Pals Skinny, Danny Graham, Peewee, Algy Reynolds, and Scruno all work at Reynolds Aviation Company, run by Mr. Reynolds, [Herbert Rawlinson]. Muggs McGinnis, [Leo Gorcey], is the only one of the kids who refuses to work, though he still ferries the group to the airfield in his jalopy. At the hangar, Muggs flirts with a flight nurse named Helen Munson, [Joan Barclay], who is in love with her test pilot boyfriend, Tom Lawson, [Dave O'Brien].
One day, when Tom's aircraft crashes at the airstrip, Reynolds suspects sabotage by saboteurs. Later, at the airfield, Muggs jokily assigns himself as the new operator of the flying ambulance owned by Dr. Nagel, [George Pembroke], and gives his pals a tour of the aircraft. Their playful tour is halted when Nagel, the secret leader of a spy ring, angrily orders the group off his aircraft.
Mr. Reynolds, certain that spies are at work, asks Danny to act as a decoy so that the spies can be identified, and has him deliver to a downtown office a fake set of plans for a new bombsight. As Reynolds predicted, Nagel's men ambush Danny on his way to the office, but the plan goes awry when the detectives sent to trail Danny lose him. Danny eventually turns up unharmed some time later. When Muggs reports to Reynolds his suspicions that Nagel is behind the espionage ring, Reynolds dismisses the accusation as a product of the boy's imagination.
Not convinced by Reynolds that Nagel is innocent, Muggs and Danny begin their own investigation into Nagel, starting with a visit to the doctor on the pretext of a fake ailment. The visit turns up nothing, however, and when Danny and Muggs return to the hangar, a suspicious “accident” that was apparently meant to harm them leaves Peewee injured. While Peewee recovers at the hospital, Tom nearly loses his life when he is unable to make contact with the control tower for a landing. The controller is later found bound and gagged in the tower, prompting the kids to resume their investigation in earnest.
Helen provides the gang with further clues when she confirms that the ambulance plane was being flown on many unusual trips to Mexico, supposedly to deliver patients. When Helen tells the East Side Kids that a man named Forbes is the next “patient” to be transported, they rush to his house, where they find secret plans hidden in his head bandage. Disguising Danny as the transportee, the kids send Danny and Muggs on the flight to learn who is behind the espionage ring. Danny and Muggs soon find themselves in trouble, however, when Nagel, having found Forbes locked in his closet, tries to warn the pilot of the boys' ruse.
Meanwhile, Tom learns of the dangerous mission and goes after the flying ambulance in his own aircraft. Tom arrives in Mexico in time to save Danny and Muggs, and all the spies are arrested. Back at the plant, Reynolds rewards Muggs for his heroism by giving him a job as his driver, but his stint there is short-lived as he is soon distracted by a pretty woman and crashes the car with Reynolds in it.
