<PAGE>

                                                                    Exhibit 10.1

                           PEMCO AVIATION GROUP, INC.
                         NONQUALIFIED STOCK OPTION PLAN
                               Dated June 1, 1999
                      As Amended and Restated May 17, 2001


     Section 1.  Purpose.  The purpose of the PEMCO AVIATION GROUP, INC. (the
                 -------
"Company") Nonqualified Stock Option Plan (the "Plan") is to provide incentives
for selected persons to promote the financial success and progress of the
Company by granting such persons awards ("Awards") of incentives in the form of
options to purchase shares of the Company's Common Stock ("Options"), stock
appreciation rights ("SARs"), and Common Stock of the Company ("Stock Grants").
An Award may consist of one or a combination of such incentives and may be made
at any time or from time to time.

     Section 2.   General Provisions.
                  ------------------

             A.  Administration.  The Plan shall be administered by the
                 --------------
Compensation Committee, which shall be comprised of two or more independent
outside directors appointed by the Board of Directors (the "Committee").
Notwithstanding the foregoing, if it would be consistent with all applicable
laws, including, without limitation, Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended ("Rule 16b-3"), and the Internal Revenue Code
of 1986, as amended (the "Code"), and the regulations promulgated thereunder
(including, without limitation, the regulations relating to Section 162(m) of
the Code), then the Plan may be administered by the Board of Directors, and if
so administered all subsequent references to the Committee shall refer to the
Board of Directors. Any action of the Committee shall be taken by majority vote
or the unanimous written consent of the Committee members.

             B.  Authority of the Committee.  Subject to other provisions of the
                 --------------------------
Plan, and with a view towards furtherance of its purpose, the Committee shall
have sole authority and absolute discretion:

                 1.  to construe and interpret the Plan;

                 2.  to define the terms used herein;

                 3.  to prescribe, amend and rescind rules and regulations
                     relating to the Plan;

                 4.  to determine the persons to whom Awards are granted;

                 5.  to determine the time or times at which Awards shall be
                     granted;

                 6.  to determine the number of shares subject to each Award;

                 7.  to determine all of the other terms and conditions of the
                     Options, SARs, and Stock Grants awarded hereunder; and

                                      -1-
<PAGE>

                 8.  to make all other determinations necessary or advisable for
                     the administration of the Plan and to do everything
                     necessary or appropriate to administer the Plan.

All decisions, determinations and interpretations made by the Committee shall be
binding and conclusive on all participants in the Plan and on their legal
representatives, heirs and beneficiaries.

             C.  Maximum Number of Shares Subject to the Plan.  The maximum
                 --------------------------------------------
aggregate number of shares of Common Stock subject to the Plan shall be
1,500,000, subject to adjustment as provided in Section 2.G of the Plan. The
Common Stock subject to the Plan may be divided among the various types of
Awards as the Committee determines in its sole discretion from time to time. For
purposes of calculating the maximum number of shares of Common Stock which may
be issued under the Plan, (a) all shares underlying an Option (including the
shares, if any, withheld for tax withholding requirements) shall be counted when
cash is used as full payment for shares issued upon exercise of the Option; (b)
in the case of net exercise of an Option, only the net shares issued (including
the shares, if any, withheld for tax withholding requirements) shall be counted
when shares of Common Stock are used as full or partial payment for shares
issued upon exercise of an Option; (c) all shares underlying an SAR (including
the shares, if any, withheld for tax withholding requirements) shall be counted
upon exercise of an SAR; and (d) all shares issued pursuant to a Stock Grant
(including the shares, if any, withheld for tax withholding requirements) shall
be counted when the shares are no longer subject to any conditions, such as a
vesting schedule, and certificates representing such shares have been issued and
delivered. If any Options or SARs granted under the Plan expire or terminate for
any reason before they have been exercised, the shares subject to such Options
or SARs shall again be available under the Plan.

             D.  Eligibility and Participation.  Subject to the terms of the
                 -----------------------------
Plan, Awards may be granted to such employees, officers, directors, consultants
and independent contractors of the Company or any Parent, Subsidiary or
Affiliate of the Company, as defined below, as the Committee may select from
time to time in its sole discretion. Employees of the Company are eligible to
receive Awards for no more than an aggregate of 500,000 shares of the Company's
Common Stock per employee under the Plan. If any Options or SARs granted to an
employee expire unexercised or terminate before vesting, they shall not be
included in the foregoing maximum aggregate of 500,000 shares per employee. The
Committee, in its sole discretion, shall determine the number of shares of the
Company's Common Stock covered by any Award made to executive officers or other
employees under the Plan. Grants to non-employee directors of the Company may
only be made pursuant to formula grants in the manner and amounts set forth in
Section 7 hereof, provided that, if, and to the extent that, the Committee or
the Board of Directors could exercise authority to determine the amount, price
and timing of grants hereunder to its members, consistent with all applicable
laws, including, without limitation Rule 16b-3, grants to non-employee directors
may be made by the Committee or the Board of Directors as permitted by law. A
person may be granted more than one Award under the Plan. As used in the Plan,
the following terms shall have the following meanings:

                 1.  "Parent" means any corporation (other than the Company) in
                      ------
an unbroken chain of corporations ending with the Company if, at the time of the
granting of an Award, each of such corporations other than the Company owns
stock possessing 50% or more

                                      -2-
<PAGE>

of the total combined voting power of all classes of stock in one of the other
corporations in such chain.

                 2.  "Subsidiary" means any corporation (other than the Company)
                      ----------
in an unbroken chain of corporations beginning with the Company if, at the time
of granting of an Award, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.

                 3.  "Affiliate" means any corporation that directly, or
                      ---------
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, another corporation, where "control" (including
the terms "controlled by" and "under common control with") means the possession,
direct or indirect, of the power to cause the direction of the management and
policies of the corporation, whether through the ownership of voting securities,
by contract or otherwise.

                 4.  "Common Stock" means shares of the Company's $.0001 par
                      ------------
value common stock, or such other shares as are substituted pursuant to Section
2.G hereof.

             E.  Effective Date of Plan.  The Plan was adopted by the Company on
                 ----------------------
September 8, 1989 and has been amended thereafter from time to time.

             F.  Termination and Amendment of Plan.  The Plan shall terminate on
                 ---------------------------------
September 8, 2009.  No Options, SARs, or Stock Grants shall be granted under the
Plan after that date. Subject to the limitation contained in Section 2.H of the
Plan, the Board or the Committee may at any time amend or revise the terms of
the Plan, including the form and substance of the Options, SARs, and Stock
Grants granted hereunder, provided that no such amendment or revision shall (i)
increase the maximum aggregate number of shares that may be issued pursuant to
Awards granted under the Plan, except as permitted under Section 2.G of the
Plan; or (ii) effect any change to the Plan which is required to be approved by
shareholders by law, including without limitation the regulations promulgated
under Section 162(m) of the Code.

             G.  Adjustments.  If the outstanding shares of Common Stock are
                 -----------
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities through merger, consolidation, combination, exchange of
shares, reorganization, recapitalization, reclassification, stock dividend,
stock split or reverse stock split, an appropriate and proportionate adjustment
shall be made in the maximum number and kind of shares as to which Options,
SARs, and Stock Grants may be granted under the Plan. A corresponding adjustment
shall be made to the number or kind of shares allocated to unexercised Options
and SARs, or portions thereof, and to unvested Options, SARs, and Stock Grants
granted prior to any such change. Any such adjustment in outstanding Options or
SARs shall be made without change in the aggregate purchase price applicable to
the unexercised portion of such Options or SARs, but with a corresponding
adjustment in the price for each share covered by the Options or SARs.

             H.  Prior Options and Obligations.  No amendment, suspension or
                 -----------------------------
termination of the Plan shall, without the consent of the person who has
received an Award, alter or impair any

                                      -3-
<PAGE>

of that person's Options or obligations under any Award granted under the Plan
prior to that amendment, suspension or termination.

             I.  Privileges of Stock Ownership.  Notwithstanding the exercise of
                 -----------------------------
any Option or SAR, or the receipt of any Stock Grant, granted pursuant to the
terms of the Plan, no person shall have any of the rights or privileges of a
shareholder of the Company with respect to any shares of stock until
certificates representing such shares have been issued and delivered. No shares
shall be required to be issued and delivered upon exercise of any Option or SAR,
or pursuant to a Stock Grant, until there has been compliance with all of the
requirements of law and of all regulatory agencies having jurisdiction over the
issuance and delivery of the securities.

             J.  Reservation of Shares of Common Stock.  During the term of the
                 -------------------------------------
Plan, the Company will at all times reserve and keep available such number of
shares of its Common Stock as shall be sufficient to satisfy the requirements of
the Plan. In addition, the Company will from time to time, as is necessary to
accomplish the purposes of the Plan, seek or obtain from any regulatory agency
having jurisdiction any requisite authority in order to issue shares of common
stock hereunder. The inability of the Company to obtain from any regulatory
agency having jurisdiction the authority deemed by the Company's counsel to be
necessary to the lawful issuance of any Award or shares of its stock hereunder
shall relieve the Company of any and all liability with respect to the
nonissuance of the Award or the shares of Common Stock as to which the requisite
authority shall not have been obtained.

             K.  Tax Withholding.  The exercise of any Option or SAR, and the
                 ---------------
receipt of any Stock Grant, is subject to the condition that if at any time the
Company shall determine, in its discretion, that the satisfaction of withholding
tax or other withholding obligations under any state or federal law is necessary
or desirable as a condition of, or in connection with, such exercise or delivery
or purchase of shares pursuant thereto, then in such event, the exercise of an
Option or SAR, or the receipt of a Stock Grant, shall not be effective unless
such withholding shall have been effected or obtained in a manner acceptable to
the Company.

             L.  Fair Market Value.  The "fair market value" of the Common Stock
                 -----------------
means if there is an established market for the Company's Common Stock on a
stock exchange, in an over-the-counter market or otherwise, the mean of the
highest and lowest quoted selling prices on the date upon which an Option or SAR
is granted or (b) if there were no such sales on such date, then in accordance
with Treasury Regulation Section 20.2031-2 or successor regulations.

     Section 3.  Options.
                 -------

             A.  Option Price.  The option price for shares acquired pursuant to
                 ------------
the exercise of any Option, in whole or in part, shall be determined by the
Committee at the time of the grant of the Option. Such option price may be less
than the fair market value of the Company's Common Stock on the date of grant,
but in no event shall the option price be less than fifty percent (50%) of the
fair market value of the Common Stock on the date of grant. The foregoing
notwithstanding, the option price of Options granted to officers or directors
shall be 100% of the fair market value of the Company's Common Stock on the date
of grant.

                                      -4-
<PAGE>

             B.  Exercise of Options.  Each Option shall be exercisable in one
                 -------------------
or more installments during its term, and the right to exercise may be
cumulative, as determined by the Committee. No Option may be exercised for a
fraction of a share of Common Stock. The option price shall be paid at the time
of exercise of the Option in cash or shares of the Company's Common Stock, or in
a combination thereof. If permitted by the Committee, payment may also be made
by delivering a properly executed notice together with irrevocable instructions
to a broker to promptly deliver to the Company the amount of sale or loan
proceeds attributable to the purchased shares needed to pay the exercise price.
If any portion of the purchase price at the time of exercise is paid in shares
of Common Stock, those shares shall be tendered at their fair market value on
the date of exercise. The Committee may also permit a participant to effect a
net exercise of an Option without tendering any shares of the Company's Common
Stock as payment for the Option. In such an event, the participant will be
deemed to have paid for the exercise of the Option with shares of the Company's
stock and shall receive from the Company a number of shares equal to the
difference between the shares that would have been tendered and the number of
Options exercised. The Committee may in its discretion and subject to
ratification by the entire Board of Directors, loan one or more participants all
or a portion of the exercise price, together with the amount of any tax
liability incurred by the participant as a result of the exercise of the Option,
for up to three (3) years with interest payable at the prime rate quoted in the
Wall Street Journal on the date of exercise. Non-employee directors may receive
such loans for the exercise of their Options without Committee approval or Board
ratification.

             C.  Acceleration of Options.  Notwithstanding the first sentence of
                 -----------------------
Section 3.B of the Plan, if the Company or its shareholders enter into an
agreement to dispose of all or substantially all of the assets or stock of the
Company by means of a sale, merger or other reorganization, liquidation, or
otherwise, any Option granted pursuant to the Plan shall become immediately
exercisable with respect to the full number of shares subject to that Option
during the period commencing as of the date of the agreement to dispose of all
or substantially all of the assets or stock of the Company and ending when the
disposition of assets or stock contemplated by that agreement is consummated or
the Option is otherwise terminated in accordance with its provisions or the
provisions of the Plan, whichever occurs first; provided that no Option shall be
immediately exercisable under this Section on account of any agreement of merger
or other reorganization where the shareholders of the Company immediately before
the consummation of the transaction will own at least 50% of the total combined
voting power of all classes of stock entitled to vote of the surviving entity
(whether the Company or some other entity) immediately after the consummation of
the transaction. In the event the transaction contemplated by the agreement
referred to in this Section is not consummated, but rather is terminated,
canceled or expires, the Options granted pursuant to the Plan shall thereafter
be treated as if that agreement had never been entered into.

             D.  Written Notice Required.  Any Option granted pursuant to the
                 -----------------------
Plan shall be exercised when written notice of that exercise has been given to
the Company at its principal office by the person entitled to exercise the
Option and full payment for the shares with respect to which the Option is
exercised has been received by the Company.

     Section 4.  Reload Options.  Concurrently with the award of Options under
                 --------------
the Plan, the Committee may authorize reload options ("Reload Options") to
purchase, for cash or shares, the number of shares of Common Stock used to
exercise the underlying Option.

                                      -5-
<PAGE>

             A.  Reload Option Amendment.  Each notice evidencing the grant of
                 -----------------------
an Option shall state whether the Committee has authorized Reload Options with
respect to the underlying Option. Upon the exercise of an underlying Option, the
Reload Option will be evidenced by an amendment to the notice of grant of the
underlying Option. Reload Options shall be subject to the terms and conditions
in the underlying option agreement and shall be subject to the terms and
conditions set forth in the Plan.

             B.  Reload Option Price.  The option price per share of Common
                 -------------------
Stock deliverable upon exercise of a Reload Option shall be the fair market
value of a share of Common Stock on the date of exercise of the underlying
Option.

             C.  Term and Exercise.  Each Reload Option is fully exercisable
                 -----------------
from the date of exercise of the underlying Option and shall remain exercisable
for the remaining term of the underlying Option. Reload Options may be exercised
in the same manner as the underlying Options in accordance with the Plan.

             D.  Termination of Employment.  No additional Reload Options shall
                 -------------------------
be granted to participants in the Plan when an Option or Reload Option is
exercised pursuant to the terms of the Plan following termination of the
participant's employment or the cessation of the participant's service to the
Company as a director, consultant or independent contractor.

     Section 5.  Stock Appreciation Rights.  The Committee may, from time to
                 --------------------------
time in its sole discretion, grant SARs in addition to or in conjunction with
Options granted hereunder, either at the time of the grant of the Options or at
any subsequent time during the term of the Options. Subject to the terms of the
Plan, the Committee shall determine and designate the recipients of SARs, the
dates SARs are granted, the number of shares subject to SARs, the duration of
each SAR, and whether SARs are alternative to any previously or
contemporaneously granted Option or Reload Option ("Related Options").  SARs
shall be subject to the terms and conditions and evidenced by agreements in the
form determined from time to time by the Committee.

             A.  Value of SARs.  SARs shall entitle their holders to receive a
                 -------------
number of shares of the Company's Common Stock equal to (i) the excess of the
fair market value of a share of the Company's Common Stock on the date of
exercise over a specified price fixed by the Committee, which price may not be
less than 100% of the fair market value of a share of Common Stock on the date
of the grant, multiplied by (ii) the number of shares as to which the holder is
exercising the SAR.

             B.  Duration.  The term of an SAR granted as an alternative to an
                 --------
Option will be the same as the term of its Related Option; upon exercise of the
SAR, the Related Option will terminate, and upon exercise of the Related Option,
the SAR will terminate. The term of an SAR granted in addition to and separately
from any Option shall be specified by the Committee at the time such SAR is
granted.

             C. Exercise of SARs.  SARs may be exercised according to their
                ----------------
terms by providing written notice to the Company at any time prior to the
expiration of the SAR. No SAR

                                      -6-
<PAGE>

may be exercised for a fraction of a share of Common Stock. If the SAR is
alternative to an Option, the Related Option shall be deemed terminated to the
extent the SAR is exercised.

     Section 6.  Stock Grants.  The Committee may, from time to time in its sole
                 ------------
discretion, grant shares of the Company's Common Stock under the Plan.  Such
Stock Grants may be awarded with or without conditions, such as vesting
schedules or performance requirements. Recipients of Stock Grants will not be
required to pay for the acquisition of the Company's Common Stock but will be
subject to tax consequences and resale restrictions.

     Section 7.  Grants to Outside Directors.  On the same date in 2001 and each
                 ---------------------------
year thereafter on which the Committee makes its annual grant of Options to the
Company's officers and other key employees, each director who is not an employee
of the Company shall be granted an Option for 20,000 shares of Common Stock,
without further action by the Committee.  The exercise price for Options granted
to outside directors under this Section shall be 100% of the fair market value
of the Common Stock on the date of grant.  Each Option granted in accordance
with this Section shall include authorization for a Reload Option in accordance
with Section 4 of the Plan.

     Section 8.  Terms and Conditions May Differ.   The terms and conditions of
                 -------------------------------
Awards granted under the Plan may differ as the Committee shall in its
discretion determine so long as all Awards satisfy the requirements of the Plan.

     Section 9.  Duration of Options and SARs.  Each Option and each SAR granted
                 ----------------------------
pursuant to the Plan shall expire on the date determined by the Committee which
shall be not later than ten years after the date of grant and shall be subject
to early termination as provided in the Plan. Subject to the foregoing, Options
granted to outside directors pursuant to Section 7 hereof shall be fully vested
on the date of grant and shall be exercisable for a period of ten years.

     Section 10.  Limitations on Acquiring Voting Stock.  No Award may be
                  -------------------------------------
granted to persons who are not officers or directors of the Company if such
Award would cause that person to hold, beneficially or of record, in excess of
5% of the outstanding voting stock of the Company.

     Section 11.  Compliance with Securities Laws.  Shares of Common Stock shall
                  -------------------------------
not be issued with respect to any Award granted under the Plan unless the
issuance and delivery of the shares pursuant thereto shall comply with all
relevant provisions of state and federal law, including without limitation the
Securities Act of 1933, as amended, the rules and regulations promulgated
thereunder and the requirements of any stock exchange upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.  Further, each recipient of an Award
hereunder shall consent to the imposition of a legend on the certificate
representing the shares of Common Stock issued hereunder restricting the
transferability of such shares as required by law, the Award, or by the Plan.

     Section 12.  Employment.  Each recipient of an Award, if requested by the
                  ----------
Committee, must agree in writing as a condition of the granting of his or her
Award, to remain in the employ of the Company or to remain as a consultant to
the Company, or any of its Subsidiaries, following the date of the granting of
that Award for a period or periods specified by the

                                      -7-
<PAGE>

Committee, which period(s) shall in no event exceed an aggregate of four years.
Nothing in the Plan or in any Award granted hereunder shall confer upon any
Award recipient any right to continued employment or retainer by the Company or
any of its Subsidiaries, or limit in any way the right of the Company or any
Subsidiary at any time to terminate or alter the terms of that employment or
consulting arrangement.

     Section 13.  Rights Upon Termination of Employment, Director, Consultant or
                  --------------------------------------------------------------
Independent Contractor Status.  If an Award recipient ceases to be employed by
-----------------------------
the Company or ceases to serve as a director, consultant or independent
contractor of the Company, or any Subsidiary, for any reason other than death or
retirement, his or her Award shall terminate one year from the date of the Award
recipient ceases to be employed by or serve as a director, consultant or
independent contractor of the Company; provided that the Committee may, in its
discretion, allow Options and SARs to remain exercisable (to the extent
exercisable on the date of termination of employment or retainer) for up to one
additional year for each year of service to the Company by the Award recipient
(up to a maximum of five years after the date of termination), unless the
Option, SAR, or the Plan otherwise provides for earlier termination; and
provided further that, for purposes of determining when a director no longer
serves the Company, the period during which post-retirement or similar benefits
are paid to the director by the Company shall be deemed to be continued service.

     Section 14.  Rights Upon Death.  Except as otherwise limited by the
                  -----------------
Committee at the time of the grant of an Option or SAR, if the recipient dies
while he or she is an employee, director or consultant of the Company or any
Subsidiary, his or her Options and SARs shall remain exercisable for one year
after the date of death, unless the Options, SARs, or the Plan otherwise provide
for earlier termination.  During such exercise period after death, Options and
SARs may be fully exercised, to the extent that they remain unexercised on the
date of the recipient's death, by the person or persons to whom the recipient's
rights to the Options or SARs shall pass by will or by laws of descent and
distribution.

     Section 15.  Waiver of Vesting Restrictions in the Event of Retirement.
                  ---------------------------------------------------------
Notwithstanding any provision of the Plan, in the event an Award recipient
retires as an employee or director of the Company, or any Subsidiary, the
Committee shall have the discretion to waive any vesting restrictions on the
retiree's Options, SARs, or Stock Grants.

     Section 16.  Awards Not Transferable.  Awards granted pursuant to the Plan
                  -----------------------
may not be sold, pledged, assigned or transferred in any manner otherwise than
by will or the laws of descent and distribution.  During the lifetime of the
Award recipient, Options and SARs may only be exercised by that recipient or by
his or her guardian or legal representative.

     Section 17.  Reports to Shareholders.  Upon written request, the Company
                  -----------------------
shall furnish to each Award recipient a copy of its most recent Form 10-K Annual
Report and each quarterly report to shareholders issued since the end of the
Company's most recent fiscal year.

                                      -8-