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 June 30, 1997

                         Commission file number 0-17785

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


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

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

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

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


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

                    Yes    [ X ]          No [   ]
<PAGE>
                                      INDEX



PART I - FINANCIAL INFORMATION

      ITEM 1 - FINANCIAL STATEMENTS

         BALANCE SHEETS - June 30, 1997 and December 31, 1996

         STATEMENTS OF OPERATIONS - For the three months ended June 30, 1997 and
            1996 and the six months ended June 30, 1997 and 1996

         STATEMENT OF PARTNERS' EQUITY - For the six months ended June 30, 1997

         STATEMENTS OF CASH FLOWS - For the six months  ended June 30,  1997 and
            1996

         NOTES TO FINANCIAL STATEMENTS

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


PART II - OTHER INFORMATION

      ITEM 5 - OTHER INFORMATION

      ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K  

SIGNATURES  
<PAGE>
<TABLE>
<CAPTION>
                          AIRCRAFT INCOME PARTNERS L.P.

                                 BALANCE SHEETS


                                                                     June 30,     December 31,
                                                                       1997          1996
                                                                  -----------     -----------
<S>                                                               <C>             <C>
ASSETS

     Leased aircraft, net of accumulated depreciation of
        $68,669,028 and $72,647,508 and allowance for
        equipment impairment of $24,100,000 and $27,500,000 .     $22,847,024     $27,529,419
     Cash and cash equivalents ..............................       8,515,597       6,279,937
     Note receivable - installment sale .....................       3,208,283       3,887,665
     Accounts receivable ....................................         664,169         769,547
     Restricted cash - security deposits ....................         493,627         481,677
     Deferred costs .........................................         159,685         223,866
     Other receivables ......................................          96,490         523,915
     Prepaid expenses .......................................          32,520          95,361
     Deferred rents and modification advances receivable ....            --           254,432
                                                                  -----------     -----------

                                                                  $36,017,395     $40,045,819
                                                                  ===========     ===========

LIABILITIES AND PARTNERS' EQUITY

Liabilities
     Distributions payable ..................................     $ 4,286,722     $ 2,357,697
     Maintenance reserves ...................................       2,179,246       2,167,329
     Security deposits payable ..............................         493,627         481,677
     Accounts payable and accrued expenses ..................         154,236         103,765
     Deferred income ........................................         131,550         131,550
     Management fee payable .................................          85,000          94,000
     Deferred costs payable .................................          48,267          48,016
                                                                  -----------     -----------

        Total liabilities ...................................       7,378,648       5,384,034
                                                                  -----------     -----------

Commitments and contingencies

Partners' equity
        Limited partners' equity (as restated) (385,805 units
            issued and outstanding) .........................      25,765,917      31,186,652
        General partner's equity (as restated) ..............       2,872,830       3,475,133
                                                                  -----------     -----------

        Total partners' equity ..............................      28,638,747      34,661,785
                                                                  -----------     -----------

                                                                  $36,017,395     $40,045,819
                                                                  ===========     ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                       AIRCRAFT INCOME PARTNERS L.P.

                                          STATEMENTS OF OPERATIONS


                                                 For the three months ended      For the six months ended
                                                          June 30,                        June 30,
                                                --------------------------      --------------------------
                                                   1997            1996            1997            1996
                                                ----------      ----------      ----------      ---------- 
<S>                                             <C>             <C>             <C>             <C>
Revenues
     Rental ..............................      $1,911,481      $2,637,061      $3,822,956      $5,516,621
     Interest ............................         112,922         159,145         196,647         259,967
     Interest - installment note .........          72,721            --           148,618            --
                                                ----------      ----------      ----------      ---------- 

                                                 2,097,124       2,796,206       4,168,221       5,776,588
                                                ----------      ----------      ----------      ---------- 

Costs and expenses
     Depreciation ........................       1,546,281       2,352,753       3,392,497       4,915,776
     General and administrative ..........         175,043         126,592         275,296         195,894
     Management fee ......................          85,000          97,000         188,000         217,000
     Other expenses ......................          20,091           6,899          36,819          11,346
     Operating ...........................           6,937          21,713          72,260          32,809
     Provision for bad debts .............            --              --              --            66,133
     Interest expense ....................            --               316            --             1,570
                                                ----------      ----------      ----------      ---------- 

                                                 1,833,352       2,605,273       3,964,872       5,440,528
                                                ----------      ----------      ----------      ---------- 

                                                   263,772         190,933         203,349         336,060

Gain on sale of aircraft - net ...........         632,368       3,568,068         632,368       3,568,068
                                                ----------      ----------      ----------      ---------- 


Net income ...............................      $  896,140      $3,759,001      $  835,717      $3,904,128
                                                ==========      ==========      ==========      ========== 

Net income attributable to
     Limited partners ....................      $  806,526      $3,383,101      $  752,145      $3,513,715
     General partners ....................          89,614         375,900          83,572         390,413
                                                ----------      ----------      ----------      ---------- 

                                                $  896,140      $3,759,001      $  835,717     $ 3,904,128
                                                ==========      ==========      ==========      ========== 

Net income per unit of limited partnership
     interest (385,805 units outstanding)       $     2.09      $     8.77      $     1.95     $      9.11
                                                ==========      ==========      ==========     =============


                                    See notes to financial statements.
</TABLE>
<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, 1997 ...................      $ 50,476,902       $(15,815,117)      $ 34,661,785

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

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

Net income for the six months
     ended June 30, 1997 ...................           752,145             83,572            835,717

Distributions to partners for the six months
     ended June 30, 1997 ($16.00 per limited
     partnership unit) .....................        (6,172,880)          (685,875)        (6,858,755)
                                                  ------------       ------------       ------------

Balance, June 30, 1997 .....................      $ 25,765,917       $  2,872,830       $ 28,638,747
                                                  ============       ============       ============



                                 See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                    AIRCRAFT INCOME PARTNERS L.P.

                                       STATEMENTS OF CASH FLOWS


                                                                    For the six months ended
                                                                             June 30,
                                                                 --------------------------------
                                                                      1997               1996
                                                                 ------------       ------------
<S>                                                              <C>                <C>
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS

Cash flows from operating activities
     Net income ...........................................      $    835,717       $  3,904,128
     Adjustments to reconcile net income to net
        cash provided by operating activities
            Depreciation ..................................         3,392,497          4,915,776
            Gain on sale of aircraft - net ................          (632,368)        (3,568,068)
     Changes in assets and liabilities
        Accounts receivable ...............................           105,378            269,986
        Restricted cash - security deposits ...............           (11,950)            (9,521)
        Deferred costs ....................................            64,181             64,180
        Other receivables .................................           427,425            (33,348)
        Prepaid expenses ..................................            62,841             13,668
        Deferred rents and modification advances receivable           254,432            188,664
        Maintenance reserves ..............................            11,917             45,747
        Security deposits payable .........................            11,950             13,300
        Accounts payable and accrued expenses .............            50,471             44,462
        Deferred income ...................................              --              (47,666)
        Management fee payable ............................            (9,000)           (40,000)
                                                                 ------------       ------------

               Net cash provided by operating activities ..         4,563,491          5,761,308
                                                                 ------------       ------------

Cash flows from investing activities
     Proceeds from sale of aircraft - net .................         1,922,266          6,784,400
     Proceeds from installment sale note receivable .......           679,382               --
     Additions and modifications to leased aircraft, net ..               251            (74,036)
                                                                 ------------       ------------

               Net cash provided by investing activities ..         2,601,899          6,710,364
                                                                 ------------       ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                    AIRCRAFT INCOME PARTNERS L.P.

                                       STATEMENTS OF CASH FLOWS
                                             (continued)


                                                                    For the six months ended
                                                                             June 30,
                                                                 --------------------------------
                                                                      1997               1996
                                                                 ------------       ------------
<S>                                                              <C>                <C>
Cash flows from financing activities
     Distributions to partners ............................        (4,929,730)        (6,430,084)
                                                                 ------------       ------------

Net increase in cash and cash equivalents .................         2,235,660          6,041,588

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

Cash and cash equivalents, end of period ..................      $  8,515,597       $ 13,490,043
                                                                 ============       ============

Supplemental disclosure of cash flow information
     Interest paid ........................................      $       --         $      1,570
                                                                 ============       ============
</TABLE>
<PAGE>
                         AIRCRAFT INCOME PARTNERS L. P.

                            FORM 10-Q - JUNE 30, 1997


 1        INTERIM FINANCIAL INFORMATION

         The  summary  financial  information  contained  herein  is  unaudited;
         however, in the opinion of management, all adjustments (consisting only
         of normal recurring accruals) necessary for a fair presentation of such
         financial  information have been included.  The accompanying  financial
         statements, footnotes and discussion should be read in conjunction with
         the financial  statements,  related footnotes and discussions contained
         in the Aircraft Income Partners L.P. (the "Partnership")  annual report
         on Form 10-K for the year  ended  December  31,  1996.  The  results of
         operations  for the six months ended June 30, 1997 are not  necessarily
         indicative of the results to be expected for the full year.

 2        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Leased aircraft

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

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

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

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

         Maintenance reserves

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

                            FORM 10-Q - JUNE 30, 1997

 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.

         Recently issued accounting pronouncement

         The Financial  Accounting Standards Board issued Statement of Financial
         Accounting  Standards No. 128, "Earnings per Share" in February,  1997.
         This pronouncement  establishes  standards for computing and presenting
         earnings  per  share,  and is  effective  for  the  Partnership's  1997
         year-end  financial  statements.   The  Partnership's   management  has
         determined that this standard will have no impact on the  Partnership's
         computation  or   presentation  of  net  income  per  unit  of  limited
         partnership interest.

 3        CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES

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

         Subject  to the  rights  of the  Limited  Partners  under  the  Limited
         Partnership  Agreement,  Presidio controls the Partnership  through its
         indirect ownership of all of the shares of IAFM. Presidio is managed by
         Presidio Management  Company,  LLC ("Presidio  Management"),  a company
         controlled  by a director  of  Presidio.  Presidio  is also party to an
         administrative   services   agreement   with  Wexford   Management  LLC
         ("Wexford") pursuant to which Wexford is responsible for the day-to-day
         management  of Presidio and,  among other things,  has the authority to
         designate directors of IAFM. For the six months ended June 30, 1997 and
         1996,  reimbursable  expenses  paid to Wexford  amounted to $13,383 and
         $17,267.

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

         IAFM is entitled to a 10 percent  interest in the net income,  loss and
         distributions  from operations and cash from sales.  For the six months
         ended June 30, 1997 and 1996,  IAFM  received or accrued  distributions
         totaling $685,875 and $1,221,716, respectively.
<PAGE>
                         AIRCRAFT INCOME PARTNERS L. P.

                            FORM 10-Q - JUNE 30, 1997

 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
         $188,000  and $217,000 for the six months ended June 30, 1997 and 1996,
         respectively.

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

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

 4        DISTRIBUTIONS TO PARTNERS

         Distributions  payable to Limited  Partners and the General  Partner of
         $3,858,050  ($10.00 per unit) and $428,672,  respectively,  at June 30,
         1997, were paid in August 1997.
<PAGE>
                         AIRCRAFT INCOME PARTNERS L. P.

                            FORM 10-Q - JUNE 30, 1997

 5        PARTNERS' EQUITY

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

 6     COMMITMENTS AND CONTINGENCIES

          a.       Hawaiian Airlines, Inc.

         On September 1, 1996,  the  Partnership  and  Hawaiian  Airlines,  Inc.
         ("Hawaiian")  amended the lease agreement of a McDonnell  Douglas model
         DC9-51  aircraft  (the  "Hawaiian  Aircraft").  Under  the terms of the
         agreement, Hawaiian paid the Partnership a down payment of $450,000 and
         the  balance  will be paid in  monthly  installments  (39  payments  of
         $72,000 and then 36 payments of $50,000)  until  November 30, 2002,  at
         which time Hawaiian has a bargain purchase option for the aircraft. The
         Partnership has treated this transaction as an installment sale and has
         classified  the 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.
<PAGE>
                         AIRCRAFT INCOME PARTNERS L. P.

                            FORM 10-Q - JUNE 30, 1997

 6        COMMITMENTS AND CONTINGENCIES (continued)

          c.       Continental Air Micronesia

         On January 20, 1993, the Partnership  leased a Boeing 727-200  Advanced
         aircraft to  Continental  for a term of  approximately  71 months to be
         used by Continental Air Micronesia (the "Air Mike Lease"). The Air Mike
         Lease  provides  for  a  monthly  base  rent  of  $76,750,  subject  to
         adjustments  for  rental  credits  relating  to  initial  modifications
         (including Traffic Collision  Avoidance Systems,  windshear  detection,
         upgrade  avionics and auxiliary  fuel tank)  aggregating  approximately
         $794,000,  of which approximately  $300,000 was contributed in cash and
         the  balance  was to be  contributed  in the  form  of  rental  credits
         provided to  Continental.  Continental  was allowed to take such rental
         credits  ($13,741  per month  through  May 1996)  such that they  would
         recoup  their  aggregate  cost of the initial  modifications  over a 36
         month period with interest at 9.31% per annum. Further, the Partnership
         agreed to provide up to  $813,500  of  financing  for certain new image
         modifications  through credits ("Lessor Financing") against base rental
         payments due from  Continental.  Continental is currently  repaying the
         Lessor  Financing  credits  through  monthly   installments  which  are
         amortized at the rate of 9.31% per annum over the remaining lease term.
         Through  June 30,  1997,  the  Partnership  had  provided  financing of
         approximately  $755,000.  Such  amounts,  net of  amounts  repaid,  are
         included  within  deferred  costs on the balance sheet at June 30, 1997
         and December 31, 1996.

          d.       Ladeco S.A.

         During 1993, the  Partnership  consummated  two leases with Ladeco S.A.
         ("Ladeco"), each for a Boeing 737-200 Advanced aircraft for terms of 48
         and 60 months.  Both leases  provide for,  among other things,  monthly
         rentals of $47,500 each, plus certain maintenance  reserves for engines
         and landing gear,  based upon the number of hours flown. As of June 30,
         1997, such maintenance reserves aggregated approximately $1,540,000. 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 renewed for a
         one year period at the same lease rate  beginning at the  expiration of
         the original leases.

          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.
<PAGE>
                         AIRCRAFT INCOME PARTNERS L. P.

                            FORM 10-Q - JUNE 30, 1997

 6     COMMITMENTS AND CONTINGENCIES (continued)

          f.       American Trans Air, Inc.

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

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

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

          g.       Southwest Airlines Co.

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

          h.       Tax assessment

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

                            FORM 10-Q - JUNE 30, 1997


         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  liability as a result of the proposed  notices of
         assessment.

 7        MANAGEMENT FEE PAYABLE

         The  amount  due to IAFM of $85,000  and  $94,000 at June 30,  1997 and
         December  31, 1996,  respectively,  represents  Partnership  management
         fees.

 8        AIRCRAFT SALE

         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 was
         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 Allied Signal, the TBT Lessor,
         retains the federal  income tax  benefits  that  normally  accrued from
         ownership  of  the  aircraft  other  than  lease  rentals.   There  are
         approximately  three  years  remaining  on the  TBT  Lease,  until  its
         expiration on May 21, 2000. At the time of the sale, the aircraft had a
         net carrying value of approximately $1,290,000.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

         Liquidity and Capital Resources

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

         The  Partnership  declared  a cash  distribution  of $10.00 per unit of
         limited  partnership  interest  ("Unit") for the quarter ended June 30,
         1997,  which  represented an annualized  cash  distribution  rate of 8%
         (based on initial  offering  price of $500 per Unit) as  compared  to a
         cash  distribution of $21.50 per Unit with respect to the quarter ended
         June 30,  1996.  The  Partnership  generated  cash from  operations  of
         approximately  $4,762,000  for the six months  ended June 30, 1997 (the
         "1997  Period")  or  approximately  $11.11  per Unit,  as  compared  to
         $5,736,000  for the six months ended June 30, 1996 (the "1996  Period")
         or approximately $13.38 per Unit.

         During the 1997 Period,  the Partnership  decreased its gross aggregate
         cash reserves, inclusive of collected maintenance reserves and original
         working capital (1% of original offering proceeds),  by an aggregate of
         approximately  $162,000 from  approximately  $4,397,000 at December 31,
         1996 to  approximately  $4,235,000 at June 30, 1997. The aggregate cash
         reserves were comprised of  approximately  $127,000  which  represented
         undistributed  cash from  operations  and cash from  sales,  as well as
         original  working  capital  of  $1,929,000  (1%  of  original  offering
         proceeds)  and  approximately   $2,179,000  of  collected   maintenance
         reserves.

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

         the  Partnership  may be required to bear some of the related  costs of
         compliance  with  recent   mandatory   federal   regulations   covering
         maintenance and upgrading of aging aircraft.  The Partnership's ability
         to make  distributions  may be impacted by its  obligation  to pay such
         costs.

         The 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.  requirements.  The
         Partnership  also believes that as a result of the factors listed above
         there  has  been  a  significant   decline  in  the  re-sale  value  of
         narrow-body aircraft similar to the types owned by the Partnership.

         Although the Partnership  believes that its anticipated gross cash flow
         during the remainder of 1997 will be less than previous gross cash flow
         generated  (approximately  74% of the 1996 cash flow  based  upon gross
         firm term leases),  the anticipated cash flow for the remainder of 1997
         and  the   foreseeable   future   should  be   sufficient  to  pay  the
         Partnership's operating expenses and to make distributions.

         Of the 18 aircraft originally purchased by the Partnership, at June 30,
         1997, the Partnership had an interest in 11 of the aircraft  (inclusive
         of an undivided  47.92231%  joint  venture  interest in one  aircraft),
         which had an  original  cost of  approximately  $115,616,000  (net book
         value of  approximately  $22,847,000).  During the  remainder  of 1997,
         excluding rents from renewals and sales,  the  Partnership  anticipates
         receiving approximately  $3,551,000 of rentals on non-cancelable leases
         (inclusive  of amounts  which may be set-off by lessees  against  basic
         rent as  reimbursement  for certain  modifications  required  under the
         applicable leases).  After deducting operating expenses,  the foregoing
         aggregate rentals are not sufficient to maintain previous  distribution
         levels.

         On November 15, 1997, the lease of a Boeing 737-200  Advanced  aircraft
         leased to Aloha is scheduled to expire in accordance  with the terms of
         the lease.  On December 1, 1997 and December 5, 1997, the leases of the
         three McDonnell  Douglas DC-9-30 aircraft leased to Continental and one
         Boeing 737-200 Advanced aircraft leased to Southwest respectively,  are
         scheduled to expire.  The  Partnership  has commenced  its  remarketing
         efforts with respect to these aircraft.  There can be no assurance that
         the  Partnership  will be  successful  with respect to its  remarketing
         activities.
<PAGE>
         Liquidity and Capital Resources (continued)

         Of the remaining 11 aircraft,  five aircraft as discussed above,  which
         generate  aggregate gross rental revenues of  approximately  $3,830,000
         per year are  scheduled to come  off-lease or be sold during 1997.  The
         Partnership's  remaining  aircraft are leased  pursuant to leases which
         expire during in 1998 (5 aircraft) and 1999 (1 aircraft).

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

         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 was
         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 Allied Signal, the TBT Lessor,
         retains the federal  income tax  benefits  that  normally  accrued from
         ownership  of  the  aircraft  other  than  lease  rentals.   There  are
         approximately  three  years  remaining  on the  TBT  Lease,  until  its
         expiration on May 21, 2000. At the time of the sale, the aircraft had a
         net carrying value of approximately $1,290,000.

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

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

         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.

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

         Results of Operations

         Net income decreased for the six months ended June 30, 1997 as compared
         to the six months ended June 30, 1996,  principally  due to the gain on
         sale of the  Southwest  Aircraft in 1996 being  higher than the gain on
         sale of the Aloha Aircraft in 1997.

         Revenues  decreased  overall  for the six months  ended  June 30,  1997
         compared to the  corresponding  period of the prior year. Rental income
         decreased  due to the  expiration,  in  October  1996,  of a lease with
         Aloha, as well as reduced rentals on the second Aloha Aircraft, and the
         Hawaiian  Aircraft  which  is  currently  being  accounted  for  on  an
         installment sale basis.
<PAGE>
         Results of Operations (continued)

         Expenses  decreased  for the six months ended June 30, 1997 as compared
         to the  corresponding  period  of the  prior  year as  follows;  (i) no
         depreciation in the current period on the aircraft previously leased to
         Southwest as well as the Hawaiian  Aircraft which were sold  subsequent
         to the prior year period and reduced depreciation on the Aloha Aircraft
         sold during the current period and, (ii) reduction in provision for bad
         debts due to no provision  considered  necessary in the current  period
         (iii) reduced  management  fee due to decreased  distribution  on which
         such fee is based,  offset by (i) increase in operating expenses due to
         higher  insurance costs and, (ii) increase  general and  administrative
         expenses due to higher legal costs on the sale of the Aloha aircraft.
 


PART II - OTHER INFORMATION

ITEM 5   Other Information


         On July 25, 1997,  Wexford,  the  administrator for Presidio , received
         notice from Presidio Holding Company, LLC, which stated that it was the
         holder of 63% of the  outstanding  Class A common  shares of  Presidio,
         that it was seeking to remove the three  current  Class A directors and
         replacing  them with  Edward  Scheetz,  David  Hamamoto  and David King
         effective  as  of  12:00  p.m.  on  September  2,  1997.  There  exists
         substantial doubt as to the effectiveness of such notice. On August 15,
         1997,  Presidio  applied to the Judge of the High Court in the  British
         Virgin  Islands  for a  declaration  that  the  written  resolution  of
         Presidio  Holding LLC, dated July 25, 1997 was invalid and of no effect
         insofar  as it  purports  to be a  written  resolution  of the  Class A
         Members of Presidio.

         As of August 18, 1997, there have been no changes in the composition of
         the officers and directors of the general  partner.  In addition,  the
         administrative services agreement with Wexford remains in effect and is
         scheduled to terminte in November 1997.
     

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 May 22, 1997.
<PAGE>


                                   SIGNATURES


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



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



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

August 18, 1997