FORM 10-Q
                  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                        Quarterly or Transitional Report

                     U.S. Securities and Exchange Commission
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)

_X_   QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR  15(D)  OF THE  SECURITIES
      EXCHANGE ACT OF 1934

      For the quarterly period ended October 31, 1998

___   TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15(D)  OF THE  SECURITIES
      EXCHANGE ACT OF 1934)

      For the transition period from___________ to ____________

                         Commission File Number 0-21995

                          First Aviation Services Inc.
                          (Exact name of registrant as
                            specified in its charter)

          Delaware                                           06-1419064
 (State or other jurisdiction                              (I.R.S. Employer
of incorporation or organization)                          Identification No.)

             15 Riverside Avenue, Westport, Connecticut, 06880-4214
                    (Address of principal executive offices)

                                 (203) 291-3300
                           (Issuer's telephone number)

              ____________________________________________________
              (Former name, former address and formal fiscal year,
                         if changed since last report)

Indicate by check mark whether the registrant (1) 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__

APPLICABLE  ONLY  TO  ISSUERS  INVOLVED  IN  BANKRUPTCY  PROCEEDING  DURING  THE
                              PRECEDING FIVE YEARS

Indicate by check mark whether the  registrant  filed all  documents and reports
required to be filed by Section 12, 13 or 15(d) of the  Securities  Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes __ No__

                      APPLICABLE ONLY TO CORPORATE ISSUERS

The number of shares outstanding of the registrant's common stock as of December
10, 1998 is 8,986,647 shares.

<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

                          First Aviation Services Inc.
                           Consolidated Balance Sheets
                      (in thousands, except share amounts)

                                                      October 31,    January 31,
                                                         1998           1998
                                                      ----------     -----------
Assets                                                (unaudited)
Current assets:
   Cash and cash equivalents                           $   137         $   237
   Trade  receivables,  net of                                       
   allowance for doubtful accounts of                                
   $409 and $346 at October 31, 1998                                 
   and January 31, 1998                                 28,945          27,841
   Inventories, net                                     48,173          43,311
   Deferred income taxes                                 2,381           2,381
   Prepaid expenses and other                            2,142           1,624
                                                       -------         -------
Total current assets                                    81,778          75,394
                                                                     
Plant and equipment, net                                 8,485           5,027
Goodwill, net                                            1,856           1,873
Other assets                                               113             229
                                                       -------         -------
                                                       $92,232         $82,523
                                                       =======         =======
Liabilities and stockholders'                                        
   equity 
Current liabilities:                                       
   Accounts payable                                    $16,926         $14,106
   Accrued compensation and                                          
     related expenses                                    1,781           2,146
   Other accrued liabilities                             3,190           2,631
   Income taxes payable                                  1,948           2,776
   Short term line of credit                             4,950            --
                                                       -------         -------
Total current liabilities                               28,795          21,659
                                                                     
   Revolving line of credit                             16,460          13,866
   Capital lease obligation                                145            --
   Minority interest                                     1,041           1,041
                                                       -------         -------
Total liabilities                                       46,441          36,566

Stockholders' equity:                                                
   Common stock, $0.01 par value,                                    
   25,000,000 shares  authorized,                                    
   8,985,471 and 8,928,925 shares                                    
   issued and outstanding at                                         
   October 31, 1998 and                                              
   January 31, 1998                                         90              89
   Additional paid-in capital                           38,455          38,378
   Retained earnings                                     7,246           7,490
                                                       -------         -------
Total stockholders' equity                              45,791          45,957
                                                       -------         -------
                                                       $92,232         $82,523
                                                       =======         =======
                                                                 
See accompanying notes.


                                       2
<PAGE>

                          First Aviation Services Inc.
                Consolidated Statements of Operations (Unaudited)
                      (in thousands, except share amounts)

                                                          Three months ended
                                                              October 31,
                                                          1998           1997
                                                      -----------    -----------
Net sales                                              $   39,331     $   39,543
Cost of sales                                              32,275         32,784
                                                       ----------     ----------
Gross Profit                                                7,056          6,759
Selling, general and administrative
   expenses                                                 5,415          4,329
                                                       ----------     ----------
Income from operations                                      1,641          2,430
Interest expense                                              483            234
Minority interest in subsidiary                                10             11
                                                       ----------     ----------
Income before provision for income taxes                    1,148          2,185
Provision for income taxes                                    344            549
                                                       ----------     ----------
Net income available to
  common stockholders                                  $      804     $    1,636
                                                       ==========     ==========
Basic net income per common share:

Basic net income per common share                      $     0.09     $     0.18
                                                       ==========     ==========
Shares used in the
  calculation of basic net
  income per common share                               8,984,678      8,915,971
                                                       ==========     ==========
Net income per common
  share - assuming
  dilution:

Net income per common
  share - assuming
  dilution                                             $     0.09     $     0.18
                                                       ==========     ==========
Shares used in the
  calculation of net
  income per common
  share - assuming
  dilution                                              9,094,443      9,065,807
                                                       ==========     ==========

See accompanying notes.


                                       3
<PAGE>

                          First Aviation Services Inc.
                Consolidated Statements of Operations (Unaudited)
                      (in thousands, except share amounts)

                                                         Nine months ended
                                                             October 31,
                                                         1998           1997
                                                     -----------    -----------
Net sales                                            $   111,192    $   113,966
Cost of sales                                             92,254         95,849
                                                     -----------    -----------
Gross Profit                                              18,938         18,117
Selling, general and administrative
  expenses                                                15,134         11,175
Restructuring charge                                       1,750           --
Other non-recurring charges                                1,028           --
                                                     -----------    -----------
Income from operations                                     1,026          6,942
Interest expense, net                                      1,337          1,110
Minority interest in subsidiary                               31             29
                                                     -----------    -----------
Income/(loss) before provision/(benefit)
  for income taxes, extraordinary item
  and preferred dividends                                   (342)         5,803
Provision/(benefit) for income taxes                        (103)         1,497
                                                     -----------    -----------
Income/(loss) before extraordinary item                     (239)         4,306
Extraordinary item:
   Loss on early extinguishment of debt
    (net of income tax benefit)                             --             (108)
                                                     -----------    -----------
Net income/(loss)                                           (239)         4,198
Dividends on preferred stock                                --               11
                                                     -----------    -----------
Net income/(loss) available to
  common stockholders                                $      (239)   $     4,187
                                                     ===========    ===========
Basic net income/(loss) per common share:
Income/(loss) before extraordinary item
  available to common stockholders                   $     (0.03)   $      0.52
Extraordinary item                                          --            (0.01)
                                                     -----------    -----------
Basic net income/(loss) per
  common share                                       $     (0.03)   $      0.51
                                                     ===========    ===========
Shares used in the calculation of
  basic net income/(loss)
  per common share                                     8,966,893      8,287,330
                                                     ===========    ===========
Net income per common share - assuming
  dilution:
Income before extraordinary item
  available to common stockholders                       N/A        $      0.50
Extraordinary item                                          --            (0.01)
                                                     -----------    -----------
Net income per common share - assuming
  dilution                                               N/A        $      0.49
                                                     ===========    ===========
Shares used in the calculation of net
  income per common share - assuming
  dilution                                               N/A          8,587,970
                                                     ===========    ===========

See accompanying notes.


                                       4
<PAGE>

                          First Aviation Services Inc.
                Consolidated Statements of Cash Flows (Unaudited)
                                 (in thousands)

                                                        Nine months ended
                                                            October 31,
                                                      1998               1997
                                                    -----------      -----------
Cash flows from operating activities
Net income/(loss)                                      (239)           $  4,198
Adjustments  to  reconcile  net income
  to net cash  provided  by/
  (used in) operating activities:
   Depreciation and amortization                        773                 709
   Extraordinary item, net loss on
      early extinguishment of debt                     --                   108
Changes in assets and liabilities:
   Trade receivables                                 (1,106)             (4,985)
   Inventories                                       (4,863)             (1,416)
   Prepaid expenses and other assets                   (402)               (401)
   Accounts payable                                   2,820              (2,972)
   Accrued compensation and related
    expenses, and other accrued
    liabilities                                         194              (2,279)
   Income taxes payable                                (828)              1,258
   Other non-current liabilities                       --                (1,280)
                                                    -------            --------
Net cash used in operating activities                (3,651)             (7,060)

Cash flows from investing activities
Purchase of assets from former owners,
  including acquisition costs                          --               (11,214)
Purchases of plant and equipment                     (4,028)             (1,251)
                                                    -------            --------
Net cash used in investing activities                (4,028)            (12,465)

Cash flows from financing activities
Net borrowings on short term line of credit           4,950                --
Net borrowings/(repayments) on revolving
   line of credit                                     2,594             (10,719)
Principal payments on capital lease obligation          (42)               --
Repayment of term loans and
   subordinated note                                   --                (4,400)
Proceeds from sale of preferred stock
   of subsidiary                                       --                 1,100
Proceeds from issuance of common stock
   in initial public offering                          --                39,000
Expenses relating to initial public offering           --                (4,486)
Payment of dividends on preferred stock                --                  (231)
Other                                                    77                  70
                                                    -------            --------
Net cash provided by financing
  activities                                          7,579              20,334
Net increase/(decrease) in cash
  and cash equivalents                                 (100)                809
Cash and cash equivalents at
  beginning of period                                   237                --
                                                    -------            --------
Cash and cash equivalents at
  end of period                                     $   137            $    809
                                                    =======            ========
Supplemental cash flow disclosures:
   Interest paid                                    $ 1,067            $  1,327
                                             
   Income taxes paid                                $   730            $   --
                                               
   Acquisition of equipment
     through capital lease                          $   187            $   --

See accompanying notes.


                                       5
<PAGE>

                          First Aviation Services Inc.
        Notes to Condensed Consolidated Financial Statements (Unaudited)
                      (in thousands, except share amounts)

                                October 31, 1998

1. Basis of Presentation

First Aviation Services Inc. ("First  Aviation") and its subsidiaries,  Aircraft
Parts  International  Combs,  Inc.  ("API") and National  Airmotive  Corporation
("NAC"),  (collectively,  the  "Company")  repairs and overhauls  commercial and
military  aircraft  engines and industrial  turbines,  and sells and distributes
aircraft  parts and  components.  The  Company  is  headquartered  in  Westport,
Connecticut.  Customers of the Company  include  passenger  and cargo  airlines,
foreign governments,  U.S. and foreign military services, fleet operators, fixed
base  operators,  certified  repair  facilities  and industrial  companies.  The
accompanying  unaudited  condensed  consolidated  financial  statements of First
Aviation and its  subsidiaries  have been prepared in accordance  with generally
accepted  accounting  principles for interim financial  information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes  required by generally accepted
accounting  principles  for  complete  financial  statements.  In the opinion of
management,  all material  adjustments,  consisting  only of the  elimination of
intercompany balances and transactions, and normal recurring accruals, except as
described in Note 4,  considered  necessary  for a fair  presentation  have been
included  in the  accompanying  unaudited  financial  statements.  In  addition,
certain  amounts for prior periods have been  reclassified to be comparable with
the  current  period  presentation.  Operating  results for the quarter and nine
months ended October 31, 1998 are not necessarily indicative of the results that
may be  expected  for the  full  year  ending  January  31,  1999.  For  further
information, refer to the financial statements and footnotes thereto included in
the Company's Form 10-K for the year ended January 31, 1998, and Proxy Statement
and Notice of Annual Meeting of Stockholders dated August 4, 1998.

2. Inventories

Inventories consist of the following:

                                                     October 31,     January 31,
                                                        1998            1998   
                                                     -----------     -----------
Parts held for manufacturing or resale                 $ 34,158        $ 31,025
Work in-process                                          11,470           8,099
Finished goods                                            4,458           6,566
                                                       --------        --------
                                                         50,086          45,690
Less: allowance for obsolete and
      slow moving inventory                              (1,913)         (2,379)
                                                       --------        --------
                                                       $ 48,173        $ 43,311
                                                       ========        ========
3. Debt

NAC is a party to a credit  agreement that provides for borrowings up to a total
of $40 million,  principally  through a revolving credit facility.  The original
term of the  credit  agreement  is  through  May 15,  1999.  Termination  of the
agreement  prior to that date will  trigger a  prepayment  penalty  of 1% of the
total facility.  Thereafter,  provided that NAC is in compliance with the terms,
conditions  and  covenants  contained  in the credit  agreement,  the  agreement
automatically  renews for  additional  one-year  periods,  and may be terminated
without penalty.

Historically,  management has  classified  these  borrowings as long-term  since
repayment  of the debt has  been  due  more  than one year  from the date of the
Company's  financial  statements and the borrowing base  supporting  this credit
facility always has exceeded  outstanding  borrowings.  Management believes that
the borrowing  base will exceed  borrowings for at least the next twelve months.
Although this facility expires within the next year,  management  intends either
to renew the  current  facility  or  replace it with a new  long-term  facility.
Management  believes  that it has the ability to  refinance  this  facility in a
manner that will not require the use of working capital.  Therefore,  management
will continue to classify this obligation as long-term.


                                       6
<PAGE>

API is a party to a credit  agreement that provides for borrowings up to a total
of $10 million  through a  revolving  credit  facility.  The term of this credit
agreement is through April 1999.  This facility has been classified as a current
liability.

4. Restructuring Charge and Other Non-recurring Charges

On  April  6,  1998,  the  Company  announced  that it had  initiated  a plan to
streamline  and  restructure  operations  at NAC in order to  reduce  costs  and
improve  operating  efficiencies.  In  connection  with this plan,  the  Company
recorded a $1.75 million pre-tax  restructuring charge in the first quarter. The
restructuring  charge  included  $0.85 million in severance  and other  employee
termination  costs related to a reduction in NAC's workforce of approximately 78
people and $0.90 million in inventory  write-downs.  During the quarter and nine
months ended October 31, 1998,  approximately  $0.90 million and $1.75  million,
respectively,  was charged against the  restructuring  reserve for severance and
other employee costs, and to write-down inventory.

In addition,  the Company also recorded  other  non-recurring  charges  totaling
$1.03  million  pre-tax.  The other  non-recurring  charges  consist of costs to
consolidate certain facilities ($0.6) and other charges ($0.43).

5. Earnings/(Loss) per Common Share

The  following  sets  forth  the  computation  of basic  earnings  per share and
earnings per share - assuming dilution.

<TABLE>
<CAPTION>
                                              Three months ended           Nine months ended
                                           ------------------------    --------------------------
                                           October 31,   October 31,   October 31,    October 31,
                                              1998         1997           1998           1997
                                           ----------   -----------    -----------    -----------
<S>                                        <C>          <C>            <C>            <C>        
Numerator:
   Net income/(loss) before
     extraordinary item                    $      804   $     1,636    $      (239)   $     4,306
   Preferred stock dividends                     --            --             --              (11)
                                           ----------   -----------    -----------    -----------
   Numerator for earnings/(loss)
     per share - net income/(loss)
     available to common stockholders
     before extraordinary item                    804         1,636           (239)         4,295

   Effect of extraordinary item,
     net of associated income
     tax benefit                                 --            --             --             (108)
                                           ----------   -----------    -----------    -----------
   Numerator for earnings/(loss)
     per share - net income/(loss)
     available to common stockholders      $      804   $     1,636    $      (239)   $     4,187
                                           ==========   ===========    ===========    ===========
Denominator:
   Denominator for basic earnings/(loss)
     per share - weighted average shares    8,984,678     8,915,971      8,966,893      8,287,330

   Effect of dilutive warrants and
     employee stock options                   109,765       149,836            N/A        300,640
                                           ----------   -----------    -----------    -----------
   Denominator for earnings per
     share - assuming dilution
     - adjusted weighted average
     shares and assumed conversions         9,094,443     9,065,807            N/A      8,587,970
                                           ==========   ===========    ===========    ===========
</TABLE>

For the nine  months  ended  October  31,  1998 net  loss per  share -  assuming
dilution was not presented because the effect of warrants and options would have
been antidilutive.

Stock  options to purchase  shares of common stock at prices  ranging from $6 to
$10 per  share  have been  issued  to  employees  but were not  included  in the
computations  of earnings  per share - assuming  dilution  because the  exercise
price of the  options was greater  than the average  market  price of the common
stock  during  the  periods  presented  and,  therefore,  the  effect  would  be
antidilutive.


                                       7
<PAGE>

Item 2. Management's Discussion and Analysis or Plan of Operation

Safe Harbor  Statement  under the Private  Securities  Litigation  Reform Act of
1995.

Statements  which are not  historical  facts in this report  constitute  forward
looking  statements,  within the  meaning of the Private  Securities  Litigation
Reform Act of 1995. Such forward looking statements,  including those concerning
the Company's expectations, all involve risk and uncertainties,  which may cause
the actual results,  performance or achievements of the Company to be materially
different  from any future  results,  performance  or  achievement  expressed or
implied by such forward looking statements.  Such factors include, among others,
the Company's  ability to obtain parts from its suppliers on a timely basis, the
ability to consummate suitable acquisitions, and other items that are beyond the
Company's  control  and may cause  actual  results to differ  from  management's
expectations.

General

The  Company's  net sales are derived  from the  overhaul and repair of aircraft
engines,  engine  components and industrial  turbines,  and the sale of aircraft
engine and other aircraft parts and  components.  Engines for which overhaul and
repair  services are performed  include those engines used on the C-130 Hercules
aircraft  and a large  variety  of  aircraft  and  helicopters  powered by light
turbine  engines.  Net sales  generally are recorded when repaired or overhauled
engines and  components are  completed,  tested and shipped.  Net sales of spare
parts and components are recorded when parts are shipped.

During the quarter  ended  October 31,  1998,  NAC was awarded a contract by the
United  States Navy for the repair and  overhaul of the  majority of its Allison
T-56 engine fleet that  previously  had been  overhauled  at the Kelly Air Force
Base.  After the initial  one-year term of the  contract,  the Navy may exercise
options to extend the contract for four additional  one-year periods,  depending
upon its needs and NAC's  performance  under this  contract.  Revenues  over the
first  twelve  months of the  contract are  estimated  to be  approximately  $11
million,  and may be as high as $35  million.  The total value of the  contract,
assuming all options are exercised, is estimated to range from approximately $65
million to $189  million.  The Company  will  commence  work under the  contract
during the fourth quarter of the current fiscal year.

In connection  with the  scheduled  closure of the  Propulsion  Business Area of
Kelly Air Force  Base in San  Antonio  Texas,  the  United  States Air Force had
decided to bundle the  workload for the T-56 engine along with that of the TF-39
and F-100 aircraft engines into one solicitation. On November 12, 1998 NAC filed
a complaint in the United  States  District  Court for the  Northern  California
District seeking declaratory and injunctive relief to prevent the Air Force from
proceeding  with the award of or performance  on a contract.  NAC has challenged
the Air Force's  decision to bundle the depot  engine and  overhaul  maintenance
requirements for the three unrelated engines into one solicitation. NAC has also
alleged that the Air Force has violated the Small Business  Reauthorization  Act
of 1997, the Competition in Contracting  Act and the 1998 Defense  Authorization
Act. On December 4, 1998 the Air Force moved for  dismissal of the complaint and
for summary  judgement  against  NAC. A hearing on the motion is  scheduled  for
January 9, 1999.

During the quarter ended October 31, 1998, the Company,  upon the  authorization
of an independent member present at a meeting of the Board of Directors, entered
into an advisory  agreement with a related party,  First Equity Development Inc.
("First  Equity").  Pursuant to the  agreement,  First  Equity is to provide the
Company  investment  and  financial  advisory  services  relating  to  potential
acquisitions  and other  financial  transactions.  The  agreement  runs  through
February 1, 2000 but may be  terminated  by either  party upon  30-days  written
notice to the other.  Under the terms of the  agreement,  the Company will pay a
fee to First Equity for the successful  completion of certain  transactions (the
"Success Fee"), and will reimburse First Equity for its out-of-pocket  expenses.
The amount of the Success Fee will be established by the independent  members of
the  Board of  Directors  and  will be  dependent  upon a  variety  of  factors,
including,  but not limited to, the scope of the  services to be  provided,  the
size and type of  acquisition,  and the successful  completion of a transaction.
The  agreement  requires  the  Company  to pay First  Equity a  $30,000  monthly
retainer  effective  February 1, 1998,  which can be applied as a credit against
the  Success  Fee,  subject to certain  limitations.  During the  quarter  ended
October 31, 1998 the Company paid First Equity retainer fees totaling  $270,000,
all of which can be applied against the Success Fee.

The Company  previously  reported that NAC was in  discussions  with the Allison
Engine  Company  ("Allison"),  its  principal  supplier,  to  renew  two  of its
Authorized  Maintenance  Center  Agreements (the "AMC  Agreements").  During the
quarter ended July 31, 1998, NAC and Allison signed new AMC Agreements effective
retroactive to May 1, 1998 covering the Model 250 and Model T56/501 engines. The
new AMC Agreements, both of which expire on December 31, 2000, contain terms and
conditions similar to the expired agreements. The renewal fee for each agreement
was one dollar.


                                       8
<PAGE>

On  April  6,  1998,  the  Company  announced  that it had  initiated  a plan to
streamline  operations and improve efficiency at NAC (the  "Restructuring").  In
accordance with this plan, the Company recorded a pre-tax  restructuring  charge
of approximately  $1.75 million in the first quarter.  In addition,  the Company
recorded other non-recurring charges of approximately $1.03 million pre-tax. The
Company  had  estimated  that  annual  savings  from  the  Restructuring   would
approximate $3.4 million on a pre-tax basis. Through October 31, 1998 management
estimates that actual savings from the date of the  restructuring  are in excess
of $3.0 million.

The  Restructuring  included the  consolidation of a substantial  portion of the
Light  Turbine  business  unit to the  Long  Beach,  California  facility.  This
consolidation  is expected to bring  increased  efficiency and focus, as well as
improved customer service. The Light Turbine business unit will continue to have
its headquarters in Oakland, California.

The Restructuring also included the elimination of approximately 78 positions at
the  Oakland  facility.  The  reduction  in force at  Oakland  was the result of
softness in the Large Flight Engine  business unit as well as the  consolidation
of the Light Turbine operations. The Large Flight Engine business unit's Allison
Model T-56  repair and  overhaul  business  had slowed due to the  deteriorating
financial  situation in Asia and a postponement of inputs from customers located
primarily in Middle Eastern countries.

On March 5, 1997, the Company  completed an initial public offering of 3,900,000
shares of common stock, $0.01 par value per share (the "Offering").  The Company
received net proceeds of approximately $34.5 million after deducting expenses of
approximately $4.5 million.  The net proceeds were used for, among other things,
the repayment of term and  subordinated  debt, a paydown of the Company's credit
facility  (for a total  debt  reduction  of $22.6  million),  payment of accrued
dividends on preferred  stock ($0.2  million),  and the  acquisition of Aircraft
Parts  International (the "API Business") from AMR Combs, Inc. ("AMR Combs") for
$10.6 million.

Results of Operations

Net Sales

Net sales for the quarter ended  October 31, 1998  decreased  $0.2  million,  or
0.5%, to $39.3 million from $39.5 million in the quarter ended October 31, 1997.
Net sales from parts and components increased 5.3% from the comparable period of
the prior  fiscal  year while net sales  from  repair  and  overhaul  activities
decreased 6.0% from the comparable period of the prior fiscal year. API has been
growing at double-digit  rates since it was acquired during the first quarter of
the last fiscal year.  API's rapid growth rate has been sufficient to offset the
weakness in net sales at NAC.

Net sales for the nine months ended October 31, 1998 decreased $2.8 million,  or
2.4%,  to $111.2  million from $114.0  million for the nine months ended October
31, 1997. Net sales of parts and  components  increased 7.5% over the comparable
period of the prior fiscal year.  Net sales of parts and components for the nine
months ended October 31, 1998 were favorably  impacted by the inclusion of API's
results for a full nine months, as compared to approximately eight months in the
comparable  period of the prior fiscal year.  Net sales from repair and overhaul
activities decreased 9.8% from the nine months ended October 31, 1997.

Cost of Sales

Cost of sales for the quarter ended October 31, 1998 decreased $0.5 million,  or
1.6%, to $32.3 million from $32.8 million in the quarter ended October 31, 1997.
As a percentage of net sales,  cost of sales  decreased 0.8% to 82.1% from 82.9%
in the quarter ended October 31, 1997.  The decrease in cost of sales was due to
lower  overall  sales  volume,  the  positive  impact of the  Restructuring  and
improvements in margins at both API and NAC. In addition,  API is a distribution
business and, as is typical in such  businesses,  incurs less direct labor costs
than a company such as NAC that performs  engine  repair and overhaul  services,
which require a larger potion of direct labor cost.

For the nine  months  ended  October  31,  1998,  cost of sales  decreased  $3.6
million,  or 3.8%, to $92.3 million from $95.8 million for the nine months ended
October 31, 1997. As a percentage of net sales,  cost of sales decreased 1.1% to
83.0% from 84.1% for the nine months ended October 31, 1997. The decrease in the
percentage  of cost of sales to net sales was due to lower overall sales volume,
the positive impact of the Restructuring and improvements in margins at both API
and NAC. In addition,  API is a distribution business and, as is typical in such
businesses,  incurs  less  direct  labor  costs than a company  such as NAC that
performs engine repair and overhaul services,  which require a larger portion of
direct labor cost.


                                       9
<PAGE>

Gross Profit

Gross profit for the quarter ended October 31, 1998 increased  $0.3 million,  or
4.4%,  to $7.1 million from $6.8 million in the quarter  ended October 31, 1997.
As a percentage of net sales, gross profit increased 0.8% to 17.9% from 17.1% in
the quarter ended October 31, 1997.  The increase in gross profit was due to the
positive impact of the  Restructuring  and the increase in the proportion of the
Company's  net sales of parts and  components  relative to net sales from repair
and overhaul activities.

For the nine months ended October 31, 1998 gross profit  increased $0.8 million,
or 4.5%,  to $18.9  million from $18.1 million for the nine months ended October
31, 1997. As a percentage  of net sales,  gross profit  increased  1.1% to 17.0%
from 15.9% for the nine months  ended  October  31,  1997.  The  increase in the
percentage  of gross profit to net sales also was due to the positive  impact of
the  Restructuring  and an increase in the proportion of the Company's net sales
of  parts  and  components  relative  to net  sales  from  repair  and  overhaul
activities.

Selling, General and Administrative Expenses

Selling,  general and administrative  expenses for the quarter ended October 31,
1998 increased $1.1 million,  or 25.6%, to $5.4 million from $4.3 million in the
quarter  ended  October 31,  1997.  Approximately  82% of the increase is due to
costs  associated  with  API's  growth,  including  the  operation  of API's new
facility,  additional  advertising  and marketing costs incurred by both API and
NAC to pursue new business opportunities,  and legal and other costs incurred in
connection  with the  Company's  protest  of the U.S.  Air  Force's  acquisition
strategy for the  privatization of the Kelly Air Force Base Propulsion  Business
Area ("Kelly PBA").

For the nine months ended October 31, 1998, selling,  general and administrative
expense increased $3.9 million,  or 34.8% to $15.1 million from $11.2 million in
the nine months  ended  October 31, 1997.  Approximately  86% of the increase is
attributable  to the  inclusion  of API's  results  for a full nine  months,  as
compared to  approximately  eight months in the  comparable  period of the prior
fiscal year,  costs  associated  with API's  growth,  including the operation of
API's new facility,  additional advertising and marketing costs incurred by both
API and NAC to pursue  new  business  opportunities,  and legal and other  costs
incurred  in  connection  with the  Company's  protest of the U.S.  Air  Force's
acquisition strategy for the privatization of the Kelly Air PBA.

As API  maintains its rapid rate of growth,  management  expects  that  selling,
general and administrative costs will increase accordingly.

Interest Expense

Interest  expense for the quarter ended October 31, 1998  increased $0.3 million
to $0.5  million from $0.2 million in the quarter  ended  October 31, 1997.  The
increase was attributable  principally to higher average  borrowings under NAC's
credit facility as a result of increased  working capital needs,  and borrowings
to support growth and increased service levels at API.

Interest  expense for the nine months  ended  October  31, 1998  increased  $0.2
million to $1.3 million from $1.1 million for the comparable period of the prior
fiscal  year.  The  increase  was  attributable  principally  to higher  average
borrowings under NAC's credit facility as a result of increased  working capital
needs, and borrowings to support growth and increased service levels at API.

Provision/(Benefit) for Income Taxes

Management  estimates  that  the  Company's  effective  income  tax rate for the
quarter and nine months ended October 31, 1998 is 30%. The effective  income tax
rate for the  quarter  and nine  months  ended  October  31,  1997 was 25%.  The
Company's  effective tax rate is less than statutory  rates due to benefits that
the  Company  expects to derive  from the  implementation  of certain tax saving
strategies.

Net Income/(Loss)

For the  quarter  ended  October  31,  1998 net  income was  approximately  $0.8
compared to $1.6 million for the comparable period of the prior fiscal year. The
decrease in net income was due to the factors described above.

The  Company  incurred  a net loss of $0.2  million  for the nine  months  ended
October 31, 1998 after the Restructuring charge and other non-recurring  charges
totaling $2.8 million pre-tax. This compares to net income of approximately $4.2
million for 


                                       10
<PAGE>

the  comparable  period of the prior  fiscal  year.  (Results for the prior year
include an extraordinary  item and preferred  dividends  totaling $0.1 million.)
The decrease is due to the factors described above.

Extraordinary Item

No  extraordinary  charge was  incurred  during the three and nine months  ended
October  31,  1998.  During the nine months  ended  October 31, 1997 the Company
recorded an extraordinary  charge of $0.1 million,  net of associated income tax
benefit. The extraordinary charge reflected a write-off of costs associated with
the early extinguishment of certain debt.

Liquidity and Capital Resources

The Company's  liquidity  requirements  arise primarily from its working capital
needs, principally inventory and trade receivables, and investments in plant and
equipment.

The Company's cash used in operations for the nine months ended October 31, 1998
was $3.7 million, compared to $7.1 million for the nine months ended October 31,
1997.  Cash used in  investing  activities  during  these same  periods was $4.0
million and $12.5 million,  respectively.  Investment activities during the nine
months ended  October 31, 1998  consisted  entirely of the purchase of machinery
and equipment,  while cash used in investing  activities  during the nine months
ended  October 31, 1997 was due almost  entirely to the  acquisition  of the API
Business.  Cash generated by financing  activities  during the nine months ended
October 31, 1998 was $7.6 million, compared to $20.3 million for the nine months
ended October 31, 1997. Cash generated by financing  activities  during the nine
months ended  October 31, 1997  includes the  positive  impact of the  Offering,
offset by debt repayments of approximately $18.7 million.

The Company has not declared or paid any cash dividends or  distributions on its
common  stock  since  its  inception.  The  Company  anticipates  that,  for the
foreseeable  future,  all  earnings  will be retained  for use in the  Company's
business and no cash dividends will be paid on the common stock.  Any payment of
cash  dividends  on the common  stock in the future will be  dependent  upon the
Company's financial  condition,  results of operations,  current and anticipated
cash requirements,  plans for expansion,  the ability of its subsidiaries to pay
dividends  or  otherwise  make cash  payments or advances to First  Aviation and
restrictions,  if any,  under  any  future  debt  obligations,  as well as other
factors that the Board of  Directors  deems  relevant.  Further,  the  Company's
current  credit  facilities  prohibit the payment of cash  dividends from either
subsidiary  to First  Aviation,  except with the lender's  consent,  and contain
other covenants and restrictions.

Borrowings under NAC's $40.0 million credit facility totaled approximately $16.5
million at October 31,  1998.  During the  quarter  ended  April 30,  1998,  API
entered into a new $10.0 million revolving credit facility. At October 31, 1998,
borrowings under this facility approximated $5.0 million.

The initial term of NAC's credit facility is through May 15, 1999. A termination
prior  to that  date  will  trigger  a  prepayment  penalty  of 1% of the  total
facility.  Thereafter,  provided  that  NAC is in  compliance  with  the  terms,
conditions  and  covenants  contained  in the credit  agreement,  the  agreement
automatically  renews for  additional  one-year  periods,  and may be terminated
without  penalty.  Historically,  management has classified  these borrowings as
long-term  since  repayment of the debt has been due more than one year from the
date of the Company's  financial  statements,  and the borrowing base supporting
this credit  facility  always has exceeded  outstanding  borrowings.  Management
believes that the borrowing  base will exceed  borrowings  for at least the next
twelve months.  Although this facility expires within the next year,  management
intends  either  to  renew  the  existing  agreement  or  replace  it with a new
facility.  Management  believes  that the Company has the ability to replace the
facility  in a  manner  that  will  not  require  the  use of  working  capital.
Therefore, management continues to classify this obligation as long-term.

In connection  with the  acquisition  of the API Business,  AMR Combs  purchased
10,407 shares of API Series A Cumulative Convertible Preferred Stock, $0.001 par
value,  with  dividends  payable  quarterly  at $4.00 per share (the  "Preferred
Stock").  In  addition,  First  Aviation,  API  and  AMR  Combs  entered  into a
Stockholders  Agreement.  Pursuant to this  agreement,  AMR Combs agreed that it
would not sell its  shares of the  Preferred  Stock or the  shares of API common
stock into  which the  Preferred  Stock is  convertible  (collectively  the "API
Acquisition  Shares") for a minimum period of three years.  API has the right to
redeem the API Acquisition  Shares at any time. AMR Combs has the right to cause
API to repurchase the API Acquisition  Shares  commencing  three years after the
closing of the acquisition of the API Business. The redemption price is equal to
the  fair  market  value  of the API  Acquisition  Shares  as  determined  by an
independent  appraisal.  The Stockholders  Agreement also contains certain other
rights,  including:  (i) a right of first refusal on the part of First  Aviation
with respect to any proposed sale of the API Acquisition  Shares, (ii) the right
of First Aviation to require AMR Combs to participate, on a pro rata basis, with
it in the sale of the capital stock of API to a third party,  (iii) the right of
AMR  Combs to  elect to  participate,  on a pro rata  basis,  in the sale of the
capital  stock  of  API  to  a  third  party,  and  (iv)  piggyback  and  demand
registration  rights  granted to AMR Combs with  respect to the API  Acquisition
Shares.  The demand  registration  rights are not 


                                       11
<PAGE>

exercisable  until three years after the closing of the  acquisition  of the API
Business,  and, if API has not previously closed an underwritten public offering
of its  common  stock  at the time AMR  Combs  elects  to  exercise  its  demand
registration  rights,  API may elect to treat the demand as an  exercise  by AMR
Combs of its put  option  with  respect  to the API  Acquisition  Shares.  First
Aviation  has no  plans  to  cause  API to  conduct  a  public  offering  of its
securities.

Based upon current and anticipated  levels of operations,  the Company  believes
that borrowings  available under the existing lines of credit will be sufficient
to  meet  its  current  and  anticipated  cash  operating  requirements  for the
foreseeable future, including scheduled interest and principal payments, capital
expenditures, the acquisition of the Preferred Stock, and working capital needs.

Year 2000 

The Company is  currently  working to resolve the  potential  impact of the Year
2000  on  the  processing  of   date-sensitive   information  by  the  Company's
computerized  information  systems.  The Year  2000  problem  is the  result  of
computer  programs  being written using two digits  (rather than four) to define
the  applicable  year.  Any of the  Company's  programs  and  systems  that have
time-sensitive  software may be unable to interpret  dates beyond the year 1999.
This could result in miscalculations and/or system failures, causing disruptions
of operations controlled by such systems or devices.

The Company and each of its operating subsidiaries have conducted  comprehensive
reviews of their systems and have developed plans to address any possible issues
related to the impact of the Year 2000  problem on both  information  technology
("IT") and non-IT systems (e.g., embedded  technology).  These plans address the
Year 2000  issue in  multiple  phases,  including  (i)  determining  an  initial
inventory of the  Company's  systems,  equipment,  vendors,  customers and third
party  administrators  that may be vulnerable  to system  failures or processing
errors as a result of Year 2000  issues,  (ii)  assessing  and  prioritizing  of
inventoried  items to determine  risks  associated with their failure to be Year
2000  compliant,  (iii) testing of systems and equipment to determine  Year 2000
compliance,  and (iv)  remediating and implementing  systems and equipment.  For
those  systems  which  the  Company  determines  are  not  currently  Year  2000
compliant,  implementation  of the required  changes is expected to be completed
during the next fiscal year.

As of October 31, 1998 all critical  hardware and software  systems  utilized by
the Company have been tested  and/or  verified as either Year 2000  compliant or
appropriate remediation was taken or will be taken to effect compliance. Certain
non-critical  software systems were determined not to be Year 2000 compliant and
have been or will be modified or converted to compliant  systems.  Conversion of
additional  non-critical  systems is in  process.  Testing  systems  utilized to
verify  compliance  include  the  posting  to the  systems of a date on or after
January 1, 2000 as though the date were effective. The Company has tested nearly
all  of  its  critical  IT  and  non-IT   systems.   Any  necessary   additional
modifications  or replacements  are scheduled to be completed  during the fourth
quarter of fiscal year 1999 and the first two quarters of fiscal year 2000.

The Company is in the process of contacting  its major  suppliers and vendors to
assess their status relating to Year 2000 readiness and/or  compliance,  and the
potential  impact on  operations  if such third  parties are not  successful  in
ensuring  that their  systems are Year 2000  compliant in a timely  manner.  The
Company  could  suffer  potential  business  interruptions  and/or  incur costs,
damages or losses related  thereto,  if other third parties such as governmental
agencies (e.g.,  Federal Aviation  Administration)  are not Year 2000 compliant.
The Company is unable to determine  at this time  whether it will be  materially
affected by the failure of any of its suppliers,  vendors or other third parties
to be Year 2000 compliant.

A failure by the Company,  its major  suppliers  or vendors,  or any third party
with which the Company  interacts,  to resolve a material  Year 2000 issue could
result in the interruption in, or failure of, certain normal business activities
or operations and could materially and adversely affect the Company's  financial
condition,  results of  operations  and cash  flows.  The  Company is  currently
assessing  those  scenarios in which  unexpected  failures could have a material
adverse effect on the Company and anticipates  that it will develop  contingency
plans, as deemed  appropriate,  designed to deal with such  scenarios.  Based on
current  plans and  assumptions,  the Company does not expect that the Year 2000
issue will have a material  adverse impact on the Company as a whole. Due to the
general uncertainty  inherent in the Year 2000 issue,  however,  there can be no
assurance  that all Year 2000 issues will be foreseen and  corrected on a timely
basis, or that no material  disruption to the Company's business operations will
occur.  Further,  the Company's  expectations  are based on the assumption  that
there will be no general failure of external local,


                                       12
<PAGE>

national or international  systems  (including  power,  communications,  postal,
transportation,  or financial  systems)  necessary  for the ordinary  conduct of
business.

Costs  associated  with the Company's  Year 2000  compliance  effort,  including
consulting  costs and costs  associated  with internal  resources used to modify
existing  systems  in order to  achieve  Year 2000  compliance,  are  charged to
expense as incurred.  Management estimates that the expenditures relating to the
Company's Year 2000 compliance effort will total approximately $400,000. Through
October 31, 1998 management estimates that approximately $200,000 has been spent
addressing  this issue.  The remainder is expected to be spent over the next two
to three quarters.  The Company does not separately  track internal costs of the
Year 2000 compliance  effort. The anticipated costs of the project and the dates
on which the Company believes it will complete the Year 2000  modifications  and
assessments  are  based on  management's  best  estimates,  which  were  derived
utilizing  numerous  assumptions  of  future  events,  including  the  continued
availability  of  certain  resources.  There  can  be no  guarantee  that  these
estimates will be achieved and actual results could differ materially from those
anticipated.  Specific  factors  that  might  cause  such  material  differences
include,  but are not limited to, the availability and cost of personnel trained
in this area and the  ability  to  locate  and  correct  all  relevant  systems.
Management  does not expect the financial  impact of making the required  system
changes to be material to the Company's overall consolidated financial position.



                                       13
<PAGE>

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company's business exposes it to possible claims for personal injury,  death
or property  damage  which may result from a failure of engines  serviced by the
Company or spare parts sold by it. The Company takes what management believes to
be adequate  precautions to ensure the quality of the work the Company  performs
and the  traceability  of the aircraft  spare parts which it sells.  The Company
maintains what, in the opinion of management, is adequate liability insurance to
protect the Company from such claims.

On August 31, 1998 the Company  was served with a complaint  asserting  wrongful
death claims deriving from the crash of a Nomad 24 type aircraft on February 12,
1996 in  Port-au-Prince,  Haiti. The complaint was filed with the district court
of Harris  County,  Texas on February 12, 1998. The complaint is very similar to
that which the  Company  received  in March 1998 and which has  previously  been
described in Form 10K as filed.

In December 1997, NAC was added as a defendant to an amended  complaint filed in
Superior   Court,   Los  Angeles   County,   California,   by  plaintiff,   H.S.
Hubscrauberservice,  wherein  they  asserted  claims  based upon fraud,  deceit,
negligent  misrepresentation  and breach of express and implied warranty against
non-NAC defendants deriving from the sale of an allegedly defective  helicopter.
The  plaintiff  has  asserted  that NAC is liable as a successor  in interest to
California Airmotive Group and other non-NAC corporate defendants. On August 28,
1998, the Superior Court for Los Angeles County dismissed the plaintiff's claims
against NAC for fraud, deceit, negligent misrepresentation and breech of implied
warranty.  NAC sought to dismiss the remaining  portion of the  complaint  which
asserts express  warranty  claims,  but its motion was denied.  A trial date has
been set for January 25, 1999. The Company maintains product liability  coverage
which,  while providing  coverage for certain litigation costs, does not provide
coverage for warranty claims.

In 1997, a former  director and officer of the Company  initiated  litigation in
the Alameda County Superior Court,  California,  against the Company, NAC, Aaron
P.  Hollander,  Michael C. Culver,  First Equity and First Equity Group Inc. FAS
Inc.  also was named as a defendant in October  1998.  This  litigation  alleges
wrongful termination,  breach of contract, and various acts of fraud, deceit and
misrepresentation  and seeks  various  damages,  as well as common shares of the
Company.  This  litigation  relates to the  termination of the employment of the
plaintiff  by the  Company,  NAC and  First  Equity,  and  compensation  matters
relating to employment  of plaintiff and the claim by plaintiff of  entitlements
to a portion of the outstanding shares of the Company.

On October  23,  1998,  the  defendants  served  and filed a motion for  summary
judgment  seeking  dismissal of all of the  plaintiff's  claims.  On November 4,
1998,  the Court denied the  defendants'  motion.  A trial date has been set for
February 11, 1999.

While the Company cannot predict the outcome of these matters, in the opinion of
management,  any  liability  arising from these matters will not have a material
effect on the Company's financial  position,  liquidity or results of operations
after giving effect to provisions already recorded.

Item 2. Changes in Securities

NONE

Item 3. Defaults Upon Senior Securities

NONE


                                       14
<PAGE>

Item 4. Submission of Matters to a Vote of Security Holders

At the Company's Annual Meeting of Shareholders  held on September 23, 1998, the
following proposals were adopted by the margins indicated.

      (1)   To elect two directors for a term to expire at the Annual Meeting of
            Shareholders in the year 2001.

                                               Votes For          Votes Withheld
                                               ---------          --------------
             Michael C. Culver                 8,877,832              13,227
             Robert L. Kirk                    8,877,832              13,227
                                      
            Joshua S. Friedman,  Aaron P. Hollander,  Robert L. Kirk and John A.
            Marsalisi  continued to serve as directors of the Company  after the
            annual meeting of shareholders.

      (2)   To ratify  the  appointment  of Ernst & Young  LLP as the  Company's
            independent auditors for the fiscal year ended January 31, 1999.

                     Votes For             Votes Against         Votes Abstained
                     ---------             -------------         ---------------
                     8,886,400                3,500                   1,159

Item 5. Other Information

NONE

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits.

Exhibit
Number                       Description of Exhibit
------                       ----------------------
10.40             Advisory  Agreement  between First  Aviation  Services Inc.
                  and First Equity  Development Inc., dated September 23, 1998.

27.1              Financial Data Schedule

(b) Reports on Form 8-K.

NONE


                                       15
<PAGE>

                                   SIGNATURES

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

                                           First Aviation Services Inc.
                                                  (Registrant)

Date: December 14, 1998                   /s/ Michael C. Culver
                                          --------------------------------------
                                          Michael C. Culver,
                                          President, Chief Executive Officer and
                                          Director (Principal Executive Officer)


Date: December 14, 1998                   /s/ John A. Marsalisi
                                          --------------------------------------
                                          John A. Marsalisi,
                                          Vice  President,  Secretary,  Director
                                          and Chief Financial Officer (Principal
                                          Financial and Accounting Officer)


                                       16