized
balance of loan fees.

      Advances under the revolving  portion of the credit facility bear interest
at LIBOR plus 3.0%. The revolving portion of the credit facility also allows for
the issuance of letters of credit up to an aggregate of $2.5 million. At January
31, 1999, borrowings under the revolving portion of the credit facility amounted
to $14.0 million and carried an interest rate of 7.45%. The original term of the
credit  facility is through May 15, 1999. A termination of the facility prior to
that date requires the payment of a prepayment  penalty of $400,000.  Thereafter
the  agreement   automatically  renews  for  additional  one-year  periods.  The
agreement automatically renewed on February 16, 1999.

      The  credit   agreement   contains  a  number  of   covenants,   including
restrictions  on mergers,  consolidations  and  acquisitions,  the incurrence of
indebtedness,  transactions with affiliates,  the creation of liens, limitations
on capital  expenditures,  and payment of management  fees. The credit agreement
also requires NAC to maintain  minimum levels of net worth,  specified  interest
expense coverage ratios and minimum backlog levels, and currently  restricts the
payment of  dividends  from NAC to the  Company  without the  lender's  consent.
Substantially  all of NAC's assets are pledged as collateral under the revolving
line of credit.

      At January 31, 1999,  availability  under the revolving credit  facilities
was approximately $20 million.

      In connection with the API acquisition,  First Aviation, API Combs and AMR
Combs entered into a Stockholders  Agreement.  Pursuant to this  agreement,  AMR
Combs  agreed  that it would not sell its shares of the  Preferred  Stock or the
shares  of  API  Combs  common  stock  into  which  such  Preferred  shares  are
convertible  (collectively the "API Acquisition Shares") for a minimum period of
three years. API Combs has the right to redeem the API Acquisition Shares at any
time.  AMR  Combs  has the  right to cause the  Company  to  repurchase  the API
Acquisition  Shares  commencing  three  years  after  the  closing  of  the  API
acquisition.  The redemption  price is equal to the fair market value of the API
Acquisition Shares as determined by an independent  appraisal.  The Stockholders
Agreement also contains  certain other rights,  including:  (i) a right of first
refusal on the part of First  Aviation  with respect to any proposed sale of the
API Acquisition Shares, (ii) the right of First Aviation to require AMR Combs to
participate,  on a pro rata basis,  with it in the sale of the capital  stock of
API  Combs  to a  third  party,  (iii)  the  right  of AMR  Combs  to  elect  to
participate,  on a pro rata basis, in the sale of the capital stock of API Combs
to a third party, and (iv) piggyback and demand  registration  rights granted to
AMR Combs with respect to the API Acquisition  Shares.  The demand  registration
rights  are not  exercisable  until  three  years  after the  closing of the API
acquisition,  and, if API Combs has not previously closed an underwritten public
offering of its common stock at the time AMR Combs elects to exercise its demand
registration  rights,  API Combs may elect to treat the demand as an exercise by
AMR Combs of its put option  with  respect to the API  Acquisition  Shares.  The
Company  has no plans to cause API Combs to  conduct  a public  offering  of its
securities.

      The Company  believes  that its cash flow from  operations,  combined with
borrowings  available  under  its  existing  and new  lines of  credit,  will be
sufficient  to meet its current and  anticipated  cash  operating  requirements,
including  scheduled  interest and  principal  payments,  capital  expenditures,
preferred dividend requirements and working capital needs through the end of the
fiscal year ending January 31, 2000. The Company currently is in compliance with
all of its debt covenants.

      Year 2000.

      The Company is currently  working to resolve the  potential  impact of the
Year 2000 on the  processing  of  date-sensitive  information  by the  Company's
computerized  information  systems.  The Year  2000  problem  is the  result  of
computer  programs  being written using two digits  (rather than four) to define
the  applicable  year.  Any of the  Company's  programs  and  systems  that have
time-sensitive  software may be unable to interpret  dates beyond the year 1999.
This could result in miscalculations and/or system failures, causing disruptions
of operations controlled by such systems or devices.


                                       15
<PAGE>

      The  Company  and  each  of  its  operating  subsidiaries  have  conducted
comprehensive  reviews of their systems and have developed  plans to address any
possible  issues  related  to the  impact  of the  Year  2000  problem  on  both
information  technology ("IT") and non-IT systems (e.g.,  embedded  technology).
These  plans  address  the Year 2000 issue in  multiple  phases,  including  (i)
determining an initial inventory of the Company's systems,  equipment,  vendors,
customers  and  third  party  administrators  that may be  vulnerable  to system
failures or processing  errors as a result of Year 2000 issues,  (ii)  assessing
and  prioritizing of inventoried  items to determine risks associated with their
failure to be Year 2000  compliant,  (iii)  testing of systems and  equipment to
determine Year 2000 compliance,  and (iv)  remediating and implementing  systems
and equipment.  For those systems which the Company determines are not currently
Year 2000 compliant,  implementation  of the required  changes is expected to be
completed during the next fiscal year.

      As of January 31, 1999 all critical hardware and software systems utilized
by the Company had been tested and/or  verified as either Year 2000 compliant or
appropriate remediation was taken or will be taken to effect compliance. Certain
non-critical  software systems were determined not to be Year 2000 compliant and
had been or will be modified or converted to compliant  systems.  Conversion  of
additional  non-critical  systems is in  process.  Testing  systems  utilized to
verify  compliance  include  the  posting  to the  systems of a date on or after
January 1, 2000 as though the date were effective. The Company has tested nearly
all  of  its  critical  IT  and  non-IT   systems.   Any  necessary   additional
modifications  or  replacements  are scheduled to be completed  during the first
three quarters of fiscal year 2000.

      The  Company  is in the  process of  contacting  its major  suppliers  and
vendors  to  assess  their  status  relating  to  Year  2000  readiness   and/or
compliance, and the potential impact on operations if such third parties are not
successful in ensuring  that their  systems are Year 2000  compliant in a timely
manner. The Company could suffer potential business  interruptions  and/or incur
costs,  damages  or losses  related  thereto  if other  third  parties,  such as
governmental agencies (e.g., Federal Aviation Administration), are not Year 2000
compliant.  The Company is unable to  determine  at this time whether it will be
materially  affected  by the failure of any of its  suppliers,  vendors or other
third parties to be Year 2000 compliant.

      A failure by the Company,  its major  suppliers  or vendors,  or any third
party with which the Company  interacts,  to resolve a material  Year 2000 issue
could result in the  interruption  in, or failure of,  certain  normal  business
activities or operations and could materially and adversely affect the Company's
financial  condition,  results of  operations  and cash  flows.  The  Company is
currently  assessing those scenarios in which  unexpected  failures could have a
material  adverse  effect on the Company and  anticipates  that it will  develop
contingency plans, as deemed appropriate,  designed to deal with such scenarios.
Based on current  plans and  assumptions,  the Company  does not expect that the
Year 2000 issue will have a material  adverse  impact on the Company as a whole.
Due to the general uncertainty inherent in the Year 2000 issue,  however,  there
can be no assurance  that all Year 2000 issues will be foreseen and corrected on
a  timely  basis,  or that no  material  disruption  to the  Company's  business
operations  will occur.  Further,  the Company's  expectations  are based on the
assumption that there will be no general failure of external local,  national or
international systems (including power, communications,  postal, transportation,
or financial systems) necessary for the ordinary conduct of business.

      Costs associated with the Company's Year 2000 compliance effort, including
consulting  costs and costs  associated  with internal  resources used to modify
existing  systems  in order to  achieve  Year 2000  compliance,  are  charged to
expense as incurred.  Management estimates that the expenditures relating to the
Company's Year 2000 compliance effort will total approximately $400,000. Through
January 31, 1999 management estimates that approximately $200,000 has been spend
addressing  this issue.  The remainder is expected to be spent over the next two
to three quarters.  The Company does not separately  track internal costs of the
Year 2000 compliance  effort. The anticipated costs of the project and the dates
on which the Company believes it will complete the Year 2000  modifications  and
assessments  are  based on  management's  best  estimates,  which  were  derived
utilizing  numerous  assumptions  of  future  events,  including  the  continued
availability  of  certain  resources.  There  can  be no  guarantee  that  these
estimates will be achieved and actual results could differ materially from those
anticipated.  Specific  factors  that  might  cause  such  material  differences
include,  but are not limited to, the availability and cost of personnel trained
in this area and the  ability  to  locate  and  correct  all  relevant  systems.
Management  does not expect the financial  impact of making the required  system
changes to be material to the Company's overall consolidated financial position.


                                       16
<PAGE>

Inflation

      The  Company  does not  believe  that the  relatively  moderate  levels of
inflation which have been  experienced in the United States has had or will have
a significant effect on its revenues or operations.

Item 7A.  Quantative and Qualitative Disclosures about Market Risks

      Trade receivables are denominated in U.S. dollars,  and therefore,  do not
carry any risk  relating  to foreign  currency  fluctuations.  Risk  relating to
receivables  arising from export sales is limited  through the use of letters of
credit or with the purchase of foreign credit insurance.

      Borrowings  of the Company are  denominated  in U.S.  dollars.  Management
believes that the carrying amount of the Company's borrowings  approximates fair
value because the interest rates are variable and reset frequently.

Item 8.  Financial Statements and Supplementary Data

      See Index to Financial Statements, which appears on page F-1 hereof.

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure

      None.


                                       17
<PAGE>

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

         The executive officers and directors of the Company are as follows:

Name                     Age    Positions
----                     ---    ---------
Aaron P. Hollander       42     Chairman of the Board

Michael C. Culver        48     President, Chief Executive Officer and Director

John A. Marsalisi        43     Chief Financial Officer, Secretary and Director

Gerald E. Schlesinger    54     Senior Vice President

Philip C. Botana         54     Vice President

Joshua S. Friedman       43     Director

Robert L. Kirk           69     Director

Charles Ryan             48     Director

      Aaron P. Hollander has served as Chairman of the Company since March 1995.
Mr.  Hollander  became a director of NAC in June 1995.  In 1985,  Mr.  Hollander
co-founded  First  Equity  Development  Inc.  ("First  Equity"),   an  aerospace
investment and advisory firm, and has served as Co-Managing  Director since that
time.

      Michael C. Culver has served as a Director and Chief Executive  Officer of
the Company  since March 1995.  Mr. Culver became a director of NAC in June 1995
and Chairman in August 1996. In 1985, Mr. Culver co-founded First Equity,  along
with Mr. Hollander, and has served as Co-Managing Director since that time.

      John A. Marsalisi has served as a Director and Chief Financial Officer and
Secretary  of the  Company  since  March  1995.  He has been an officer of First
Equity since 1996.  From 1991 to May 1996,  Mr.  Marsalisi was Director of Taxes
for Omega  Engineering.  Prior to joining Omega  Engineering,  Mr. Marsalisi was
Director  of Taxes  for the  Entrepreneurial  Services  Group of Ernst & Young's
Stamford, Connecticut office. Mr. Marsalisi is a Certified Public Accountant.

      Gerald E. Schlesinger  became Senior Vice President upon his employment by
the Company in June 1997. From 1993 to 1997, Mr. Schlesinger was affiliated with
the SK Group  and  served  as its  Managing  Principal.  The SK  Group  provides
consulting and management  advisory services to its clients.  Prior to 1993, Mr.
Schlesinger served as Executive Vice-President, CFO and CIO for Butler Aviation.

      Philip  C.  Botana  became a Vice  President  upon his  employment  by the
Company in June 1998.  Prior to joining the Company,  Mr.  Botana served as Vice
President of Operations  for  Bombardier  Aerospace-Business  Jet Solutions from
July 1997.  From 1994 to 1997, Mr. Botana was the President of Botana & Company,
an  aviation  consulting  firm.  Prior to 1994,  Mr.  Botana  was a Senior  Vice
President of Signature Flight Support.

      Joshua S. Friedman  became a Director in March 1997. Mr. Friedman has been
an executive  officer of Canyon Capital  Management  L.P. and various related or
predecessor  entities  ("Canyon  Capital") since their inception in 1990. Canyon
Capital is a  merchant  banking  and money  management  firm which Mr.  Friedman
co-founded  and which is an  affiliate  of  Canpartners,  a former  subordinated
creditor and warrant holder of the Company.  From 1984 to 1990, Mr. Friedman was
an Executive Vice President and Co-Director of Capital Markets of Drexel Burnham
Lambert Incorporated.  Mr. Friedman currently serves as a member of the Board of
Directors of Sunterra Resorts, Inc., a publicly traded developer and operator of
timeshare   resorts,   and  several  privately  held  companies  and  charitable
organizations.

      Robert L. Kirk became a Director in March 1997. In 1998,  Mr. Kirk retired
as the Chairman of British Aerospace Holdings,  Inc., an international aerospace
corporation.  Mr. Kirk had been Chairman since 1992. Mr. Kirk served as Chairman
and Chief Executive Officer of CSX Transportation, Inc., the railroad subsidiary
of CSX  Corporation,  from 1990 to 1992,  and 


                                       18
<PAGE>

was Chairman and Chief  Executive  Officer of  Allied-Signal  Aerospace Co. from
1986 to  1989.  Mr.  Kirk is a  director  of  United  Defense  L.P.,  a  defense
contractor, and Harsco Corporation, a diversified industrial company.

     Charles B. Ryan became a Director in March 1997.  Since 1986,  Mr. Ryan has
been the  President  and  Chief  Operating  Officer  of  Nordam  Group  Inc.,  a
manufacturer  and overhaul  agency of airframe  components,  nacelles and thrust
reversers.  Mr. Ryan has been  associated with Nordam Group Inc. since 1976. Mr.
Ryan is also a Director of F&M Bank & Trust Company.

Board Committees

      The Board of Directors has established an Audit Committee,  a Compensation
Committee and an Executive Committee. The Audit Committee is composed of Messrs.
Hollander  and Ryan.  The Audit  Committee  reviews the  Company's  annual audit
results  and  meets  with the  Company's  independent  auditors  to  review  the
Company's internal controls and financial management practices. The Compensation
Committee is composed of Messrs. Hollander and Kirk. The primary function of the
Compensation  Committee is to review and make  recommendations to the Board with
respect to  compensation  of the  Company's  officers,  including  bonuses.  The
Company's Executive Committee is composed of Messrs.  Culver and Hollander.  The
Executive  Committee has and may exercise all of the powers and authority of the
Board of Directors  in the  management  of the  business  affairs of the Company
except  that it does not  have  the  power  and  authority  to:  (i)  amend  the
Certificate of Incorporation  or Bylaws of the Company;  (ii) adopt an agreement
of merger or  consolidation  or to recommend to stockholders  the sale, lease or
exchange of all or substantially all of the Company's property and assets; (iii)
recommend to  stockholders  a dissolution  of the Company or a revocation of the
dissolution;  or (iv) declare a dividend or  authorize  the issuance of stock of
the  Company  unless  expressly  authorized  by a  resolution  of the  Board  of
Directors.

Item 11.  Executive Compensation

                           Summary Compensation Table

      The following  table sets forth certain  information  for the fiscal years
ended January 31, 1999, 1998 and 1997, regarding compensation awarded to, earned
by,  or paid to the  Company's  Chief  Executive  Officer  and each of the other
executive officers of the Company whose compensation exceeded $100,000.

<TABLE>
<CAPTION>
                                                                       
                                                                       
                                                                      Long Term   
                                                Annual Compensation   Compensation
                                                -------------------   ------------
                                                                      Securities
                                                                      Underlying
Name and Principal Position        Year          Salary      Bonus    Options
---------------------------        ----          ------      -----    ------------
<S>                             <C>             <C>          <C>      <C>   
Philip C. Botana                FYE 1/31/99       $87,500                25,000
Vice President                  FYE 1/31/98           N/A            
                                FYE 1/31/97           N/A            
                                                                     
Michael C. Culver               FYE 1/31/99      $180,000            
Chief Executive Officer         FYE 1/31/98      $180,000            
                                FYE 1/31/97       $23,000            
                                                                     
John A. Marsalisi               FYE 1/31/99      $155,000            
Chief Financial Officer         FYE 1/31/98      $155,000    $20,000      5,000
                                FYE 1/31/97       $20,000                40,000
                                                                     
Gerald E. Schlesinger           FYE 1/31/99      $190,000            
Senior Vice President           FYE 1/31/98       $99,167    $40,000     60,000
                                FYE 1/31/97           N/A            
</TABLE>


                                       19
<PAGE>

                      Option Grants in the Last Fiscal Year

      The  following  table sets forth  information  regarding the stock options
that were granted  during the last fiscal year to each of the officers  named in
the Summary Compensation Table.

                                Individual Grants
<TABLE>
<CAPTION>
                                           Percent of                                       
                         Number of         Total Options                                     Grant Date 
                         Securities        Granted to                                        Present 
                         Underlying        Employees in     Exercise of                      Value Per
Name                     Options Granted   Fiscal year      Base Price    Expiration date    Share (1)
----                     ---------------   -----------      ----------    ---------------    -----------
<S>                        <C>              <C>               <C>               <C>            <C>  
Philip C. Botana           25,000           28.3%              $6               2008           $1.90
Michael C. Culver            None            N/A              N/A                N/A             N/A
John A. Marsalisi           5,000            5.7%              $6               2008           $1.90
Gerald E. Schlesinger      10,000           11.3%              $6               2008           $1.90
</TABLE>

(1)   Present value on the grant date was determined by using the  Black-Scholes
      option-pricing model. The model as applied used the applicable grant date,
      the exercise  price as shown in the table and the fair market value of the
      Company's  Common  Stock  on the  grant  date.  The  model  assumed  (i) a
      risk-free  return of 6.0%,  (ii) a dividend  yield of 0%, (iii) an average
      volatility  factor of 0.516 and (iv) the  exercise  of all  options on the
      final day of their 10-year terms. No discount from the  theoretical  value
      was taken to reflect the  waiting  period  prior to  vesting,  the limited
      transferability  of the options,  and the  likelihood of the options being
      exercised  in  advance  of the  final  day of  their  terms.  There  is no
      assurance  that the values  actually  realized  upon the exercise of these
      options  will be at or near the present  values  shown in the tables as of
      the date of grant. The Black-Scholes option pricing model is a widely used
      mathematical  formula  for  estimating  option  values  that  incorporates
      various  assumptions that may not hold true over the 10-year life of these
      options. For example, assumptions are required about the risk-free rate of
      return as well as the  dividend  yield and the  volatility  of the  Common
      Stock over the 10-year period.  Also, the Black-Scholes model assumes that
      an option  holder  can sell the  option at any time at a fair  price  that
      includes a premium for the remaining time value of the option. However, an
      optionee can realize an option's value before  maturity only by exercising
      and thereby  sacrificing the option's  remaining time value.  Although the
      negative  impact of this and other  restrictions on the value of this type
      of option is well  recognized,  there is no accepted  method for adjusting
      the  theoretical  option value for them. The values set forth in the table
      should  not be  viewed  in any way as a  forecast  of  performance  of the
      Company's  Common  Stock,  which will be  influenced  by future events and
      unknown factors.

               Aggregated Option Exercises in the Fiscal Year and
                         Fiscal Year-End Option Values

      The following table sets forth the aggregate positions in stock options at
January 31, 1999 held by each of the officers named in the Summary  Compensation
Table.

                          Number of Securities         Value of Unexcercised
                         Underlying Unexercised        In-The-Money Options
                        Options at Fiscal Year End       at Fiscal Year End
      Name               Exercisable/Unexercisable   Excercisable/Unexcercisable
      ----              --------------------------   ---------------------------
Philip C. Botana               None/25,000                      N/A
Michael C. Culver               None/None                       N/A
John A. Marsalisi             20,000/25,000                     N/A
Gerald E. Schlesinger         12,500/47,500                     N/A


                                       20
<PAGE>

Employment   Contracts,   Termination   of  Employment  and  Change  in  Control
Arrangements

      In December 1996, First Aviation  entered into employment  agreements with
Michael C.  Culver  and John A.  Marsalisi.  Mr.  Culver's  and Mr.  Marsalisi's
employment agreements are each for terms of three years which expire on December
31,  1999,  and provide for an annual  base  salary of  $180,000  and  $155,000,
respectively.  In July 1997, First Aviation entered into a three-year employment
agreement with Gerald E. Schlesinger with a base salary of $190,000.  On June 1,
1998, the Company entered into a three year employment  agreement with Philip C.
Botana with a base salary of $150,000. Each agreement provides for base salaries
to be  adjusted  at the  discretion  of the  Board  of  Directors.  Each  of the
employment  agreements  provides  for:  (i)  benefits  which are also  generally
available to other employees of First Aviation in similar employment  positions,
(ii)  reimbursement of reasonable  business related expenses,  (iii) three weeks
paid vacation a year, and (iv) a severance  payment,  upon  termination  without
cause or for death or disability,  equal to six months base salary.  Each of the
agreements may be terminated by First Aviation without cause at any time upon 30
days notice or by the executive for any reason upon 30 days notice.

      Mr. Culver,  Mr. Marsalisi,  Mr.  Schlesinger and Mr. Botana each have, as
part of their respective employment agreements, agreed not to compete with First
Aviation for a period of six months following the end of his employment by First
Aviation  and not to solicit  employees  or  customers  of First  Aviation for a
period of six months following the end of his employment with First Aviation.

Compensation Committee Interlocks and Insider Participation

      No member of the Compensation  Committee is or has been an employee of the
Company.

Director Compensation

      Each of the  Company's  non-employee  directors  is entitled to receive an
annual fee of  $20,000.  The fees are  payable  quarterly  in cash or stock.  No
director  of the Company  receives  any fees for  attendance  at meetings of the
Board of  Directors  or  committees  thereof,  although  members of the Board do
receive reimbursement for actual expenses of such attendance. Messrs. Hollander,
Kirk and Ryan have directed that their directors' fees are to be paid in stock.


                                       21
<PAGE>

Item 12.  Security Ownership of Certain Beneficial Owners and Management

      The following table sets forth certain  information  regarding  beneficial
ownership of the Company's common stock as of April 23, 1999, (i) by each person
who is known by the Company to own  beneficially  5% or more of the  outstanding
shares of common stock, (ii) each of the Company's directors,  (iii) each of the
executive  officers  named  in the  Summary  Compensation  Table,  and  (iv) all
directors  and  executive  officers  as a  group.  Except  as  indicated  in the
footnotes  to the table,  the  persons  named in the table have sole  voting and
investment   power  with  respect  to  all  shares  of  common  stock  shown  as
beneficially owned by them, subject to community property laws where applicable,
and are located at 15 Riverside Avenue Westport, Connecticut 06880.


Name and Address                        Amount and Nature of
of Beneficial Owner                    Beneficial Ownership    Percent of Class
-------------------                    --------------------    ----------------
First Equity Group Inc. (1)                  3,747,018                41.6%
Aaron P. Hollander (1)                       3,747,018                41.6%
Michael C. Culver (1)                        3,747,018                41.6%
The Wynnefield Group (2)
     One Penn Plaza, Suite 4720
     New York, NY  10119                     1,586,792                17.6%
Canpartners Investments IV, LLC (3)          
     9665 Wilshire Boulevard
     Suite 200
     Beverly Hills, California 90212         1,293,335                14.4%
Wellington Management Company, LLP (4)       
     75 State Street                         
     Boston, MA  02109                         882,000                 9.8%
John A. Marsalisi                                8,062                    *
Gerald E. Schlesinger                              983                    *
     Aircraft Parts International
     3778 Distriplex Drive North
     Memphis, TN  38118
Philip C. Botana
     Aircraft Parts International
     3778 Distriplex Drive North
     Memphis, TN  38118                          1,000                    *
Joshua S. Friedman (5)                              --                    *
Robert L. Kirk                                  10,803                    *
Charles B. Ryan                                 45,353                    *
All directors and executive
     officers as a group (9 persons)         3,809,849                42.4%

* less than 1%

      (1)   Aaron P. Hollander and Michael C. Culver own, in the aggregate,  all
            of the outstanding shares of First Equity Group Inc.
      (2)   Based upon a Schedule  13D dated,  April 15, 1999 and the  Company's
            knowledge,  The  Wynnefield  Group  is  composed  of the  Wynnefield
            Partners  Small  Cap  Value,  L.P.,  Channel  Partnership  II  L.P.,
            Wynnefield  Small Cap Value Offshore Fund,  Ltd., and the Wynnefield
            Small Cap Value, L.P. I.
      (3)   Based upon a Schedule 13G dated  February  12,1998 and the Company's
            knowledge,   Canpartners   Incorporated  is  a  Managing  Member  of
            Canpartners.  Mr.  Friedman,  Mitchell R. Julis and R.  Christian B.
            Evenson  are the sole  shareholders  and  directors  of  Canpartners
            Incorporated  and such individuals may be deemed to share beneficial
            ownership of the shares shown as owned by Canpartners.  Such persons
            disclaim beneficial ownership of such shares.
      (4)   Based upon a Schedule 13G dated  January 13, 1998 and the  Company's
            knowledge
      (5)   Excludes  1,293,335  shares  shown  as  owned  by  Canpartners.  Mr.
            Friedman is a Vice-President of Canpartners and is a shareholder and
            director  of  Canpartners   Incorporated,   a  Managing   Member  of
            Canpartners, and as such may be deemed to have voting and investment
            power  over such  shares.  Mr.  Friedman  disclaims  any  beneficial
            ownership of such shares.

            Section 16 (a) Beneficial Ownership Reporting Compliance


                                       22
<PAGE>

      Section 16 (a) of the  Exchange  Act  requires  the  Company's  directors,
executive  officers  and ten percent  shareholders  to file  initial  reports of
ownership and reports of changes in ownership of the Company's common stock with
the Securities and Exchange  Commission.  Directors,  executive officers and ten
percent  shareholders  are  required to furnish  the Company  with copies of all
Section 16 (a) forms that they file.  Based upon a review of these filings,  the
Company  believes that all filings were made on a timely basis during the fiscal
year ended January 31, 1999.

Item 13.  Certain Relationships and Related Transactions

     In March 1999, a jury decided in favor of the Company in litigation brought
by a former director and manager of the Company,  initiated in June 1997 against
the Company,  National  Airmotive  Corporation,  Aaron P. Hollander,  Michael C.
Culver,  First Equity  Development  Inc. ("First Equity") and First Equity Group
Inc.  During the quarter  ended  January 31,  1999,  the  Company,  accrued $3.1
million  for the costs of  defending  itself  and its  Directors  against  these
claims.  The accrual  includes  legal fees  incurred  through  January 31, 1999,
completion of the trial, expert testimony, out-of-pocket costs, and the costs of
an appeal.  The Company is pursuing  recovery of these costs in accordance  with
the terms of a Directors and Officers  Insurance Policy. The amount of recovery,
if any, is not  ascertainable  at this time.  Any recovery  will be reflected in
future periods. See Item 3 - "Legal Proceedings".

     On December 20, 1996,  the Company and First Equity,  an affiliate of First
Equity Group,  entered into an agreement  allocating  potential  investment  and
acquisition  opportunities  in the global  aircraft  engine  repair and overhaul
market. Pursuant to the agreement,  First Equity agreed that commencing with the
consummation of the Offering, neither First Equity nor any of its majority-owned
subsidiaries  will, as a principal,  consummate  any  acquisition  of a majority
interest in any business  that is engaged in the repair and overhaul of military
and commercial aircraft engines anywhere in the world (a "Covered Acquisition"),
without  first  notifying  the  Company  and  providing  the  Company  with  the
opportunity to choose to effect the Covered Acquisition for its own account. The
Company's decision as to whether to effect the Covered  Acquisition will be made
by the directors of the Company that have no affiliation with First Equity.  The
agreement  will  remain in effect  for a  five-year  term,  subject  to  earlier
termination  in the event First  Equity  reduces its  ownership  interest in the
Company to less than 10% of the Company's  outstanding  voting  securities.  The
agreement  does not apply to any  proposed  acquisition  by First  Equity of any
business that generates less than 15% of its aggregate net sales from the repair
and overhaul of military and commercial  aircraft  engines,  nor to any advisory
services performed by First Equity on behalf of third parties.

      During  the  quarter  ended  October  31,  1998,  the  Company,  upon  the
authorization of the independent members of the Board of Directors, entered into
an  advisory  agreement  with a related  party,  First  Equity.  Pursuant to the
agreement,  First  Equity is to provide the  Company  investment  and  financial
advisory  services  relating  to  potential  acquisitions  and  other  financial
transactions.  The agreement runs through February 1, 2000 but may be terminated
by either party upon 30-days written notice to the other. Under the terms of the
agreement,  the  Company  will  pay a fee to  First  Equity  for the  successful
completion of certain transactions (the "Success Fee"), and will reimburse First
Equity for its  out-of-pocket  expenses.  The amount of the  Success Fee will be
established  by the  independent  members of the Board of Directors  and will be
dependent upon a variety of factors, including, but not limited to, the scope of
the  services  to be  provided,  the  size  and  type  of  acquisition,  and the
successful  completion of a transaction.  The agreement  requires the Company to
pay First Equity a $30,000 monthly  retainer  effective  February 1, 1998, which
can be  applied  as a  credit  against  the  Success  Fee,  subject  to  certain
limitations.  During the year ended  January 31,  1999,  the Company  paid First
Equity retainer fees totaling $360,000,  all of which can be applied against the
Success Fee.

      The Company subleases from First Equity approximately 2,000 square feet of
office space in Westport,  Connecticut.  The  sublease,  which became  effective
April 21, 1997, is for a period of ten years,  and is cancelable by either party
with six months notice. The Company has the option to renew the sublease for two
additional  five-year  periods.   Monthly  payments  under  this  sublease  were
approximately $8,700 and $5,000 respectively, for the fiscal years ended January
31, 1999 and 1998.

      The Company  believes  that the terms of the  advisory  agreement  and the
sublease  agreement  between  the  Company  and  First  Equity  are at  least as
favorable  as the terms  which would have been  obtained by the Company  from an
unaffiliated third-party.


                                       23
<PAGE>

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)(1)    Financial Statements and Schedules

          See  Index  to  Consolidated  Financial  Statements,  which appears on
          Page F-1 hereof

   (2)    Financial Statement Schedule II - Valuation and  Qualifying  Accounts,
          which appears on Page F-24 hereof.

(b)       Form 8-K
          No reports on Form 8-K were filed by the  registrant during the fourth
          quarter of fiscal 1999.

(c)       Exhibits

Exhibit
Number                       Description of Exhibit

3.1+        Restated Certificate of Incorporation of the Company

3.2+        Restated Bylaws of the Company

10.1+       Form of Director  Indemnification  Agreement between the Company and
            each of its directors

10.2+       Loan and Security Agreement, dated June 13, 1996, by and between NAC
            and Fleet Capital Corporation

10.3+       Amendment Number One to Loan and Security Agreement, dated September
            1, 1996, by and between NAC and Fleet

10.9+       Asset  Purchase  Agreement,  dated November 25, 1996, by and between
            AMR Combs and API Combs

10.10+      Authorized  Maintenance  Center Agreement,  effective as of November
            14,  1994,  by and  between NAC and Allison  Engine  Company  (Model
            T56/501)

10.12+      Employment Agreement,  dated as of December 20, 1996, by and between
            John Marsalisi and the Company

10.14+      Stock Incentive Plan

10.15+      Employee Stock Purchase Plan

10.16+      Lease,  dated  January 23, 1991,  by and between NAC and the City of
            Oakland (main building lease)

10.17+      First  Supplement to lease,  dated November 22, 1991, by and between
            NAC and the City of Oakland (main building lease)

10.18+      Lease,  dated  January 23, 1991,  by and between NAC and the City of
            Oakland (test cells lease) Energy Resources, as amended

10.20+      Employment Agreement,  dated as of December 20, 1996, by and between
            Michael C. Culver and the Company

10.21+      Investment  Advisory  Services  Agreement  Relating to the API Combs
            Acquisition,  dated as of September  30, 1996,  by and between First
            Equity and First Aviation

10.22+      Investment  Advisory  Services  Agreement  Relating to the Offering,
            dated as of  September  30,  1996,  by and between  First Equity and
            First Aviation


                                       24
<PAGE>

10.23+      Letter,  dated as of December 20, 1996,  by and between First Equity
            and First Aviation regarding pursuit of acquisition opportunities

10.24+      Amended and  Restated  Registration  Rights  Agreement,  dated as of
            February 21, 1996, by and between the Company and FAI

10.27+      Authorized  Maintenance  Center Agreement,  effective as of November
            30, 1994, by and between NAC and Allison Engine Company (Model 250)

10.28+      Authorized  Maintenance  Center Agreement,  effective as of December
            31,  1995,  by and  between NAC and Allison  Engine  Company  (Model
            570/571)

10.29+      Registration Rights Agreement, dated as of February 21, 1997, by and
            between the Company and Canpartners

10.30+      Sublease  Agreement,  dated as of December 31, 1996,  between  First
            Equity and the Company

10.32f      Letter,  dated as of November 13, 1997 by and between Allison Engine
            Co. and National  Airmotive  Corporation  regarding the extension of
            the A250 Authorized Maintenance Agreement until March 31,1998

10.33f      Letter,  dated as of November 14, 1997 by and between Allison Engine
            Co. and National  Airmotive  Corporation  regarding the extension of
            the T56/501  Engine  Authorized  Maintenance  Agreement  until March
            31,1998

10.34n      Letter, dated as of March 5, 1998, by and between Allison Engine Co.
            and National  Airmotive  Corporation  regarding the extension of the
            A250 Engine Authorized Maintenance Agreement until April 30, 1998

10.35n      Letter,  dated as of March 13, 1998, by and between  Allison  Engine
            Co. and National  Airmotive  Corporation  regarding the extension of
            the T56/501 Engine Authorized  Maintenance Agreement until April 30,
            1998

10.36n      Letter,  dated  as of  March  19,  1998,  by  and  between  National
            Airmotive   Corporation  and  Allison  Engine  Corporation   wherein
            National  Airmotive  elects to  extend  the  Authorized  Maintenance
            Center  Agreement,  effective  November 30, 1994, by and between NAC
            and Allison Engine Company (Model 250)

10.37n      Letter,  dated  as of  April  22,  1998,  by  and  between  National
            Airmotive   Corporation  and  Allison  Engine  Corporation   wherein
            National  Airmotive  elects to  extend  the  Authorized  Maintenance
            Center  Agreement,  effective  November 30, 1994, by and between NAC
            and Allison Engine Company (Model T56/501)

10.38n      Loan and Security Agreement, dated April 23, 1998 by and between API
            and Fleet National Bank

10.39n      Amendment to the First Aviation Services Stock Incentive Plan

10.40(o)    Advisory  Agreement  between First Aviation  Services Inc. and First
            Equity Development Inc., dated September 23, 1998.

10.41       Employment  Agreement  dated June 1, 1998 by and  between  Philip C.
            Botana and the Company.

21.1+       List of Subsidiaries

23.1        Consent of Ernst & Young LLP, independent auditors

27.1        Financial Data Schedules for the years ended January 31, 1999,  1998
            and 1997


+     Incorporated  by  reference  and  filed  as an  Exhibit  to the  Company's
      Registration Statement on Form S-1 (No. 333-18647), as amended.

f     Incorporated  by  reference  and  filed  as an  Exhibit  to the  Company's
      Quarterly  Report on Form 10Q for the  quarter  ended  October  31,  1997.


                                       25
<PAGE>

n     Incorporated by reference and filed as an Exhibit to the Company's  Annual
      Report on Form 10K for the year ended January 31, 1998.

(o)   Incorporated  by  reference  and  filed  as an  Exhibit  to the  Company's
      Quarterly Report on Form 10Q for the quarter ended October 31, 1998.


                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934,  the  Registrant has fully caused this report to be signed
on its behalf by the undersigned thereunto duly authorized on May 1, 1998.

                                                   FIRST AVIATION SERVICES INC.

                                                   By:  /s/ John A. Marsalisi
                                                        ------------------------
                                                   John A. Marsalisi
                                                   Chief Financial Officer

 Signature                  Title                                   Date
 ---------                  -----                                   ----

/s/ Aaron P. Hollander      Chairman of the Board                   May 3, 1999
--------------------------
Aaron P. Hollander

/s/ Michael C. Culver       Chief Executive Officer and             May 3, 1999
--------------------------  Director (Principal Executive Officer)
Michael C. Culver             

/s/ John A. Marsalisi       Chief Financial Officer and             May 3, 1999
--------------------------  Director (Principal Financial and 
John A. Marsalisi           Accounting Officer)               
                            

/s/ Joshua S. Friedman      Director                                May 3, 1999
--------------------------
Joshua S. Friedman

/s/ Robert L. Kirk          Director                                May 3, 1999
--------------------------
Robert L. Kirk

/s/ Charles B. Ryan         Director                                May 3, 1999
--------------------------
Charles B. Ryan


<PAGE>


                          First Aviation Services Inc.

                        Consolidated Financial Statements

               For the years ended January 31, 1999, 1998 and 1997




                                    CONTENTS


Report  of  Independent  Auditors                                            F2

Consolidated  Financial  Statements

Consolidated  Balance  Sheets                                                F3
Consolidated  Statements  of  Operations                                     F4
Consolidated  Statements  of  Stockholders' Equity                           F5
Consolidated  Statements  of  Cash  Flows                                 F6-F7
Notes  to  Consolidated  Financial  Statements                           F8-F23

Schedule  II  -  Valuation  and  Qualifying  Accounts                       F24


                                       F1
<PAGE>
                         Report of Independent Auditors


The  Board  of  Directors  and  Stockholders
First  Aviation  Services  Inc.

We  have  audited the accompanying consolidated balance sheets of First Aviation
Services  Inc.  as of January 31, 1999 and 1998, and the consolidated statements
of  operations,  stockholders'  equity, and cash flows for the three years ended
January  31,  1999.  Our  audits  also included the financial statement schedule
listed  in the Index at Item 14(a).  These financial statements and schedule are
the  responsibility  of  the  Company's  management.  Our  responsibility  is to
express  an  opinion  on  these  financial  statements and schedule based on our
audits.

We  conducted  our  audits  in  accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing  the  accounting  principles  used  and  significant estimates made by
management,  as well as evaluating the overall financial statement presentation.
We  believe  that  our  audits  provide  a  reasonable  basis  for  our opinion.

In  our opinion, the consolidated financial statements referred to above present
fairly,  in  all material respects, the consolidated financial position of First
Aviation  Services  Inc.  as  of January 31, 1999 and 1998, and the consolidated
results  of  its operations and its cash flows for the three years ended January
31,  1999 in conformity with generally accepted accounting principles.  Also, in
our  opinion,  the  related  financial  statement  schedule,  when considered in
relation  to the basic financial statements taken as a whole, presents fairly in
all  material  respects  the  information  set  forth  therein.


                                                          /s/  Ernst & Young LLP

Stamford,  Connecticut
March  24,  1999,
except  for  Note  6,  as  to  which  the  date  is
April  28,  1999

                                       F2
<PAGE>
<TABLE>
<CAPTION>
                            First Aviation Services Inc.

                             Consolidated Balance Sheets
                        (in thousands, except share amounts)


                                                                     JANUARY 31,
                                                                  1999        1998
                                                              ------------  --------
<S>                                                           <C>           <C>
ASSETS
Current assets:
  Cash and cash equivalents                                   $        149  $    237
  Trade receivables, net of allowance for
    doubtful accounts of $608 and $346, respectively                28,056    27,841
  Inventories, net                                                  51,757    43,311
  Deferred income taxes                                              2,638     2,381
  Prepaid expenses and other                                         1,851     1,624
                                                              ------------  --------
Total current assets                                                84,451    75,394

Plant and equipment, net                                            10,729     5,027
Goodwill, net                                                        1,840     1,873
Other assets                                                            69       229
                                                              ------------  --------
                                                              $     97,089  $ 82,523
                                                              ============  ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                  17,873  $ 14,106
  Accrued compensation and related expenses                          2,667     2,146
  Accrued litigation costs                                           2,840         -
  Other accrued liabilities                                          3,045     2,631
  Income taxes payable                                               2,083     2,776
  Short term line of credit                                          8,850         -
                                                              ------------  --------
Total current liabilities                                           37,358    21,659

Long-term debt, less current portion                                13,907    13,866
Minority interest                                                    1,041     1,041
Obligations under capital leases                                       402         -
                                                              ------------  --------
Total liabilities                                                   52,708    36,566

Stockholders' equity:
  Common stock, $0.01 par value, 25,000,000 shares authorized,
  9,001,896 and 8,928,925, shares issued and outstanding
    at January 31, 1999 and 1998, respectively                          90        89
  Additional paid-in capital                                        38,515    38,378
  Retained earnings                                                  5,776     7,490
                                                              ------------  --------
Total stockholders' equity                                          44,381    45,957
                                                              ------------  --------
                                                              $     97,089  $ 82,523
                                                              ============  ========
See accompanying notes.
</TABLE>

                                       F3
<PAGE>
<TABLE>
<CAPTION>
                                  First Aviation Services Inc.

                              Consolidated Statements of Operations
                              (in thousands, except share amounts)


                                                      YEAR ENDED     YEAR ENDED     YEAR ENDED
                                                      JANUARY 31,    JANUARY 31,    JANUARY 31,
                                                         1999           1998           1997
                                                     -------------  -------------  -------------
<S>                                                  <C>            <C>            <C>
Net sales                                            $    153,740   $    153,642   $    104,236 
Cost of sales                                             126,456        130,433         89,426 
                                                     -------------  -------------  -------------

Gross profit                                               27,284         23,209         14,810 
Selling, general and administrative expenses               21,662         14,827          9,881 
Non-recurring charges                                       6,178              -              - 
                                                     -------------  -------------  -------------

Income (loss) from operations                                (556)         8,382          4,929 
Interest expense                                            1,830          1,842          3,470 
Interest income                                               (15)          (357)             - 
Minority interest in subsidiary                                42             38              - 
                                                     -------------  -------------  -------------

Income (loss) before provision for income
   taxes and extraordinary item                            (2,413)         6,859          1,459 
Provision (benefit) for income taxes                         (699)         1,500              - 
                                                     -------------  -------------  -------------

Income (loss) before extraordinary item                    (1,714)         5,359          1,459 
Extraordinary item:
Loss on early extinguishment of debt                            -           (108)          (864)
                                                     -------------  -------------  -------------

Net income (loss)                                          (1,714)         5,251            595 
Dividends on preferred stock                                    -             11            132 
                                                     -------------  -------------  -------------

Net income (loss) available to common stockholders   $     (1,714)  $      5,240   $        463 
                                                     =============  =============  =============

Basic net income per common share:
Income (loss) before extraordinary item
  available to common stockholders                   $      (0.19)  $       0.63   $       0.37 

Extraordinary item                                              -          (0.01)         (0.24)
                                                     -------------  -------------  -------------
Basic net income (loss) per common share             $      (0.19)  $       0.62   $       0.13 
                                                     =============  =============  =============
Shares used in the calculation of basic net
  income (loss) per common share                        8,972,953      8,432,234      3,556,665 
                                                     =============  =============  =============

Net income per common share - assuming  dilution:
Income (loss) before extraordinary item
  available to common stockholders                   $      (0.19)  $       0.61   $       0.26 
Extraordinary item                                              -          (0.01)         (0.17)
                                                     -------------  -------------  -------------
Net income (loss) per common share -
  assuming dilution                                  $      (0.19)  $       0.60   $       0.09 
                                                     =============  =============  =============
Shares used in the calculation of net income
  (loss) per common share - assuming dilution           8,972,953      8,698,400      5,194,456 
                                                     =============  =============  =============

See accompanying notes
</TABLE>

                                       F4
<PAGE>
<TABLE>
<CAPTION>
                                              First Aviation Services Inc.

                                    Consolidated Statements of Stockholders' Equity
                                          (in thousands, except share amounts)


                                              PREFERRED STOCK         COMMON STOCK
                                          -----------------------  -------------------- ADDITIONAL
                                          NUMBER OF                 NUMBER OF            PAID-IN   RETAINED
                                            SHARES      AMOUNT       SHARES    AMOUNT    CAPITAL    EARNINGS    TOTAL
                                          ----------  -----------  ---------  ---------  --------  ----------  --------
<S>                                       <C>         <C>          <C>        <C>        <C>       <C>         <C>
Balances at January 31, 1996                 33,000   $    1,650   3,556,665  $      36  $    625  $   1,875   $ 4,186 
  Issuance of options to purchase common
    stock                                         -            -           -          -     1,500          -     1,500 
  Net income                                      -            -           -          -         -        595       595 
                                          ----------  -----------  ---------  ---------  --------  ----------  --------
Balances at January 31, 1997                 33,000        1,650   3,556,665         36     2,125      2,470     6,281 
  Payment of preferred stock dividends            -            -                                        (231)     (231)
  Conversion of preferred stock             (33,000)      (1,650)    165,000          1     1,649          -         - 
  Issuance of common stock in initial
    public offering                               -            -   3,900,000         39    34,438          -    34,477 
  Exercise of warrants to purchase common
    stock                                         -            -   1,293,335         13        57          -        70 
  Shares issued under qualified plans             -            -      13,925          -       109          -       109 
  Net income                                      -            -           -          -         -      5,251     5,251 
                                          ----------  -----------  ---------  ---------  --------  ----------  --------
Balances at January 31, 1998                      -            -   8,928,925         89    38,378      7,490    45,957 
  Exercise of stock options to purchase
    common shares                                 -            -      40,000          1         -          -         1 
  Shares issued under qualified plans             -            -      32,971          -       137          -       137 
  Net income (loss)                               -            -           -          -         -     (1,714)   (1,714)
                                          ----------  -----------  ---------  ---------  --------  ----------  --------
  Balances at January 31, 1999                    -   $        -   9,001,896  $      90  $ 38,515  $   5,776   $44,381 
                                          ==========  ===========  =========  =========  ========  ==========  ========
See accompanying notes.
</TABLE>

                                       F5
<PAGE>
<TABLE>
<CAPTION>
                                 First Aviation Services Inc.

                             Consolidated Statements of Cash Flows
                                        (in thousands)


                                                    YEAR ENDED     YEAR ENDED     YEAR ENDED
                                                    JANUARY 31,    JANUARY 31,    JANUARY 31,
                                                       1999           1998           1997
                                                   -------------  -------------  -------------
<S>                                                <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                                  $     (1,714)  $      5,251   $        595 
Adjustments to reconcile net income (loss)
    to net cash provided by (used in)
    operating activities:
      Depreciation and amortization                         867            908          1,047 
      Extraordinary item, loss on early
        extinguishment of debt                                -              -            538 
      Compensation expense on stock
        options issued                                        -              -          1,500 
      Deferred income taxes                                (257)           448              - 
      Changes in assets and liabilities:
        Trade receivables                                  (215)        (2,142)         3,457 
        Inventories                                      (8,446)        (1,041)        (5,116)
        Prepaid expenses and other assets                   (67)           819           (957)
        Accounts payable                                  3,767         (4,153)        (3,063)
        Accrued litigation costs                          2,840              -              - 
        Accrued compensation and related
          expenses, and other accrued
          liabilities                                       935         (3,154)          (106)
       Income taxes payable                                (693)           874              - 
       Other noncurrent liabilities                           -              -         (1,642)
                                                   -------------  -------------  -------------

Net cash used in operating activities                    (2,983)        (2,190)        (3,747)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of assets from former owners,
    including acquisition costs                               -        (10,636)             - 
Purchases of plant and equipment                         (6,055)        (2,375)          (957)
Payment for license rights and other intangibles              -              -           (375)
Proceeds from disposals of plant and equipment               14              -              - 
                                                   -------------  -------------  -------------
Net cash used in investing activities                    (6,041)       (13,011)        (1,332)

See accompanying notes.
</TABLE>

                                       F6
<PAGE>
<TABLE>
<CAPTION>
                                First Aviation Services Inc.

                     Consolidated Statements of Cash Flows (continued)
                                       (in thousands)


                                                 YEAR ENDED     YEAR ENDED     YEAR ENDED
                                                 JANUARY 31,    JANUARY 31,    JANUARY 31,
                                                    1999           1998           1997
                                                -------------  -------------  -------------
<S>                                             <C>            <C>            <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings / (repayments) on revolving
  line of credit                                $         41   $    (15,628)  $      5,393 
Net borrowings on short term line of credit            8,850              -              - 
Principal payments on capital lease
  obligations                                            (93)             -              - 
Proceeds from borrowings on term loans                     -              -          3,000 
Repayments of term loans                                   -         (2,650)        (2,117)
Repayments of subordinated note                            -         (1,750)        (1,197)
Sale of preferred stock of subsidiary                      -          1,041              - 
Payment of dividends on preferred stock                    -           (231)             - 
Proceeds from issuance of common stock in
  initial public offering                                  -         39,000              - 
Expenses relating to initial public offering               -         (4,523)             - 
Proceeds from exercise of common stock
  warrants and issuance of stock under
  employee stock purchase plan                           138            179              - 
                                                -------------  -------------  -------------

Net cash provided by (used in) financing
  activities                                           8,936         15,438          5,079 
                                                -------------  -------------  -------------

Net change in cash and cash equivalents                  (88)           237              - 
Cash at the beginning of the period                      237              -              - 
                                                -------------  -------------  -------------

Cash and cash equivalents at the end of  the
  period                                        $        149   $        237   $          - 
                                                =============  =============  =============

Supplemental cash flow disclosures:
Cash paid for:
Interest                                        $      1,563   $      1,748   $      3,148 
                                                =============  =============  =============

Income taxes                                    $        730   $          -   $        545 
                                                =============  =============  =============

Acquisition of equipment through capital lease  $        495   $          -   $          - 
                                                =============  =============  =============

See accompanying notes.
</TABLE>

                                       F7
<PAGE>
                          First Aviation Services Inc.

                 Notes to 1999 Consolidated Financial Statements
                      (in thousands, except share amounts)

1.  BUSINESS  AND  BASIS  OF  PRESENTATION

First  Aviation  Services  Inc.,  through  its  subsidiaries, National Airmotive
Corporation  ("NAC")  and  Aircraft  Parts  International  Combs,  Inc.  ("API")
(collectively,  "First  Aviation"  or  the  "Company"),  repairs  and  overhauls
commercial  and military aircraft engines and industrial turbines, and sells and
distributes  aircraft  parts  and  components.  The  Company is headquartered in
Westport,  Connecticut.  Customers  of  the  Company include passenger and cargo
airlines,  foreign  governments,  U.S.  and  foreign  military  services,  fleet
operators,  fixed  base  operators,  certified  repair facilities and industrial
companies.

The accompanying consolidated financial statements include the accounts of First
Aviation  Services Inc. and its subsidiaries.  Significant intercompany balances
and  transactions  have  been  eliminated  in  consolidation.

First  Aviation  was  formed in March 1995 to acquire the capital stock of  NAC.
The  acquisition was accounted for under the purchase method of accounting as of
the  closing  date.  The  purchase  price,  including  acquisition  costs,  was
allocated  to  the  assets  and  liabilities of NAC based on their relative fair
values.

In  connection  with  the  allocation  of  the  purchase  price, and in order to
implement  plans  and  actions  designed  to  streamline operations, the Company
recorded  a  reorganization  accrual  to  cover  the estimated costs of employee
separations  and  other  employee incentive programs.  The Company also recorded
accruals  for various liabilities, including pension plan termination (Note 10),
environmental  matters  (Note 13), and legal matters.  The remaining accruals as
of  January  31, 1999 and 1998 totaled $250 (primarily environmental) and  $391,
respectively,  and are included in other accrued liabilities in the accompanying
consolidated  balance  sheets.

On  March 5, 1997, the Company completed an initial public offering of 3,900,000
shares of common stock, $0.01 par value per share (the "Offering").  The Company
received net proceeds of approximately $34.5 million after deducting expenses of
approximately $4.5 million.  The net proceeds were used for, among other things,
the  repayment  of term and subordinated debt, a paydown of the Company's credit
facility  (for  a  total  debt  reduction  of $22.6 million), payment of accrued
dividends on preferred stock ($0.2 million), and the acquisition of API from AMR
Combs  Inc.  ("AMR  Combs")  ($10.6  million  -  see  below).

Immediately  prior  to  the  closing of the Offering, the following transactions
were  completed:  (i)  all outstanding shares of the Series A Preferred Stock of
the  Company  were converted into 165,000 shares of common stock at the offering
price,  (ii)  all  outstanding  warrants  to  purchase  1,293,335  shares of the
Company's  common  stock were exercised in full, (iii) the Company's certificate
of  incorporation  was  amended  to  increase the authorized common stock of the
Company to 25,000,000 shares, and (iv) a 6.4549-to-1 stock split with respect to
common  stock  was  effected.  Accordingly,  all  common share amounts have been
restated  to  give  effect  to  the  6.4549-to-1  stock  split.

With  the  closing  of  the  Offering,  the  Company acquired certain assets and
assumed certain liabilities of API from AMR Combs for an adjusted purchase price
of $10.6 million, including expenses of approximately $523 that were incurred in
connection  with  the  acquisition.  The acquisition was accounted for under the
purchase  method  of  accounting  as  of  the closing date.  The purchase price,
including  acquisition costs, was allocated to the assets and liabilities of API
based  upon  their relative fair values.  The excess of purchase price paid over
the value of the net assets acquired is included in goodwill in the accompanying
consolidated  balance  sheets.  The  consolidated

                                       F8
<PAGE>
1.  BUSINESS  AND  BASIS  OF  PRESENTATION  (CONTINUED)

financial  statements  of  the Company since March 5, 1997 reflect the impact of
the  results  of  operations  of  API  as well as the purchase price allocation.

In  conjunction  with  the  API acquisition, AMR Combs purchased from API 10,407
shares  of API Series A Cumulative Convertible Preferred Stock, $0.001 par value
(the  "Preferred Stock"), at a price of $100 per share.  Total adjusted proceeds
to the Company were $1,041.  This transaction has been accounted for as minority
interest in the accompanying consolidated balance sheets.  Dividends are payable
on  a  quarterly  basis  on  the  Preferred Stock at an annual rate of $4.00 per
share.  Dividends  of  $42  and $38 were paid during the years ended January 31,
1999  and  1998,  respectively,  and have been reflected in minority interest in
subsidiary  in  the  accompanying  consolidated  statements  of  operations.

In  connection  with  the  API  acquisition,  First  Aviation, API and AMR Combs
entered  into  a  Stockholders Agreement.  Pursuant to this agreement, AMR Combs
agreed that it would not sell its shares of the Preferred Stock or the shares of
API  common stock into which such Preferred shares are convertible (collectively
the  "API Acquisition Shares") for a minimum period of three years.  API has the
right to redeem the API Acquisition Shares at any time.  AMR Combs has the right
to  cause  the Company to repurchase the API Acquisition Shares commencing three
years  after  the closing of the API acquisition.  The redemption price is equal
to  the  fair  market  value  of  the API Acquisition Shares as determined by an
independent  appraisal.  The  Stockholders Agreement also contains certain other
rights,  including:  (i)  a right of first refusal on the part of First Aviation
with  respect to any proposed sale of the API Acquisition Shares; (ii) the right
of First Aviation to require AMR Combs to participate, on a pro rata basis, with
it  in the sale of the capital stock of API to a third party; (iii) the right of
AMR  Combs  to  elect  to  participate,  on a pro rata basis, in the sale of the
capital  stock  of  API  to  a  third  party;  and  (iv)  piggyback  and  demand
registration  rights  granted  to  AMR Combs with respect to the API Acquisition
Shares.  The  demand  registration  rights are not exercisable until three years
after  the closing of the API acquisition, and, if API has not previously closed
an underwritten public offering of its common stock at the time AMR Combs elects
to exercise its demand registration rights, API may elect to treat the demand as
an  exercise  by AMR Combs of its put option with respect to the API Acquisition
Shares.  There  are  no  plans  to cause API to conduct a public offering of its
securities.

The following unaudited summary, on a pro-forma basis, presents the consolidated
results  of  operations  as  if  the  acquisition  of  API had taken place as of
February  1,  1996.

<TABLE>
<CAPTION>
                                      Years Ended January 31,
                                          1998      1997
                                        --------  --------
<S>                                     <C>       <C>
Net Sales                               $156,867  $143,545
Net income                                 5,248       494
Net income available to common
  stockholders                             5,237       362

Basic net income per common share       $   0.62  $   0.10
Net income per common share - assuming
  dilution                              $   0.60  $   0.07
</TABLE>

                                       F9
<PAGE>
2.  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES

USE  OF  ESTIMATES

The  preparation  of  financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect  the  amounts  reported  in  the  consolidated  financial  statements and
accompanying  notes.  Actual  results  could  differ  from  those  estimates.

NET  SALES

Sales  are  recorded  net  of  discounts, allowances and commissions.  Net sales
related  to  the  repair and overhaul of engines are recorded upon completion of
repair  and  overhaul  services,  including testing and shipment.  Net sales for
parts  and  engine  components  sold  are  recorded when the product is shipped.

The  Company  provides  credit  in  the form of trade accounts receivable to its
customers.  The  Company  generally  does  not  require  collateral  to  support
domestic  customer  receivables.  Receivables  arising  from  export  activities
generally  are  supported by letters of credit or foreign credit insurance.  The
Company  performs  ongoing  credit  evaluations  of  its customers and maintains
allowances  which  management believes are adequate for potential credit losses.

Combined sales to agencies of the U.S. government represented approximately 12%,
9%  and  16%  of  net sales for the years ended January 31, 1999, 1998 and 1997,
respectively.  The  combined  accounts  receivable  from  agencies  of  the U.S.
government  represented 19% and 10% of total trade receivables as of January 31,
1999  and  1998,  respectively.

The  Company  has  no  foreign operations; however, export sales to unaffiliated
customers  were  approximately 24%, 31% and 32% of net sales for the years ended
January  31,  1999,  1998  and 1997, respectively.  The majority of export sales
activities  were  to  the  following  geographic  areas:  Middle East, Far East,
Central  America,  Canada,  and  Europe.

STOCK  BASED  COMPENSATION

For  the  year  ended  January  31, 1997, the Company implemented the disclosure
provisions  of  Financial Accounting Standards Board ("FASB") Statement No. 123,
"Accounting  for  Stock-Based  Compensation".  The  Company  accounts  for stock
option  grants  in  accordance  with Accounting Principles Board Opinion No. 25,
"Accounting  for  Stock  Issued  to  Employees",  and,  accordingly,  recognizes
compensation  expense  to  the  extent  a difference exists between the exercise
price  and  the  fair  market  value  per  share  at  the  date  of  grant.

CASH  AND  CASH  EQUIVALENTS

Cash  and  cash  equivalents  consist of demand deposits and money market funds.

INVENTORIES

Inventories  are  stated  at  the  lower of cost or market, with cost determined
using  the  first-in,  first-out  ("FIFO")  and specific identification methods.
Costs  include  direct  material,  direct  labor  and  applicable  manufacturing
overhead.  A  significant  portion  of  the Company's inventory consists of new,
overhauled,  serviceable and repairable aircraft engine parts that are purchased
principally from Allison Engine Company ("Allison"), a subsidiary of Rolls Royce
Ltd.,  and  also  from  other  parts  resellers  and  customers.  Inventory also
consists  of  general  aircraft  parts.  Before

                                      F10
<PAGE>
2.  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  (CONTINUED)

INVENTORIES

any  part  may  be  installed  in an aircraft, it must meet certain standards of
condition  established  by  the  Federal  Aviation  Administration,  the  U.S.
Department of Defense, or the equivalent regulatory agencies in other countries,
depending  on whose engines the Company is servicing.  Specific regulations vary
from  country  to  country,  although regulatory requirements in other countries
generally  coincide  with  applicable  U.S.  requirements.  Parts  also  must be
traceable  to  sources  deemed  acceptable  by  such  agencies.  Parts  owned or
acquired  by  the  Company  may  not  meet  applicable  standards  prior  to
remanufacturing,  or  standards  may  change  in the future, causing parts which
already  are  contained  in the Company's inventory to be scrapped or to require
modification.  Aircraft  engine  manufacturers  also may develop new parts to be
used  in  lieu  of  parts  already  contained  in  the  Company's  inventory.

Provisions  are  made  in  each  period  for  the estimated effect of excess and
obsolete  inventories.  Actual  excess  and  obsolete  inventories  may  differ
significantly from such estimates, and such differences could be material to the
financial  statements.

PLANT  AND  EQUIPMENT

Plant  and  equipment  are  stated  at  cost,  less  allowance  for  accumulated
depreciation.  Additions  and  improvements  that  materially  increase  the
productive  capacity or extend the useful life of an asset are added to the cost
of  the  asset.  Expenditures  for normal maintenance and repairs are charged to
expense  as  incurred.

Depreciation  of  plant and equipment is computed using the straight-line method
over  the  estimated  lives  of  the  assets,  which  range  from 3 to 30 years.
Leasehold  improvements  are amortized over the shorter of the estimated life of
the  improvement  or  the  terms  of  the  related  lease.

NONCURRENT  ASSETS

During  the  year ended January 31, 1997, the Company implemented the provisions
of  FASB  Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and  for  Long-Lived  Assets to be Disposed Of".  The Company records impairment
losses  on  long-lived  assets  when  events and circumstances indicate that the
assets  might  be  impaired  and  the  undiscounted  cash  flows estimated to be
generated  by  those  assets are less than the carrying amounts of those assets.

INCOME  TAXES

The  Company  uses the liability method to account for income taxes.  Under this
method,  deferred tax assets and liabilities are determined based on differences
between  financial  reporting  and  tax bases of assets and liabilities, and are
measured  using  the  enacted tax rates and laws that will be in effect when the
differences  are  expected  to  reverse.

SEGMENTS

Effective January 1, 1998, the Company adopted the FASB's Statement of Financial
Accounting  Standards  No.  131  Disclosures about Segments of an Enterprise and
Related  Information  (Statement  131).  Statement 131 establishes standards for
the  way public business enterprises report information about operating segments
in  annual

                                      F11
<PAGE>
2.  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  (CONTINUED)

SEGMENTS

financial  statements  and  requires  that  those  enterprises  report  selected
information  about  operating  segments in interim financial reports.  Statement
131  also  establishes  standards  for  related  disclosures  about products and
services,  geographic areas, and major customers.  The adoption of Statement 131
did  not  affect results of operations or financial position, but did affect the
disclosure  of  segment  information.  See  Note  14.

MAJOR  SUPPLIERS

Allison  historically  has  been  a major supplier to the Company, and NAC is an
Authorized  Maintenance  Center  for  Allison's product lines.  During the years
ended  January  31,  1999,  1998  and  1997,  NAC purchased $34,661, $46,407 and
$47,254,  respectively, in parts and engine components from Allison.  At January
31,  1999  and  1998,  accounts  payable  to  Allison totaled $6,001 and $4,460,
respectively.  NAC  is also an authorized distributor for Bendix, AC and several
suppliers  of  accessories  that  compliment the Allison commercial engine.  NAC
has,  from  time  to  time,  experienced  difficulty  in obtaining certain parts
because  of parts shortages and inventory fluctuations at Allison.  The shortage
or  unavailability  of Allison parts can and has from time to time caused delays
in  the  timely  completion  of  repair and overhaul production schedules.  Such
delays  may  adversely  affect  NAC's  relationship with its customers and could
adversely  affect  NAC's  commitments  to  customers  and  its  work-in-process
inventory  levels.  An  inability to maintain timely access to Allison parts and
components on commercially reasonable terms would have a material adverse effect
on  the  Company's  consolidated  business,  financial  condition and results of
operations.

GOODWILL

The  excess  of purchase price over the fair value of the net assets acquired is
amortized under the straight-line method over a thirty-year period.  Accumulated
amortization  was  $126  and  $92,  respectively  at  January 31, 1999 and 1998.

NET  INCOME  PER  COMMON  SHARE

In  1997 the FASB issued Statement No. 128, "Earnings Per Share".  Statement 128
replaced  the  calculation  of primary and fully diluted earnings per share with
basic  earnings  per  share  and earnings per share - assuming dilution.  Unlike
primary  earnings  per  share,  basic  earnings  per share excludes any dilutive
effects  of  options, warrants and convertible securities.  Earnings per share -
assuming  dilution  is  very  similar  to  the previously reported fully diluted
earnings  per  share.  All  earnings per share amounts for all periods have been
presented,  and  where  appropriate,  restated  to  conform  to  Statement  128
requirements.

RECLASSIFICATIONS

Certain  amounts in the accompanying consolidated financial statements have been
reclassified  to  conform  to  the  current  year's  presentation.

                                      F12
<PAGE>
3.  INVENTORIES

Inventories  consist  of  the  following:

<TABLE>
<CAPTION>
                                                           JANUARY  31,
                                                          1999      1998
                                                        ------------------
<S>                                                     <C>       <C>
Parts held for manufacturing or resale                  $37,320   $31,025 
Work-in-process                                          11,628     8,099 
Finished goods                                            4,663     6,566 
                                                         ------   --------
                                                         53,611    45,690 
Less: allowance for obsolete and slow moving inventory   (1,854)   (2,379)
                                                         ------   --------
                                                        $51,757   $43,311 
                                                         ------   --------
</TABLE>

4.  PLANT  AND  EQUIPMENT

Plant  and  equipment  consist  of  the  following:

<TABLE>
<CAPTION>
                                              JANUARY  31,
                                             1999      1998
                                            -----------------
<S>                                        <C>       <C>
Machinery and equipment                    $ 4,073   $ 3,147 
Building and other leasehold improvements    2,521     1,934 
Office furniture, fixtures and equipment     3,988     1,202 
Construction-in-process                      3,188       821 
                                            ------   --------
                                            13,770     7,104 
Less: accumulated depreciation              (3,041)   (2,077)
                                            ------   --------
                                           $10,729   $ 5,027 
                                            ======   ========
</TABLE>

5.  RELATED  PARTIES

During the quarter ended October 31, 1998, the Company,  upon the  authorization
of the independent  members of the Board of Directors,  entered into an advisory
agreement with a related party,  First Equity Development Inc. ("First Equity").
Pursuant to the agreement, First Equity is to provide the Company investment and
financial  advisory  services  relating  to  potential  acquisitions  and  other
financial  transactions.  The  agreement  may be terminated by either party upon
30-days  written  notice to the  other.  Under the terms of the  agreement,  the
Company will pay a fee to First Equity for the successful  completion of certain
transactions  (the  "Success  Fee"),  and will  reimburse  First  Equity for its
out-of-pocket expenses. The amount of the Success Fee will be established by the
independent  members  of the Board of  Directors  and will be  dependent  upon a
variety of factors,  including, but not limited to, the scope of the services to
be provided, the size and type of acquisition,  and the successful completion of
a transaction.  The agreement requires the Company to pay First Equity a $30,000
monthly  retainer  effective  February 1, 1998, which can be applied as a credit
against the Success Fee, subject to certain  limitations.  During the year ended
January 31, 1999 the Company paid First Equity retainer fees totaling  $360,000,
all of which can be applied  against the Success Fee,  which were expensed 
(Note 9).

                                      F13
<PAGE>
5.  RELATED  PARTIES  (CONTINUED)

In  1997  the  Company  entered  into  a ten-year sublease with an affiliate for
office  space.  The  lease is cancelable upon six months notice by either party.
The Company has the option of renewing the sublease for two additional five-year
periods.  Lease  payments under the lease totaled $98 and $50, respectively, for
the  years  ended  January  31,  1999  and 1998.  During 1996 the Company leased
office  space  from  the same affiliate under a month-to-month sublease.  Annual
lease  payments  totaled  $36  for  the  year  ended  January  31,  1997.

Fees  under  a  terminated   management   agreements   totaled  $100  and  $170,
respectively,  for the years ended January 31, 1998 and 1997,  and were included
in  selling,   general,   and   administrative   expenses  in  the  accompanying
consolidated statements of operations.


6.  SHORT  TERM  LINE  OF  CREDIT  AND  LONG  TERM  DEBT

SHORT  TERM  LINE  OF  CREDIT

<TABLE>
<CAPTION>
                               JANUARY  31,
                               1999    1998
<S>                          <C>       <C>
                             ---------------
Short term line of credit    $  8,850  $   -
                             ========  =====
</TABLE>

On  April  23,  1998,  API  entered into a one year $10 million revolving credit
facility  with  Fleet  National  Bank.  Advances  under the credit facility bear
interest based upon certain market rates plus a premium.  Borrowings are limited
to specified percentages of eligible accounts receivable and inventories at API.
The  credit  agreement contains a number of covenants, including restrictions on
mergers,  consolidations  and  acquisitions,  the  incurrence  of  indebtedness,
transactions  with affiliates, the creation of liens, and limitations on capital
expenditures.  The credit agreement also requires API to maintain minimum levels
of  net  worth  and  specified  interest  expense coverage ratios, and currently
restricts  the  payment  of  dividends.  Substantially  all  of  API's  trade
receivables,  inventory  and  equipment  are  pledged  as  collateral  under the
revolving  credit  facility.  Borrowings  under this short term credit line bore
interest  at  6.4%  at January 31, 1999.  On April 28, 1999, Fleet National Bank
extended  the  term  of  the  revolving credit facility until July 22, 1999, and
committed  to  further  extend  the  line  through  February  2, 2000, under the
prevailing  terms  and  conditions.

                                      F14
<PAGE>
6.  SHORT  TERM  LINE  OF  CREDIT  AND  LONG  TERM  DEBT (CONTINUED)
<TABLE>
<CAPTION>

LONG-TERM  DEBT
                                               JANUARY  31,
                                               1999     1998
                                               --------------
<S>                                        <C>     <C>
Borrowings under revolving line of credit  $  13,907  $13,866
                                              ======  =======
</TABLE>

During the year ended January 31, 1997, NAC entered into a credit agreement that
provides  for  borrowings  up  to  a  total  of  $40,000,  principally through a
revolving credit facility.  Initial borrowings under this agreement were used to
retire borrowings under the Company's previous revolving line of credit and term
loan,  and  to  reduce the Company's subordinated note by $1,000.  In connection
with  this  refinancing  the  Company  recorded  an extraordinary charge, net of
associated  income  tax  benefit,  of  $864  for  prepayment  penalties  and the
write-off  of  unamortized  loan  fees.

Borrowings  under  the revolving credit facility bear interest at the LIBOR rate
plus  3%  (7.45%  and  8.15%  at  January  31,  1999  and  1998,  respectively).
Borrowings  are limited to specified percentages of eligible accounts receivable
and  inventories  of  NAC.  The original term of the credit agreement is through
May  15,  1999.  Thereafter,  the  agreement automatically renews for additional
one-year  periods,  and  may  be  terminated  without  penalty.  The  agreement
automatically  renewed  on  February  16,  1999.

The  credit  agreement  also allows for the issuance of letters of credit not to
exceed  an  aggregate of $2,500.  Such letters of credit reduce the availability
of  borrowings  under  the  facility.  At  January  31,  1999  and 1998, NAC was
contingently  liable  for  $1,991  and  $1,819,  respectively,  under letters of
credit,  with  $31  and  $31,  respectively of cash being restricted as security
against  an  outstanding  letter  of  credit.  The  restricted  cash  has  been
classified  in prepaid and other assets in the accompanying consolidated balance
sheets.

The  credit  agreement  contains a number of covenants and provisions imposed on
NAC,  including  restrictions  on  mergers, consolidations and acquisitions, the
incurrence of indebtedness, transactions with affiliates, the creation of liens,
limitations on capital expenditures, and payment of management fees.  The credit
agreement  also  requires  NAC  to maintain minimum levels of net worth, certain
interest  expense  coverage  ratios  and  minimum  backlog levels, and currently
restricts  the payment of dividends from NAC to the Company without the lender's
consent.  Substantially  all of NAC's assets are pledged as collateral under the
revolving  line  of  credit.

The  Company  used  $22,600 of the proceeds from the Offering to retire its term
loans  and  a  subordinated  note  payable, and reduce the Company's outstanding
borrowings  under  its  revolving  line  of  credit.  In  connection  with  the
retirement  of  the  subordinated  note,  the  Company recorded an extraordinary
charge  during the year ended January 31, 1998 of $108, net of associated income
tax  benefit,  for  prepayment  penalties.

Management  believes  that the carrying amount of the Company's borrowings under
its  revolving credit facility approximates fair value because the interest rate
is  variable  and  resets  frequently.

7.  STOCKHOLDERS'  EQUITY

The  preferred  stock  that was converted to common as part of the Offering bore
cumulative  annual  dividends  of  $4.00  per share.  Total cumulative dividends
which  had  been  earned  but  not  yet  declared at January 31, 1997 were $220.
Subsequently,  $11  of  dividends  were  earned.  The  total  cumulative  unpaid
dividends  of  $231  were  paid  from  the  proceeds  of  the  Offering.

                                      F15
<PAGE>
7.  STOCKHOLDERS'  EQUITY  (CONTINUED)

On  December 20, 1996, the Board of Directors approved a 6.4549 to 1 stock split
of  issued  and  outstanding  common  stock, to be effected as a stock dividend.
Common  shares  in  the accompanying consolidated financial statements have been
retroactively  adjusted  to reflect the stock split.  The Directors also adopted
an  Employee  Stock  Purchase  Plan  and  a  Stock  Option  Plan.

Certain of the Company's directors elected to receive their compensation for the
years  ended  January  31,  1999 and 1998 in the form of shares of the Company's
common  stock.  The  fair value of the shares at the date of issuance is charged
to  expense  with  a  corresponding  credit  to  additional  paid-in  capital.

In  connection  with  the issuance of the subordinated note on June 1, 1995, the
Company  issued to the debtholder warrants to purchase up to 1,832,225 shares of
the Company's common stock at $.0545 per share.  In connection with certain debt
transactions completed in 1996, the number of shares eligible for purchase under
this  warrant  was reduced to 1,293,335.  The warrants were exercised in full in
connection  with  the  Offering.

Under the Employee Stock Purchase Plan, 250,000 shares of common stock have been
reserved for issuance.  The plan allows for eligible employees to purchase stock
at 85% of the lower of the fair market value of the Company's common stock as of
the  first  day  of each semi-annual offering period or the fair market value of
the  stock  at  the  end  of  the  offering period.  The initial offering period
commenced  in  May  1997  and  ran  through  December  31, 1997.  For the fiscal
year-ended January 31, 1999, the Company issued 20,194 shares to employees under
the  Plan.  In January 1998, the Company issued 10,643 shares to employees under
the  plan.

The  Stock  Option  Plan  provides  for  the  grant  of incentive stock options,
nonqualified stock options, stock appreciation rights and stock purchase rights.
A  total of 800,000 shares of common stock have been reserved for issuance under
this  plan.  During the year ended January 31, 1999, 88,250 options were granted
to  various  employees  of  the Company at exercise prices ranging from $5.00 to
$6.00 per share.  Options for 57,700 were forfeited during the year.  During the
year  ended  January 31, 1998, 222,300 options were granted to various employees
of  the  Company  at  an exercise price of $10.00 per share.  These options vest
over  two  to four-year periods, beginning one year after the date of the grant,
and  expire  ten  years  after  issuance.  Options for 900 shares were forfeited
during  the year.  Since the exercise price of all of the options granted was at
or  above  the fair market value per share at the date of grant, no compensation
expense  relating  to  stock options was recorded during the years ended January
31,  1999 and 1998.  In January 1997, the Company granted a key employee options
to acquire 150,000 shares of the Company's common stock.  These options carry an
exercise  price  of  $0.01 per share, were fully vested at the date of issuance,
and  expire  ten years from the date of grant.  In addition to the option grant,
the  employee  also  received  a bonus of $200.  To account for the stock option
grant  and  the  bonus  the  Company  recorded a pre-tax charge of approximately
$1,700  for  compensation expense during the fiscal year ended January 31, 1997,
with  a  $1,500  credit  to  additional  paid-in capital.  During the year ended
January  31,  1999, options to acquire 40,000 shares were exercised.  No options
were  exercised  during  the  years  ended January 31, 1998 and 1997.  Under the
Stock  Option  Plan, 361,950 and 371,400 options were outstanding at January 31,
1999  and  1998,  respectively.

Under  the  provisions  of FASB No. 123, the Company is required to disclose the
fair  value,  as  defined,  of  options  granted  to  employees  and the related
compensation expense.  The fair value of the stock options granted was estimated
at  the  date  of  grant  using  a  Black-Scholes  option  pricing  model.  The
Black-Scholes  option  valuation  model  was developed for use in estimating the
fair  value  of  traded options which have no vesting restrictions and are fully
transferable.  In  addition, option valuation models require the input of highly
subjective  assumptions,  including  the  expected  stock  price volatility.  In
management's  opinion,  because  the  Company's  employee  stock  options  have
characteristics  significantly  different  from  those  of  traded  options, and
because  changes  in  the

                                      F16
<PAGE>
7.  STOCKHOLDERS'  EQUITY  (CONTINUED)

subjective  input assumptions can materially affect the fair value estimate, the
existing models do not necessarily provide a reliable single measure of the fair
value  of  its  employee  stock  options.

The  fair  value  of the options granted during the years ended January 31, 1999
and  1998  was  determined  using  a risk-free interest rate of 6.0% and 6.4%, a
dividend  yield  of  0%,  an  average  volatility factor of 0.516 and 0.533, and
weighted average expected lives of two to four years, respectively.  Under these
assumptions  the  weighted  average fair value of each option granted during the
years ended January 31, 1999 and 1998, is approximately $1.90 and $3.76, and the
additional  pro  forma compensation that would be recorded is approximately $246
and  $176,  or  $0.03  and  $0.02 per share, respectively.  The weighted average
remaining  contractual  life of these stock options is approximately 8.74 years.

8.  INCOME  TAXES

The  provision  (benefit)  for  income  taxes  is  as  follows:


<TABLE>
<CAPTION>

             YEAR ENDED     YEAR ENDED   YEAR ENDED
             JANUARY 31     JANUARY 31,  JANUARY 31,
                1999           1998        1997
            -------------  ------------  ---------
<S>         <C>            <C>            <C>
Current:
Federal     $        (46)  $      2,221   $   -
State               (396)            36       -
            -------------  -------------  -----
                    (442)         2,257       -
Deferred:
Federal             (543)        (1,014)      -
State                286            257       -
            -------------  -------------  -----
                    (257)          (757)      -
            -------------  -------------  -----
            $       (699)  $      1,500   $   -
            =============  =============  =====
</TABLE>

A  reconciliation  between  income  tax provision (benefit) computed at the U.S.
federal  statutory  rate  and  the  effective rate reflected in the consolidated
statements  of  operations  is  as  follows:

<TABLE>
<CAPTION>
                                        YEAR ENDED   YEAR ENDED    YEAR ENDED
                                        JANUARY 31,  JANUARY 31,   JANUARY 31,
                                           1999         1998          1997
                                        ----------  ------------  ------------
<S>                                    <C>          <C>           <C>
Provision (benefit) at statutory rate      (34.0%)         34.0%         34.0%
State tax provision, net of federal
  benefit                                     7.4           5.5           6.6 
Change in valuation allowance                   -         (47.4)        (40.6)
Provision (benefit) for contingencies       (10.4)         29.1             - 
Other, net                                    8.0           0.7             - 
                                            ------        ------        ------
                                           (29.0%)         21.9%          0.0%
                                            ======        ======        ======
</TABLE>

                                      F17
<PAGE>
8.  INCOME  TAXES  (CONTINUED)

Deferred  tax  assets  and  liabilities result from temporary differences in the
recognition  of  income  and  expenses for tax and financial statement purposes.
These  differences  are  set  forth  below:

<TABLE>
<CAPTION>
                                                        JANUARY 31,   JANUARY 31,
                                                           1999          1998
                                                        ----------    -----------
<S>                                                    <C>           <C>
Financial statement accruals not currently deductible
  for income tax purposes                              $     3,758   $      3,482
Differences in the financial statement and income tax
  bases of fixed assets                                        770          1,212
Net operating loss and tax credit carry forwards               928              -
Attributes subject to IRC Section 382                            -            251
Other                                                          436            690
                                                        ----------    -----------
                                                             5,892          5,635
Valuation allowance                                         (3,254)        (3,254)
                                                        ----------    -----------
Net deferred tax assets                                $     2,638   $      2,381
</TABLE>

The  Company believes that based on a number of factors, including the nature of
the  temporary differences, the timing of their utilization and the level of tax
operating  losses,  realization  of  deferred tax assets is not considered to be
more  likely  than not, and, therefore, a valuation allowance has been provided.
The Company will continue to assess the realizability of the deferred tax assets
in  future  periods  and  make such adjustments to the valuation allowance as it
considers  appropriate.  As  of  January 31, 1999, the Company had a federal net
operating  loss  carryforward  of  $1,900  which  will  expire  in  2019.

Prior  to the Offering, the Company filed a consolidated federal tax return with
its  parent  company, First Equity Group, Inc.  The Company's federal income tax
provision  had  been  based  on  the tax sharing agreement between the companies
which stipulated that the Company was liable for federal taxes as if it filed on
a  separate  company  basis,  subject  to  certain  limitations and adjustments.
Income  taxes  payable  during that period represented an intercompany liability
under  the  tax sharing agreement.  As a result of the Offering, the Company now
files  its  own tax return and no longer files a consolidated federal income tax
return  with  First  Equity  Group,  Inc.

<TABLE>
<CAPTION>
<S>                                           <C>
9. NON-RECURRING CHARGES

Legal defense and related costs               $3,100
Severance and termination                      1,168
Facility exit costs                            1,110
Fees and expenses of terminated acquisitions     800
                                              ------

     Total non-recurring charges              $6,178
                                              ======
</TABLE>

During  the  fourth  quarter, the Company recorded a $3.1 million pre-tax charge
for  costs  incurred  in  connection  with  the  defense  of the Company and its
Directors  from  the  claims  brought  on by a former director and manager.  The
charge includes legal fees incurred through the conclusion of the trial, and out
of pocket costs, including expert testimony and the cost of defending against an
appeal  by  the  plaintiff.  The  Company  is  pursuing  recovery  of  these

                                      F18
<PAGE>
9.  NON-RECURRING  CHARGES  (CONTINUED)

costs  in  accordance  with the terms and conditions of a Directors and Officers
Insurance  policy maintained by the Company.  The amount of recovery, if any, is
not  ascertainable  at  this  time.

On  April  6,  1998,  the  Company  announced  that  it  had initiated a plan to
streamline  and  restructure  operations  at  NAC  in  order to reduce costs and
improve  operating  efficiencies.  In  connection  with  this  plan, the Company
recorded  a  $0.9  million pretax charge.  An additional $0.3 million charge was
recorded  in  the  fourth  quarter.  As  of  January  31, 1999, payments of $0.9
million  have  been  made related  to  a 92-person reduction in NAC's workforce.
The balance  was  paid  during  the  first  quarter  of  fiscal  2000.

In  relation  to the NAC restructuring, the Company recorded other non-recurring
pre-tax  charges  of  $1.1  million.  These  charges  principally  relate to the
reduction  of the Company's facilities.  During the year ended January 31, 1999,
approximately $0.4 million had been charged to this accrual.  Management expects
the  remaining  balance  to be utilized during the first half of the fiscal year
ended  January  31,  2000.

In conjunction with the April announcement, the Company provided an allowance of
$0.9  million  to  recognize  the  realizable  value  of  certain  assets.  This
allowance  was  eliminated  during  the  fourth  quarter  of  fiscal 1999 upon a
redetermination  of  recoverable  value.

The  Company  recorded  a  pre-tax charge of $0.8 million in connection with the
terminated  acquisition  of  a  distribution  company.  Costs  incurred included
legal,  advisory  and  accounting  fees,  bank  charges,  travel  and  lodging.

10.  EMPLOYEE  BENEFITS  PLANS

PROFIT  SHARING

The  Company  maintains  a  discretionary,  non-qualified  profit  sharing  plan
covering  a  substantial  number  of its employees.  The Company recorded profit
sharing expense of $313, $342 and $355 in the years ended January 31, 1999, 1998
and  1997,  respectively.

DEFINED  CONTRIBUTION  PLANS

The  Company  maintains  401(k)  savings  plans  that  cover  substantially  all
full-time  employees.  The  plans  allow  employees to defer up to 15 percent of
their  salary,  with  the  Company  partially  matching  employee contributions.
Employees  vest  in  the  Company  contribution  ratably  over three years.  The
Company  expensed  $654, $642 and $531 in the years ended January 31, 1999, 1998
and  1997,  respectively,  related  to  the  plans.

PENSION  PLANS

Prior  to  June  1,  1995  substantially  all employees of NAC were covered by a
qualified noncontributory defined benefit retirement plan. In October, 1996, NAC
purchased  $3,923  in  guaranteed  annuities for all retirees who were receiving
benefits  from  the  plan  and  announced  the  termination  of  the  plan.

The  pension  plan was liquidated according to regulatory guidelines on July 28,
1997.  A  portion  of the excess of the net assets remaining after settlement of
liabilities,  $102, was contributed to NAC's 401(k) plan.  The remaining balance
of  $308  reverted  back  to  the  Company.

                                      F19
<PAGE>
11.  EARNINGS  PER  SHARE

The  following  sets  forth  the  computation  of  basic  earnings per share and
earnings  per  share  -  assuming  dilution.

<TABLE>
<CAPTION>
                                          Years ended January 31,

                                                                   1999         1998         1997
                                                                -----------  -----------  -----------
<S>                                                             <C>          <C>          <C>
Numerator:
Income (loss) before extraordinary item                         $   (1,714)  $    5,359   $    1,459 
Preferred stock dividends                                                -          (11)        (132)
                                                                -----------  -----------  -----------

Numerator for earnings per share - net income (loss) available
  to common stockholders before extraordinary item                  (1,714)       5,348        1,327 

Effect of extraordinary item, net of associated income tax
  benefit                                                                -         (108)        (864)
                                                                -----------  -----------  -----------

Numerator for earnings per share - net income (loss) available
  to common stockholders                                        $   (1,714)  $    5,240   $      463 
                                                                ===========  ===========  ===========

Denominator:
Denominator for basic earnings per share - weighted average
  shares                                                         8,972,953    8,432,234    3,556,665 
Effect of dilutive warrants and employee stock options                   -      266,166    1,637,791 
                                                                -----------  -----------  -----------
Denominator for earnings per share - assuming dilution  -
  adjusted weighted average shares and assumed conversions       8,972,953    8,698,400    5,194,456 
                                                                ===========  ===========  ===========
</TABLE>

Stock  options  to purchase shares of common stock at an exercise price of $5 to
$6  per share for the year ended January 31, 1999 and at exercise prices ranging
from  $5  to  $10  per  share for the year ended January 31, 1998 were issued to
employees  during  the  respective  fiscal  years  but  were not included in the
computation of earnings per share - assuming dilution because the exercise price
of  the  options  was  greater than the average market price of the common stock
during  the  applicable period and, therefore, the effect would be antidilutive.

12.  COMMITMENTS  AND  CONTINGENCIES

COMMITMENTS

The  Company  leases certain land, plant facilities, equipment and office space.
Many  of the Company's operating leases have options which allow the Company, at
the  end of the initial lease term, to renew the leases for periods ranging from
three  to  five years.  Certain lease agreements also contain escalation clauses
which  are  based  on  the consumer price index.  Future minimum rental payments
under  operating leases that have initial noncancelable lease terms in excess of
one  year  as  of  January  31,  1999  are  as  follows:

Fiscal  year  2000                                            $  1,095
Fiscal  year  2001                                               1,116
Fiscal  year  2002                                                 617
Fiscal  year  2003                                                 616
Fiscal  year  2004                                                 591
Thereafter                                                       5,764
                                                              --------
                                                              $  9,799
                                                              ========

                                      F20
<PAGE>
12.  COMMITMENTS  AND  CONTINGENCIES  (CONTINUED)

COMMITMENTS

Rental  expense under all short-term and noncancelable operating leases amounted
to  $1,524,  $1,551 and $933, net of sublease rental income of $-, $116 and $299
for  the  years  ended  January  31,  1999,  1998  and  1997,  respectively.

CONTINGENCIES

In  the  ordinary  course  of business, the Company is subject to many levels of
governmental  inquiry  and  investigation.  Among the agencies which oversee the
Company's  business  activities  are  the  Federal  Aviation Administration, the
Department  of  Defense, the Department of Justice, the Environmental Protection
Agency  and  the Defense Contract Audit Agency.  The Company does not anticipate
that  any  action  as a result of such inquiries and investigations would have a
material  adverse  affect  on  its  consolidated  financial position, results of
operations  or  its  ability  to conduct business.  In the normal conduct of its
business,  the  Company also is involved in various claims and lawsuits, none of
which,  in the opinion of the Company's management, will have a material adverse
impact  on the Company's consolidated financial position.  The Company maintains
what it believes is adequate liability insurance to protect it from such claims.
However,  depending  on  the amount and timing, unfavorable resolution of any of
these matters could have a material effect on the Company's consolidated results
of  operations  or  cash  flows  in  a  particular  period.

13.  ENVIRONMENTAL

Liabilities  are  recorded  when  environmental  claims for remedial efforts are
probable  and  the cost can be reasonably estimated.  As of January 31, 1999 and
1998, the Company had provided for environmental remediation costs in the amount
of  $250  and $262, respectively, and such amounts are included in other accrued
liabilities  in  the  accompanying  consolidated  balance  sheet.  Environmental
expenditures  that  relate  to  current  operations  are  expensed  as incurred.

The  Company  potentially  is a responsible party to certain properties that are
contaminated  and  will  require remediation.  The exact extent of the Company's
liability,  if  any,  has  not  yet  been  determined  but,  in  the  opinion of
management,  these  matters  will  not  have  a  material  adverse impact on the
Company's  consolidated  financial  position  or  its  results  of  operations.
However,  depending  on  the amount and timing, unfavorable resolution of any of
these matters could have a material effect on the Company's consolidated results
of  operations  or  cash  flows  in  a  particular  period.

14.  SEGMENT  REPORTING

First  Aviation Services' reportable segments are managed separately and reflect
the  activities  of NAC and API.  These companies are two distinct entities; NAC
specializes in the repair, overhaul and remanufacture of gas turbine engines and
engine  components,  and  API  is  a wholesale distributor of aircraft parts and
components and provides logistics services.  Both units have unique business and
marketing  strategies  and  are  managed  separately.

The accounting policies of the segments are the same as those outlined in Note 2
-  Summary  of  Significant  Accounting Policies.  The Company does not allocate
Corporate  expenses,  assets,  depreciation  and  interest  expense  or  income.
Assets, revenues, profit and loss are separately reported by business unit.  The
Company  primarily  evaluates  performance  of  the  business  segments based on
revenues  and  profitability.

                                      F21
<PAGE>
14.  SEGMENT  REPORTING

The  following  tables  present  information by operating segment (in thousands)

<TABLE>
<CAPTION>
                                   YEAR ENDED YEAR ENDED YEAR ENDED
                                     JANUARY   JANUARY    JANUARY
                                     31, 1999  31, 1998  31, 1997
                                     --------  --------  --------
<S>                                  <C>       <C>       <C>
Revenues
NAC                                  $ 94,074  $109,639  $104,236
API                                    59,666    44,003         -
                                     --------  --------  --------

Total revenue                        $153,740  $153,642  $104,236
                                     ========  ========  ========

Gross profit
NAC                                  $ 15,588  $ 14,976  $ 14,810
API                                    11,696     8,233         -
                                     --------  --------  --------

Total gross profit                   $ 27,284  $ 23,209  $ 14,810
                                     ========  ========  ========

Other non-recurring charges
NAC                                  $  5,378  $      -  $      -
API                                       800         -         -
                                     --------  --------  --------

Total non-recurring charges          $  6,178  $      -  $      -
                                     ========  ========  ========

Extraordinary item
NAC                                  $      -  $    108  $    864
API                                         -         -         -
                                     --------  --------  --------

Total extraordinary item             $      -  $    108  $    864
                                     ========  ========  ========

Assets
NAC                                  $ 40,692  $ 35,358  $ 62,372
API                                    14,970     6,805         -
Corporate                              41,305    40,360         -
                                     --------  --------  --------

Total assets                         $ 96,967  $ 82,523  $ 62,372
                                     ========  ========  ========

Long-lived asset additions
NAC                                  $  3,842  $  2,375  $    957
API                                     2,158    10,636         -
Corporate                                  55         -         -
                                     --------  --------  --------

Total long-lived asset additions     $  6,055  $ 13,011  $    957
                                     ========  ========  ========

Depreciation and amortization
NAC                                  $    333  $    585  $  1,047
API                                       499       245         -
Corporate                                  35        78         -
                                     --------  --------  --------

Total depreciation and amortization  $    867  $    908  $  1,047
                                     ========  ========  ========
</TABLE>

                                      F22
<PAGE>
15.  QUARTERLY  FINANCIAL  INFORMATION  (UNAUDITED)

<TABLE>
<CAPTION>
                                             First Quarter   Second Quarter   Third Quarter    Fourth Quarter
                                            ---------------  ---------------  --------------  ----------------
Fiscal year ended January 31, 1999
<S>                                         <C>              <C>              <C>             <C>
Net sales                                   $       34,624   $        37,237  $       39,331  $        42,548 
Gross profit                                         5,410             6,473           7,055            8,346 
Non-recurring charges                                2,777                 -               -            3,401 

Net income (loss)                           $       (1,751)  $           709  $          803  $        (1,475)
                                            ===============  ===============  ==============  ================

Basic net income (loss) per share           $        (0.20)  $          0.08  $         0.09  $         (0.16)
                                            ---------------  ---------------  --------------  ----------------
Net income (loss) per share - assuming
   dilution                                 $        (0.20)  $          0.08  $         0.09  $         (0.16)
                                            ===============  ===============  ==============  ================

Fiscal year ended January 31, 1998

Net sales                                   $       35,847   $        38,575  $       39,543  $        39,677
Gross profit                                         5,294             6,054           6,759            5,102 
Net income before extraordinary item                 1,120             1,558           1,647            1,034 
Extraordinary item - loss on early
   extinguishment of debt, net of
   associated income tax benefit                      (108)                -               -                - 

Net income                                  $        1,012   $         1,558  $        1,647  $         1,034 
                                            ===============  ===============  ==============  ================
Basic net income per share before
   extraordinary item                       $         0.17   $          0.17  $         0.18  $          0.12 
Extraordinary item                                   (0.02)                -               -                - 
                                            ---------------  ---------------  --------------  ----------------
Basic net income per share                  $         0.15   $          0.17  $         0.18  $          0.12 
                                            ===============  ===============  ==============  ================
Net income per share - assuming dilution,
   before extraordinary item                $         0.16   $          0.17  $         0.18  $          0.11 
Extraordinary item                                   (0.01)                -               -                - 
                                            ---------------  ---------------  --------------  ----------------
Net income per share - assuming dilution    $         0.15   $          0.17  $         0.18  $          0.11 
                                            ===============  ===============  ==============  ================
</TABLE>

                                      F23
<PAGE>
<TABLE>
<CAPTION>
                FIRST AVIATION SERVICES INC. AND CONSOLIDATED SUBSIDIARIES
                                 (AMOUNTS IN THOUSANDS)

                                        Balance at
                                       beginning of                             Balance as of
                                          period       Additions    Deductions  end of period
                                       ------------  -------------  ----------  -------------
<S>                                    <C>           <C>            <C>         <C>
Description
Year ended January 31, 1997
   Allowance for doubtful accounts              278             75          75            278

Year ended January 31, 1998
   Allowance for doubtful accounts              278             74           6            346

Year ended January 31, 1999
   Allowance for doubtful accounts              346            497         235            608



Year ended January 31, 1997
   Slow moving and obsolete inventory         2,788              -         427          2,361

Year ended January 31, 1998
   Slow moving and obsolete inventory         2,361             18           -          2,379

Year ended January 31, 1999
   Slow moving and obsolete inventory         2,379          1,149       1,674          1,854

</TABLE>
                                      F24