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 September 30, 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 - SEPTEMBER 30, 1998




                                      INDEX



PART I - FINANCIAL INFORMATION


      ITEM 1 - FINANCIAL STATEMENTS

         BALANCE SHEETS - September 30, 1998 and December 31, 1997


         STATEMENTS OF  OPERATIONS - For the three months  ended  September  30,
               1998 and 1997 and for the nine months  ended  September  30, 1998
               and 1997


         STATEMENT OF PARTNERS' EQUITY - For the nine months ended September 30,
               1998


         STATEMENTS OF CASH FLOWS - For the nine months ended September 30, 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



                                                              September 30,   December 31,
                                                                 1998              1997
                                                              -----------     -----------
<S>                                                           <C>             <C>        
ASSETS

     Leased aircraft, net of accumulated depreciation of
        $4,300,719 and $71,503,840 and allowance for
        equipment impairment of  $565,333 and $24,100,000     $ 2,035,010     $20,012,212
     Aircraft held for lease or sale - net of accumulated
        depreciation of $9,089,165 and allowance for
        equipment impairment of $1,052,667 ..............       4,427,668            --
     Cash and cash equivalents ..........................      21,934,031       6,432,713
     Accounts receivable ................................         523,750         505,730
     Other receivables ..................................          97,668          89,891
     Restricted cash - security deposits ................            --           506,120
     Deferred costs .....................................            --            95,505
     Prepaid expenses ...................................            --            13,170
     Note receivable - installment sale .................            --         2,911,906
                                                              -----------     -----------

                                                              $29,018,127     $30,567,247
                                                              ===========     ===========
LIABILITIES AND PARTNERS' EQUITY

Liabilities
     Distributions payable ..............................     $17,789,897     $      --
     Accounts payable and accrued expenses ..............         225,017         168,561
     Maintenance reserves ...............................         604,861       2,129,110
     Security deposits payable ..........................            --           506,120
     Deferred income ....................................            --           133,217
     Deferred costs payable .............................            --            50,000
                                                              -----------     -----------

        Total liabilities ...............................      18,619,775       2,987,008
                                                              -----------     -----------
Commitments and contingencies

Partners' equity
        Limited partners' equity (385,805 units
            issued and outstanding) .....................       9,349,562      24,813,260
        General partner's equity ........................       1,048,790       2,766,979
                                                              -----------     -----------

        Total partners' equity ..........................      10,398,352      27,580,239
                                                              -----------     -----------

                                                              $29,018,127     $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       For the nine months ended
                                                     September 30,                   September 30,
                                             ---------------------------     ---------------------------
                                                 1998           1997             1998             1997
                                             -----------     -----------     -----------     -----------
<S>                                          <C>             <C>             <C>             <C>         
Revenues
    Rental ............................      $   710,335     $ 1,911,474     $ 3,606,979     $ 5,734,430
     Interest ..........................         180,906          95,089         546,106         291,736
     Interest - installment note .......          18,974          69,473         141,009         218,091
                                             -----------     -----------     -----------     -----------

                                                 910,215       2,076,036       4,294,094       6,244,257
                                             -----------     -----------     -----------     -----------

Costs and expenses
     Depreciation ......................         364,180       1,417,406       2,048,239       4,809,903
     Operating .........................             100          22,325         497,569          94,585
     Management fee ....................            --            80,000         180,200         268,000
     General and administrative ........          32,936          66,406         165,238         341,702
     Other expenses ....................           6,361          20,090          48,936          56,909
                                             -----------     -----------     -----------     -----------

                                                 403,577       1,606,227       2,940,182       5,571,099
                                             -----------     -----------     -----------     -----------

                                                 506,638         469,809       1,353,912         673,158

Gain on sale of aircraft - net .........       7,515,523            --        11,128,319         632,368
                                             -----------     -----------     -----------     -----------

Net income .............................     $ 8,022,161     $   469,809     $12,482,231     $ 1,305,526
                                             ===========     ===========     ===========     ===========

Net income attributable to
     Limited partners ..................     $ 7,219,945     $   422,828     $11,234,008     $ 1,174,973
     General partners ..................         802,216          46,981       1,248,223         130,553
                                             -----------     -----------     -----------     -----------

                                             $ 8,022,161     $   469,809     $12,482,231     $ 1,305,526
                                             ===========     ===========     ===========     ===========

Net income per unit of limited
     partnership interest (385,805 units
     outstanding) ......................     $     18.71     $      1.10     $     29.11     $      3.05
                                             ===========     ===========     ===========     ===========

</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 nine months
     ended September 30, 1998 ...................       11,234,008         1,248,223        12,482,231

Distributions to partners for the nine months
     ended September 30, 1998 ($69.20 per limited
     partnership unit) ..........................      (26,697,706)       (2,966,412)      (29,664,118)
                                                      ------------      ------------      ------------

Balance, September 30, 1998 .....................     $  9,349,562      $  1,048,790      $ 10,398,352
                                                      ============      ============      ============

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

                                    STATEMENTS OF CASH FLOWS

                                                                  For the nine months ended
                                                                         September 30,
                                                                ------------------------------
                                                                     1998              1997
                                                                ------------      ------------
<S>                                                             <C>               <C> 
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS

Cash flows from operating activities
     Net income ...........................................     $ 12,482,231      $  1,305,526
     Adjustments to reconcile net income to net
        cash provided by operating activities
            Depreciation ..................................        2,048,239         4,809,903
            Gain on disposition of aircraft, net ..........      (11,128,319)         (632,368)
     Changes in assets and liabilities
        Accounts receivable ...............................          (18,020)          136,487
        Other receivables .................................           (7,777)          420,161
        Restricted cash - security deposits ...............          506,120           (18,076)
        Deferred costs ....................................           95,505            96,271
        Prepaid expenses ..................................           13,170            72,636
        Deferred rents and modification advances receivable             --             254,432
        Accounts payable and accrued expenses .............           56,456            (3,477)
        Maintenance reserves ..............................       (1,524,249)         (135,433)
        Security deposits payable .........................         (506,120)           18,076
        Deferred income ...................................         (133,217)          193,500
        Deferred costs payable ............................          (50,000)             --
        Management fee payable ............................             --             (14,000)
                                                                ------------      ------------

                Net cash provided by operating activities .        1,834,019         6,503,638
                                                                ------------      ------------
Cash flows from investing activities

     Proceeds from sale of aircraft, net ..................       22,629,614         1,922,266
     Proceeds from installment sale note receivable .......        2,911,906           825,910
     Additions and modifications to leased aircraft, net ..             --                 912
                                                                ------------      ------------
                Net cash provided by investing activities .       25,541,520         2,749,088
                                                                ------------      ------------

Cash flows from financing activities
     Distributions to partners ............................      (11,874,221)       (9,216,453)
                                                                ------------      ------------

Net increase in cash and cash equivalents .................       15,501,318            36,273

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

Cash and cash equivalents, end of period ..................     $ 21,934,031      $  6,316,210
                                                                ============      ============
</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  discussions  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 nine months ended  September 30, 1998 are
         not  necessarily  indicative of the results to be expected for the full
         year.

2        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Leased aircraft and aircraft held for lease or sale

         The  cost of  leased  aircraft  and  aircraft  held  for  lease or sale
         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. . Effective  July 31,
         1998, Presidio is indirectly controlled by NorthStar Capital Investment
         Corp.,  a  Maryland  corporation.  Effective  as of  August  28,  1997,
         Presidio  entered into a management  agreement with NorthStar  Presidio
         Management  Company,  LLC  ("NorthStar  Presidio")  pursuant  to  which
         NorthStar  Presidio provides the day-to-day  management of Presidio and
         its direct  and  indirect  subsidiaries  and  affiliates.  For the nine
         months  ended  September  30,  1998,   reimbursable  expenses  paid  to
         NorthStar Presidio amounted to $18,750.

         IAFM is entitled to a 10 percent  interest in the net income,  loss and
         distributions  from operations and cash from sales. For the nine months
         ended  September  30,  1998,  IAFM  received  or accrued  distributions
         totaling $2,966,412.

         As compensation for management  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 $180,200
         and  $268,000 for the nine months  ended  September  30, 1998 and 1997,
         respectively.
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

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


         Upon the 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   performed  certain  management  and  administrative
         services relating to the Partnership.  Fieldstone  continued to perform
         such services until July 31, 1998.


4        DISTRIBUTION TO PARTNERS


         Distributions  payable to the limited  partners and general partners of
         $16,010,907 (41.50 per unit) and $1,778,990, respectively, at September
         30, 1998, were paid in November 1998.


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 Airlines,  Inc.  ("Aloha"),  had been
                  off-lease since October 15, 1996. Associated with the aircraft
                  were  approximately   $639,000   (approximately   $605,000  at
                  September 30, 1998) of net  maintenance  and return  provision
                  reserves that Aloha had previously  paid to 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 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 twenty months 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.
<PAGE>
                         AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

5        AIRCRAFT SALES (continued)


         (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.

         (iii)    On May 19, 1998, a Boeing 737-297  Advanced  aircraft owned by
                  the Partnership  was sold to an  unaffiliated  third party for
                  proceeds  of  $4,100,000,  exclusive  of selling  expenses  of
                  approximately  $124,000.  The  aircraft,  which  was  formerly
                  leased  to Aloha  had a net  carrying  value of  approximately
                  $2,617,000 at the time of sale.


         (iv)     Between   August  17,  1998  and  September   23,  1998,   the
                  Partnership sold its interest in two Boeing 737-200  aircraft,
                  four  Boeing  727-200  aircraft  (inclusive  of  an  undivided
                  47.92231%  joint  venture  interest in one  aircraft)  and one
                  McDonnell  Douglas  DC9-51  aircraft.  Aside  from the  DC9-51
                  aircraft,   the  six   aircraft   had  an  original   cost  of
                  approximately  $71,235,500,  represented  45.03%  of  the  net
                  carrying value of Partnership's aircraft as of the end of June
                  30, 1998 and, at the time of sale, had a net carrying value of
                  approximately  $7,744,000.  The Partnership's  interest in the
                  DC9-51  aircraft  consisted  of the right to receive  deferred
                  payments  of  $2,529,900   related  to  a  September  1,  1996
                  installment sale. The sales were made to an unaffiliated third
                  party for gross sales  proceeds of  $18,000,000,  exclusive of
                  closing costs of approximately $339,000.

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  was to 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  treated  this  transaction  as  an  installment  sale  and
         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.
<PAGE>
                         AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

6        COMMITMENTS AND CONTINGENCIES (continued)

         a.        Hawaiian Airlines, Inc. (continued)


         As  discussed  in Note 5, the  Partnership  sold its  rights  under the
         amended lease agreement to an unaffiliated third party during the third
         quarter of 1998.


         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  provided  for  a  monthly  base  rent  of  $76,750,  subject  to
         adjustments  for rental  credits  relating  to  initial  modifications.
         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 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.

         As  discussed  in Note 5, the  Partnership  sold  this  aircraft  to an
         unaffiliated third party during the third quarter of 1998.
  

         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  provided  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.  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.
<PAGE>
                         AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS


6        COMMITMENTS AND CONTINGENCIES (continued)


         d.       Ladeco S.A. (continued)


         As  discussed  in Note 5, the  Partnership  sold these  aircraft  to an
         unaffiliated third party during the third quarter of 1998.

         e.        Aloha Airlines, Inc.

         Aloha  Airlines,  Inc.  ("Aloha")  leased  a  Boeing  737-297  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
         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.

         On May 19, 1998, the aircraft was sold to an  unaffiliated  third party
         for  proceeds  of   $4,100,000,   exclusive  of  selling   expenses  of
         approximately  $124,000.  The  aircraft  had a net  carrying  value  of
         approximately $2,617,000 at the time of sale.

         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 owned 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 had 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  provided  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.
<PAGE>
                         AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

6        COMMITMENTS AND CONTINGENCIES (continued)

         f.        American Trans Air, Inc. (continued)


         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.

         As discussed in Note 5, the Partnership sold these aircraft  (including
         its undivided joint venture  interest) to an  unaffiliated  third party
         during the third quarter of 1998.


         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. In July 1998, the
         Partnership  received additional proposed notices of assessment for GET
         aggregating  approximately  $585,000 for the years 1995, 1996 and 1997.
         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.

         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 provision or liability as a result of the proposed
         notices of assessment.
<PAGE>
ITEM 2 -  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS


         Liquidity and Capital Resources


         The  Partnership  declared  a cash  distribution  of $41.50 per unit of
         limited  partnership  interest  totaling  17,789,897  which was paid in
         November 1998. After giving effect to the foregoing  distribution,  the
         Partnership had cash available of approximately  $3,491,000,  inclusive
         of the original  general  working  capital  reserves of $1,929,000.  In
         addition,  the  Partnership  had  approximately  $605,000 of  collected
         maintenance reserves at September 30, 1998.

         The  Partnership   generated  cash  from  operations  of  approximately
         $3,803,000   for  the  nine  months   ended   September   30,  1998  or
         approximately  $8.87 per Unit, as compared to  $6,859,000  for the nine
         months  ended  September  30,  1997 or  approximately  $16.00 per Unit.
         Additionally,  during the nine months ended  September  30,  1998,  the
         Partnership  collected proceeds of approximately  $25,158,000 or $58.69
         per Unit from the sale of aircraft as discussed in Note 5.

         The  Partnership's  remaining  aircraft  portfolio  consists  of  three
         McDonnell  Douglas  DC9-30  aircraft,  all of which had been  leased to
         Continental  Airlines,  Inc.  Two  of the  aircraft  were  returned  in
         September  1998 and the lease of the third  aircraft  is  scheduled  to
         expire in December 1998.

         The Partnership intends to attempt to sell the three remaining aircraft
         as  promptly  as  possible   with  a  view  towards   liquidating   the
         Partnership's  entire  portfolio  and  winding up the  business  of the
         Partnership prior to the end of 1999.

         As the Partnership's  aircraft come off-lease,  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 if the  Partnership
         determines that such expenditures are in its best interests in order to
         maximize remarketing value. 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  anticipated  cash flow for the  remainder of 1998,  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
         September  30,  1998,  the  Partnership  had  an  interest  in 3 of the
         aircraft, which had an original cost of approximately  $21,471,000 (net
         book value of approximately $6,463,000).  During the remainder of 1998,
         excluding rents from renewals and sales, the Partnership anticipates
         receiving  approximately  $105,000  of  rentals  on one  non-cancelable
         lease   (inclusive of amounts  which may be set-off by lessees  against
         basic rent as reimbursement  for certain  modifications  required under
         the applicable leases).
<PAGE>
        Liquidity and Capital Resources (continued)


         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 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 twenty months 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  (approximately  $605,000 at September 30, 1998)
         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  sold
         the aircraft on May 19, 1998 to an  unaffiliated  third party for gross
         sale proceeds of $4,100,000.

         In September  1996 and July 1998,  the  Partnership  received  proposed
         notices of assessment  from the State of Hawaii with respect to general
         excise  tax  of  approximately   $1,923,000   (including  interest  and
         penalties)  for the years 1991 through 1997. 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.
<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  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  and nine  month  periods  ended
         September  30,  1998 as  compared  to the three and nine month  periods
         ended  September  30,  1997,  principally  due to the  gain  on sale of
         certain aircraft as discussed in Note 5, which aggregated approximately
         $11,128,000, as compared to a gain on sale of aircraft of approximately
         $632,000 during the nine months ended September 30, 1997.

         Revenues  decreased  overall for the three and nine month periods ended
         September 30, 1998 compared to the  corresponding  periods of the prior
         year.  Rental income  decreased  due to reduced  rentals from the Aloha
         lease,  lower lease rates on certain aircraft leased to Continental (as
         of  December  1, 1997) and the  expiration  of a lease  with  Southwest
         Airlines Co. as well as due to the sale of certain  aircraft.  Interest
         income increased due to larger balances of undistributed cash available
         for investment.
<PAGE>
         Expenses decreased for the three and nine month periods ended September
         30, 1998 as compared to the corresponding  periods of the prior year as
         follows:  (i) decrease in depreciation  due to two ATA Aircraft and one
         Southwest  aircraft having previously  reached their salvage values, as
         well  as the  sale  of the  aircraft,  (ii)  decrease  in  general  and
         administrative expenses,  primarily due to lower legal costs, offset by
         (iii) 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 a Boeing 737 aircraft  which
         went off  lease in  January  1998  and sold on March  31,  1998 and two
         McDonnell  Douglas DC-9  aircraftwhich  went off-lease on September 17,
         1998.
<PAGE>


PART II - OTHER INFORMATION



ITEM 1.   LEGAL PROCEEDINGS

          On  July  29,   1998,   Fieldstone   Private   Capital   Group,   L.P.
          ("Fieldstone")  commenced an action in the Supreme  Court of the State
          of New York,  County  of New York,  against  Registrant,  its  General
          Partner,  Aircraft Income Partners II, L.P.,  Integrated Aircraft Fund
          Management  L.P.,   Integrated  Aircraft  Corp.,   NorthStar  Presidio
          Management Company LLC and Presidio Capital Corp. The complaint seeks,
          among other things, damages against Registrant and its General Partner
          and  Aircraft  Income  Partners  II,  L.P.  and  its  general  partner
          (Integrated Aircraft Fund Management L.P.) aggregating  $1,645,453 for
          the alleged failure to pay Fieldstone  leasing and sales  commissions.
          Registrant has filed an answer denying  liability and has also filed a
          counterclaim  alleging  that  Fieldstone  was  negligent in performing
          services for Registrant and tbe General Partner.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(a)       Exhibits:  None.
(b)       Reports on Form 8-K: Current report on Form 8-K dated August 17, 1998.



<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/Allan B. Rothschild
                               ----------------------
                               Allan B. Rothschild
                               President





                               /s/Lawrence Schachter
                               ---------------------
                               Lawrence Schachter
                               Senior Vice President and Chief Financial Officer








Date: November 12, 1998