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, 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 - JUNE 30, 1998









                                      INDEX



PART I - FINANCIAL INFORMATION


      ITEM 1 - FINANCIAL STATEMENTS

          BALANCE SHEETS - June 30, 1998 and December 31, 1997 ................ 


          STATEMENTS  OF  OPERATIONS - For the three months ended June 30, 1998
             and 1997 and for the six months ended June 30, 1998 and 1997...... 


          STATEMENT OF PARTNERS' EQUITY - For the six months ended June 30, 1998


          STATEMENTS OF CASH FLOWS - For the six months ended June 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>
PART 1 - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                                 AIRCRAFT INCOME PARTNERS L.P.

                                        BALANCE SHEETS

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

     Leased aircraft, net of accumulated depreciation of
        $58,348,224 and $71,503,840 and allowance for
        equipment impairment of  $19,787,000 and $24,100,000     $14,570,828     $20,012,212
     Cash and cash equivalents .............................      16,063,142       6,432,713
     Note receivable - installment sale ....................       2,601,941       2,911,906
     Accounts receivable ...................................         457,259         505,730
     Restricted cash - security deposits ...................         431,500         506,120
     Other receivables .....................................          73,090          89,891
     Deferred costs ........................................          72,537          95,505
     Prepaid expenses ......................................          11,348          13,170
                                                                 -----------     -----------

                                                                 $34,281,645     $30,567,247
                                                                 ===========     ===========
LIABILITIES AND PARTNERS' EQUITY

Liabilities
     Distribution payable ..................................     $11,874,221     $      --
     Maintenance reserves ..................................       1,228,679       2,129,110
     Security deposits payable .............................         431,500         506,120
     Accounts payable and accrued expenses .................         215,303         168,561
     Management fee payable ................................         180,200            --
     Deferred income .......................................         135,654         133,217
     Deferred costs payable ................................          50,000          50,000
                                                                 -----------     -----------

        Total liabilities ..................................      14,115,557       2,987,008
                                                                 -----------     -----------
Commitments and contingencies

Partners' equity
        Limited partners' equity (385,805 units
            issued and outstanding) ........................      18,140,524      24,813,260
        General partner's equity ...........................       2,025,564       2,766,979
                                                                 -----------     -----------

        Total partners' equity .............................      20,166,088      27,580,239
                                                                 -----------     -----------

                                                                 $34,281,645     $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 six months ended
                                                      June 30,                     June 30,
                                             -------------------------    --------------------------
                                                1998           1997           1998           1997
                                             ----------     ----------     ----------     ----------
<S>                                          <C>            <C>            <C>            <C>       
Revenues
     Rental ............................     $1,426,556     $1,911,481     $2,896,644     $3,822,956
     Interest ..........................        269,406        112,922        365,200        196,647
     Interest - installment note .......         59,281         72,721        122,035        148,618
                                             ----------     ----------     ----------     ----------

                                              1,755,243      2,097,124      3,383,879      4,168,221
                                             ----------     ----------     ----------     ----------

Costs and expenses
     Depreciation ......................        791,735      1,546,281      1,684,059      3,392,497
     Operating .........................        332,254          6,937        497,469         72,260
     Management fee ....................        180,200         85,000        180,200        188,000
     General and administrative ........         57,566        175,043        132,302        275,296
     Other expenses ....................         22,274         20,091         42,575         36,819
                                             ----------     ----------     ----------     ----------

                                              1,384,029      1,833,352      2,536,605      3,964,872
                                             ----------     ----------     ----------     ----------

                                                371,214        263,772        847,274        203,349

Gain on sale of aircraft - net .........      1,360,469        632,368      3,612,796        632,368
                                             ----------     ----------     ----------     ----------

Net income .............................     $1,731,683     $  896,140     $4,460,070     $  835,717
                                             ==========     ==========     ==========     ==========

Net income attributable to
     Limited partners ..................     $1,558,515     $  806,526     $4,014,063     $  752,145
     General partners ..................        173,168         89,614        446,007         83,572
                                             ----------     ----------     ----------     ----------

                                             $1,731,683     $  896,140     $4,460,070     $  835,717
                                             ==========     ==========     ==========     ==========


Net income per unit of limited
     partnership interest (385,805 units
     outstanding) ......................     $     4.04     $     2.09     $    10.40     $     1.95
                                             ==========     ==========     ==========     ==========

</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 six months
     ended June 30, 1998 ...................        4,014,063           446,007         4,460,070

Distributions to partners for the six months
     ended June 30, 1998 ($27.70 per limited
     partnership unit) .....................      (10,686,799)       (1,187,422)      (11,874,221)
                                                 ------------      ------------      ------------

Balance, June 30, 1998 .....................     $ 18,140,524      $  2,025,564      $ 20,166,088
                                                 ============      ============      ============

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

                                     STATEMENTS OF CASH FLOWS

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

Cash flows from operating activities
     Net income ..............................................     $  4,460,070      $    835,717
     Adjustments to reconcile net income to net
        cash provided by operating activities
            Depreciation .....................................        1,684,059         3,392,497
            Gain on disposition of aircraft, net .............       (3,612,796)         (632,368)
     Changes in assets and liabilities
        Accounts receivable ..................................           48,471           105,378
        Restricted cash - security deposits ..................           74,620           (11,950)
        Other receivables ....................................           16,801           427,425
        Deferred costs .......................................           22,968            64,181
        Prepaid expenses .....................................            1,822            62,841
        Deferred rents and modification advances receivable ..             --             254,432
        Maintenance reserves .................................         (900,431)           11,917
        Security deposits payable ............................          (74,620)           11,950
        Accounts payable and accrued expenses ................           46,742            50,471
        Management fee payable ...............................          180,200            (9,000)
        Deferred income ......................................            2,437              --
                                                                   ------------      ------------


                Net cash provided by operating activities ....        1,950,343         4,563,491
                                                                   ------------      ------------
Cash flows from investing activities
     Proceeds from sale of aircraft, net .....................        7,370,121         1,922,266
     Proceeds from installment sale note receivable ..........          309,965           679,382
     Additions and modifications to leased aircraft, net .....             --                 251
                                                                   ------------      ------------

                Net cash provided by investing activities ....        7,680,086         2,601,899
                                                                   ------------      ------------
Cash flows from financing activities
     Distributions to partners ...............................             --          (4,929,730)
                                                                   ------------      ------------

Net increase in cash and cash equivalents ....................        9,630,429         2,235,660

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

Cash and cash equivalents, end of period .....................     $ 16,063,142      $  8,515,597
                                                                   ============      ============

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

                          NOTES TO FINANCIAL STATEMENTS


1        INTERIM FINANCIAL INFORMATION

         The  summary  financial  information  contained  herein  is  unaudited;
         however, in the opinion of management, all adjustments (consisting only
         of normal recurring accruals) necessary for a fair presentation of such
         financial  information have been included.  The accompanying  financial
         statements, footnotes and discussion should be read in conjunction with
         the financial  statements,  related footnotes and discussions contained
         in the Aircraft Income Partners L.P. (the "Partnership")  annual report
         on Form 10-K for the year  ended  December  31,  1997.  The  results of
         operations  for the six months ended June 30, 1998 are not  necessarily
         indicative of the results to be expected for the full year.

2        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Leased aircraft

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

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

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

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

         Maintenance reserves

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

                          NOTES TO FINANCIAL STATEMENTS

2        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


         Deferred costs

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

3        CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES

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

         Subject  to the  rights  of the  Limited  Partners  under  the  Limited
         Partnership  Agreement,  Presidio controls the Partnership  through its
         indirect  ownership  of all of the shares of IAFM.  Effective  July 31,
         1998, Presidio is indirectly controlled by NorthStar Capital Investment
         Corp.,  a  Maryland  corporation.  Effective  as of  August  28,  1997,
         Presidio has a management  agreement with NorthStar Presidio Management
         Company,  LLC  ("NorthStar   Presidio")  pursuant  to  which  NorthStar
         Presidio  provides the day-to-day  managment of Presidio and its direct
         and indirect subsidiaries and affiliates. For the six months ended June
         30, 1998,  reimbursable expenses paid to NorthStar Presidio amounted to
         $11,250.

         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, 1998 and 1997,  IAFM  received or accrued  distributions
         totaling $1,187,422 and $685,875, respectively.

         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.
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

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

         All costs  associated  with the  retention  of 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
         $180,200  and $188,000 for the six months ended June 30, 1998 and 1997,
         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  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.   Substantially   all  costs
         associated  with the  retention of  Fieldstone,  other than legal fees,
         were paid by IAFM.  Fieldstone continued to perform such services until
         July 31, 1998.

4        DISTRIBUTION TO PARTNERS

         Distributions  payable to the limited  partners and general partners of
         $10,686,799 ($27.70 per unit) and $1,187,422, respectively, at June 30,
         1998, were paid in July 1998.

5        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.
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

 5        COMMITMENTS AND CONTINGENCIES (continued)

         b.        Continental Airlines, Inc.

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

         c.        Continental Air Micronesia

         On January 20, 1993, the Partnership  leased a Boeing 727-200  Advanced
         aircraft to  Continental  for a term of  approximately  71 months to be
         used by Continental Air Micronesia (the "Air Mike Lease"). The Air Mike
         Lease  provides  for  a  monthly  base  rent  of  $76,750,  subject  to
         adjustments  for  rental  credits  relating  to  initial  modifications
         (including Traffic Collision  Avoidance Systems,  windshear  detection,
         upgrade  avionics and auxiliary  fuel tank)  aggregating  approximately
         $794,000,  of which approximately  $300,000 was contributed in cash and
         the  balance  was to be  contributed  in the  form  of  rental  credits
         provided to  Continental.  Continental  was allowed to take such rental
         credits  ($13,741  per month  through  May 1996)  such that they  would
         recoup  their  aggregate  cost of the initial  modifications  over a 36
         month period with interest at 9.31% per annum. Further, the Partnership
         agreed to provide up to  $813,500  of  financing  for certain new image
         modifications  through credits ("Lessor Financing") against base rental
         payments  due from  Continental.  Continental  was  repaying the Lessor
         Financing credits through monthly  installments which were amortized at
         the rate of 9.31% per annum over the remaining lease term. Through June
         30,  1998,  the  Partnership  had provided  financing of  approximately
         $755,000.  Such amounts,  net of amounts  repaid,  are included  within
         deferred  costs on the balance  sheet at June 30, 1998 and December 31,
         1997.

         d.        Ladeco S.A.

         During 1993, the  Partnership  consummated  two leases with Ladeco S.A.
         ("Ladeco"), each for a Boeing 737-200 Advanced aircraft for terms of 48
         and 60 months,  respectively.  Both  leases  provide  for,  among other
         things,  monthly  rentals of $47,500  each,  plus  certain  maintenance
         reserves for engines and landing  gear,  based upon the number of hours
         flown.  As of June  30,  1998,  such  maintenance  reserves  aggregated
         approximately  $590,000.  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
<PAGE>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

5        COMMITMENTS AND CONTINGENCIES (continued)

         Partnership  may be  obligated  to  contribute  in the  form of  rental
         credits, to the completion of certain airworthiness  directives and FAA
         regulations based on certain thresholds. The amount of such obligation,
         if any, is  undeterminable  at this time. The Ladeco  aircraft  leases,
         originally  scheduled  to expire in October  1997 and March 1998,  were
         each renewed for a one year period at the same lease rate  beginning at
         the expiration of the original lease terms.

         e.        Aloha Airlines, Inc.

         Aloha  Airlines,  Inc.  ("Aloha")  leases  a  Boeing  737-297  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 owns an undivided
         47.92231%  joint venture  interest) (the "JV  Aircraft")  exercised its
         renewal option. The lease,  originally  scheduled to expire in November
         1996, was renewed for an additional two years at the same lease rate.

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

                          NOTES TO FINANCIAL STATEMENTS

5        COMMITMENTS AND CONTINGENCIES (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.

         On July 30, 1998,  the  Partnership  entered into an agreement  for the
         sale,  subject to the lease with ATA, of its undivided  interest in the
         JV Aircraft to an  unaffiliated  third party for gross sale proceeds of
         approximately $2,000,000 as discussed in Note 7.

         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>
                          AIRCRAFT INCOME PARTNERS L.P.

                          NOTES TO FINANCIAL STATEMENTS

6        AIRCRAFT SALES

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

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

         (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  Airlines,  Inc. had a net  carrying  value of
                  approximately $2,617,000 at the time of sale.

7         SUBSEQUENT EVENT

         On July 30, 1998,  the  Partnership  entered into an agreement  with an
         unaffiliated  third party to sell,  subject to the lease with ATA,  its
         undivided  47.92231%  joint  venture  interest  in one  Boeing  727-200
         Advanced  aircraft.  Upon the  consummation of the sale, gross proceeds
         are anticipated to be approximately  $2,000,000.  On July 31, 1998, the
         Partnership  entered into a  non-binding  letter of intent to sell five
         aircraft for an aggregate purchase price of approximately  $16,000,000.
         The letter is subject to various conditions as well as the execution of
         definitive documentation.  Accordingly,  there can be no assurance that
         such sales will be consummated.

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

         Liquidity and Capital Resources

         The  Partnership is actively  seeking to sell a significant  portion of
         its  equipment  portfolio in order to take  advantage of the  currently
         strong aircraft market and on July 30, 1998,  entered into an agreement
         for the sale of the JV  Aircraft  for an  aggregate  purchase  price of
         approximately   $2,000,000.   Additionally,   on  July  31,  1998,  the
         Partnership  entered into a  non-binding  letter of intent to sell five
         aircraft for purchase prices aggregating approximately $16,000,000. The
         letter is subject to various  conditions  as well as the  execution  of
         definitive documentation.  Accordingly,  there can be no assurance that
         such sales will be consummated.
 
         The  Partnership  declared  a cash  distribution  of $27.70 per unit of
         limited  partnership  interest  totaling  $11,874,221 which was paid in
         July 1998.  After  giving  effect to the  foregoing  distribution,  the
         Partnership had cash available of approximately  $2,666,000,  inclusive
         of the original  general  working  capital  reserves of $1,929,000.  In
         addition,  the  Partnership had  approximately  $1,229,000 of collected
         maintenance reserves at June 30, 1998.

         The  Partnership   generated  cash  from  operations  of  approximately
         $2,913,000  for the six months ended June 30, 1998 (the "1998  Period")
         or approximately  $6.80 per Unit, as compared to $4,762,000 for the six
         months ended June 30, 1997 (the "1997 Period") or approximately  $11.11
         per Unit. Additionally,  during the six months ended June 30, 1998, the
         Partnership  collected  proceeds of approximately  $7,370,000 or $17.19
         per Unit from the sale of two aircraft as discussed in Note 6.

         As the  Partnership's  aircraft  come  off-lease  (five  of  which  are
         scheduled to come off-lease in 1998, one in 1999 and three in 2000), it
         may be necessary for the  Partnership to use a portion of its operating
         reserves and/or its anticipated future cash flow, which would otherwise
         be available for distribution,  to upgrade or enhance these aircraft 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 and the foreseeable
         future,  combined  with  reserves,  should  be  sufficient  to pay  the
         Partnership's  operating  expenses.  The Partnership's  ability to make
         future  distributions  will be impacted by its  obligation  to pay such
         costs.

         Of the 18 aircraft originally purchased by the Partnership, at June 30,
         1998, the Partnership  had an interest in 9 of the aircraft  (inclusive
         of an undivided  47.92231%  joint  venture  interest in one  aircraft),
         which had an original cost of approximately $92,706,000 (net book value
         of approximately $14,571,000).  During the remainder of 1998, excluding

<PAGE>
         Liquidity and Capital Resources (continued)

         rents from renewals and sales,  the Partnership  anticipates  receiving
         approximately $2,286,000 of rentals on non-cancelable leases (inclusive
         of  amounts  which may be  set-off  by  lessees  against  basic rent as
         reimbursement for certain  modifications  required under the applicable
         leases).

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

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

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

         On November 14, 1997, First Security Bank, National Association, acting
         not in its  individual  capacity,  but solely as trustee  under a trust
         agreement in which the  Partnership is  beneficiary,  filed a complaint
         for declaratory judgment in the United States District Court,  Southern
         District  of New  York.  The  complaint  sought  interpretation  of the
         language under the lease regarding return  conditions for the aircraft.
         In December 1997, the foregoing  action was settled and Aloha agreed to
         satisfy certain return  conditions of the lease.  The Partnership  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 six month periods ended June 30,
         1998 as  compared  to the three and six month  periods  ended  June 30,
         1997, principally due to the gain on sale of the Southwest Aircraft and
         the Aloha Aircraft in 1998 which aggregated approximately $3,613,000 as
         compared to a gain on sale of another Aloha  Aircraft of  approximately
         $632,000 during the six months ended June 30, 1997.

         Revenues  decreased  overall for the three and six month  periods ended
         June 30, 1998 compared to the corresponding  periods of the prior year.
         Rental income  decreased  due to reduced  rentals from the Aloha lease,
         certain  aircraft  leased to  Continental  (as of  December 1, 1997) at
         lower rates and the expiration of a lease with  Southwest  Airlines Co.
         Interest income increased due to larger balances of undistributed  cash
         available for investment.

         Expenses  decreased  for the three and six month periods ended June 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 Aloha  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 another  Boeing 737 aircraft
         which was off lease since January 1998 and sold on March 31, 1998.


<PAGE>


PART II - OTHER INFORMATION



ITEM 1.        LEGAL PROCEEDINGS

               None.

ITEM 6.        EXHIBITS AND REPORTS ON FORM 8-K

(a)            Exhibits:  None.
(b)            Reports on Form 8-K:  None.



<PAGE>




                                   SIGNATURES


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



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




                               /s/  Richard Sabella
                               --------------------
                                    Richard Sabella
                                    President





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




Date: August 7, 1998