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


                                    FORM 10-Q


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

                  For the quarterly period ended March 31, 1997

                         Commission file number 0-17785

                          AIRCRAFT INCOME PARTNERS L.P.
             (Exact name of registrant as specified in its charter)


       DELAWARE                                                  13-3430508
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

                   411 West Putnam Avenue, Greenwich, CT 06830
                    (Address of principal executive offices)

                                 (203) 862-7000
              (Registrant's telephone number, including area code)

                                      None
              (Former name, former address and former fiscal year,
                          if changed since last report)


Indicate by check whether the registrant  (1) has filed all reports  required to
be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                    Yes    [ X ]          No [   ]
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                           FORM 10-Q - MARCH 31, 1997

                                      INDEX



PART I - FINANCIAL INFORMATION

      ITEM 1 - FINANCIAL STATEMENTS

         BALANCE SHEETS - March 31, 1997 and December 31, 1996 .................


         STATEMENTS OF OPERATIONS - For the three months ended
           March 31, 1997 and 1996 .............................................


         STATEMENT OF PARTNERS' EQUITY - For the three months ended
           March 31, 1997 ......................................................


         STATEMENTS OF CASH FLOWS - For the three months ended
           March 31, 1997 and 1996  ............................................


         NOTES TO FINANCIAL STATEMENTS .........................................

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


PART II - OTHER INFORMATION

      ITEM 1 - LEGAL PROCEEDINGS................................................

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

SIGNATURES
         .......................................................................

<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

                                 AIRCRAFT INCOME PARTNERS L.P.
                                         BALANCE SHEETS
                                                                     March 31,    December 31,
                                                                       1997            1996
                                                                   -----------     -----------
<S>                                                                <C>             <C>
ASSETS

     Leased aircraft, net of accumulated depreciation of
        $74,493,724 and $72,647,508 and allowance for
        equipment impairment of $27,500,000...................     $25,683,203     $27,529,419
     Cash and cash equivalents ...............................       7,123,222       6,279,937
     Note receivable - installment sale ......................       3,351,562       3,887,665
     Accounts receivable .....................................         711,711         769,547
     Deferred rents and modifications advances receivable ....            --           254,432
     Restricted cash - security deposits .....................         487,416         481,677
     Deferred costs ..........................................         191,776         223,866
     Other receivables .......................................         104,799         523,915
     Prepaid expenses ........................................          69,545          95,361
                                                                   -----------     -----------

                                                                   $37,723,234     $40,045,819
                                                                   ===========     ===========

LIABILITIES AND PARTNERS' EQUITY

Liabilities
     Distributions payable ...................................     $ 2,572,033     $ 2,357,697
     Maintenance reserves ....................................       2,230,497       2,167,329
     Security deposits payable ...............................         487,416         481,677
     Deferred income .........................................         131,550         131,550
     Management fee payable ..................................         103,000          94,000
     Deferred costs payable...................................          48,016          48,016
     Accounts payable and accrued expenses ...................         121,393         103,765
                                                                   -----------     -----------

        Total liabilities ....................................       5,693,905       5,384,034
                                                                   -----------     -----------
<PAGE>
<CAPTION>
                                 AIRCRAFT INCOME PARTNERS L.P.

                                         BALANCE SHEETS
                                          (continued)
                                                                     March 31,    December 31,
                                                                       1997            1996
                                                                   -----------     -----------
<S>                                                                <C>             <C>
Commitments and contingencies

Partners' equity
        Limited partners' equity (as restated)  (385,805 units
            issued and outstanding) ..........................      28,817,441      31,186,652
        General partner's equity (as restated) ...............       3,211,888       3,475,133
                                                                   -----------     -----------

        Total partners' equity ...............................      32,029,329      34,661,785
                                                                   -----------     -----------

                                                                   $37,723,234     $40,045,819
                                                                   ===========     ===========


                              See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                AIRCRAFT INCOME PARTNERS L.P.

                                  STATEMENTS OF OPERATIONS
                                                                For the three months ended
                                                                         March 31,
                                                               ---------------------------- 
                                                                   1997               1996
                                                               -----------      -----------
<S>                                                            <C>              <C>        
Revenues
  Rental .................................................     $ 1,911,475      $ 2,879,560
  Interest ...............................................          83,725          100,822
  Interest - Installment note ............................          75,897             --   
                                                               -----------      -----------

                                                                 2,071,097        2,980,382
                                                               -----------      -----------

Costs and expenses
  Depreciation ...........................................       1,846,216        2,563,023
  Management fee .........................................         103,000          120,000
  General and administrative .............................         100,253           69,302
  Operating ..............................................          65,323           11,096
  Other expenses .........................................          16,728            4,447
  Provision for bad debt .................................            --             66,133
  Interest expense .......................................            --              1,254
                                                               -----------      -----------

                                                                 2,131,520        2,835,255
                                                               -----------      -----------

Net (loss)income .........................................     $   (60,423)     $   145,127
                                                               ===========      ===========

Net (loss) income  attributable to
  Limited partners .......................................     $   (54,381)     $   130,614
  General partners .......................................          (6,042)          14,513
                                                               -----------      -----------

                                                               $   (60,423)     $   145,127
                                                               ===========      ===========
Net (loss) income  per unit of limited partnership interest
  (385,805 units outstanding) ............................     $     (0.14)     $      0.34
                                                               ===========      ===========
 
                             See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                    AIRCRAFT INCOME PARTNERS L.P.
                                   STATEMENTS OF PARTNERS' EQUITY


                                                       Limited          General            Total
                                                      Partners'        Partner's         Partners'
                                                       Equity           Equity            Equity
                                                   ------------      ------------      ------------
<S>                                                <C>               <C>               <C>
Balance, January 1,1997 ......................     $ 50,476,902      $(15,815,117)     $ 34,661,785

Reallocation of partners' equity .............      (19,290,250)       19,290,250            ---
                                                   ------------      ------------      ------------

Balance, January 1,1997 (as restated) ........       31,186,652         3,475,133        34,661,785

Net loss for the three months
 ended March 31, 1997 ........................          (54,381)           (6,042)          (60,423)

Distributions to partners for the three months
 ended March 31, 1997 ($6.00 per limited
 partnership unit) ...........................       (2,314,830)         (257,203)       (2,572,033)
                                                   ------------      ------------      ------------

Balance, March 31, 1997                            $ 28,817,441      $  3,211,888      $ 32,029,329
                                                   ============      ============      ============


                                 See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                    AIRCRAFT INCOME PARTNERS L.P.
                                      STATEMENTS OF CASH FLOWS

                                                                          For the three months ended
                                                                                   March 31,
                                                                             1997            1996
                                                                        -----------      -----------
<S>                                                                     <C>              <C>
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS

Cash flows from operating activities
     Net (loss) income ............................................     $   (60,423)     $   145,127
     Adjustments to reconcile net (loss) income to net
        cash provided by operating activities
            Depreciation ..........................................       1,846,216        2,563,023
            Provision for bad debt ................................            --             66,133
     Changes in assets and liabilities
        Accounts receivable .......................................          57,836          132,322
        Deferred rents and modification advances receivable .......         254,432           93,117
        Restricted cash - security deposits .......................          (5,739)          (5,760)
        Security deposits payable .................................           5,739            5,760
        Deferred costs ............................................          32,090           32,090
        Other receivables .........................................         419,116           18,111
        Prepaid expenses ..........................................          25,816           12,238
        Maintenance reserves ......................................          63,168          158,860
        Management fee payable ....................................           9,000          (17,000)
        Accounts payable and accrued expenses .....................          17,628          (12,287)
                                                                        -----------      -----------

                Net cash provided by operating activities .........       2,664,879        3,191,734
                                                                        -----------      -----------
Cash flows from investing activities
     Proceeds from installment sale note receivable ...............         536,103             --
     Additions and modifications to leased aircraft, net ..........            --            (44,110)
                                                                        -----------      -----------

                Net cash provided by (used in) investing activities         536,103          (44,110)
                                                                        -----------      -----------
Cash flows from financing activities
     Distributions to partners ....................................      (2,357,697)      (3,429,378)
                                                                        -----------      -----------

Net increase (decrease) in cash and cash equivalents ..............         843,285         (281,754)

Cash and cash equivalents, beginning of period ....................       6,279,937        7,448,455
                                                                        -----------      -----------

Cash and cash equivalents, end of period ..........................     $ 7,123,222      $ 7,166,701
                                                                        ===========      ===========

Supplemental disclosure of cash flow information
     Interest paid ................................................     $      --        $     1,254 
                                                                        ===========      ===========

                               See notes to financial statements.
</TABLE>
<PAGE>
                         AIRCRAFT INCOME PARTNERS L. P.

                          NOTES TO FINANCIAL STATEMENTS



1        INTERIM FINANCIAL INFORMATION

         The  summary  financial  information  contained  herein  is  unaudited;
         however, in the opinion of management, all adjustments (consisting only
         of normal recurring accruals) necessary for a fair presentation of such
         financial  information have been included.  The accompanying  financial
         statements, footnotes and discussion should be read in conjunction with
         the financial  statements,  related footnotes and discussions contained
         in the Aircraft Income Partners L.P. (the "Partnership")  annual report
         on Form 10-K for the year  ended  December  31,  1996.  The  results of
         operations   for  the  three  months  ended  March  31,  1997  are  not
         necessarily indicative of the results to be expected for the full year.

2        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Leased aircraft

         The cost of leased aircraft represents the initial cost of the aircraft
         to the Partnership plus miscellaneous acquisition and closing costs and
         is carried at the lower of depreciated cost or net realizable value.

         Depreciation  is  computed  using the  straight-line  method,  over the
         estimated useful lives of such aircraft (15 years for McDonnell Douglas
         DC9-32 aircraft, 12 to 12.5 years for Boeing 737-200 Advanced aircraft,
         Boeing  727-200   Advanced   aircraft  and  McDonnell   Douglas  DC9-51
         aircraft).  The Partnership capitalizes major additions to its aircraft
         and depreciates such capital  improvements over the remaining estimated
         useful life of the aircraft.

         When  aircraft  are  sold  or  otherwise  disposed  of,  the  cost  and
         accumulated  depreciation  (and any  related  allowance  for  equipment
         impairment)  are removed from the accounts and any gain or loss on such
         sale or disposal is reflected in  operations.  Normal  maintenance  and
         repairs are charged to operations as incurred. The Partnership provides
         allowances for equipment  impairment  based upon a quarterly  review of
         all aircraft in its portfolio,  when  management  believes that,  based
         upon market analysis,  appraisal  reports and leases currently in place
         with respect to specific aircraft,  the investment in such aircraft may
         not be recoverable.

         The allowance is inherently  subjective and is based upon management's
         best estimate of current  conditions  and  assumptions  about  expected
         future conditions. The Partnership may provide for additional losses in
         subsequent periods and such provisions could be material.


         Maintenance reserves

         Maintenance  reserves  represent  cash received in accordance  with the
         terms of the leases of certain  aircraft,  which has been set aside for
         certain required repairs or scheduled maintenance on the aircraft.
<PAGE>
                         AIRCRAFT INCOME PARTNERS L. P.

                          NOTES TO FINANCIAL STATEMENTS

2        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         Deferred costs


         Deferred  costs  represent  amounts  paid,  directly  or  through  rent
         credits,  based upon the terms of certain leases, for maintenance which
         enhanced  the  marketability  of  such  aircraft.  Deferred  costs  are
         amortized over the terms of a remarketed lease.

3        CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES

         The  general  partner  of the  Partnership,  Integrated  Aircraft  Fund
         Management  Corp.  ("IAFM"),  is a wholly owned  subsidiary of Presidio
         Capital  Corp.  ("Presidio").  Other limited  partnerships  and similar
         investment  programs  have been formed by affiliates of IAFM to acquire
         equipment and, accordingly, conflicts of interest may arise between the
         Partnership  and such other  limited  partnerships.  Affiliates of IAFM
         have also engaged in businesses  related to the management of equipment
         and the sale of various  types of equipment  and may transact  business
         with the Partnership.

         Subject  to the  rights  of the  Limited  Partners  under  the  Limited
         Partnership  Agreement,  Presidio controls the Partnership  through its
         indirect ownership of all of the shares of IAFM. Presidio is managed by
         Presidio Management  Company,  LLC ("Presidio  Management"),  a company
         controlled  by a director  of  Presidio.  Presidio  is also party to an
         administrative   services   agreement   with  Wexford   Management  LLC
         ("Wexford") pursuant to which Wexford is responsible for the day-to-day
         management  of Presidio and,  among other things,  has the authority to
         designate  directors of IAFM. For the three months ended March 31, 1997
         and 1996,  reimbursable expenses paid to Wexford amounted to $7,500 and
         $10,500.

         Presidio is a liquidating  company.  Although Presidio has no immediate
         plans to do so, it will  ultimately seek to dispose of the interests it
         acquired from Integrated Resources, Inc. through liquidation;  however,
         there can be no  assurance  of the  timing of such  transaction  or the
         effect it may have on the Partnership.

         IAFM is entitled to a 10 percent  interest in the net income,  loss and
         distributions from operations and cash from sales. For the three months
         ended March 31, 1997 and 1996,  IAFM received or accrued  distributions
         totaling $257,203 and $300,071, respectively.

         In  June  1992,  IAFM  assumed   responsibilities  to  provide  certain
         management services previously provided by Citicorp Aircraft Management
         Inc. ("CAMI").  IAFM has also retained the aviation  consulting firm of
         Simat,  Helliesen  &  Eichner,  Inc.  ("SH&E")  to  provide  consulting
         services  with respect to the  Partnership.  Services  provided by SH&E
         include advice as to commercial  aviation market conditions,  long-term
         marketing and financial strategies,  as well as technical and financial
         advice on the sale or re-lease of the Partnership's aircraft.
<PAGE>
                         AIRCRAFT INCOME PARTNERS L. P.

                          NOTES TO FINANCIAL STATEMENTS

3        CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (continued)


         IAFM has also entered into an agreement  with  Aviation  Capital  Group
         ("ACG"),  an entity comprised  primarily of former  management of IAFM,
         pursuant to which ACG performs remarketing services with respect to the
         sale or  re-lease  of certain of the  Partnership's  aircraft.  ACG has
         previously performed certain administrative services for IAFM.

         All costs  associated  with the  retention  of SH&E and ACG (other than
         normal  competitive  aircraft  sales  commissions,  if any) are paid by
         IAFM.

         As  compensation  for  the  foregoing   services,   IAFM  receives  the
         management fee provided for in the Limited Partnership  Agreement which
         is equal to 4% of  Distributions of Cash from Operations from Operating
         Leases and 2% of Distributions of Cash from Operations from Full Payout
         Leases, as such terms are defined in the Limited Partnership Agreement.
         In  conjunction  with such  services,  IAFM earned  management  fees of
         $103,000  and  $120,000  for the three  months ended March 31, 1997 and
         1996, respectively.

         Upon ultimate  liquidation of the Partnership,  IAFM may be required to
         remit to the Partnership certain payments  representing capital account
         deficit  restoration  based upon a formula  provided within the Limited
         Partnership  Agreement.  Such  restoration  amount may be less than the
         recorded IAFM's  deficit,  which could result in  distributions  to the
         limited partners of less than their recorded equity.

         In April 1995,  IAFM and certain  affiliates  entered into an agreement
         with Fieldstone Private Capital Group, L.P.  ("Fieldstone") pursuant to
         which  Fieldstone   performs  certain   management  and  administrative
         services   relating  to  the  Partnership.   Substantially   all  costs
         associated with the retention of Fieldstone are paid by IAFM.


4        DISTRIBUTIONS TO PARTNERS


         Distributions  payable to Limited  Partners and the General  Partner of
         $2,314,830  ($6.00 per unit) and $257,203,  respectively,  at March 31,
         1997, were paid in May 1997.

5        PARTNERS' EQUITY

         The General Partner holds a 10% equity interest in the Partnership.  At
         the inception of the Partnership,  the General Partner's equity account
         was credited with only the actual capital  contributed in cash, $9,950.
         The Partnership's  management  determined that this accounting does not
         appropriately  reflect the limited  partners' and the General Partner's
         relative  participations in the Partnership's net assets, since it does
         not  reflect  the  General   Partner's  10%  equity   interest  in  the
         Partnership.   Thus,  the   Partnership   has  restated  its  financial
         statements to reallocate  $19,290,250 (10% of the gross proceeds raised
<PAGE>
                         AIRCRAFT INCOME PARTNERS L. P.

                          NOTES TO FINANCIAL STATEMENTS

5        PARTNERS' EQUITY (continued)

         at the Partnership's  formation) of the partners' equity to the General
         Partner's  equity  account.  This  reallocation  was  made  as  of  the
         inception of the Partnership and all periods presented in the financial
         statements  have  been  restated  to  reflect  the  reallocation.   The
         reallocation  has no impact on the  Partnership's  financial  position,
         results of operations,  cash flows,  distributions to partners,  or the
         partners' tax basis capital accounts.


6        COMMITMENTS AND CONTINGENCIES

         a.        Hawaiian Airlines, Inc.


         On September 1, 1996,  the  Partnership  and  Hawaiian  Airlines,  Inc.
         ("Hawaiian")  amended the lease agreement of a McDonnell  Douglas model
         DC9-51  aircraft  (the  "Hawaiian  Aircraft").  Under  the terms of the
         agreement, Hawaiian paid the Partnership a down payment of $450,000 and
         the  balance  will be paid in  monthly  installments  (39  payments  of
         $72,000 and then 36 payments of $50,000)  until  November 30, 2002,  at
         which time Hawaiian has a bargain purchase option for the aircraft. The
         Partnership has treated this transaction as an installment sale and has
         classified the net present value of the  anticipated  future cash flows
         of  approximately  $4,052,000 less principal paid, on the balance sheet
         as  note  receivable-installment   sale.  On  September  1,  1996,  the
         Partnership  removed the  associated  cost of the equipment and the net
         carrying value from the books of the Partnership, and recognized a gain
         on the sale of approximately $1,655,000.

         b.        Continental Airlines, Inc.


         In  October  1991,  the  Partnership  and  Continental  Airlines,  Inc.
         ("Continental")  restructured the leases (the "Continental Restructured
         Leases") of the three  McDonnell  Douglas  Model DC9-32  aircraft  (the
         "Continental Aircraft").  The leases, which were scheduled to expire in
         November  1993,  were extended to December 1, 1997 at a rate of $64,500
         per aircraft per month.  Additionally,  the Partnership  funded certain
         improvements and  modifications to the aircraft through the application
         of rent credits to be repaid with simple interest accruing at a rate of
         12% per annum.

         Through March 31, 1997,  Continental  has repaid all  aggregate  rental
         credits  taken,  as  well  as all of the  modifications  funded  by the
         Partnership.

         In October  1992,  the  Partnership  and  Continental  entered  into an
         agreement  to defer  rentals  due  under the  Continental  Restructured
         Leases  for a  three  month  period  beginning  January  1,  1993  (the
         "Continental Rent Deferral").  Pursuant to the terms of the Continental
         Rent Deferral, the deferred rents (aggregating $580,500), plus interest
         accrue at a rate equal to 8.64%. As of March 31, 1997,  Continental had
         repaid the Second Continental Rent Deferral.
<PAGE>
                         AIRCRAFT INCOME PARTNERS L. P.

                          NOTES TO FINANCIAL STATEMENTS

6         COMMITMENTS AND CONTINGENCIES (continued)

         b.        Continental Airlines, Inc. (continued)

         In November  1991,  in  connection  with its  reorganization  under the
         United States Bankruptcy Code,  Continental  rejected the leases of the
         three Boeing 727-100 aircraft owned by the Partnership,  which had been
         out of service since 1991.  Due to the condition and the related market
         for such aircraft,  the Partnership  provided aggregate  allowances for
         equipment  impairment of  approximately  $6,483,000.  During 1993,  the
         Partnership  sold all three Boeing 727-100  aircraft.  The  Partnership
         retains its rights  pursuant to a proof of claim and an  administrative
         claim filed in the  Continental  Bankruptcy  case with  respect to such
         aircraft.  The  amount  of  recovery  under  such  claims,  if any,  is
         impossible to predict at this time.

         c.        Continental Air Micronesia

         On January 20, 1993, the Partnership  leased a Boeing 727-200  Advanced
         aircraft to  Continental  for a term of  approximately  71 months to be
         used by Continental Air Micronesia (the "Air Mike Lease"). The Air Mike
         Lease  provides  for  a  monthly  base  rent  of  $76,750,  subject  to
         adjustments  for  rental  credits  relating  to  initial  modifications
         (including Traffic Collision  Avoidance Systems,  windshear  detection,
         upgrade  avionics and auxiliary  fuel tank)  aggregating  approximately
         $794,000,  of which approximately  $300,000 was contributed in cash and
         the  balance  was to be  contributed  in the  form  of  rental  credits
         provided to  Continental.  Continental  was allowed to take such rental
         credits  ($13,741  per month  through  May 1996)  such that they  would
         recoup  their  aggregate  cost of the initial  modifications  over a 36
         month period with interest at 9.31% per annum. Further, the Partnership
         agreed to provide up to  $813,500  of  financing  for certain new image
         modifications  through credits ("Lessor Financing") against base rental
         payments due from  Continental.  Continental is currently  repaying the
         Lessor  Financing  credits  through  monthly   installments  which  are
         amortized at the rate of 9.31% per annum over the remaining lease term.
         Through  March 31, 1997,  the  Partnership  had  provided  financing of
         approximately  $755,000.  Such  amounts,  net of  amounts  repaid,  are
         included  within  deferred costs on the balance sheet at March 31, 1997
         and December 31, 1996.

         d.      Ladeco S.A.

         During 1993, the  Partnership  consummated  two leases with Ladeco S.A.
         ("Ladeco"), each for a Boeing 737-200 Advanced aircraft for terms of 48
         and 60 months.  Both leases  provide for,  among other things,  monthly
         rentals of $47,500 each, plus certain maintenance  reserves for engines
         and landing gear, based upon the number of hours flown. As of March 31,
         1997, such maintenance reserves aggregated approximately $1,473,000. At
         lease  inception of both  aircraft,  Ladeco paid a security  deposit of
         $125,000  per  aircraft.  Pursuant to the terms of the above  mentioned
         leases, the Partnership removed the two aircraft from the United States
         Federal Aviation  Administration  ("FAA") Registry causing the aircraft
<PAGE>
                         AIRCRAFT INCOME PARTNERS L. P.

                          NOTES TO FINANCIAL STATEMENTS

6         COMMITMENTS AND CONTINGENCIES (continued)

         d.      Ladeco S.A. (continued)

         to be  re-registered  under Chilean  Registry.  The  Partnership may be
         obligated  to  contribute  in  the  form  of  rental  credits,  to  the
         completion  of certain  airworthiness  directives  and FAA  regulations
         based on certain thresholds.  The amount of such obligation, if any, is
         undeterminable at this time.

         e.      Aloha Airlines, Inc.

         In December  1993,  Aloha  Airlines,  Inc.  ("Aloha"),  the lessee of a
         Boeing  737-200  Advanced  aircraft  (the  "Aloha  Aircraft")  and  the
         Partnership agreed to amend the terms of its lease which was originally
         scheduled to  terminate  on  September  1, 1994.  Pursuant to the lease
         amendment,  Aloha agreed to extend the term of the lease to February 1,
         1996,  providing for rentals of approximately 66% of the original lease
         rate plus maintenance  reserves,  both payable quarterly in arrears. As
         of March  31,  1997,  the  balance  for such  maintenance  reserves  is
         approximately  $758,000,  inclusive  of  a  $391,000  return  provision
         allowance.

         The Aloha  Aircraft  is subject to a tax benefit  transfer  lease ("TBT
         Lease") under which Allied Signal, the TBT Lessor,  retains the federal
         income  tax  benefits  that  normally  accrued  from  ownership  of the
         aircraft other than lease rentals.  There are approximately three years
         remaining on the TBT Lease, until its expiration on May 21, 2000.

         Prior to the  originally  scheduled  expiration  of the Aloha  lease on
         February  1, 1996 the  Partnership  and Aloha  agreed to a three  month
         lease   extension  with  rent  based  on  $300  per  flight  hour.  The
         Partnership and Aloha subsequently agreed on a further short-term lease
         extension,  to October 15, 1996, on the same terms,  and on October 15,
         1996 the Aloha  Aircraft was returned by Aloha to the  Partnership at a
         facility in Marana, Arizona.

         At Marana,  the Aloha  Aircraft is  undergoing  significant  repair and
         modification  work  required to bring it into  compliance  with certain
         current  FAA  standards  and to make it more  readily  marketable.  The
         Partnership is currently  engaged in actively seeking a new lessee or a
         purchaser for the Aloha Aircraft.

         Additionally,  Aloha leases another Boeing  737-200  Advanced  aircraft
         from the Partnership,  the lease of which  was  scheduled to expire  in
         accordance  with its lease terms on August 15, 1996.  Aloha agreed to a
         fifteen month lease extension at 50% of the prior lease rate.
<PAGE>
                         AIRCRAFT INCOME PARTNERS L. P.

                          NOTES TO FINANCIAL STATEMENTS


6      COMMITMENTS AND CONTINGENCIES (continued)

         f.      American Trans Air, Inc.

         In May 1996,  American Trans Air, Inc. ("ATA"),  the lessee of a Boeing
         727-200  Advanced  aircraft (in which the Partnership owns an undivided
         47.92231%  joint venture  interest) (the "JV  Aircraft")  exercised its
         renewal option. The lease,  originally  scheduled to expire in November
         1996, was renewed for an additional two years at the same lease rate.

         In addition,  ATA leases two Boeing 727-200 Advanced aircraft (the "ATA
         Aircraft"), since November and December 1994, each with an initial term
         of approximately  39 months ("Basic Term"),  which provides for monthly
         rentals of $59,000. The Partnership has contributed in the form of cash
         or rental  credits  during  early 1995,  $75,000 per  aircraft  towards
         bridging "C" check inspections. In addition, if the transition to ATA's
         maintenance  program  requires  that both ATA  Aircraft  undergo  heavy
         maintenance  checks during the Basic Term,  an additional  $150,000 per
         aircraft will be contributed by the Partnership  towards the completion
         of such work.

         Additionally,   during  the  Basic  Term,  ATA  may  request  that  the
         Partnership  retrofit  the ATA  Aircraft  to comply  with the Stage III
         noise  emission  standards  pursuant  to FAR  Part  36 of  the  Federal
         Aviation  Registry Act. In the event that the  Partnership  consents to
         the  retrofitting of the ATA Aircraft,  ATA will perform such work (the
         "Improvements")  as  may  be  required  to  bring  such  aircraft  into
         compliance with such standards. Upon completion of the Improvements and
         the return of the ATA Aircraft to revenue service, the Partnership will
         reimburse ATA for the cost of the  Improvements.  In consideration  for
         the Partnership's  consenting to the Improvements,  the ATA Leases will
         be extended  for a term of five years from the date such  aircraft  are
         returned to service.  During this five year period, the monthly rentals
         shall be increased by an amount  reflecting  the enhanced  value of the
         ATA  Aircraft  including  the  Improvements.   In  addition,  at  lease
         inception, ATA paid security deposits of $59,000 per aircraft.

         g.      Southwest Airlines Co.

         In July 1995,  Southwest  Airlines Co.  agreed to an  additional  lease
         extension on the lease  scheduled to terminate in November 1995, for an
         additional  two year  period.  During the second lease  extension,  the
         lease provides for increased rentals of approximately 125% of the prior
         lease rate.

         h.      Tax assessment

         In  September  1996,  the  Partnership  received  proposed  notices  of
         assessment  from the State of Hawaii with respect to general excise tax
         ("GET") of approximately  $1,338,000 (including interest and penalties)
         for the years 1991, 1992, 1993 and 1994. The state is alleging that GET
         is owed by the  Partnership  with respect to rents  received from Aloha
         and Hawaiian under the leases between the  Partnership  and each of the
         airlines.
<PAGE>
                         AIRCRAFT INCOME PARTNERS L. P.

                          NOTES TO FINANCIAL STATEMENTS


6      COMMITMENTS AND CONTINGENCIES (continued)

         h.        Tax assessment (continued)

         The  leases   with  both   Aloha  and   Hawaiian   provided   for  full
         indemnification  of the Partnership for such taxes,  but the bankruptcy
         of Hawaiian may relieve Hawaiian of its indemnification  obligation for
         any  periods  prior  to  September  21,  1993,  when  Hawaiian  and its
         affiliates  sought  bankruptcy  protection.  In  any  event,  it is the
         Partnership, as taxpayer, which is ultimately liable for the GET, if it
         is applicable.

         The State of Hawaii  has never  previously  applied  the GET to rentals
         received by a lessor of aircraft  where the lessor's  only contact with
         the State of Hawaii is that it has  leased  its  aircraft  to  airlines
         which  are  based in the  state.  Aloha  and  Hawaiian,  as well as the
         Partnership,  have separately engaged tax counsel and both airlines are
         cooperating  with the  Partnership  to vigorously  contest the proposed
         assessments.

         Final notices of assessment  have not yet been issued.  Although  there
         can be no  assurance  that  the  contest  of the  assessments  will  be
         successful,  the Partnership  believes that the state's position on the
         applicability of GET in this instance is without merit. The Partnership
         has not recorded any  liability as a result of the proposed  notices of
         assessment.


7        MANAGEMENT FEE PAYABLE

         The amount due to IAFM of  $103,000  and  $94,000 at March 31, 1997 and
         December  31, 1996,  respectively,  represents  Partnership  management
         fees.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

         Liquidity and Capital Resources


         The General Partner holds a 10% equity interest in the Partnership.  At
         the inception of the Partnership,  the General Partner's equity account
         was credited with only the actual capital  contributed in cash, $9,950.
         The Partnership's  management  determined that this accounting does not
         appropriately  reflect the limited  partners' and the General Partner's
         relative  participations in the Partnership's net assets, since it does
         not  reflect  the  General   Partner's  10%  equity   interest  in  the
         Partnership.   Thus,  the   Partnership   has  restated  its  financial
         statements to reallocate  $19,290,250 (10% of the gross proceeds raised
         at the Partnership's  formation) of the partners' equity to the General
         Partner's  equity  account.  This  reallocation  was  made  as  of  the
         inception of the Partnership and all periods presented in the financial
         statements  have  been  restated  to  reflect  the  reallocation.   The
         reallocation  has no impact on the  Partnership's  financial  position,
         results of operations,  cash flows,  distributions to partners,  or the
         partners' tax basis capital accounts.

         The  Partnership  declared  a cash  distribution  of $6.00  per unit of
         limited  partnership  interest ("Unit") for the quarter ended March 31,
         1997, which  represented an annualized cash  distribution  rate of 4.8%
         (based on initial  offering  price of $500 per Unit) as  compared  to a
         cash  distribution  of $7.00 per Unit with respect to the quarter ended
         March 31, 1996. The Partnership  generated cash from operations (before
         rent credits) of  approximately  $2,692,000  for the three months ended
         March 31, 1997 (the "1997 Period") or approximately  $6.28 per Unit, as
         compared to  $2,989,000  for the three months ended March 31, 1996 (the
         "1996 Period") or approximately $6.97 per Unit.

         During the 1997 Period,  the Partnership  increased its gross aggregate
         cash reserves, inclusive of collected maintenance reserves and original
         working capital (1% of original offering proceeds),  by an aggregate of
         approximately $183,000,  from approximately  $4,397,000 at December 31,
         1996 to approximately  $4,580,000 at March 31, 1997. The aggregate cash
         reserves were comprised of approximately  $421,000,  which  represented
         undistributed  cash from  operations  and cash from  sales,  as well as
         original  working  capital  of  $1,929,000  (1%  of  original  offering
         proceeds)  and  approximately   $2,230,000  of  collected   maintenance
         reserves.

         As the  Partnership's  aircraft come  off-lease  (one of which came off
         lease in 1996 and six of  which  are  scheduled  to come  off-lease  in
         1997),  it may be necessary for the Partnership to use a portion of its
         operating reserves and/or its anticipated future cash flow, which would
         otherwise be available  for  distribution,  to upgrade or enhance these
         aircraft or related  engines if the  Partnership  determines  that such
         expenditures are in its best interests in order to maximize remarketing
         value. The Partnership is currently  evaluating  strategies,  including
         potential   engine   upgrades   for  certain   aircraft,   to  increase
         marketability  and is reviewing its possible future  obligations to pay
<PAGE>
         Liquidity and Capital Resources (continued)

         for  bridging   costs  in  order  to   facilitate   such   remarketing.
         Furthermore,  because  of market  conditions,  the  Partnership  may be
         required to bear some of the related  costs of  compliance  with recent
         mandatory  federal  regulations  covering  maintenance and upgrading of
         aging aircraft.  The Partnership's ability to make distributions may be
         impacted by its obligation to pay such costs.

         The  Partnership has  encountered  severe  competition in attempting to
         re-lease its aircraft as they have come  off-lease  due to a surplus in
         the market of  narrow-body  aircraft  similar to the types owned by the
         Partnership.  The substantial costs required to maintain and bring used
         aircraft into compliance  with FAA noise and  maintenance  requirements
         adopted  since  1990  are the  primary  factors  which  have  adversely
         affected the narrow body aircraft market. In addition,  the Partnership
         will also have to compete  with  newer,  more fuel  efficient  aircraft
         which  comply  with  recently  adopted  FAA  noise  requirements.   The
         Partnership  also believes that as a result of the factors listed above
         there  has  been  a  significant   decline  in  the  re-sale  value  of
         narrow-body aircraft similar to the types owned by the Partnership.

         Although the Partnership  believes that its anticipated gross cash flow
         during the remainder of 1997 will be less than previous gross cash flow
         generated  (approximately  76% of the 1996 cash flow  based  upon gross
         firm  term  leases  plus the net  amounts  due  under  notes  issued by
         Continental  Airlines,  Inc.  ("Continental") as repayment for deferred
         rent and  modification  advances),  the  anticipated  cash flow for the
         remainder of 1997 and the  foreseeable  future  should be sufficient to
         pay its operating expenses and make distributions.

         Of the 18 aircraft  originally  purchased by the Partnership,  at March
         31,  1997,  the  Partnership  had an  interest  in 12 of  the  aircraft
         (inclusive  of an undivided  47.92231%  joint  venture  interest in one
         aircraft),  which had an original  cost of  approximately  $152,613,000
         (net book value of approximately $25,683,000).  During the remainder of
         1997,   excluding  rents  from  renewals  and  sales,  the  Partnership
         anticipates   receiving   approximately   $6,140,000   of   rentals  on
         non-cancelable  leases  (inclusive  of amounts  which may be set-off by
         lessees against basic rent as reimbursement  for certain  modifications
         required  under  the  applicable  leases).  After  deducting  operating
         expenses,  the  foregoing  aggregate  rentals  are  not  sufficient  to
         maintain previous distribution levels.

         Of the remaining 12 aircraft,  six aircraft  which  generate  aggregate
         gross  rental  revenues  of  approximately   $4,399,000  per  year  are
         scheduled to come off-lease or be sold during 1997.  The  Partnership's
         remaining  aircraft are leased  pursuant to leases which expire in 1998
         (5 aircraft) and the Aloha  Aircraft  which is currently  off-lease and
         being actively remarketed.

         On September 1, 1996, the  Partnership  and Hawaiian  amended the lease
         agreement of the Hawaiian  Aircraft.  Under the terms of the agreement,
         Hawaiian  has paid the  Partnership  a down payment of $450,000 and the
         balance  will be paid in monthly  installments  (39 payments of $72,000
<PAGE>
         Liquidity and Capital Resources (continued)

         and then 36 payments of $50,000) until November 30, 2002, at which time
         Hawaiian has a bargain purchase option on the aircraft. The Partnership
         has treated this  transaction as an installment sale and has classified
         the  net  present  value  of  the  anticipated  future  cash  flows  of
         approximately  $4,052,000 less principal payments, on the balance sheet
         as  note  receivable-installment   sale.  On  September  1,  1996,  the
         Partnership  removed the  associated  cost of the equipment and the net
         carrying value from the books of the Partnership, and recognized a gain
         on the sale of approximately $1,655,000.

         Aloha  had  leased  a  Boeing  737-200  Advance  Aircraft  (the  "Aloha
         Aircraft") whose lease expired in accordance with its terms on February
         1, 1996. The Aloha Aircraft is subject to a tax benefit  transfer lease
         ("TBT Lease") under which Allied  Signal,  the TBT Lessor,  retains the
         federal income tax benefits that normally  accrue from ownership of the
         aircraft other than lease rentals.  There are approximately three years
         remaining on the TBT Lease, until its expiration on May 21, 2000.

         Prior to the  scheduled  expiration  of the Aloha  lease on February 1,
         1996, the Partnership and Aloha agreed to a three month lease extension
         with rent  based on $300 per flight  hour.  The  Partnership  and Aloha
         subsequently agreed on a further short-term lease extension, to October
         15,  1996,  on the same  terms,  and on  October  15,  1996,  the Aloha
         Aircraft  was  returned  by Aloha to the  Partnership  at a facility in
         Marana, Arizona.

         At Marana,  the Aloha  Aircraft is  undergoing  significant  repair and
         modification  work  required to bring it into  compliance  with certain
         current  FAA  standards  and to make it more  readily  marketable.  The
         Partnership is currently  engaged in actively seeking a new lessee or a
         purchaser for the Aloha Aircraft.

         Additionally,  Aloha leases another Boeing  737-200  Advanced  aircraft
         from the  Partnership  the  lease of which was  scheduled  to expire in
         accordance  with its lease terms on August 15, 1996.  Aloha agreed to a
         fifteen month lease extension at 50% of the prior lease rate.

         In  September  1996,  the  Partnership  received  proposed  notices  of
         assessment  from the State of Hawaii with respect to general excise tax
         of approximately  $1,338,000 (including interest and penalties) for the
         years 1991, 1992, 1993 and 1994. The state is alleging that GET is owed
         by the Partnership  with respect to rents received from Aloha Airlines,
         Inc.  and  Hawaiian  Airlines,   Inc.  under  the  leases  between  the
         Partnership and each of the airlines.

         The   leases   with  both   Aloha  and   Hawaiian   provide   for  full
         indemnification  of the Partnership for such taxes,  but the bankruptcy
         of Hawaiian may relieve Hawaiian of its indemnification  obligation for
         any  periods  prior  to  September  21,  1993,  when  Hawaiian  and its
         affiliates  sought  bankruptcy  protection.  In  any  event,  it is the
         Partnership, as taxpayer, which is ultimately liable for the GET, if it
         is applicable.
<PAGE>
         Liquidity and Capital Resources (continued)

         The State of Hawaii  has never  previously  applied  the GET to rentals
         received by a lessor of aircraft  where the lessor's  only contact with
         the  State of Hawaii is the fact that it has  leased  its  aircraft  to
         airlines which are based in the state.  Aloha and Hawaiian,  as well as
         the Partnership,  have separately engaged tax counsel and both airlines
         are cooperating with the Partnership to vigorously contest the proposed
         assessments.

         Final notices of assessment  have not yet been issued.  Although  there
         can be no  assurance  that  the  contest  of the  assessments  will  be
         successful,  the Partnership  believes that the state's position on the
         applicability of GET in this instance is without merit. The Partnership
         has not recorded any  liability as a result of the proposed  notices of
         assessment.

         Inflation has not had any material effect on the Partnership's revenues
         since its inception nor does the  Partnership  anticipate  any material
         effect on its  business  from this  factor.  The prior  softness in the
         aircraft  industry and resulting  declines in the value of the types of
         aircraft  owned by the  Partnership  have  resulted in the  Partnership
         providing allowances for equipment impairment. Additionally, because of
         the  financial  troubles of certain  airlines  which are lessees of the
         Partnership's  aircraft,  cash flow and, therefore,  distributions have
         been reduced.

         In April 1995, the General Partner and certain  affiliates entered into
         an agreement  with  Fieldstone  pursuant to which  Fieldstone  performs
         certain  management  and   administrative   services  relating  to  the
         Partnership.  Substantially  all costs associated with the retention of
         Fieldstone are paid by the General Partner.

Results of Operations


         There  was a net loss for the three  months  ended  March  31,  1997 as
         compared to the net income for the three  months  ended March 31, 1996,
         as the reduction in revenue exceeded the reduction in expenses.

         Revenues  decreased  overall for the three  months ended March 31, 1997
         compared to the  corresponding  period of the prior year. Rental income
         decreased  due to the  expiration,  in  October  1996,  of a lease with
         Aloha,  as well as the  Hawaiian  Aircraft  which  is  currently  being
         accounted for on an installment sale basis.

         Expenses  decreased  for the  three  months  ended  March  31,  1997 as
         compared to the corresponding  period of the prior year as follows; (i)
         no depreciation in the current period on the aircraft previously leased
         to Southwest  Aircraft as well as the Hawaiian Aircraft which were sold
         subsequent  to the prior year period and,  (ii)  reduction in provision
         for bad debts due to no provision  considered  necessary in the current
         period (iii) reduced  management fee due to decreased  distribution  on
         which such fee is based,  offset by (i) increase in operating  expenses
         due to higher insurance costs on the off-lease Aloha Aircraft, and (ii)
         higher general and administrative  expenses due to increased legal fees
         in the current period.
<PAGE>
PART II - OTHER INFORMATION





ITEM 1.  LEGAL PROCEEDINGS

         None.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits:  None
(b)      Reports on form 8-K:  None
<PAGE>

                                                SIGNATURES


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



                                      AIRCRAFT INCOME PARTNERS L.P.
                                  BY: Integrated Aircraft Fund Management Corp.,
                                      General Partner




                                      /s/ Douglas J. Lambert
                                      ----------------------
                                      Douglas J. Lambert
                                      President and Chief Financial Officer


May 14, 1997