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, 1998

                         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, Suite 270, Greenwich, CT 06830
                    (Address of principal executive offices)

                                 (203) 862-7444
              (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, 1998






                                      INDEX



PART I - FINANCIAL INFORMATION


      ITEM 1 - FINANCIAL STATEMENTS

         BALANCE SHEETS - March 31, 1998 and December 31, 1997


         STATEMENTS OF  OPERATIONS  - For the three  months ended March 31, 1998
            and 1997


         STATEMENT OF  PARTNERS'  EQUITY - For the three  months ended March 31,
            1998


         STATEMENTS OF CASH FLOWS - For the three  months  ended  March 31, 1998
            and 1997


         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>
                                 AIRCRAFT INCOME PARTNERS L.P.

                                        BALANCE SHEETS



                                                                  March 31,      December 31,
                                                                    1998             1997
                                                                 -----------     -----------
<S>                                                              <C>             <C>
ASSETS

     Leased aircraft, net of accumulated depreciation of
        $65,436,564 and $71,503,840 and allowance for
        equipment impairment of  $20,787,000 and $24,100,000     $17,978,488     $20,012,212
     Cash and cash equivalents .............................      11,129,970       6,432,713
     Note receivable - installment sale ....................       2,758,660       2,911,906
     Restricted cash - security deposits ...................         512,502         506,120
     Accounts receivable ...................................         463,745         505,730
     Deferred costs ........................................          63,415          95,505
     Other receivables .....................................          46,806          89,891
     Prepaid expenses ......................................          20,867          13,170
                                                                 -----------     -----------

                                                                 $32,974,453     $30,567,247
                                                                 ===========     ===========

LIABILITIES AND PARTNERS' EQUITY

Liabilities
     Maintenance reserves ..................................     $ 1,651,365     $ 2,129,110
     Security deposits payable .............................         512,502         506,120
     Deferred income .......................................         137,558         133,217
     Deferred costs payable ................................          50,000          50,000
     Accounts payable and accrued expenses .................         314,402         168,561
                                                                 -----------     -----------

        Total liabilities ..................................       2,665,827       2,987,008
                                                                 -----------     -----------

Commitments and contingencies

Partners' equity
        Limited partners' equity (385,805 units
            issued and outstanding) ........................      27,268,808      24,813,260
        General partner's equity ...........................       3,039,818       2,766,979
                                                                 -----------     -----------

        Total partners' equity .............................      30,308,626      27,580,239
                                                                 -----------     -----------

                                                                 $32,974,453     $30,567,247
                                                                 ===========     ===========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                AIRCRAFT INCOME PARTNERS L.P.

                                  STATEMENTS OF OPERATIONS


                                                                For the three months ended
                                                                         March 31,
                                                               ----------------------------
                                                                   1998             1997
                                                               -----------      -----------
<S>                                                            <C>              <C>
Revenues
     Rental ..............................................     $ 1,470,088      $ 1,911,475
     Interest ............................................          95,794           83,725
     Interest - installment note .........................          62,754           75,897
                                                               -----------      -----------

                                                                 1,628,636        2,071,097

Costs and expenses
     Depreciation ........................................         892,324        1,846,216
     Operating ...........................................         165,215           65,323
     General and administrative ..........................          74,736          100,253
     Other expenses ......................................          20,301           16,728
     Management fee ......................................            --            103,000
                                                               -----------      -----------

                                                                 1,152,576        2,131,520

                                                                   476,060          (60,423)

Gain on disposition of aircraft, net .....................       2,252,327             --
                                                               -----------      -----------

Net income (loss) ........................................     $ 2,728,387      $   (60,423)
                                                               ===========      ===========

Net income (loss) attributable to
     Limited partners ....................................     $ 2,455,548      $   (54,381)
     General partners ....................................         272,839           (6,042)
                                                               -----------      -----------

                                                               $ 2,728,387      $   (60,423)
                                                               ===========      ===========

Net income (loss) per unit of limited partnership interest
     (385,805 units outstanding) .........................     $      6.36      $     (0.14)
                                                               ===========      ===========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                           AIRCRAFT INCOME PARTNERS L.P.

                                           STATEMENT OF PARTNERS' EQUITY





                                                Limited          General           Total
                                               Partners'        Partner's        Partners'
                                                Equity           Equity           Equity
                                             -----------       -----------       -----------
<S>                                          <C>               <C>               <C>
Balance, January 1, 1998 .............       $24,813,260       $ 2,766,979       $27,580,239

Net income  for the three months
     ended March 31, 1998 ............         2,455,548           272,839         2,728,387
                                             -----------       -----------       -----------

Balance, March 31, 1998 ..............       $27,268,808       $ 3,039,818       $30,308,626
                                             ===========       ===========       ===========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
                                AIRCRAFT INCOME PARTNERS L.P.

                                  STATEMENTS OF CASH FLOWS


                                                                  For the three months ended
                                                                         March 31,

                                                                     1998              1997
                                                                ------------      ------------
<S>                                                             <C>               <C> 
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS

Cash flows from operating activities
     Net income (loss) ....................................     $  2,728,387      $    (60,423)
     Adjustments to reconcile net income (loss) to net
        cash provided by operating activities
            Depreciation ..................................          892,324         1,846,216
            Gain on disposition of aircraft, net ..........       (2,252,327)             --
     Changes in assets and liabilities
        Accounts receivable ...............................           41,985            57,836
        Deferred rents and modification advances receivable             --             254,432
        Restricted cash - security deposits ...............           (6,382)           (5,739)
        Security deposits payable .........................            6,382             5,739
        Deferred costs ....................................           32,090            32,090
        Other receivables .................................           43,085           419,116
        Prepaid expenses ..................................           (7,697)           25,816
        Maintenance reserves ..............................         (477,745)           63,168
        Management fee payable ............................             --               9,000
        Deferred income ...................................            4,341              --
        Accounts payable and accrued expenses .............          145,841            17,628
                                                                ------------      ------------

                Net cash provided by operating activities .        1,150,284         2,664,879
                                                                ------------      ------------

Cash flows from investing activities
     Proceeds from sale of aircraft, net ..................        3,393,727              --
     Proceeds from installment sale note receivable .......          153,246           536,103
                                                                ------------      ------------

                Net cash provided by investing activities .        3,546,973           536,103
                                                                ------------      ------------
Cash flows from financing activities
     Distributions to partners ............................             --          (2,357,697)
                                                                ------------      ------------

Net increase in cash and cash equivalents .................        4,697,257           843,285

Cash and cash equivalents, beginning of period ............        6,432,713         6,279,937
                                                                ------------      ------------

Cash and cash equivalents, end of period ..................     $ 11,129,970      $  7,123,222
                                                                ============      ============
</TABLE>
See notes to financial statements.
<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,  1997.  The  results of
         operations   for  the  three  months  ended  March  31,  1998  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. On August 28, 1997, an
         affiliate of  NorthStar  Capital  Partners  acquired all of the Class B
         shares of Presidio,  the corporate  parent of IAFM.  This  acquisition,
         when aggregated with previous  acquisitions,  caused NorthStar  Capital
         Partners to acquire  indirect control of IAFM. On November 2, 1997, the
         Administrative   Services   Agreement   between  Presidio  and  Wexford
         Management LLC ("Wexford"),  the administrator  for Presidio,  expired.
         Pursuant to that agreement Wexford had authority to designate directors
         of IAFM.  Effective November 3, 1997, Wexford and Presidio entered into
         a new  Administrative  Services  Agreement dated as of November 3, 1997
         (the "ASA"),  which expired on May 3, 1998. Under the terms of the ASA,
         Wexford provided consulting and administrative services to Presidio and
         its  affiliates,  including  IAFM and the  Partnership.  Presidio  also
         entered into a management  agreement with NorthStar Presidio Management
         Company, LLC ("NorthStar Presidio").  Under the terms of the management
         agreement,  NorthStar  Presidio  provides the day-to-day  management of
         Presidio and its direct and indirect  subsidiaries and affiliates.  For
         the three months ended March 31, 1998 and 1997,  reimbursable  expenses
         paid to NorthStar Presidio (1998) and Wexford (1997) amounted to $3,750
         and $7,500, respectively.

         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, IAFM received distributions totaling $257,203. No
         distribution  was paid with respect to the three months ended March 31,
         1998.
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

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

         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.

         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 for the three months ended March 31, 1997. No management  fees
         were earned for the three months ended March 31, 1998.

         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  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, other than legal fees, are
         paid by IAFM. The agreement with  Fieldstone was scheduled to terminate
         November 3, 1997. IAFM and certain affiliates are currently negotiating
         a possible extension of the agreement. Fieldstone has indicated that it
         will continue to perform services in respect of the Partnership pending
         the conclusion of such negotiation.
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS


4         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 original 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 November  1991,  in  connection  with its  reorganization  under the
         United   States   Bankruptcy   Code,    Continental   Airlines,    Inc.
         ("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
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS


4         COMMITMENTS AND CONTINGENCIES (continued)

         payments  due from  Continental.  Continental  was  repaying the Lessor
         Financing credits through monthly  installments which were amortized at
         the rate of 9.31% per annum  over the  remaining  lease  term.  Through
         March 31, 1998, 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, 1998 and December 31,
         1997.

         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,  respectively.  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,  1998,  such  maintenance  reserves  aggregated
         approximately  $1,012,000.  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 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. The Ladeco  aircraft  leases,
         originally  scheduled  to expire in October  1997 and March 1998,  were
         each renewed for a one year period at the same lease rate  beginning at
         the expiration of the original lease terms.

         e.        Aloha Airlines, Inc.

         Aloha  Airlines,  Inc.  ("Aloha")  leases  a  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 and the  aircraft  was  scheduled  to be  returned  following  the
         expiration  of the term  and the  completion  of  certain  repairs  and
         maintenance  to bring the aircraft in compliance  with the lease return
         provisions.  On November 15, 1997, the lease was scheduled to expire in
         accordance  with the  terms of the  lease.  Aloha  had  indicated  that
         certain  modifications to the aircraft as required by the Airworthiness
         Directives  issued  by the FAA were not  applicable  under  the  return
         conditions of the lease.

         On November 14, 1997, First Security Bank, National Association, acting
         not in its  individual  capacity,  but solely as trustee  under a trust
         agreement in which the  Partnership is  beneficiary,  filed a complaint
         for declaratory judgment in the United States District Court,  Southern
         District of New York. The complaint sought interpretation of the
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS


4         COMMITMENTS AND CONTINGENCIES (continued)

         e.        Aloha Airlines, Inc. (continued)

         language under the lease regarding return  conditions for the aircraft.
         In December 1997, the foregoing  action was settled and Aloha agreed to
         satisfy  certain  return  conditions of the lease.  The  Partnership is
         actively remarketing the aircraft for sale or lease.

         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 has leased two other Boeing 727-200 Advanced aircraft
         (the "ATA  Aircraft")  pursuant to separate  leases that  commenced  in
         November and  December  1994,  respectively.  Each of the leases had an
         initial  term of  approximately  39 months  and  provides  for  monthly
         rentals of $59,000.  During  early 1995,  the  Partnership  contributed
         $75,000 per aircraft,  in the form of cash or rental  credits,  towards
         bridging "C" check inspections.

         In March 1998, the Partnership and ATA agreed to amend all three of the
         leases,  extending the term at the same lease rentals through  December
         31,  2000,  at which  time  ATA  will  have a  purchase  obligation  of
         approximately $3.3 million per aircraft. During the term of the amended
         leases,  ATA may, at its expense,  retrofit the aircraft to comply with
         the Stage III noise emission standards pursuant to FAR Part 36.

         g.        Tax assessment

         In  September  1996,  the  Partnership  received  proposed  notices  of
         assessment  from the State of Hawaii with respect to general excise tax
         ("GET") aggregating  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.

         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.
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS


4         COMMITMENTS AND CONTINGENCIES (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 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 in vigorously  contesting 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.

5         AIRCRAFT SALES

         (i)      On May 22, 1997, a Boeing 737-297  Advanced  aircraft owned by
                  the Partnership  was sold to an  unaffiliated  third party for
                  proceeds  of  approximately  $1,982,000  exclusive  of selling
                  expenses of  approximately  $60,000.  The aircraft,  which was
                  formerly leased to Aloha, had been off-lease since October 15,
                  1996. Associated with the aircraft were approximately $639,000
                  of net  maintenance and return  provision  reserves that Aloha
                  had  previously  paid the  Partnership  as provided  under the
                  lease  agreement.  The reserves on the Aloha  aircraft will be
                  held back until certain contingent  liabilities related to the
                  aircraft are  satisfied.  Specifically,  the Aloha Aircraft is
                  subject to a tax benefit  transfer  lease ("TBT  Lease") under
                  which  AlliedSignal,  the  TBT  Lessor,  retains  the  federal
                  income tax benefits that normally accrue from ownership of the
                  aircraft,  other than lease rentals.  There are  approximately
                  two years remaining on the TBT Lease,  until its expiration on
                  May 21, 2000. At the time of the sale,  the aircraft had a net
                  carrying value of approximately $1,290,000.

         (ii)     On March 31,  1998,  a Boeing  737-2H4  aircraft  owned by the
                  Partnership  was  sold  to an  unaffiliated  third  party  for
                  proceeds  of  $3,500,000  exclusive  of  selling  expenses  of
                  approximately $106,000. The aircraft which was formerly leased
                  to Southwest  Airlines Co., had been  off-lease  since January
                  1998.  At the time of sale,  the  aircraft  had a net carrying
                  value of approximately $1,141,000.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS


         Liquidity and Capital Resources

         The  Partnership  did not declare a cash  distribution  for the quarter
         ended March 31, 1998, as compared to a cash  distribution  of $6.50 per
         Unit with respect to the quarter ended March 31, 1997. The  Partnership
         generated  cash from  operations of  approximately  $1,557,000  for the
         three months ended March 31, 1998 (the "1998 Period") or  approximately
         $3.63 per Unit,  as compared to  $2,692,000  for the three months ended
         March 31,  1997 (the "1997  Period") or  approximately  $6.28 per Unit.
         Additionally,  during  the  three  months  ended  March 31,  1998,  the
         Partnership collected proceeds of approximately $3,394,000 or $7.92 per
         Unit  from the  sale of one  Boeing  737-2H4  aircraft  which  had been
         off-lease since January 1998.

         During the 1998 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  $4,473,000 from approximately $6,386,000 at December 31,
         1997 to approximately $10,859,000 at March 31, 1998. The aggregate cash
         reserves were comprised of approximately  $7,279,000 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   $1,651,000  of  collected   maintenance
         reserves,   net  of  approximately  $478,000  of  maintenance  reserves
         utilized during the 1998 period.

         As the  Partnership's  aircraft  come  off-lease  (five  of  which  are
         scheduled to come off-lease in 1998, one in 1999 and three in 2000), 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 for bridging costs in
         order to facilitate such  remarketing.  Furthermore,  because of market
         conditions,  the  Partnership  will 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  has encountered  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.
<PAGE>
Liquidity and Capital Resources (continued)

         The  Partnership  has  decided  to  suspend   distributions  pending  a
         determination  of the necessity to fund the foregoing  costs.  Although
         the Partnership  believes that its  anticipated  gross cash flow during
         the  remainder  of 1998  will be less  than  previous  gross  cash flow
         generated  (approximately  60% of the 1997 cash flow  based  upon gross
         firm term leases),  the anticipated cash flow for the remainder of 1998
         and  the  foreseeable  future,   combined  with  reserves,   should  be
         sufficient   to  pay  the   Partnership's   operating   expenses.   The
         Partnership's  ability to make future distributions will be impacted by
         its obligation to pay such costs.
 
         Of the 18 aircraft  originally  purchased by the Partnership,  at March
         31,  1998,  the  Partnership  had an  interest  in 10 of  the  aircraft
         (inclusive  of an undivided  47.92231%  joint  venture  interest in one
         aircraft),  which had an original  cost of  approximately  $104,202,000
         (net book value of approximately  $17,978,000). During the remainder of
         1998,   excluding  rents  from  renewals  and  sales,  the  Partnership
         anticipates   receiving   approximately   $4,437,000   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).  

         Aloha  had  leased a  Boeing  737-200  Advanced  Aircraft  (the  "Aloha
         Aircraft")  whose lease was scheduled to expire in accordance  with its
         terms on  February  1,  1996.  The Aloha  Aircraft  is subject to a tax
         benefit transfer lease ("TBT lease") under which AlliedSignal,  the TBT
         Lessor,  retains the federal  income tax benefits that normally  accrue
         from  ownership of the aircraft,  other than lease  rentals.  There are
         approximately  two years  remaining  on the TBT lease,  through May 21,
         2000.

         On May 22, 1997, the Aloha Aircraft was sold to an  unaffiliated  third
         party for  proceeds of  approximately  $1,982,000  exclusive of selling
         expenses of  approximately  $60,000.  Associated with the aircraft were
         approximately $639,000 of net maintenance and return provision reserves
         that Aloha had  previously  paid the  Partnership as provided under the
         lease agreement.  The reserves on the Aloha Aircraft will be restricted
         until  certain  contingent  liabilities  related  to the  aircraft  are
         satisfied.  At the time of sale,  the aircraft had a net carrying value
         of approximately $1,290,000.

         On November 15, 1997, the lease of a Boeing 737-200  Advanced  aircraft
         leased to Aloha was scheduled to expire in accordance with the terms of
         the  lease.  Aloha had  indicated  that  certain  modifications  to the
         aircraft as required by the Airworthiness  Directives issued by the FAA
         were not applicable under the return conditions of the lease.

         On November 14, 1997, First Security Bank, National Association, acting
         not in its  individual  capacity,  but solely as trustee  under a trust
         agreement in which the  Partnership is  beneficiary,  filed a complaint
         for declaratory judgment in the United States District Court,  Southern
         District  of New  York.  The  complaint  sought  interpretation  of the
         language under the lease regarding return  conditions for the aircraft.
         In December 1997, the foregoing  action was settled and Aloha agreed to
         satisfy  certain  return  conditions of the lease.  The  Partnership is
         actively remarketing the aircraft for sale or lease.
<PAGE>
         Liquidity and Capital Resources (continued)

         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 and
         Hawaiian  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.

         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  in vigorously  contesting  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 distributions have been reduced.

         Results of Operations

         Net income  increased  for the three  months  ended  March 31,  1998 as
         compared to the three months ended March 31, 1997,  principally  due to
         the  gain on sale of the  Southwest  Aircraft  in 1998.  There  were no
         dispositions of aircraft for the three months ended March 31, 1997. The
         additional  income was  attributable  to the reduction in  depreciation
         partially offset by the reduction in rental revenues.

         Revenues  decreased  overall for the three  months ended March 31, 1998
         compared to the  corresponding  period of the prior year. Rental income
         decreased due to reduced rentals from the Aloha lease, certain aircraft
         leased to Continental  (as of December 1, 1997) and the expiration of a
         lease with  Southwest  Airlines Co.
<PAGE>
         Results of Operations (continued)

         Expenses  decreased  for the  three  months  ended  March  31,  1998 as
         compared to the corresponding  period of the prior year as follows: (i)
         decrease in  depreciation  due to two ATA  Aircraft  and one  Southwest
         aircraft  having  previously  reached  their  salvage  value,  (ii)  no
         management  fee to IAFM for the three  months  ended  March 31, 1998 as
         compared to $103,000 for the  corresponding  1997 period (iii) decrease
         in general  and  administrative  expenses,  offset by (i)  increase  in
         operating  expenses due to  maintenance  costs  related to a Boeing 737
         aircraft to comply with certain airworthiness  directives and insurance
         and storage for another Boeing 737 aircraft  which was off-lease  since
         January 1998 and sold on March 31, 1998.
<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/    Richard Sabella                            
                                     ---------------                            
                                     Richard Sabella                            
                                     President                                  
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                              /s/    Lawrence Schachter                         
                                     ------------------                         
                                     Lawrence Schachter                         
                                     Vice President and                         
                                     Chief Financial Officer                    
                              



Date: May 13, 1998